Sunday, June 26, 2016

Devon Energy Monetizes Midland Basin Assets

San Angelo's Standard Times reported in July 2013

Geography, geology and charm brought Devon Energy to San Angelo.
The need for capital may take Devon Energy away from our area.  A corporate press release stated:

Devon Energy Corp. (NYSE: DVN) announced today it has entered definitive agreements to sell its remaining non-core assets in the Midland Basin for $858 million. These transactions include the Company’s upstream assets in the southern Midland Basin and its undeveloped leasehold in Martin County, Texas.

In the northern Midland Basin, Devon agreed to monetize its working interest across 15,000 net acres in Martin County, Texas along with 13,000 net acres in eight surrounding counties for $435 million. 

In a separate transaction, Devon entered into an agreement to sell its assets in the southern Midland Basin for $423 million. 
A June 2016 Investor Presentation showed Devon focusing on two areas for exploration, the Delaware Basin in Far West Texas and Eastern New Mexico and Oklahoma's STACK formation.  This raises questions as to how much longer Devon will be in San Angelo. 

Geology, geography and charm may not have been enough.  Will Pioneer Resources or the unnamed buyer take over Devon's San Angelo operation?  The answer may come at the next Development Corporation meeting.  

Saturday, June 18, 2016

Dickson's Son New Assistant Water Treatment Plant Superintendent

San Angelo's Public Works Department, headed by Executive Director Ricky Dickson, hired Brandon Dickson as Assistant Superintendent for the Water Treatment Plant.  Brandon is Ricky's son.

Public Works is an administrative office that oversees and coordinates the work of the three City departments that are most responsible for San Angelo’s municipal infrastructure – the Water Utilities, Engineering Services and Operations departments. 
This past week Brandon started work in the Water Utilities division under Water Production.

It turns out Brandon's father had a similar beginning.  The press release on Ricky's 2014 promotion to Public Works Executive Director stated:

He (Ricky) began his career with the City in 1990, working in Water Distribution/Waste Water Collection.
It's not clear if Ricky's start involved supervision.  In1994 Ricky began supervising street maintenance and today hold's that ultimate operational responsibility.   As you drive around San Angelo's city streets know Ricky Dickson supervised their maintenance for most of the last two decades.

This isn't the first Public Works father-son team.  City Councilman Dwain Morrison sang an early warning on Carollo Engineering's hiring of Blake Wilde after Blake had been fired from the city's Engineering Department for cause.  Carollo designed and managed construction of the Hickory Aquifer project for San Angelo's Water Department, then headed by Will Wilde, Blake's father.

Area citizen may have a bad taste in their mouth from the Wilde-Wilde father-son history.  That would mean a Dickson-Dickson father-son employment situation would need to be crystal clear and squeaky clean.  It would be concerning if the son were slotted for rapid advancement within his father's bailiwick.

Father's Day will have passed when City Council meets on Tuesday but relationships, like memories, live on.

Update 6-19-16:  The City's website has no record of an Assistant Superintendent for Water Production or Water Treatment Plant   Site searches on these terms produced no results and there is no current record of such a position in the City's Staff Directory.  This leads me to believe Brandon's position is new but I will confirm this with city staff.

Thursday, June 16, 2016

Conserrvative Approach to Estimating Water Suppy = Aggresive Water Billing

City Council will entertain a presentation on water supply next Tuesday.  Water Chief Bill Riley informed council on the city's approach to estimating future water supply.  His memo states:

The City’s Drought / Conservation Plan implements different stages of drought levels based upon water supplies. This calculation takes into account our current and available surface supplies coupled w/ the minimum daily Hickory Groundwater pumping. CRMWD provides the number of remaining months for the City of San Angelo to continue bringing in water from O.H. Ivie. This calculation also takes a conservative approach by assuming a "no-inflow" scenario and also utilizes monthly evaporation rates established by the Texas Water Development Board for the area.
No-inflow and high evaporation rate assumptions mean the city enters drought levels much sooner than it did in the past.  Drought levels impose higher water rates on citizens.  As the drought level increases so do water prices.  A conservative approach to projecting water supply is an aggressive approach to billing San Angelo water users.

Sunday, June 12, 2016

Will Water Board Put Brakes on Reclaimed Water?

The City of San Angelo's began exploring wastewater reuse a decade ago.   Most area citizens have only been aware of efforts the last two years.

In May 2014 City Council approved the hiring of Allan Plummer Associates to conduct a reclaimed water use study for a price not to exceed $190,000.  Allan Plummer's initial reclaimed water study for San Angelo occurred in 2006.  The 2006 study suggested putting treated water into Twin Buttes Reservoir.  The 2015 version puts treated water directly back into our water pipes.  This process has been referred to by opponents as "Toilet to Tap."

October 2014 found the city employing Raftelis Consulting to ensure citizen's water bills would rise enough to pay the $136 million needed to implement the use of wastewater for drinking purposes. Yes, there were verbal machinations over "not naming" a specific project but the funding happened to be enough for the reclaimed water project.  Raftelis's study cost an initial $90,000 plus an additional $17,000. 

