When the Dust Settles

What’s happening in West Texas, to quote a song from The Killers, is a “dustland fairytale.” The spoils of the fracking boom are spilling over into ordinary life. Barbers in the area are making nearly $200,000 a year for cutting hair. Local barbecue joints are selling out of brisket, pulled pork, sausage, and spare ribs before dinner. And teachers are in such high demand that school districts are debating building affordable housing specifically for them as a perk.

Last year, this section of Texas, which includes the towns of Midland and Odessa, became the fastest-growing job market in the country, with a nearly 12% gain over 2017. The growth rate is the result of oil companies scaling up in the region over the last few years to ramp up production in what could become one of the largest sources for oil in the world when it reaches peak output levels.

Managing hyper-accelerated growth is a good but difficult problem to have for leaders across industries. After all, supply always catches up with demand. In fact, according to Bruce Peterson, a Korn Ferry senior client partner in the firm’s Global Industrial Market practice, is already normalizing in West Texas—somewhat ironically given its ranking as the nation’s hottest job market. “After 2014, organizations took a hard look at how they could become more efficient,” says Peterson, noting that commodity prices collapsed that year, prompting organizations to reassess their operations. Peterson says investments in infrastructure such as pipeline back then are paying dividends now in the form of lower trucking costs, for instance.

The focus on efficiency is happening across industries, as organizations seek to deploy new digital technologies to cut costs, rightsize labor, and speed innovation. In the oil industry, investors are pushing organizations to concentrate resources around the most profitable areas. Peterson says where oil companies in the past would operate in seven or eight basins at a time, now it is only one or two. To be sure, the growth West Texas experienced in 2018 has really been about five years in the making. Peterson says oil producers and others in the industry began pumping money into the area, known as the Permian Basin, after commodity prices collapsed in 2014. “It was the only place where the economics still generated a rate of return, so everyone started pulling capital out of their other basins and investing it down here,” says Peterson, who is based in Houston. Over the last few years, as commodity prices recovered, companies continued investing in West Texas, setting the stage for the current boom.

While it is boom times now, the reality is that fewer basins means fewer people, which means less upward mobility. Leaders will have to figure out ways to keep talent engaged, motivated, and, most importantly, in place in the face of limited career advancement opportunities. “It’s something they are grappling with now,” Peterson says.