Contents

Managing and Mitigating the Next Boom

People

The Socioeconomics of
Planning for a "Maybe Boom"

Although locals often refer to Black Sunday as "the Exxon bust," the disaster tarred the entire industry and every operator in Shale Country today must continue to deal with the fallout. The next round of oil shale development will occur in the shadow of the past. Operators should be aware that their actions are being evaluated against and constantly compared to what happened before.

When Western Slopers discuss current prospects for development, it is almost always within an assumed context of boom and bust. Those who oppose renewed efforts to develop oil shale cite the earlier experience as a cautionary tale, while even those who support oil shale development, such as the leaders of Club 20 and the Associated Governments of Northwest Colorado, do so within a framework that lauds the deliberate pace of the RD&D program (often without mentioning the commercial leasing program) in contrast to the crisis-driven efforts of the 1970s.36

Shell's Mahogany Research Project administration center

Shell's Mahogany Research Project administration center in Rio Blanco County, Colorado.

The sting of the 1982 bust is far from forgotten among residents who managed to stick it out, nor is the power of this experience lost on newcomers (a term that can follow a person around for a good portion of a lifetime in some Western Slope communities). The bust dogs discussions of current development projects. Very few people - with the striking exception of some boosters and people associated with the energy companies - talk about oil shale as a career-length or sustainable economic endeavor. Indeed, the presumption on the Western Slope seems to be that the current cycle of development will follow the traditional boom-bust route, and those local officials responsible for managing its impact seem focused on softening the ride.

Managing the human impact of the development cycle is not only the responsibility of local governments. As a matter of corporate citizenship, but also as a matter of self-interest, the designers and managers of the next generation of oil shale operations must consider the social and economic consequences that their endeavors might carry for surrounding communities. The negative impacts of unmanaged boomtown growth have a clear adverse effect on energy operations, because a poor or deteriorating quality of life makes it difficult to retain an adequate and experienced workforce, and a substandard workforce equals less-than-optimum production. Furthermore, quality of life for energy workers is often colored by their employers' relationship with the existing community, and oil shale companies still have a great deal of work to do in rehabilitating their relationships on the Western Slope.

These companies stand to benefit in many ways from efforts to conduct the RD&D process with strong community involvement and sensitivity to stakeholder concerns. Actions perceived by local residents as careless or hasty will call up the specter of Black Sunday and reinforce animosity, if not create outright opposition, among community members. As an influential 2005 report from the RAND Corporation puts it, mildly, "Given the past volatility and future uncertainties associated with oil shale development, as well as evolving views in the United States toward environmental protection, open-space preservation, energy policy, and stakeholder involvement in local decisionmaking, an attempt to rush or shortcut development is likely to generate significant opposition at the local, state, and even national levels."37

Boomtown Balancing Acts

Even with the best of corporate-community relationships and well-crafted mitigation strategies designed to reduce and cope with social stresses, resource booms can seem like a mixed blessing to the communities experiencing them. A quick look at the multifaceted impact of the recent boom - and, at the outset of 2009, the whispers of a bust - testifies to the challenges community leaders face as they work to balance the benefits and burdens of sudden prosperity.

As energy companies arrived in the area during the first part of the decade to work the oil and gas deposits, revenues, costs, and growth rates jumped in Garfield and Mesa counties in Colorado, where the boom is centered. Nearly every community in the two-county area grew by at least 6% between 2000 and 2006 (the most recent data available as we write), with regional center Grand Junction showing 11.7% growth (41,986 to 46,898) and the small town of New Castle posting the most prodigious growth rate at 66% (1984 to 3294). These communities have struggled to expand services at a rate that kept pace with growth.

Oil shale development is likely to increase that challenge for the city of Rifle and its Garfield County neighbors, which stand to absorb the lion's share of impact from the in-migration of workers and their families. Meanwhile, most of the operations that brought them into the area will generate tax revenues across the county line in Rio Blanco County.

