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Earthquakes are caused by a sudden release of energy in the earth’s crust when two sections of the crust slip past each other.The size of an earthquake is determined by the Richter magnitude scale, which ranges from 0-10. Earthquakes are sometimes classified as:

● Micro Earthquakes. Earthquakes that register less than 2.0 on the Richter scale are called micro earthquakes and are typically not felt at the surface. Micro earthquakes are so frequent that it is estimated that they may be continually occurring or that there are several million that occur each year.

● Minor Earthquakes: Earthquakes that register 2.1 to 2.9 on the Richter scale are called minor earthquakes and occur over one million times per year. Minor earthquakes can be felt slightly by some people, but cause no damage to buildings.

● Minor Earthquakes: Earthquakes that register between 3.0-3.9 on the Richter scale are also called minor earthquakes and are often felt by people on the surface, but very rarely cause damage to buildings. Minor earthquakes between 3.0-3.9 occur over 100,000 times per year.

Hydraulic Fracturing, and Disposal Wells and Earthquakes
Hydraulic fracturing is a well stimulation technique in which rock is fractured when a high-pressure fluid is injected into a well bore to create fractures in the deep rock formations where oil or gas is held in pores of the rock. Fracturing is usually necessary to obtain adequate flow rates in shale gas, tight gas/oil, and coal seam gas wells. Hydraulic fracturing was first performed in 1947 and over one million frac jobs have been performed within the United States. Frac engineers design frac jobs by evaluating the formation and determining the proper amount of fluid and pressure needed to fracture the reservoir rock in the zone of interest. The fluids used for fracking are recovered and disposed of by injection into a disposal well.

The early studies in this area are indicating that drilling and fracking may be correlated with earthquakes. You can access those studies herehere and here. 

It remains to be seen what impact this information will have on exploration and drilling activity in Texas long term.

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Last year was a tough year for oil and gas companies. Houston based Schlumberger announced that it was laying off 9,000 workers. Range Resources cut its 2015 capital budget to $870 million. Other oil producers have cut rig production in response to the price declines. Concho Resources, a major producer in the Permian basin, recently cut its 2015 production by a third. Pioneer Natural Resources converted its derivative contracts to a fixed-price swap, to shield itself from the declining market. “Demand for rigs is falling off the cliff” said Joseph Triepke, a financial analyst and managing director of Oilpro. Finally, we have seen a number of oil and gas companies filing bankruptcy, as they find themselves unable to meet their lender’s demands for additional collateral in response to the shrinking value of the borrower’s reserves.

Its a frightening time for employees too. While the oil industry has added about 150,000 jobs over the last three years, the current pace of layoffs may outstrip the hiring. Each drilling rig represents about 100 jobs, from field hands to maintenance workers. The current rig count is down substantially. Oil companies are cutting exploration at exponential rates. Mr. Triepke surmised that this may mean that the three biggest  land rig companies- Helmerich & Payne, Nabors Industries and Patterson-UTI Energy – are “likely to cut approximately 15,000 jobs out of the 50,000 people they currently employ.”

Local economies may be devastated. Take the extreme example of Sweetwater, Texas. Two years ago Sweetwater was to herald a new age of industry due to the nearby Cline Shale.

Comparison Map of Cline Shale

Comparison Map of Cline Shale

There were plans to convert the town from the site of the annual Rattlesnake Roundup to a major player in the hydraulic-fracturing boom. Devon Energy triggered a flurry of leasing activity when it announced that it estimated that the Cline Shale held 30 billion barrels, six times the size of the Bakken Shale in North Dakota. The University of Texas at San Antonio predicted that the Cline Shale would bring $20 Billion to the region. Citizen optimism led to remodeling of the courthouse and the law enforcement center. Even the hospital planned $31 million in upgrades. But the recent falling oil prices have spooked investors. Now the 11,000 people of Sweetwater await layoffs and budget cuts.

In a rather un-Texan-like way, Devon quietly let itself out the back door. It let its oil and gas leases expire. A Lubbock newspaper said that “(t)here was no mention of the Cline in Devon’s third-quarter financial report filed in November with the Securities and Exchange Commission. Two months earlier, Devon’s financial partner, Japan’s Sumitomo Corporation, took a $1.55 billion write-down on its Cline investment.”