The City's Water Advisory Board got a complete remake in April 2015.  It's not clear what sins the former board committed as they only met at staff's pleasure.   Several members did complain to Council about not meeting.  That's when staff and Council flushed the Water Board.

City staff updated the newly appointed Water Advisory Board on reclaimed water in their initial meeting.  The Board recommended a reclaimed water pilot study for direct potable reuse, estimated at $1.1 million, in June 2015.  In three week's time the pilot project added $100,000 in costs. 

On June 24, 2015, the COSADC Board approved an allocation of One Million Two Hundred Thousand and No/100 Dollars ($1,200,000.00) of sales and use tax proceeds for cost to be incurred by CITY in conducting a pilot test for the design of direct potable reuse of reclaimed water.

The reconstituted Water Advisory Board met in February 2016 to consider one strategy for San Angelo's future water supply, reclaimed water.  Staff failed to mention the possibility of further expansion of the Hickory Aquifer well field as a means to ensure future water supplies.

The Water Advisory Board stepped back to consider a number of other options, which they've done the last few months.   Water Chief Bill Riley will share options with the Water Board, including further Hickory expansion on Tuesday, June 14th.

The City of San Angelo's website currently states on its Water Utilities page::

Abundant rainfall in 2015 in no way diluted the need to urgently press forward in San Angelo’s efforts to secure more water. 

Our swath of West Texas is one of the few places in Texas where reservoirs remain at less than 20 percent of their capacity. In contrast, East and North Texas reservoirs are brimming with water. Unless significant runoff flows into O.H. Ivie Reservoir, San Angelo’s primary water source, it could be functionally dry next year. 

That underscores the continued need to diversify San Angelo’s water portfolio

And that’s exactly what we’re seeking to do

At the time of this writing, we are preparing to forward a recommendation from the Water Advisory Board (chaired by 2015 Citizen of the Year Mike Boyd) to the City Council that it approve a wastewater reuse project. That $136 million effort would make available to us approximately 7 million gallons per day. 
Recent rain runoff doubled the amount of water in Lake Ivie and area lakes are in better shape vs. a year ago.

Thus there is no current urgent need, no rush to pull the trigger on reclaimed water.  However, the project has momentum and staff have consistently pushed it as the solution.

The public will hear staff's update on current water sources and their ability to meet our water needs.  Hopefully Mr. Riley will share staff's assumptions in their predictions of how long our current supply will last.  While they failed to share all their math, staff assumed no rain and only counted surface water in making their prediction.  Thus, Hickory Aquifer water was not counted as a water resource.

The City's website states on Hickory:

In a worst-case scenario, the City could produce 9 MGD on a continual basis for five years before all the banked water would be used. Afterward, San Angelo would still be able to use its annual water allocation, which is currently 2,750 acre-feet per year. This amount increases to 5,000 acre-feet per year in 2021, to 10,000 acre-feet per year in 2026 and to 12,000 acre-feet per year in 2036.
The city has 40,000 acre feet of banked Hickory water, which will continue to grow as long as the city is minimally pumping.   The amount the city is allowed to carry in its Hickory bank will drop to 20,000 acre feet in 2026.  The Water Board must balance the reasonable use of Hickory water along with surface water supplies as it considers future water sources.

This week's Water Advisory Board will be interesting.  I look forward to watching the video. 

Sunday, May 15, 2016

Staff Failed to Update Water Board on Current Water Supplies

San Angelo's Water Advisory Board recent agenda had a variety of topics but it lacked a most basic one, the amount of water currently available to meet anticipated water needs.  Citizen Scott McWilliams shared his assessment with the Water Board.  He projected the city has an anticipated 17 years of water between the current 30 months of surface water, expected rainfall (firm annual yield based on drought of record) and use of a fully developed Hickory Water field.

The Water Advisory Board narrowed their list of future water sources to five.  Three of those included Hickory Aquifer expansion, rehabilitation of the E.V. Spence Lake pipeline and using reclaimed water, known as direct potable reuse or toilet to tap. 

Former City Councilman and Water Advisory Board member Kendall Hirschfeld commented on Lake Spence pipeline rehab.

"My concern would be spending $20 - $30 million today and Spence continues to do what it has the last couple of years."

For the last couple years Lake Spence is up over 18 feet.  It holds 51,200 acre feet of water today, four times more than it did two years ago.

I don't fault Water Advisory Board members.  There's no evidence city staff updated members with area lake levels and storage volumes.

Currently, the City has 40,000 acre feet of banked Hickory water which must be used in the next nine years or it will be lost.  Water users paid increased base fees and tiered water use charges since 2011 to fund the Hickory project and its $120 million price tag. 

Water rates have and will increase dramatically to fund the city's next big water find to the tune of $136 million.  That happened to be the price of direct potable reuse. 

The State of Texas and U.S. Bureau of Reclamation have money available to fund projects/studies.  The State has low interest loans for approved water projects.  The Bureau of Reclamation, which owns Twin Buttes Reservoir, has grant funds for reclaimed water studies.  City staff applied for the federal grant and asked for the Water Advisory Board's endorsement for their $300,000 request. 

