Midland-Odessa Stays Positive, but Oil Price Drop Won’t Be Easy

The falling price of oil is great news for consumers who are saving at the gas pumps, but in the center of the nation’s highest-producing oil field, cheaper gas means the economy’s hurting.

Drilling is already slowing down, and people in Midland-Odessa are turning to their backup plans.

Oil companies in the Permian Basin and across Texas are scaling back, but that doesn’t mean they’re giving up.

A smaller, local company called Elevation Resources is drilling a new well near Odessa, but at the same time the company’s president Steve Pruett is re-thinking strategy.

“We were already taking our foot off the accelerator early in the fall,” he says.

Pruett says his company and the industry weren’t surprised by prices dropping to $70 a barrel, but the drop below $50 caught pretty much everyone off guard.

Pruett has said he wants to cut his company’s budget by more than half, to the tune of $127 million dollars, and his rig count’s dropping fast.

In late January Elevation had two rigs drilling for oil. Earlier the same week the company had three, and in December it had six rigs operating.

“By the end of the month we’ll have one rig running, and that’s our plan for 2015 – a single-rig drilling program.”

He’s not the only one making tough decisions. The price drop touches everyone here, from oilfields to restaurants, to city hall.

“I do think this came on sudden,” says Midland Mayor Jerry Morales.

He says it’s too early to call this a bust, describing it instead as more of a “wait and see” period, with companies trying to figure how they can save money and put drilling in low gear without throwing in the towel.

City leaders are in the same boat.

“We’re probably going to start having to take a conservative approach to everything we do,” he says. “I don’t think we’re going to talk layoffs, but we’re just talking about maintaining.”

Leaders in Midland and Odessa say they already run lean budgets and build up their reserves in the boom times. After all, this latest price drop isn’t their first rodeo, but they’re already thinking about out how to cut costs down the road.

Midland Mayor Jerry Morales says the city can handle the oil price drop, though his staff may have to be more conservative with spending. (Travis Bubenik / KRTS)

Midland Mayor Jerry Morales says the city can handle the oil price drop, though his staff may have to be more conservative with spending. (Travis Bubenik / KRTS)

Morales is convinced the situation isn’t that bad yet. He even sees an upside to the price drop.

“When the boom did happen, that came on sudden,” he says. “We didn’t have the infrastructure in place, the housing wasn’t in place.”

As new families flooded the area, their kids followed, filling local schools to the brim.

Now, Morales says, some of that stressed infrastructure might have time to catch up. His hope is that the cost of construction – ramped up by intense demand from the boom – will drop along with the price of crude oil.

But next door in Odessa, City Manager Richard Morton says some apartment projects are already being put on hold.

“You’ve got banks out there watching this, you’ve got the developers watching this, so we have seen some cutback there,” he says, “but I think they’re just being prudent.”

“I think most people will admit that oil prices are hard to predict,” says Keith Phillips, Senior Economist and Research Officer at the Federal Reserve Bank of Dallas.

Phillips says the downturn will inevitably hurt West Texas and the Permian Basin more than the rest of the state, but it’s not yet clear how badly.

“Everybody thinks it’s going to stay low for a long time, and then it surprises everybody,” he says. “I don’t know how long oil prices are going to be where they are, but if oil prices stay between $45 to $50 a barrel, we’ll probably see a year, year to two decline in employment, and then it’ll start to flatten out.”

Depending on who you ask, the downturn will last for a few months or a few years, but one thing remains clear – there’s too much oil on the market.

U.S. crude supplies just rose to their highest levels since the early 1980s, just a few years before the crippling bust from that decade.

About Travis Bubenik

Former Morning Edition Host & Reporter
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