Eagle Ford Shale Boom Fuels ‘Madhouse’ in South Texas Counties
By Frank Bass - Mar 14, 2013 11:00 PM CT
For the last 30 years, the quiet, dusty crossroads of Texas Routes 119 and 72 in Yorktown mostly consisted of a Dairy Queen on one corner, a gas station across the street and some traffic, usually heading somewhere else.
Ranchers joked that it was possible to make a small fortune in raising cattle on the mesquite and cactus range -- if you started with a very large fortune. Population in rural, south Texas grew slowly or not at all during the 2000s as suburbs boomed around Houston, Dallas and Austin.
A floor hand signals to the driller to pull the pipe from the mouse hole on a drilling rig near Encinal in Webb County, Texas, on March 26, 2012. Photographer: Eddie Seal/Bloomberg
The shale boom has changed all that here and throughout an oil-rich swath of counties extending to the Canadian border. Figures released yesterday by the U.S. Census Bureau show counties in south and west Texas are now among the fastest- growing places in the U.S. as oilfield workers rush to the Eagle Ford Shale. The underground formation holds an estimated 3 billion barrels of oil and 150 trillion cubic feet of natural gas reserves.
“It’s a madhouse,” J.E. Wolf III, a Yorktown real estate broker, said in a telephone interview. “I’ve been selling real estate here for 43 years, and I’ve never seen it like this.”
While half of the 10 fastest-growing U.S. counties between 2011 and 2012 were in North Dakota, where the Bakken shale formation draws people to the sparsely populated Great Plains, Texas is catching up.
Since the 2010 Census, Yorktown’s DeWitt County has grown 1.8 percent, more than four times faster than the entire previous decade’s 0.4 percent growth rate.
A new Southern Inn and Suites sits near the intersection in Yorktown, offering free wireless and challenging the aging White Top Motel on the east side of town for traveler dollars. A Mexican restaurant has been reopened, and a Valero gas station with a café competes with the Texan gas station across the street for convenience store supremacy.
An abandoned building has been turned into a shop offering donuts and kolaches, a south Texas breakfast snack consisting of a buttery roll wrapped around link sausage -- cheese and jalapeno peppers optional.
The Dairy Queen isn’t the only game in town any more, although it’s clearly the establishment of choice at lunch for a
dozen oilfield workers conspicuous in their red jumpsuits and
Those workers earn their wages at the Eagle Ford formation, which stretches from the far north Houston exurbs southwest to the Mexican border. While the shale was a known quantity for a generation of geologists, techniques for extracting oil and gas from it have only become practical in the last decade. The first Eagle Ford well was drilled in 2008.
The formation could provide as many as 900,000 barrels per day by 2016. The Permian Basin, deep in west Texas, may reach 1 million barrels daily, Texas Railroad Commission Chairman Barry Smitherman said in a March 6 interview in Houston.
By 2020, Texas’ crude output may exceed the 3.45 million barrels a day seen in 1972 if prices stay high enough to make drilling economical, he said.
Eagle Ford oil output rose to more than 352,000 barrels a day in 2012, compared with 358 barrels a day in 2008, according to the commission. The number of drilling permits surged to 4,143 in Eagle Ford last year, up from just 26 in 2008, the commission said.
In Yorktown, trucks filled with pipes or fluids rumble down Main Street, with smaller, late-model pickups following them like fish. Campers and recreational vehicles dot the roadsides in the shade of live oaks. A good parking spot in the area can command as much as $500 per month.
While the shortage of housing stock doesn’t appear as critical as it did in North Dakota during the early days of the Bakken boom, at least a half-dozen trailers and mobile homes are parked in a pasture on the outskirts of town.
People aren’t buying homes. Wolf said a 2,000-square-foot, three-bedroom, stone house has been marked down from $225,000 to $165,000. He has rented 30 homes in the area, though, and the calls keep coming.
“They’re all full,” he said. “I’m keeping a waiting list.”
The city of Midland in the Permian basin was the fastest- growing metropolitan area in the country during the last year, posting a 4.6 percent gain to 151,662 people. Soaring demand for energy workers there has driven up wages, and not just for jobs in the oil and gas fields.
