Oil in Kansas: Boon for many, bane for some
Drilling boom is cash for land, business owners, high rent for some residents
08/16/2012 3:15 PM
08/16/2012 3:15 PM
Editor's note: An earlier version of this story was unclear about the amount of taxes Barber County will have to refund after losing a court case.
Eric Smith was at the front counter of his hotel this week telling yet another caller, apologetically, that he didn’t have a room.
Eric and Kathy Smith own the aptly-named 16-room Anthony Motel on West Main Street. It has traditionally done OK, particularly during hunting season, but these are heady days, indeed.
Since the oil boom hit Harper County – which is immediately southwest of Sedgwick County – two years ago, the motel has largely been full. First there were seismic engineers, then landmen and now production workers, he said..
As a result they decided to build a 45-room motel, a Cobblestone Hotel, at the north edge of the city. It will open in September and employ six to eight people.
“I felt like we needed to take advantage of this somehow,” he said.
That’s economic development.
The horizontal oil boom has already delivered an enormous shot of cash in the form of lease payments to hundreds of landowners in counties across south-central Kansas.
In the last year, as the largely out-of-state oil companies have drilled hundreds of horizontal wells in those counties – especially Sumner, Harper, Barber and Comanche – money is flowing to local businesses and local workers, as well as to local governments.
The horizontal drilling oil companies are now moving north and west of the original five or so counties. Shell Oil has recently filed an intent to drill in southwest Sedgwick County.
Rural Kansas has had a relatively good economy over the last decade.
Agricultural economics finally seems to have turned in favor of farmers. A handful of rural Kansas counties have also benefitted from the construction of wind farms that provide lease payments – a pittance compared to what the big oil companies are paying, but still nice – and payments to local government. Construction workers right now are in the midst of building BP Wind Energy’s Flat Ridge 2 wind farm in northern Sumner, Harper and Barber counties and southern Kingman county.
For these reasons, plus the arrival of the big out-of-state oil companies, land values in the border counties are way up.
In hottest counties, landowners have negotiated payments of $500 to $1,500 per acre, plus a 3/16th royalty, for three- and five-year leases of the mineral rights to their land. That has meant a tremendous amount of cash bolstering balance sheets and paying off bank loans.
One of the effects, though, has been to kill the market for farmland, said broker Brandon Gerber of Gerber Auction and Real Estate of Anthony.
“Why would I sell my land if there was a gusher of oil underneath?” he said.
On the other hand, the price of homes is way up, and the boom has even drawn speculators interested in buying homes to rent.
It’s the effect on rents that hurts many local residents, particularly young people who want to live in or move back to their hometown, said Harper resident Allie Woods.
She is paying $400 a month for a rental house, but is being forced to move because the house is being sold. A similar house she looked at is now $1,000 a month, she said.
“The ones that are getting money (from the oil boom) are enjoying it,” she said. “The one’s who aren’t don’t like it so much.”
Such a problem may only be temporary. Rental units and a mobile home camps are planned or already under construction in the county.
At this point, it’s hard to track the overall increase in employment caused by the boom. A recent paper by the Center for Economic Development and Business Research at Wichita State University showed no increase in oilfield employment in Kansas as a result of the boom.
The possibilities, according to the center: it’s too soon to see it reflected in employment statistics, and most of the oilfield workers associated with horizontal drilling companies may actually live in another state.
But there’s no question there are some new jobs.
Jason Rogers, store manager for NAPA Auto Parts in Harper, said his store’s business is up 40 percent from a year ago. The Anthony store, he said, has added two people to handle the increased business.
“There is quite a lot going on right now,” he said.
Between Jan. 1, 2010, and Jan. 1, 2012, the total assessed value of Harper County land rose 33 percent, Barber County rose 34 percent and Comanche County rose 27 percent, according to the Kansas Department of Revenue.
As a comparison, Pratt and Kingman counties to the north, with less horizontal oil activity, have seen their property values fall 2 percent in the same time period.
The increased value has allowed local governments to make the improvements needed to handle all of the oil boom traffic, do projects they’ve long wanted and tackle deferred maintenance.
But with rising taxes come conflicts. Wichita oilman Wayne Woolsey recently won an appeal in state court over how Barber County calculates the valuation of the new oil wells.
Local governments, school districts and government-funded entities such as the hospital had already calculated budgets based on the higher amount. Local governments in Barber County will have to forgo about $100,000 from Woolsey. Because of protests by oil companies, the county will have to forgo $400,000 total this year, according to Barber County Treasurer Sheri Weeks.
It’s hard to know long the boom will last. There remains a lot of skepticism about the play from traditional Kansas oil companies – although a few of the bigger Kansas drillers are now trying horizontal drilling.
Even Smith, the hotel owner with a big investment in the future, said he’s not 100 percent convinced the boom will still be here four years from now.
“If this stays and I don’t do this, I’d have missed out,” he said. “If it doesn’t, well, I’ll work it out.”