San Antonio Rising

If you think that San Antonio’s economy is a bit slower than the rest of the state, then you need to look again. If you have been in Texas for a while, you probably think of military bases, manufacturing, and a slower lifestyle when you picture San Antonio. Now, you should also include big oil, the future of computing, and a strong wealth of high tech industries.

Growing up in Texas, once you got south of San Antonio, it was a long boring drive to Port Aransas, or hunting around Kingsville. All that has changed with ‘fracking’ and the Eagle Ford Shale boom.

We covered the strength of San Antonio’s economy in our February 1st edition of the Independence Voice. Since then, I have had the good fortune attend the March 2013 economic update of the Eagle Ford shale. The findings were surprising, and for those fortunate enough, life altering. San Antonio’s economic future looks strong, for a while.

Since the first Eagle Ford Shale well was drilled in 2008, there has been increased demand for labor, housing, and qualified personnel in the cities and counties affected by the oil fields and related businesses. Below is a map of the 14 counties (green) where the fracking environment has had the biggest economic impact. The field is approximately 50 mile wide and 400 miles long. Its economic impact is felt not only in those counties where activity is actually happening but in the surrounding counties as you can see below. There has been a flurry of increasing drilling activity in the area, with 26 well completions in 2008, 1649 in 2011, and 2983 in 2012.

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This tremendous economic development affects not only San Antonio, but all of South Texas and the rest of the state. The Institute of Economic Development at UTSA has determined the following financial impacts:

• Almost doubling to over $46 billion in total economic output (up from nearly $20 billion in 2011)
• Oil and related businesses supported 116,000 jobs (up from 38,000 in 2011)
• $3.25 billion in salaries and benefits paid to workers (up from $2.6 billion in 2011)
• Over $22.8 billion in gross regional product (up from $10.9 billion in 2011)
• More than $1 billion in state revenues (up from $312 million in 2011)
• More than $828 million in local government revenues (up from $211 million in 2011)

Thankfully, one of the most significant effects from the boom may be seen in the state’s income. Like so many states in 2008 – 2009, the state ran in the red on their budget due to the recession. Taxes on oil and gas production have soared past estimates from the state’s comptroller’s office for fiscal 2012. And with production expected to continue to rise over the next several years, the economic benefits will continue.

The history of the Eagle Ford’s development, which started in late 2008, was temporarily interrupted by the recession and at the same time a sharp decline in energy prices. In Texas, domestic drilling collapsed in 2008–09 with the economic crisis, and the rig count fell more than 50 percent. It was back on track a year later by 2010, and has continued growing at a rapid pace. Texas produced more oil in 2012 than Alaska, North Dakota, and California combined, the next three highest oil producers in the U.S.

During this time, the value of land in the formation has increased exponentially, making some people very rich in a very short period of time. In turn, some of this new wealth is cycled back into the economy in the form of increased consumer spending. If only 5% of the new wealth makes it back into the local economy, it will still be an increase of $400+ million annually. Many South Texas ranchers saw new income from lease payments. Previously the only income was from whatever livestock could survive on the desert plants. This all changed with the income from oil leases. Lease payments are made to reserve the mineral rights on a specific property, usually stated as a fixed amount per acre, giving the leasing company the right to test, explore or produce oil and gas. The state estimates that over 4.6 million acres have been leased in Eagle Ford counties at $1,200+ per acre. There are reports of lease rates as high as $20,000 per acre in the hottest-producing areas, but the average of 23 counties is difficult to estimate. However lease rates vary not just by location, but also by when they were signed. Conservative estimates of $1,500 per acre and 5 million acres produces a remarkable $7.5 billion in compensation since 2007.