Clearly, the contraction in oil and gas prices, the layoffs and the economic repercussions are not going away anytime soon. By most indicators, it appears that 2016 will be another very tough year for the oil and gas industry.

See Related Posts:

Life for Oil and Gas Wells in Tyler County and Duval County, Texas

Texas Oil & Gas Fuels a Robust Economic Recovery

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Currently, there is  a coordinated effort underway by a number of organizations to study and identify a possible connection between hydraulic fracturing (fracing) and a recent increase in seismic activity.

Some scientists have observed an increase in seismic activity in the central and eastern regions of the United States, as shown in the graphic below. Scientists with the U.S. Geological Survey have been documenting the number of earthquakes of Richter Scale 3.0 or larger and have noted an increase in the number of earthquakes. There have been more than 100 earthquakes a year on average in the last four years, up from 20 a year between 1970 to 2000. California in particular has experienced an increase in seismic activity. After a relatively quiet period of seismic activity in the Los Angeles area, the last five months have been marked by five earthquakes measured larger than 4.0. That hasn’t occurred since 1994, the year of the destructive Northridge earthquake that produced 53 such temblors. In the two decades subsequent to the Northridge earthquake, there were some years that passed without a single quake of 4.0 or greater.

One of these organizations exploring a potential link between fracing and seismic activity is the U.S. Energy Association. Their main focus is on determining the quality and availability of information. With so much misinformation in the media, it is easy for mistaken assumptions to be published just to score a political point.


Hydraulic fracturing is a well-stimulation technique in which rock is fractured by a hydraulically pressurized liquid. A high-pressure fluid (generally sand or another “proppant” suspended in water) is injected into a well bore to create cracks in the deep-rock formations through which natural gas, petroleum, and brine will flow into the well bore more freely. Hydraulic fracturing technique is commonly used in wells for shale gas, tight gas, tight oil, and coal seam gas.  Similar fractures occur in rocks naturally and are called veins or dikes. However, concerns over the artificial hydraulic fracturing have been voiced due to observations of increased seismic activity along or near fracing sites.

Some scientists are skeptical of claims that the increase in seismic activity is due solely on fracing. Other activities, such as dewatering, are also thought to be a major cause of the spike in earthquakes and ground disturbances. “Not all the (seismic) activity is related to hydraulic fracturing,” noted William Leith, the US Geological Survey’s senior science advisor for earthquake and geological hazards. “A lot has to do with stripping and dewatering. Production waste fluid injections have caused more quakes in the U.S. than fracing. Not having good injection data is a real problem.”

The U.S. Department of Energy is reportedly partnering with researchers in the private sector, including ExxonMobil.  A major focus of their efforts will be to identify possible tectonic areas that are prone to slipping.

The jury is still out regarding the relationship, if any, between fracing and the observed increase in seismic activity. The fact-finding efforts will hopefully add to our knowledge, and give us hard facts upon which to base policy decisions regarding  the oil and gas industry.

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On January 14, 2015 the U.S. Environmental Protection Agency (“EPA”) announced that it will release a draft rule aimed at curbing emissions of methane. This new rule will directly target new oil and gas production sources and natural gas processing and transmission. The EPA wants to reduce current emissions of methane up to 45% of 2012 levels by 2015. The Texas Director of Americans for Prosperity found this so antagonistic to business interests that he wrote an open letter asking the Texas Legislature to restrain the EPA.

The rule stands to negatively affect Texas and the state’s businesses and consumers. Since Texas produces about a third of the country’s oil and one quarter of its natural gas, Texas is a huge emitter of methane, which is considered by the EPA to be another warming gas. Methane is sometimes leaked during the oil and gas drilling process. It is possible to fix the methane problem but it is estimated to cost billions of dollars. For instance, industries can replace all their compressor equipment. The industry could capture the methane and possibly sell it. The federal government thinks that that without any intervention, methane emissions from the oil and gas industry are projected to increase by 40 to 45%.