“You can make $15 an hour washing dishes at Wendy’s,” said Karl Gulick, vice president of Western National Bank in Midland, one of the largest independent banks in the state.
Boomtown anecdotes among locals are as common as one-liners in a stand-up routine: The granddaughter who can’t get married in town because there aren’t available hotel rooms for guests; teenagers who earn $75,000 driving trucks the day they graduate from high school; the Cracker Barrel that couldn’t open until three months after the building was finished because of a lack of workers.
On a recent drive through town on Big Spring Street, there were few fast-food restaurants or local banks without a “Now Hiring” sign. A one-night stay at the Fairfield Inn cost $300.
“If you can pass a drug test and get a commercial driver’s license, you can get $80,000 in one phone call,” Gulick said.
The Eagle Ford is responsible for one of every 50 jobs created in Texas, according to a study last spring by the Federal Reserve Bank of Dallas. Landowners are benefiting as well. The Fed study conservatively estimated that mineral rights are being assigned for $1,500 per acre over a 5-million-acre territory, yielding $7.5 billion in compensation since 2007.
Large Texas cities that feed equipment and workers to the fields are prospering, recording the biggest numerical population increases in the nation.
The Dallas metropolitan area added 131,879 people during the last year, more than any other in the nation, raising its total to 6.7 million. The Houston metro area increased its population by 125,185 to 6.2 million. The two Texas cities gained more people than the Seattle, San Francisco, Miami and Phoenix metro areas combined.
William Frey, senior fellow at the Washington-based Brookings Institution’s Metropolitan Policy Program, said the latest Census estimates could be an early sign of a resurgence of migration to the Sunbelt.
“We may be turning a corner here,” he said.
To contact the reporter on this story: Frank Bass in New York at Fbass1@bloomberg.net
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Foxconn Technology Group and other electronics makers are saving little in wages by opening plants in inland China and are making the move because of labor shortages in traditional manufacturing hubs, according to Bloomberg Industries.
Apple Inc. (AAPL) supplier Foxconn, which has boosted its China workforce 50 percent in two years to 1.2 million, needs to use employees in more parts of the country to meet demand, Jitendra Waral, a Bloomberg Industries technology analyst, said in a note published today. The labor-cost savings are minimal as wages in western Sichuan province and central Henan, where Foxconn makes iPads and iPhones, are similar to those in coastal Guangdong.
A worker tests the circuit boards at a factory in Mianyang, Sichuan province, China. Inland migration of factories is fueling China’s development, with economic growth in Sichuan and Henan outpacing that of Guangdong as the government seeks to reduce income disparity in the face of a workforce decline. Source: AFP/GettyImages
“Henan and Sichuan have always been the largest sources of migrant workers. That was why we moved to both of these provinces to tap their labor pool,” said Louis Woo, special assistant to Foxconn Chief Executive Officer Terry Gou. Photographer: Forbes Conrad/Bloomberg
Employees work on the assembly line at Hon Hai Group's Foxconn plant in Shenzhen, Guangdong province, China. Foxconn began operations in Guangdong’s Shenzhen city in 1988 as the Communist government used the region as a test bed for efforts to ease economic restriction. Photographer: Qilai Shen/Bloomberg
A worker walks past a shopping and retail pedestrian street in Chongqing. Wages in Sichuan and Henan have surged 120 percent in six years because of economic growth, increasing local competition for labor and slower population-growth nationwide. Photographer: Nelson Ching/Bloomberg
“The trend is toward inland, and it’s driven by manufacturers’ need to keep finding workers,” Hong Kong-based Waral said. “As that drives wages higher, any cost benefits from inland labor are likely to continue shrinking.”
Foxconn has raised spending in the past three years to build factories, and competitors Quanta Computer Inc. (2382), Pegatron Corp. (4938) and Wistron Corp. (3231) followed.
That inland migration is fueling China’s development, with economic growth in Sichuan and Henan outpacing that of Guangdong as the government seeks to reduce income disparity in the face of a workforce decline.