As stated above, most of the 23 Eagle Ford counties are rural, with a history of cattle ranching, hunt¬ing and some traditional oil and gas drilling. However for the five counties where the job growth rate has been the strongest—McMullen, Dim¬mit, La Salle, Live Oak, and Lee, retail sales grew at an annual rate of 55.1 percent, or $100.9 million, from first quarter 2010 to third quarter 2011. For the entire 23 county area, seasonally adjusted retail sales increased at a 15.4 percent annual rate, or $580.7 million. During this period, comparable retail sales rose 7.2 percent in the U.S. and 6 percent in Texas.

All this activity in South Texas has allowed San Antonio to come through the recession stronger than most. Besides the 4,000+ jobs created annually in Bexar county by the oil play, the city has had the geographic fortune of being the metro where the crossroads of two of the largest commerce highways. Interstate 35 is the main north-south artery through the US, as well as a major hub for entry into Mexico and Latin America, and Interstate 10, giving easy access to the processing and shipping facilities in Houston.

The geography helps draw major manufacturers, such as Toyota. In addition there is an expanding medical complex and university scene, and a downtown kept lively by tourists, convention-goers, and service members from the city’s three military bases. Joint Base San Antonio is the largest base organization in the Department of Defense, comprised of three primary locations -Fort Sam Houston, Lackland, and Randolph. It employs more than 92,000 military and civilians, is home to nation’s largest military hospital, and has an economic impact on the local community of $27 billion.

USAA, one of the largest financial services and insurance companies, is San Antonio’s biggest private employer. They just leased about 128,000 more square feet of office space to accommodate up to 1,000 more workers. You also have fast growing companies including Rackspace, Petco and SunEdison that have all added local jobs.
I mention Rackspace, a billion-dollar hosting and cloud-computing company that has found San Antonio’s low risk of natural disasters or disruptive weather perfectly suit the requirements of gigantic data centers. Rackspace is to San Antonio what Dell Computer was to Austin in the early 90’s. Rackspace’s economic footprint and continued corporate expansion as well as corporate spinoffs expansion has made San Antonio a magnet for high tech jobs. Austin is often considered to be the “tech hub” of the state, but the San Antonio area was ranked at 13th for growth in high-tech jobs from 2006 through 2011. During this period, the area saw growth of 23.6 percent in that sector while the nationwide rate was 1.4 percent during the same period.

Rackspace in turn has spawned the co-workspace and start-up incubator Geekdom. This group was started by Rackspaces entrepreneur CEO Graham Weston. It is basically a business incubator for those individuals wanting to get more involved with the IT field. It provides a place for individuals to sort their ideas out before they are established enough to purchase their own location for business and bring on more individuals to be a part of it. This co-creation of evolving IT jobs is not only stimulating the economy of San Antonio, but its corporate location in the CBD may have the same affect that the tech firms had on downtown Austin.

This high tech cooperative encourages budding entrepreneurs and startup companies in the area, which in turn allows the founders to lead their community to generate even more local jobs. Reports show that for each high tech job that is created, an additional four jobs are created which in turn continues helps boost the economy in the San Antonio region.

Taking it a step beyond the entrepreneurial level, local efforts are targeting education at high schools and middle schools to ensure they are offering the appropriate curriculum and technology training to develop the future high-tech workforce. With the increased national spotlight on science, technology, engineering and mathematics (STEM), the local business and technology community is already increasing their focus on these areas.

San Antonio’s strong STEM movement forces the local economy to move into new areas. This focus is hoping to get children interested in these respective areas from a young age and let them know that these are the most promising topics to focus on when choosing continuing education and working towards a successful, financially rewarding career.

The potential strength of the new San Antonio economy will be something to watch. In the arenas this analyst normally watches, real estate and finance, I believe they are where Austin was in the early 90’s. The lower cost of living, wages, and real estate will continue to attract many corporations. San Antonio also has limited residential, office and other real estate offerings, much like Houston and Austin had 3 years ago. The opportunity for improved values in the San Antonio market seem remarkably healthy for a while.
If you have not looked at San Antonio for investment or relocation, this may be the time.

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