Industry groups, who are skeptical (with good reason) about global warming in general and EPA regulations in particular, have doubted the science claiming that humans are behind global warming. David Porter, Railroad Commissioner lamented that “(t)he EPA’s rules are part of the President’s war on fossil fuels” and believes the rule will hurt Texas’ economy. Indeed, this rule come at a time when oil and gas industries are already struggling. The price of West Texas crude fell by 60% in the past six months. In addition, it is not as if the industry isn’t and hasn’t been aggressive in curbing its own emissions. President of EDI Rich Rynn said “You’d be surprised at the number of (oil and gas) companies that are proactive.” In fact, the industry has already reduced emissions voluntarily, despite soaring production: industry emissions have decreased 12% since 2011.

EPA apologists say that the rule would lead to less waste at a low cost. They further contend the rule will be a boon to the U.S. manufacturing sector and create jobs. A White House fact sheet says the Obama’s plan could save $180 billion cubic feet of natural gas in 2025, enough to heat nearly 2 million homes for a year.

So, there are several problems with this rule. First, it is based on a lack of credible science to support the claim that there is a human causative component to global warming. Secondly, the rules are redundant and unnecessary in light of the voluntary efforts of the oil and gas industry. Thirdly,  this regulation is pretty meaningless, even if you ignore the science and believe that human activity causes global warming. The Cato Institute says that EPA regulation is very small, too small to be successful in assisting the slowing of global warming, even if you believe people cause it! It is just one more example of a clunky rule that burdens industries already cutting emissions on their own.Finally, if the oil and gas industry has to comply with this rule, it’s going to result in much higher prices for not just oil and gas, but everything made with petroleum products (think plastic, nylon, etc.)

Has anyone calculated the effect of the hot air at the EPA on global warming?

Related Posts:
Texas’ Proposed Rule 3.29 for Hydraulic Fracturing Chemicals Disclosure
Texas Fracing Study Interim Results: Hydraulic Fracturing Does Not Pollute Groundwater

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I tell all my Texas clients (and anyone else who will listen) never to sell their mineral interests. There are a number of reasons why:

1. About 99.9% of the companies who claim to buy mineral interests are scams. What often happens is that they send you a solicitation letter which makes an incredibly high monetary offer for your mineral interests. They ask you to sign a deed, which is either enclosed with the letter or that they send you if you contact them, and request that you send the signed deed back to them. Next they file the deed in the deed records. After the deed is filed in the county deed records, they contact you and say that they discovered certain ambiguous “problems” with your title to your minerals, or the market for mineral interests has changed, or some other nonsense. They then tell you they will pay you, not what they offered in the letter, but a tiny fraction of what they offered. If you don’t take it, you are stuck with the deed filed in the deed records that shows you sold your mineral interest to them. In many cases, I’ve had to sue the company on a client’s behalf to force the company to cancel the deed. Even if the company cannot be found or has gone out of business, you will still probably have to file a lawsuit to get a court order cancelling the filed deed. Given the expense of litigation, this can be a huge burden.

One way to tell if a company is a legitimate concern or not is to tell them that you might be interested in selling your minerals but your requirements are: 1) they need to send you a written contract of sale with a specific price and an earnest money deposit which, if acceptable to you, you will sign and take with the earnest money to a title company; 2) the deed will be prepared by your attorney; 3) the transaction will be closed in a title company; and 4) they will be required to deposit the balance of the purchase price in good funds with the title company before they receive the deed. Most of these companies will tell you that is an unnecessary expense, or “they don’t do it that way”. This is a huge red flag. However, in my experience, even some of the scam artists will agree to this, but once you have paid your attorney to draft the deed and it’s time for them to put the purchase price in escrow, they will disappear or pull out.

2. Companies who are legitimate purchasers of mineral interests generally do not send out mass mailings to potential purchasers. The fact that you received the letter in the first place is a sign that the company is a scam.

3. If a company is trying to buy your mineral interests, it may be because they’ve heard something about your mineral interests that will make them increase in value. For example, maybe the oil company who is producing your minerals may be getting ready to deepen or rework its wells or is preparing to drill new wells but has not announced their plans publicly. Either of these events would result in greater production and more royalties for you. The scam artists are trying to get you to sell them your minerals on the cheap with their bait and switch tactics, and before you have heard anything from the oil company, so that they can reap the benefits of increased royalties later on.