“Closer to the pool of workers has always been one of the major reasons,” said Louis Woo, a spokesman for Taipei-based Foxconn. “Henan and Sichuan have always been the largest sources of migrant workers. That was why we moved to both of these provinces to tap their labor pool.”
Wages in Sichuan and Henan have surged 120 percent in six years because of economic growth, increasing local competition for labor and slower population-growth nationwide. That threatens to dent the migrant workforce that Guangdong factories rely on, even as Foxconn, Quanta and Compal Electronics Inc. (2324) gear up for sales that are likely to grow a combined 30 percent through 2015, Waral said, citing consensus estimates.
Capital expenditures at Foxconn’s Taipei-listed flagship, Hon Hai Precision Industry Co., surpassed $6 billion during the past three years, according to company filings.
Foxconn employed 300,000 people in Henan in the fourth quarter of last year, compared with almost none in 2010. The Sichuan and Chongqing workforce has jumped to 150,000 from almost none in the same period. The company employs 400,000 people in Guangdong.
The government has also spurred investment in inland regions through its “Go West” policy, which is designed to help curb regional differences in economic development. Growth in Sichuan and Henan will probably outpace Guangdong’s for a third straight year in 2013, according to Nomura Holdings Inc.
Foxconn began operations in Guangdong’s Shenzhen city in 1988 as the Communist government used the region as a test bed for efforts to ease economic restriction. The drive lured migrant workers to Guangdong, boosting its population by 66 percent in the two decades through 2010. The province is now China’s most populous and has the largest economy, government statistics show.
Manufacturers also are looking inland as a slower birthrate dents China’s workforce. The working-age population fell by 3.45 million last year to 937 million, according to National Bureau of Statistics data. That was the first decline in “quite a long period,” Ma Jiantang, the head of the agency, said in January.
Differences in average wages between inland provinces and Guangdong have more than halved in the past six years, driving the two locales toward labor-price parity, according to a Bloomberg Industries analysis of workforce, wages and labor demand. Wages in Chongqing, central China, have surpassed those in Guangdong, it shows.
Migrants accounted for 99 percent of workers at Foxconn’s two Shenzhen facilities producing Apple products, according to data from the Fair Labor Association, which was hired by the Cupertino, California-based company last year to investigate conditions among its suppliers. About 14 percent of workers at its Chengdu factory were migrants, it said.
“Manufacturers are spurred to move inland because that’s where most of their employees come from and are likely to be the source of their workforce in coming years,” he said. “Faster rising wages inland have the effect of both reducing possible incentives for migrants to travel thousands of miles for work, and forcing wages higher as employers compete for labor.”
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Obama Orders Cuts That Will Be ‘Slow Grind’ on Economy
By Julianna Goldman & Margaret Talev - Mar 1, 2013 11:01 PM CT
Obama Says Cuts to Be `Slow Grind' on U.S. Economy
President Barack Obama ordered the start of $85 billion in government spending cuts, beginning a potentially decade-long wave of belt-tightening that risks curbing U.S. economic growth this year.
March 1 (Bloomberg) -- U.S. House Speaker John Boehner, a Republican from Ohio, talks about his opposition to tax increases as part of a plan to avoid across-the-board federal spending cuts that start today. Boehner spoke to reporters after a meeting with President Barack Obama at the White House. (Excerpts. Source: Bloomberg)
March 1 (Bloomberg) -- Defense Secretary Chuck Hagel speaks at a news conference in Washington about the impact of automatic federal spending cuts set to kick in today on U.S. armed forces. Deputy Defense Secretary Ashton Carter also speaks. (Source: Bloomberg)
March 1 (Bloomberg) -- William Cohen, chairman of the Cohen Group and a former U.S. Defense secretary, talks about the impact of budget cuts on defense contractors. Cohen speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)
March 1 (Bloomberg) -- Douglas Holtz-Eakin, president of the American Action Forum and a former director of the U.S. Congressional Budget Office, and Maya MacGuineas, head of the Committee for a Responsible Federal Budget, talk about automatic federal spending cuts set to kick in today and the outlook for budget negotiations. They speak with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)
March 1 (Bloomberg) -- Retired U.S. Army General Wesley Clark talks about impending U.S. spending cuts, defense policy and the economy. He speaks with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)
Attachment: OMB Report to Congress on Sequestration
Attachment: President Obama's Sequestration Order
The White House released the order last night, the deadline set by a law passed two years ago to avoid a debt default, and the Office of Management and Budget sent Congress a detailed list of program cuts. The reductions’ impact will become clear over the next several weeks, as agencies inform affected government contractors and notify employees about furloughs, most of which wouldn’t begin for at least a month.