In Rifle, which grew from a population of 6784 in 2000 to 8446 in 2006, some studies have predicted that the town will top 20,000 residents by 2020. The growth is already beginning to take a toll: rising crime rates have stretched the police department thin, traffic-choked city streets laden with heavy trucks have prompted complaints from residents, and rapidly rising property values have made it difficult for middle class workers to live in the community.

As the median home price around Rifle skyrocketed from $191,000 in 2003 to over $297,000 in 2007, vital members of the town's workforce have been increasingly forced to live down the valley as far away as Grand Junction and commute. In the summer of 2007, more than 20 prospective teachers turned down job offers because they could not afford the housing costs in town (average net monthly pay for a new teacher in the district ranged to about $2100, while an average 3-bedroom home commanded around $1200 a month).

"Unless you have a two-person income, you're struggling to make ends meet here, and it's driving our workforce out of the area," exlained Mayor Keith Lambert. "Teachers, police, firemen, hospital employees . . . all are having to look elsewhere to live." And the problem shows no sign of abating, despite the recent downturn in the nation's housing market. According to county assessor John Gorman, average home values throughout Garfield County declined only a little by the end of 2008.

New neighborhood

A new neighborhood under construction in Rifle, Colorado. Housing shortages...

Reeves Brown, the Executive Director of Club 20, neatly summed up the conundrum these communities find themselves facing: "One person's high-paying energy job is another person's housing shortage." And housing isn't the only commodity that has been in short supply in Garfield County. Due to the demand from energy operations, gravel costs skyrocketed in recent years, multiplying the cost of numerous construction and road-building projects and raising the distasteful prospect of importing gravel from Utah. County officials have been forced to anticipate the energy boom's impact on every aspect of the local economy, literally down to the smallest pebble, when planning their coping strategies.

The story has been similar in Mesa County, where home prices increased 52% from $129,000 in 2003 to $196,000 in 2007 before dipping slightly in 2008. For officials at Mesa State College, students rather than teachers have been the concern, as male high school graduates have increasingly chosen oil and gas jobs with salaries that can hit $80,000 rather than pursue higher education. Community leaders worry about the long-term effect of an undereducated population, yet business owners have appreciated the impact these high wages have had on the local economy. Over the course of the boom, restaurants in Grand Junction and other Western Slope communities have grown accustomed to pouring double shots of top shelf liquors to help diners wash down their premium-cut steaks. And before spiking gas prices and the national recession put a damper on truck sales, auto dealerships in Grand Junction had trouble keeping enough pickup trucks on the lot.38

Although the oil and gas boom insulated Western Slope communities against much of the worst of the recent national economic downturn, by the beginning of 2009 there were signs that the recession may be overtaking the industry - and the people who have come to rely on it. In the energy fields, although active wells continued to pump and construction went forward on a gas processing plant in Rio Blanco County, companies began to scale back plans for new wells and idled a significant number of the drill rigs they had been operating in the area. In town, even as construction proceeded on four new hotels in Rifle, homebuilding throughout the area slowed, and houses that once rented the same day they were listed began to sit on the market for weeks. At stores along these towns' Main Streets, lines began to form for job openings that had previously gone unfilled, and area employers such as Wal-Mart in Rifle were able to staff all available positions for the first time in years, even as some considered cutting positions to reduce payroll expenses.

As this slump has taken hold, industry officials have begun to talk of "operating lean." Community leaders like Rifle Mayor Keith Lambert have noted a "slowdown" but point out that town populations are still growing and the current situation is much different from the abrupt crash of Black Sunday. Nonetheless, a few roughnecks and area residents have begun to openly talk of a "bust."39

The Dark Side of the Boom

The problems posed by housing shortages, overstretched city services, and declining education rates trouble Western Slope communities negotiating the recent energy boom, but perhaps the issue that raises fears of Gillette Syndrome most ominously is the growing prevalence of substance abuse. In today's energy boomtowns, the drug of choice is methamphetamine.

Piceance Creek

A gas drilling rig located along Piceance Creek in Colorado...