4. You will never get what your minerals are really worth if you sell to one of these scam artists and sometimes even if you sell to a legitimate buyer. The reason is that it is extremely difficult to value a mineral interest. I research and prepare valuations of mineral interests for clients, and I must tell you that it is often part skill and science and part crystal ball. Specifically, the value of a mineral interest depends on the stream of income in the form of royalties from a given well or wells. That stream of income, in turn, depends on many factors: what the price of oil and gas is in the future, whether the reservoir is becoming depleted or not, whether the equipment at the well breaks down and cannot be economically repaired, etc. It is truly impossible for anyone to predict some of these factors. However, even though valuations are very challenging, they can still be helpful and so I urge clients not to sell until and unless they have had someone do a proper valuation of their mineral interests.

5. If and when you sell your mineral interests, there must be special language in the deed that is required by Texas law in order to cut off your liability for the well and the operator’s behavior after the date of the sale. I have never, in the entire time I’ve been practicing oil and gas law, seen a deed from one of these companies that has the required language in it. From their point of view, it’s a good thing for you to continue to be liable. Obviously, that is not a good thing from a seller’s point of view.

6. Even with the proper “magic language” required by Texas law to cut off your liability, there are still situations in which you could be held liable even though you have no remaining interest in these minerals. Specifically, where an oil and gas operator has gone out of business or has no assets and whose operation has created contamination at the well site, the federal Environmental Protection Agency (“EPA”) is allowed by their regulations in some situations to sue everyone in the chain of title of the property and/or mineral interests for the cost to clean up and remediate the site. The  EPA has taken the position in some cases that anyone who once profited from this property is liable for the cost to clean it up, even though they have no current interest in the property. Incredible, but true. The moral is: know who you’re selling to. In other words, before you expose yourself to potential liability for environmental problems, do some due diligence research on the company. Have they been sued or fined by the Texas Railroad Commission or the EPA in the past? Are they on shaky financial ground so that it would be unlikely for them to be able to pay for the cost of an environmental remediation? The clients for whom I have performed due diligence research think of a due diligence investigation as insurance against a potential future catastrophe. In most cases, my fee for the investigation can be included in the purchase price and so it will cost you nothing.

If you receive an offer to purchase your mineral interests and despite what I have said, really do need or want to sell, give me a call and we can discuss the pros and cons in connection with the potential buyer, and also perhaps determine if a due diligence investigation is warranted.

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Kinder Morgan, based in Houston, Texas, is in the process of obtaining commitments from oil and gas companies who want to use its Utica Marcellus Texas Pipeline (“UMTP”) project. This pipeline will transport natural gas and mixed natural gas liquids produced from the Utica and Marcellus shale areas to delivery points along the Texas Gulf Coast. In February 2015, Kinder Morgan filed for abandonment of a Tennessee Gas Pipeline pipelineKinderMorgan ProjectMap with the Federal Energy Regulation Commission (“FERC”).

As part of this pipeline project,  964 miles of natural gas pipeline in the  Tennessee Gas Pipeline will be abandoned and converted and approximately 200 miles of new pipeline from Louisiana to Texas will be constructed. The new pipeline is expected to be completed by the 4th quarter of 2018. The new pipeline will have a maximum design capacity of 430,000 barrels per day.

It appears from the Kinder Morgan maps that this new pipeline will travel through Newton, Polk, Liberty and possibly Chambers Counties in Texas. Landowners in these counties should be aware that the may be getting an easement request from landmen for Kinder Morgan, and when they do, they should contact my office. To make sure you get the best easement terms and compensation, you really need an experienced Texas oil and gas pipeline attorney representing you.

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Texas royalty owners have sure taken a licking this year. Unfortunately, it’s probably going to get worse before it gets better.

Moody’s Investor’s Service recently lowered its estimates for future average 2015 prices of Brent crude to $55 per barrel, and of West Texas Intermediate (WTI) crude to $50 per barrel. The new 2016 estimates are $57 per barrel for Brent and $52 per barrel for WTI. Meanwhile, the futures markets for September 2015 delivery settled at $43.87/bbl on the New York Market this week.