It will be interesting to see how our leaders go forward in the water arena.  Will Water Board members plan to use banked Hickory water in a measured way before it expires?  Will they explore staff assumptions on surface water that reduced over 50,000 physical acre feet of surface water to a projected 30,000 acre feet, the two year supply?  So far, they've been a relatively quiet group.  Pretty soon there might be much to talk about.  After all, it is water in West Texas.

Friday, May 06, 2016

Hirschfeld Energy Settles with City: Adds Rail Spur Incentive

The City of San Angelo sued Hirschfeld Energy for $2.7 million for failure to invest $40 million in the local plant and provide 225 jobs for ten years.  It settled for $1.4 million or 52 cents on the original public dollar

During the contentious negotiation Hirschfeld added more than 30 jobs in Abilene and said it planned to increase that in the future.  The City's settlement provides a reward for Hirschfeld adding 28 jobs locally to the 47 employees working in the steel bridge fabrication plant. 

Hirschfeld may increase its workforce to 75 employees during the five-year period. If it does so, the company will earn property tax rebates for that given year of 75 percent in years one through three and 50 percent in years four and five. The rebate will be lost for any year during which 75 employees are not maintained.

Hirschfeld's 2015 property taxes are estimated at $481,226 by the Tom Green County Appraisal District.   This is down from a 2013 property tax bill of $518,524. 

Seventy five percent of $481,226 is roughly $360,000.  Three years of that is nearly $1.1 million.  Add two more years at fifty percent, $240,000 times two, and Hirschfeld would have nearly $1.6 million.  That roughly a wash with the $1.4 million refund.

The settlement was aided by City Councilwoman Elizabeth Grindstaff, who helped the parties negotiate.  It seems she helped her employer Texas Pacifico Railroad in the process

The company will also make commercially reasonable efforts to build a railroad spur to its plant within 12 months, at an estimated cost of about $1 million. If Hirschfeld does not complete the rail spur within 24 months, it loses all rights to property tax rebates.
For Hirschfeld to get back its $1.4 million settlement money from the city it must build the railroad spur within two years. 

To sum up, 225 additional jobs for ten years became 27 jobs for five years.  That's 12% of the original commitment for half the time.  A $40 million plant investment became $1 million  That's 2.5% of the 2009-2010 promise.  And the deal is contingent upon Hirschfeld adding a railroad spur that will benefit the employer of the negotiator that helped the parties reach a settlement.  Interesting and just a bit unsettling.

It feels like practical politics, i.e what are you planning to do the next few years at Hirschfeld Energy and how can we rebate your money?  OK, you're planning to add jobs for the new Atlanta Braves stadium.  Add 27 of them here.  You're planning on building a railroad spur.  Good we'll make your rebate contingent upon what you've got in the works.  Stamp it, seal it. 

My gut may be off base on the negotiation process, but Hirschfeld's owner Insight Partners must be delighted about the settlement.  It removes a barrier to Insight monetizing, i.e. selling Hirschfeld.  I hope it's an IPO.  It'd be interesting to see how many millions in dividends Insight pulled from Hirschfeld while it held off repaying local taxpayers. 

Saturday, April 23, 2016

Standard Times Endures Readership Loss & New Owners

Journal Media Group's recent 10-K filing included statistics on readership for San Angelo's Standard Times:

1996 - 32,000 Daily paid,  39,000 Sunday 
2000 - 29,000 Daily paid,  35,000 Sunday 
2008 - 24,000 Daily paid,  28,000 Sunday 
2012 - 18,000 Daily paid,  22,000 Sunday 
2014 - 16,000 Daily paid,  18,000 Sunday
2015 - 14,000 Daily paid,  16,000 Sunday

Standard Times circulation dropped over 55% the last two decades.

It fell after the paper instituted a paywall to "restore revenue growth" in May 2013.  The company described the move:

As we implemented metered access to our digital content in 2012 and 2013, we significantly increased subscription prices to many of our subscribers. Going forward we expect to manage price increases in an effort to obtain the highest yield from our subscriber base. Many customers are price-sensitive, particularly when we have reduced content they consider valuable. In an effort to minimize customer churn and maximize profitability, we have and will continue to use analysis of customer price sensitivity to drive price increases on targeted subscribers and limit the price increases on other subscribers.

We have also implemented marketing strategies to gain new customers, primarily through digital channels with special offers designed to obtain subscribers, particularly digital customers. We have also run a number of in-paper advertisements encouraging subscribers to register their account on-line, which allows us to monetize their online activity with certain advertisers who target specific customers based on demographics, which drives higher advertising rates.
JMG's SEC filing reported the number of digital only subscribers for its 17 newspapers in 14 markets:

As of December 31, 2015, we had approximately 50,000 digital-only subscribers across all of our markets. 
JMG merged with Gannett on April 1st.  We'll see what Gannett reports next April on our local newspaper.  Until then I hope you are not the Standard Times customer having price increases driven upon them.  May you be the subscriber they pass over.