This isn’t the first time that Hondo Railway has experienced an energy boom. But it might be the one with the biggest impact on the 32-year-old company.
“This is Texas. Oil booms come and go, so there’s a cautious approach to how long it will last, or if it’s here to stay,” says Miles Lee, vice president of operations at Hondo Railway.
Five years ago, the transload and short-line railway had 20 employees and 13,000 feet of track on 25 acres just outside of San Antonio, primarily moving food-grade products such as high fructose sweeteners for companies, including ADM.
Today, Hondo Railway has more than 100 employees and 85,000 feet of track on 156 acres. “The Eagle Ford boom hit, and we went from moving 2,500 cars to around 15,000 cars each year,” says Lee.
Lee is referring to the Eagle Ford Shale gas formation, which has been producing oil and natural gas resources since its discovery in 2008. There are 256 wells seeking the 20.81 trillion cubic feet of natural gas and 3.351 billion barrels of oil that is believed to reside in the shale. Hondo Railway has benefited from the boom by hauling sand and drilling mud required for hydraulic fracturing.
Hondo, Texas, isn’t even located in the Eagle Ford Shale. In fact, the entire county of Medina is just north of the 3,000-square-mile formation in South Central Texas. But this doesn’t mean that the area isn’t benefiting from the increased production.
According to a study by the University of Texas at San Antonio Institute for Economic Development, the Eagle Ford Shale generated $19 billion in revenue in 2011, supported approximately 38,000 full-time jobs in the area, and provided $211 million in local government revenue and $312 million in state revenue. The study projects that by the year 2021, the Eagle Ford Shale could produce close to $62.2 billion in output and up to $34 billion in gross regional products.
“One of the benefits for Hondo is that there are all these trucks coming in and out of our facilities every day,” says Lee. “The workers are buying fuel, spending nights in hotels, and eating in restaurants.”
In fact, Texas hotel room revenues jumped to $151.3 million in the first quarter of 2012, and areas related to oil and gas production accounted for a third of that growth, according to the Eagle Ford Consortium, a group organized to collaborate and maximize the benefits of the shale development to the region and its communities. Room counts in 22 counties in the Eagle Ford Shale grew by 5.1% in the 12 months ended March 31, 2012. Hotel revenues in those counties soared by more than 34%. Statewide, room counts expanded by 1.5%, and hotel revenues jumped by 8.5% in that time frame.
La Salle County is right in the middle of the Eagle Ford Shale and is home to Eagle Den Suites, a new 80-room hotel in tiny Cotulla, Texas. Three months before the facility opened in June 2012, it was 60% occupied with six-month leases and has been 100% occupied ever since, says hotel manager Celia Avila.
Eagle Den Suites is one of three identical properties built by South Ridge Management Property in the last year and aims to provide a temporary home for the influx of oil and gas company workers who are operating in the area. The companies pay $109 to $135 a night for the suites, which include two beds, access to washers and dryers and Internet service, and a popular barbecue area, according to Avila.
“There’s probably 50 to 60 oil companies here now, everything from crane companies to water well drillers. Everybody has gotten involved,” says Avila, a local who moved back to Cotulla after 19 years in San Antonio.
The one-stoplight town has changed drastically since Avila has been away. Its population has swelled from 3,300 to 10,000 in the last three years. “The 18-wheeler big truck traffic here is crazy. The trucks line up from one end of the town to the other,” Avila says. “But there’s work being done around here. The roads are being fixed, and the whole town has embraced it.”
From Roller-Coaster Seats to Containment Liners
Embracing change is something that Seth Alberts knows a lot about. He is vice president of Ralph S. Alberts, a family business located in Williamsport, Pennsylvania. Since 1963, Ralph S. Alberts has made custom molded polymers for use in everything from roller-coaster seats to medical training mannequins.