There are many factors that affect the price of oil. Some of the factors that are in play right now probably include weak global economic growth resulting in weak demand, the increase in the size of oil inventories, the prospect of Iranian oil coming to market in the near future and the increased production by oil companies. In fact, it’s ironic that oil companies are producing more and more oil in large part because the price is so low. They produce and sell more oil at a lower price in order to realize the same income that they received when oil prices were higher.

There are downsides to these low oil prices. Many people who are retired or on fixed incomes depend in part on income from their oil and gas stock or from from mutual funds that hold shares in oil and gas companies. In addition, when the price of oil is lower, oil companies are less likely to explore new fields or try new technologies. They just don’t have the income cushion to be able to take the risk.
However, if there is one thing certain in the oil and gas industry, it’s that it is cyclical. I recall during the 1980’s when the price of oil in Texas neared $10 per barrel. The price eventually went up again, and it surely will in this case.


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A recent oil and gas pipeline rupture demonstrates how important it is to have an experienced pipeline attorney review the document to make sure your land is protected to the full extent of the law. In this case, a 24-inch crude oil pipeline owned by Plains All American Pipeline LP (PAA) ruptured on May 19, 2015 in Santa Barbara, California. The pipeline experienced an 82% wall thickness loss at the rupture site. An evaluation released on June 3, 2015 by the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) indicated that there was a 6-inch opening running the length of the relevant section of pipeline. Both near the rupture and in other sections of the pipeline, corrosion had reduced the thickness of the pipe to 0.0625 inch. The PHMSA says they have not not yet been able to determine the cause of failure, although it certainly sounds as though the thinning of the pipeline was the culprit.

Conflicting Reports

The results released by PHMSA conflict with a report released by PAA which stated that there was only a 45% wall thickness loss in the area of the pipe rupture. PHMSA ordered PAA to perform another study on the pipeline and the rupture area, and to repair the damaged portion of the pipeline. PHMSA had previously ordered an indefinite shutdown of the pipeline.

Inspections were also conducted on three previously repaired sections of the pipeline near the rupture. The repairs were intended to fix corrosion damage discovered in a 2012 inspection of the pipeline by PAA. PAA used a cathodic protection technique to repair the pipe, which is a technique used to control corrosion of a metal surface. The technique involves using the pipeline as a cathode of an electrochemical cell and coupling the cathode with an anode pairing made from a sacrificial metal that is easily corroded. The intent is to have the corrosion occur at the sacrificial anode, rather than at the protected cathode, i.e., the pipeline. The PHMSA report stated that PAA’s cathodic protection at the failure site and the other three repair points met current industry standards.

Preventative Measures

In response to the leak in the pipeline, the PHMSA placed restrictions on the operation of another one of PAA’s pipelines that contains similar insulation, welding, and corrosion protection as the ruptured pipeline. The operating restrictions require that the pipeline not exceed 80% of the highest rated operating pressure for a continuous 8 hour period. Instead of operating with the restrictions, PAA decided to shut down the second pipeline, which runs 128 miles from the Gavota Pump Station in Santa Barbara County to the Emidio Pump Station in Kern County.

The PHMSA also amended a previous corrective action order to require that PAA list and describe any anomalies discovered after performing an inline inspection of the pipeline. The inline inspection identifies regions that require further inspection or repair under the higher of either current regulatory standards or PAA’s own internal standards. The PHMSA is also requiring that PAA have a third party perform nondestructive testing at the site of each anomaly discovered during the inline inspection. Other mitigation and prevention measures PAA must undertake on both pipelines are daily inspection of pumping stations and weekly inspections of the pipeline right of way.

On June 3, 2015, U.S. Rep. Lois Capps (D-Calif.), whose district includes the region of Santa Barbara where the rupture took place, proposed an amendment that requires federal regulators to finalize the enhanced safety rules for oil pipelines as part of the Transportation and Housing and Urban Development Appropriations Bill. The new rules would require automatic shutoff valves on new pipelines and require the inclusion of leak detection technology on new and existing pipelines.

Pipeline ruptures can result in substantial damages to landowners. Before you sign a pipeline easement or right of way, have an experienced pipeline attorney review the document to make sure your land is protected to the full extent of the law.

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The ownership of oil and natural gas companies may not be what people commonly think it is or expect it to be. The fact is that over 80% of the ownership of oil and gas companies in America is held by private individuals, either in their individual names or through their IRA, mutual fund or pension fund.

