The Real Estate of Oil

By Andrew Beattie | November 10, 2014 The oil industry goes far beyond simply extracting crude from the ground. On top of the companies drilling and pumping oil, there are dozens more providing services like hauling, maintenance, safety services, refining and so on. The bigger the oil reserves, the more economic ripples it causes. In this article, we’ll take a look at how the oil industry can affect real estate. Lease Land Lease land is the most obvious connection between oil drilling and land values. When an area is found to be productive for oil, gas or another mineral, the lease price on adjacent lands tend to rise rapidly. Once fracking made the Marcellus and Eagle Ford shale productive for oil and gas, the lease prices on acres in Texas and Pennsylvania shot up. The leases also pay royalties, making millionaires out of people who were ranchers and farmers before the boom. The lease prices are paid by oil and gas companies looking to drill, but that new source of potential income impacts the price for all land sales in those areas, even if it is for development or agricultural purposes. The fact that an oil company could end up leasing and producing off the acres for sale gets baked into any future sales in those regions. The Labor Pull Without a doubt, the big money is made in land leases and royalties, but there is an equally strong upward pressure on real estate prices from the influx of labor needed to extract oil and gas from productive fields. As mentioned before, there all sorts of oil service businesses that support exploration and extraction. That said, it goes far beyond businesses with a direct oil connection. The influx of workers requires more restaurants, more hotels, more mechanics, more clinics, more traffic lights, more roads, more of everything - including housing. There are several deposits in North America that are expected to be producing for decades. Mobile labor flows into these areas to earn money and many end up settling nearby their work. Whether it is Midland, Texas, or Grande Prairie, Alberta, the price of existing and new homes rise due to the strong local economy. With oil wages available to many people with relatively basic skill sets, other sectors need to raise wages to compete. This means that the labor needed to build new homes also goes up, adding to the upward pressure on real estate. Bottom Line Oil and gas extraction can be lucrative for the companies doing it, but it also has economic benefits that ripple throughout the active drilling regions. The discovery of a new deposit or the introduction of new technology to unlock existing deposits can represent a huge windfall for landowners. Buying and building to accommodate a booming population is a different way for landlords to profit. When it comes to real estate, it is location, location, location - and a location with oil or gas underneath may be the most attractive type of all. TAGS: Commodities Crude Oil Energy Oil & Gas Refining & Marketing Oil Economy Real Estate Development Sector - Mining Quarrying Oil and Gas Extraction