“What’s important to understand is that not everyone will feel the pain of these cuts right away,” Obama said at the White House earlier yesterday, after meeting with the top four leaders of Congress. “The pain, though, will be real.”
The across-the-board cuts, known as sequestration, were intended to be so onerous that Congress and the president wouldn’t let them occur and would come up with a plan to replace them. Instead, Democrats and Republicans deadlocked on an alternative. Obama insists that any plan must include new tax revenue and Republicans, led by House Speaker John Boehner, reject that approach.
The cuts under the law total $1.2 trillion over nine years. Of that, $85 billion comes out of the budget for the remaining seven months of this fiscal year, making for effective reductions of about 13 percent for defense programs and 9 percent for non-defense programs, according to the OMB.
Obama and Boehner, an Ohio Republican, indicated they would avoid another showdown when spending authorization for government operations expires March 27. After they met at the White House, Boehner said the House would vote on funding legislation so Congress won’t need to deal with the risk of a government shutdown while negotiating an agreement on cutting the deficit. Obama indicated he would sign it.
Obama met for just less than an hour at the White House with Boehner, Senate Republican leader Mitch McConnell of Kentucky, Senate Majority Leader Harry Reid, a Nevada Democrat, and House Democratic leader Nancy Pelosi of California to discuss the way forward.
If they stay in effect, the spending cuts eventually may lead to longer waits for air travelers, delays in production permits for oil and gas drilling, shorter opening hours at national parks, and the closing of meat plants that the Agriculture Department doesn’t have the manpower to inspect.
Private and government economists have said the cuts may trim economic growth. Investors have signaled they aren’t concerned about the impact on the $15.8 trillion U.S. economy.
The Standard & Poor’s 500 Index (SPX) has risen 6.4 percent this year and the dollar led gains in world markets last month.
The S&P 500 gained 0.2 percent to 1,518.20 yesterday in New York trading, after dropping as much as 0.9 percent earlier as consumer confidence increased and manufacturing grew at the fastest pace since June 2011. The Dollar Index, which tracks the currency against six U.S. trading partners, rose 0.4 percent.
Once Obama’s order went out, the budget office transmitted a document to Congress itemizing reductions to hundreds of federal programs, updating an earlier report to lawmakers.
“The cuts required by sequestration will be deeply destructive to national security, domestic investments, and core government functions,” acting White House Budget Director Jeffrey Zients said in a letter to Boehner accompanying the budget office list.
Medicare will see a 2 percent reduction, while the National Institutes of Health, which funds medical research, will be cut by 5 percent, or about $1.5 billion, according to the OMB. Space operations at the National Aeronautics and Space Administration will be cut by 5 percent, or $212 million, and operations for the national park system, which includes 398 parks across the country, would get a reduction of 5 percent, or $113 million.
Agencies began technical procedures to deal with immediate effects. In one example cited by administration officials, computer systems had to be taken offline and reset for the Internal Revenue Service to cut $210 million in payments to municipalities with projects under the Build America Bonds program for infrastructure financing.
Separately, Cabinet departments issued letters to governors explaining the impact on states.
A letter to Governor John Kasich of Ohio from U.S. Housing Secretary Shaun Donovan says that Obama was issuing the sequestration order “due to the failure of Congress.”
In a letter to Governor Bob McDonnell of Virginia, U.S. Deputy Defense Secretary Ashton Carter wrote that while “we do not yet have a complete inventory of the required cutbacks,” the known reductions include $146 million in funding for Army bases.