Broad Ownership of Public Oil Companies

A report of an investigation by Robert J. Shapiro and Nam D. Pham notes thate oil and gas company officers and managers, the corporate management, own a mere 2.9%. Asset management companies, including mutual funds, own 24.7%. Pension funds control 28.9%. Individual investors, which come in as the third highest portion at 18.7%, control a significant portion of the wealth. Next in line are IRAs, which control 17.9%. Other institutional investors own 6.9% percent.

This data seems to indicate that middle-class households continue to predominate the ownership of publicly-held oil and gas companies. By owning oil and gas company stock, these middle-class investors benefit from the industry’s strong, profitable returns. Stock ownership is providing a sustainable income to these individual investors and retirees.

Ownership Distribution by Industry Segments

The oil industry can be broken up into three segments: integrated (providing a range of functions such as drilling, production, treating, etc.), non-integrated, and services. Of these three categories, integrated companies represent 44.1% of the industry’s market value, or approximately $1.94 trillion in earnings. Non-integrated companies represent 39.8%, and services-related companies represent the remaining 16.1%.

There are twelve publicly-traded, U.S. based, integrated oil and gas companies in the U.S. Once again, the data reveals that corporate insiders, such as executives and directors, have minute ownership shares. These insiders control 0.5% of the integrated companies, whereas private investors own 42.7% of the outstanding shares. Of the 129 domestic publicly-traded non-integrated oil and gas companies, corporate executives own a mere 5.5%, and their ownership has actually declined over recent years. Individual owners account for 18.1% of the ownership. As of May 2014, this segment represents a $772 billion market capitalization. Finally, there are 60 publicly-traded oil and gas service companies, and corporate executives control 3.0% of these companies. Individual investors control 26.9%. The combined market capitalization of these services-related companies is $313.5 billion.

The point is that the critics of the oil industry often characterize oil companies as leviathans and monolithic entities, when the fact is that ordinary individuals, either directly or indirectly, are the owners of a major portion of U.S. oil and gas companies. Oil and gas company income funds the retirement of many older Americans. Of course, this may be another case where the facts are purposely ignored because they don’t further someone’s politically charged narrative!

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There is no denying the importance of the Texas oil and gas industry to the Texas economy. A less obvious impact is the effect of oil and gas prices on Texas land values.

Texas A&M University’s Real Estate Center released an econometric model positing a powerful correlation and interdependence between rural land prices and Texas oil prices. For most landowners, their land is arguably their most valuable possession. Land is also a vital ingredient for the oil industry. In addition, the oil industry is highly competitive in terms of offers to lease mineral rights and make use of the surface. The price of one’s land can be calculated from the value of projected future revenue the landowner receives from an oil company.

Land prices are determined by two factors: expected net revenue and the discount rate applied to future cash flows. The higher the price of oil, the greater the revenue from bonus and royalty income will be for oil and gas producing land. The increase in oil prices also effects oil company workers, shareholders, and executives in the form of increased salaries, bonuses and share prices. With more to spend, the workers and shareholders can pay more for land and so this helps bid up land prices as well.

The Real Estate Center’s model includes data from 1966 to 2013 tracking the price of oil and the price of rural land. The researchers found a seemingly direct relationship in four time periods. First, from 1973 to 1980, as the price per barrel of crude oil increased, so did the cost of rural land. The second period occurred between 1985 and 2000. Oil prices were stagnant, and so were the land prices. The period of 2000 to 2008 brought an upward movement in oil prices. During this third period, crude oil prices reached a high of more than $120 per barrel. Similarly, the rural land market experienced an increase in prices. The fourth period is after 2008. Oil prices dropped dramatically, but bounced back rather quickly. Once again, land prices followed suit.

The Center found the speed in which the land prices followed the trend of oil prices were contingent upon where in Texas the land was located. In Regions 1 and 5, the effect of oil prices on land prices happen more quickly. (Region 1 contains Midland and Ector Counties as well as other counties that are heavily involved in oil production.

The Real Estate Center’s econometric model is updated quarterly. The model may prove to be a useful tool for real estate investors who are trying to get into the market before the next boom in land prices.