As a member of his local chamber board as well as the economic development board, Alberts began hearing about all the companies benefiting from the development of the Marcellus Shale formation that runs underneath Pennsylvania, New York, West Virginia, and Ohio.
“About five or six years ago when the gas boom started to hit the area, I began thinking about what we could do to get involved without moving out of our comfort zone,” says Alberts. This led to the discovery that there was a need for secondary containment liners to hold the various fluids stored on the drilling sites. Using his background in chemistry, Alberts tweaked an existing formula to develop a heavy-duty, yet flexible, spray-on polymer enclosure to ensure that spills do not contaminate the soil. “Think of it like a spray-in truck bed liner. It’s very similar to that. It’s got integrity and durability properties of the original polymer, but it’s very flexible and can be easily moved.”
Alberts created a separate company, Alberts Spray Solutions, and has 14 employees doing installations for all the major operators in Central and Northeast Pennsylvania. In early 2012, he opened an office in Cambridge, Ohio, which employs 5 people. “As that business continues to grow in 2013, as the Uttica Shale is expected to do, we’ll add more employees,” he says. He’s also in talks to open another office in West Texas.
The economic benefits for Pennsylvania from natural gas development in the Marcellus Shale are already huge and are expected to multiply. A study released by the U.S. Chamber’s Institute for 21st Century Energy says that production of unconventional oil and gas in the state, including the Marcellus Shale, created 102,668 jobs in Pennsylvania in 2012. That number is expected to increase to 220,635 by 2020 and to 387,360 by 2035.
The same study found that Marcellus natural gas production in Pennsylvania added more than $2.9 billion annually in government revenues in 2012. This figure is expected to rise to more than $9.8 billion annually by 2035.
“In all honesty, I’ve grown up here my entire life, and the economic growth this community has seen in the last three years is astonishing to me. And it’s 100% tied to the gas and oil industry,” Alberts says. “We’re the seventh-fastest growing city in the country, and I’m convinced that if the industry was not here, we’d be struggling like other areas in the country are.”
A Bustling Restaurant
Susan Gordon, owner of the WildcatZ Grill in Tioga, North Dakota, knows what it’s like to struggle. The single mom was working two jobs in Newport Beach, California, just to pay bills and raise her family. In January 2012, Gordon moved to Tioga to take over the Wildcatz Grill when the family who owned it accepted a contract to operate an on-site cafeteria at the Hess Corporation, which operates and maintains nearly 150 producing wells in the area.
The 45-seat restaurant and take-out counter does a brisk business, with 10 employees running from tables to kitchen to register to ring up $8 bacon cheeseburgers with names like Wildcat and the Jim Bob. “The menu is small, but it’s the stuff these guys want to eat,” Gordon says about the oil field workers who make up 95% of her business.
Tioga may not have a WalMart (40 miles away) or a Target (80 miles away), but it sits on the Bakken formation, an oil and gas mega-field that spans 14,000 square miles under North Dakota, Montana, and Canada. The connection between Tioga and the Bakken runs deep—the find was named after Henry Bakken, an area famer who owned the land where the formation was initially discovered.
In 2001, North Dakota wells produced 31 million barrels of oil, less than 2% of which came from the Bakken. Ten years later, the state generated a record 152 million barrels, and more than 80% of it was Bakken derived. North Dakota is now the second-largest oil producer in the United States behind Texas. The U.S. Geological Survey says that there are at least 4 billion barrels of recoverable oil, but other estimates indicate that it could be four to five times that.
The growth has brought 71,824 workers, including Gordon, to North Dakota. “This is an opportunity to work as hard as I’m willing to. The hours are long, but if you put in the effort, you get something in return,” says Gordon.
The biggest concern among the people of Tioga is that this latest energy boom may be a “one-shot deal,” she says. “They’ve had booms here before and people are worried about what happens if things die out. The local people don’t want it to be a ghost town again.”
Ms. Poe is a Senior Writer for the U.S. Chamber of Commerce
Link to Shale of the Century