Oil & gas emerging market insights?

Question

Hi All,

Just curious as to whether or not anyone is familiar with the exploding markets in North Dakota and Texas surrounding the new oil and gas extracting technologies?  Some of my contacts are starting to ask me questions.

Any insights?

Jon Holdman · Answer

Fracing?  Hydraulic fracturing?  Yep, definitely not new.  But being applied to some of the US gas fields with a renewed vigor.

Subsidized by China?  Eh?

If you're just referring to the RE and housing aspects, then they might still be opportunities.  Its a boom and bust business.  Booming right now in some areas.  Not sure there's much of an opportunity left, though, on the housing aspect.

I spent 17 years in the exploration and production business.  We had a saying.  "Please, God, let there be another boom.  I promise not to piss it away this time."

Jon Holdman · Answer

Thanks for the article, Mark Updegraff.  Big bucks being paid for acreage.  There's a bunch of this going on here, too, in the northern and western parts of the state.   A friend was telling me he thinks there's an opportunity for buying and then leasing heavy equipment to the drillers.  I had a friend when I lived in Bakersfield who's father in law was in that business and did very well.

This does make me think of some of the previous booms.  Very similar pattern.  Some new type of reservoir is discovered and the technology is able to exploit it.  Everybody and their brother jumps in.  A lot of money is made, but not by everyone involved.  There are some  big winners and some big losers.

Oil and gas fields go through a lifecycle.  They're discovered and measured (the exploration part) and then developed and produced (production).  During the development there a lot of activity when the wells are being drilled, completed (have the equipment installed) and hooked up to pipelines.  At some point, development is completed and the activity level becomes much lower.  Especially for gas, where you don't have the complex pumping equipment you have with oil.  So, if you're going to play this you have to be able to get in and make some cash during that development phase and be ready to move on when the activity dies down.  Its like a construction boom.  If you're going to provide housing for the construction workers, like a lot of the housing some of the boom areas, then you have to have a strategy for what to do with the housing when the constructions workers leave.

Ryan Young · Answer

Starting about a year ago down here in San Antonio, I would read and hear daily media reports on the housing shortage in the Eagle Ford Shale in South Texas.  Now, I read maybe a weekly report about it.

The housing shortage down here in South Texas is still very real from what I am understanding through some contacts in and around San Antonio. The oil boom in the Eagle Ford Shale is still very new and they are expecting production for the next 10-15 years, if not longer.

Account Closed · Answer

Thanks Jon,

Texas may be a play as I've heard that they are in the development process with high expectations of long term growth consistent with Ryan Young's comment.  I've heard some rumors about building so called "man-tels" where the oil and gas companies will lease them out long-term at incredible rates.  So long as there are adequate services providing full room and board connected to these facilities.

Some of my green technology guys are talking about these types of opportunities.

Account Closed · Answer

Thanks for the replies everyone.

I'm looking for the epicenters of activity in these economically emerging areas.  Sounds like the San Antonio area would make the most sense for me to investigate.  It's within a reasonable driving distance.  Does anybody have some more specific insights on the current market conditions there?

Mark Updegraff · Answer

I don't think development will be done in 5 years.  Of course gas concentration probably plays a role.  We're in a very high concentration area and I expect development to continue well past the 5 year mark.

We're entering year 4 and things are still full speed ahead.  I'm also 'in the loop' regarding industry news directly from a number of different dev / production cos.

Jon Holdman · Answer

Its really just the development phase that needs a lot of workers.  Once the wells are drilled and completed, they will produce for a number of years.  They will occasionally require servicing.  But the labor required to operate the working field is much, much less than is required to develop the field.  So, you're not really talking about a significant housing need for 10-15 years (or whatever the lifetime of these fields is, I'm not sure).  You just talking about a few years while the wells are being drilled and completed.  Once that phase is finished, the labor requirements will drop quite a bit.

Ryan Young · Answer

@Jon Holdman makes a great point about a topic that was recently discussed extensively in the inaugural conference of the Eagle Ford Shale Consortium here in San Antonio.  That is what is going to happen when this boom is over?  What is going to happen to all the houses when the oil and gas dry up?

The solution I saw predominately was a plethora of companies moving in to build pre-fab and modular housing which can be built quickly and removed just as quickly.  Companies from all over the U.S. who provide this type of housing are moving in and setting up houses.  RV parks seemed to be popping up everywhere as well but I personally believe people have started to demand a more permanent place since they could be in the area for a longer period of time.

The last thing this area needs is thousands of permanent houses that are vacant in 10-15 years when the oil companies move on.

Mark Updegraff · Answer

Jon Holdman - I agree 100%.  
That is what I'm juggling now.  I have the opportunity to house a lot of workers that will be there for an undefined amount of time.  Currently we're seeing and exodus to OH.  But, a lot has to do with politics and the price of gas.  I think as for housing, the boom can sustain 15 years.  Given my standards and reputation, I think I will outlast other people that don't run their business the way I run mine.  Meaning, as things slow, they will slow last for me, because I provide the BEST service compared to the competition.  After the decrease, there will still be jobs that remain.  Demand will decrease, but it will still be higher than before the boom.  My view is this.  Find cash flowing deals that make sense fundamentally at REASONABLE rates.  I'm not trying to gouge people on rent because of the spike in demand and shortage of supply.  While doing this, I'm looking to get into locations that will be in production at some point, and I'm looking to be holding the OGMs.  They are not part of my CF calculations.  They are the added bonus of making it all happen.

Cheers,
Mark

Mark Updegraff · Answer

Jon Holdman here is the link: http://www.businessweek.com/news/2012-01-18/shale-bubble-inflates-on-near-record-prices-for-untested-fields.html

Oil & gas emerging market insights?

Most Popular Reply