Category Archives: EnergyImpactOnRealEstate

Texas Oil & Gas Expansion Cycle

Texas Oil & Gas Expansion

Introduction…Crude oil and natural gas drilling and development in Texas has embarked upon a new cycle of expansion, according to the latest Texas Petro Index (TPI), which improved to 160.4 in March to post its fourth straight monthly increase.

Expansion is here…Driving the TPI upward during first quarter 2017 were crude oil and natural gas prices, drilling activity, the number of drilling permits issued, and the value of statewide oil and gas production, which were all higher compared to year-ago levels. However, the TPI is only about half the value of the record TPI of 313.5 in November 2014, and it still has not caught up in some other economic arenas.

Employment is increasing, but it still lags behind last year after the loss of well over 100,000 upstream jobs, said Ingham. An estimated 9,000 jobs have been added back since reaching the low point in September 2016.

Conclusion…”We still have a long way to go,” Ingham said, “but 2017 is going to be a year of recovery and expansion in the Texas statewide oil and gas exploration and production economy. “Activity levels will continue to expand, jobs will continue to be added, and the industry will support the broader state economy again, rather than acting as a drag on growth as it has for the prior two years.”

Source: “Oil and gas economy in Texas enters expansion cycle,” Oil & Gas Journal, 20 April 2017

Have You Considered Land Banking?

landbankland-bank-ing is the practice of buying land as an investment, holding it for future use, and making no specific plans for development, says Google.

This is only a partial definition.  I have experience in acquiring over 70 land parcels.  Sometimes the play was to aggregate several parcels to increase value.  However, many times the play was to subdivide into smaller parcels.  We would often work with a land planner before the purchase to know what our exit strategy would be.

Now I have a new definition for land banking.  Purchasing property or mineral interests at today’s low oil and gas prices (WTI $44.66, gas $2.783,) then holding the land or lease with today’s production to get a ROI.  Then when we have future oil price increases sell or develop additional production.

If you don’t think we’ll have oil price increases in the future, the  EIA has confirmed U.S. oil production has peaked…at least for now.

EIA affirms peak production in the second quarter of 2015, the fall in output over the next few quarters should bring supply and demand back into balance, or at least close to it. Supply exceeded demand by more than 2.5 mb/d in the second quarter of this year, but that gap will narrow to 1.6 mb/d in the third quarter and just 500,000 barrels per day in 2016.

The oil majors have cancelled or delayed a combined $200 billion in new projects as they seek to rein in costs, according to Wood Mackenzie of the Wall Street Journal.

So, here is a strategy.  Buy oil properties based on today’s low prices that has sufficient production currently or can be inexpensive to increase production.  Then when prices rebound, develop or sell additional acreage.

This strategy has worked for land investing and developing for decades.  Why not apply it to oil and gas production where we get a current return on our investment.

Is The Oil Implosion Impacting Dallas-Fort Worth Real Estate?

The Gate – Frisco, Texas
Introduction…These are my notes from Spencer McGowan’s Net Worth Radio Interview on KLIF with Transwestern Commercial Real Estate’s Grant English.

These notes from the radio interview so they are cryptic, but the information is very insightful. Don’t stop now. Read on…

Houston Real Estate….Houston’s Big Deal List is 85% energy companies.

Houston has 6,300,000 SF in subleases as companies downsizing. Currently, over 5,000 energy firms call Houston home.

Dallas-Fort Worth energy deals...In contrast, DFW’s largest energy company leases in last quarter were Inlink 160,000 SF and Trinity Energy 45,000 SF lease in Fort Worth.

Dallas energy company deals are only 5% of total and on the bottom of list in size.

DFW Real Estate….Occupancy and rents increase… historical highs…with rates as high $50 PSF and an average $21 PSF. The low DFW unemployment rate of 4.8% last quarter is attracting new companies to relocate to DFW.

Dallas is hub for insurance companies…Insurance companies are taking millions of SF. New relocations include Liberty Mutual, GEICO, and State Farm.

The growing trend is toward mixed use. Currently DFW has 7,600,000 SF is under construction or being rehabbed.

Frisco’s $5 billion Mile…Frisco has 1 mile on tollway with $5 billion in new construction in four big projects. Included are the Dallas Cowboys headquarters with 180,000 SF of retail and restaurants. The Gate is being developed on 42-acre site and is projected to total cost of $700,000,000. This project includes residential, retail, hotel, restaurants, and office. Foreign capital is coming to Frisco including Invest Group Overseas Dubai money for The Gate project.  Watch the video at https://www.youtube.com/watch?v=wHInW3-CnXk

Granite is building 5th tower at 121 & tollway as first 4 buildings nearly full.

Toyota’s new headquarters in Plano is expected to cost $300,000,000.Chances of oversupply…busts of 2008, great depression of 1987? Maybe not as much of this space in use for corporate relocations.Currently of the 7,600,000 SF, 56% is pre-leased with corporate campuses totaling 100,000s of new jobs. Employees are coming from out of state to call DFW home.

In conclusion... Dallas-Fort Worth’s diversified economy is blunting the impact of the energy implosion being felt in Houston. If you are inclined to venture into high yield cash flow projects, drop me a note.

Sources: Spencer McGowan’s Net Worth Radio Interview On KLIC With Transwestern Commercial Real Estate’s Grant English, March 28, 2015