Carter said the department will keep states informed “as we compile a more complete list.”
Speaking after his meeting with the lawmakers, Obama said agreement on a deficit-reduction package will be reached once members of Congress hear from voters feeling the pinch of cutbacks in government programs.
“There is a caucus of common sense up on Capitol Hill,” Obama said. “It’s a silent group right now, and we want to make sure that their voices start getting heard.”
Boehner left the White House saying Republicans won’t budge from their rejection of raising tax revenue again as part of the negotiations on sequestration.
“The president got his tax hikes on Jan. 1,” Boehner said, referring to the deal at the end of last year that let income tax rates rise for top incomes. “The discussion about revenue, in my view, is over.”
Obama has urged replacing sequestration with a combination of reduced spending, including in entitlement programs, and higher revenue from closing loopholes in the tax code for the wealthiest Americans.
Pelosi said House Democrats are prepared to consider ways to reduce spending for Medicare, Social Security and other entitlement programs as long as Republicans are willing to compromise on “their sacred cows -- tax giveaways for special interests” and “excessive deductions for the wealthiest people in our country.”
Republicans would be willing to close tax loopholes, though not to replace spending cuts, Boehner’s office said.
“I will not be part of any back-room deal and I will absolutely not agree to increase taxes,” McConnell said in a statement.
Obama said he can’t lock both parties in a negotiating session until a deal is struck.
“I am not a dictator; I’m the president,” Obama said. If McConnell and Boehner want to leave town without a deal, “I can’t have Secret Service block the doorway.”
To contact the reporters on this story: Julianna Goldman in Washington at email@example.com; Margaret Talev in Washington at firstname.lastname@example.org
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The White House made public an order at about 8:30 p.m. ET signed by President Obama making the budget cuts known as sequestration official and giving the federal government the authority to begin implementing $85 billion in across-the-board decreases.
The order released by the White House demands that "budgetary resources in each non-exempt budget account be reduced by the amount calculated by the Office of Management and Budget."
The cuts would run through Sept. 30, the end of the federal fiscal year.
According to a letter dated today from Jeffrey Zients, deputy director for management of the Office of Management and Budget, to House Speaker John Boehner, R-Ohio, the sequestration calls for a 7.8% cut in non-exempt defense discretionary funds and 5% cut in non-exempt non-defense discretionary funding. It also calls for 2% cuts to Medicare, 5.1% to other non-exempt non-defense mandatory programs and 7.9% to non-exempt defense mandatory programs.
The federal government has said the cuts will soon translate into furlough notices to government workers, and that there will be cuts to government spending on defense contracts and domestic government programs. The plan protects active military personnel and anti-poverty programs.
The letter to Boehner, which introduced a detailed OMB report on the cuts, noted that federal lawmakers voted for sequestration "as a mechanism to compel the Congress to act on deficit reduction." The letter continued, "As a result of Congress's failure to act, the law requires the President to issue a sequestration order today canceling $85 billion in budgetary resources across the Federal Government for FY 2013."
An identical letter was sent to the president of the Senate, Vice President Biden.
The order comes after both Republican and Democratic alternatives to imposing across-the-board spending cuts failed to pass in the U.S. Senate.
The Democratic plan would have imposed a tax of 30% or more on millionaires, and cuts to defense and farm programs. The Republican plan would have forced responsibility on the president to determine how to implement the cuts as opposed to imposing an across-the-board decrease.
Contributing: The Associated Press
***Definition of Discretionary Spending
What is "discretionary spending"? What is the definition of the term "discretionary spending"?
"Discretionary spending" and "mandatory spending" are the two types of spending that make up the sum total US government expenditures on a yearly basis.
"Mandatory spending" is spending that is automatically obligated due to previously-enacted laws. This would include things such as Social Security and the interest on the national debt.
"Discretionary spending", on the other hand, consists of US government expenditures that are set on a yearly basis. This is money that members of Congress can adjust on a yearly basis.
Examples of discretionary spending in the United States:
-Environmental Protection Agency
-Department of Veterans Affairs
When looking to cut costs, lawmakers usually look to trimming discretionary spending.