The prospect of a meth boom paralleling the energy boom is a particularly sobering thought for Western Slope community leaders already struggling to cope with a mounting epidemic. Methamphetamine is a highly addictive central nervous stimulant that can be made from inexpensive household items and over-the-counter products. It produces a euphoric sensation while increasing energy and decreasing the user's appetite. However, it can lead quickly to increased feelings of depression, and long-term meth use can cause heart problems, dental decay, significant and permanent changes in brain function, paranoia, hallucinations, delusions and other symptoms of psychosis, violent behavior, and, in some cases, death.

In addition, the process of making meth creates an explosive and highly toxic environment, putting everyone in proximity of the meth lab (including police and first responders) at risk whether or not they use the drug. Meth use ripples through the entire community, increasing the burden on healthcare providers, social services, foster care, police, the legal system, and prisons.

On the Western Slope, energy development is linked to a subculture of meth use that exacerbates these existing problems. Despite increased drug testing by companies in recent years, "you're either wired or you're fired" is a common saying among workers spending long days on the drill rigs, according to one well-traveled roughneck.

Reliable numbers that directly measure the causative relationship between energy development and meth use are difficult to come by, but it is hard to ignore the correlation between the timing of the oil and gas boom and the upsurge in meth use. According to a 2007 study, criminal cases involving meth in Mesa County increased by more than 40% between 1999 and 2007. The peak came in 2006, when meth was a factor in 89.3% of cases before the county's courts.

Western Slope communities are fighting back. In 2005, Mesa County established a meth task force to stem the growing crisis. To help heal the social fabric torn by meth abuse, the county opened a $5 million treatment center for addicts in June 2007. And in November 2007, the county district attorney's office created a position for a full-time prosecutor to step up the legal battle against meth.

These aggressive countermeasures appear to be paying dividends. During the 2008 fiscal year, meth was a factor in only 69% of the county's court cases.40

How to Plan for a "Maybe Boom"

The recent oil and gas boom coincides geographically with the prospective oil shale revival. In social and local economic terms, any future oil shale boom will, to some degree, look similar to the bonanza of the past few years. Operators looking ahead to oil shale will do well to study the examples now before them.

But if the recent oil and gas boom is a case study, it is one that will help shape the scenario it is meant to predict. Decisions and actions taken by oil and gas companies over the past few years are affecting the people and environment of the Western Slope in ways that will influence a future oil shale industry.

How that influence is felt will depend in large measure on the timing of the decline of the oil and gas boom and the upsurge in future oil shale development. If the current slowdown in oil and gas activity stretches into a full-fledged bust, how long will the Western Slope idle in economic doldrums before oil shale comes on line? Or will oil and gas production rebound and continue long enough for the two booms to pile on top of one another, stretching already strained communities to new levels? Or, ideally, might they dovetail sequentially, allowing impacted communities to continue using the expanded infrastructure and services already in place, as oil shale workers arrive to take advantage of housing, infrastructure, and services created for oil and gas workers? This finely calibrated (and somewhat improbable) transition would postpone the economic contraction brought by the end of energy development and make the job of community planners much easier.

New building

A new building goes up on the outskirts of Rifle, Colorado...

With so many unanswered questions still surrounding oil shale production, communities looking ahead to the coming "maybe boom" face the difficult task of simultaneously planning for both a shortage and an overabundance of municipal infrastructure, affordable housing, and even willing school bus drivers and other service providers. Officials at the city and county level expect the development of a commercial-scale oil shale industry, if it happens, to overlap with the current oil and gas economy, but no one is sure by how long, to what degree, or exactly how to plan for it.

What does seem clear is that the ways in which companies address and manage socioeconomic issues related to oil shale development will in large part determine how or whether the industry succeeds. "If we're not able to address the socioeconomic issues," one presenter told his audience at the 2007 Oil Shale Symposium at the Colorado School of Mines in Golden, "even if we have the economics and the technology to develop oil shale, we're not going to be allowed to develop oil shale."41

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