The hotel industry is seeing ever-increasing growth in regions benefiting from shale oil and gas drilling.
|Motel 6 is one brand that is benefitting from fracking demand.|
REPORT FROM THE U.S.—Recent shale oil and drilling advancements have brought a boom to small towns across the U.S., and hotel occupancy in those areas has skyrocketed over the past decade. And sources said they expect it won’t slow down anytime soon.
The horizontal hydraulic fracturing of shale oil and natural gas, also known as fracking, is leading to a new era of prosperity for business owners in these towns, largely due to the influx of oil-related business in the area.
Vantage Hospitality Group, parent company of America’s Best Value Inn, has broken ground on five ABVIs near Texas shale deposits—in Pearsall, Cuero, Dilley, Midland and Cotulla—since 1 January. According to Patrick Mullinix, executive VP of development for Vantage, this is an enormous turn for Vantage since the recession.
Existing hotels in the Midland market are running at full capacity, “actually exceeding 100% occupancy,” Mullinix said. “We don’t even send them any more reservations at this time because it’s not necessary. We had to turn off our reservation system.”
Responding to developers’ interest in a mid-tier hotel, Vantage is also focusing on developing their Lexington Hotels and Lexington Inn & Suites, aggressively accelerating the completion of the Lexington prototype. “This is a very exciting time for us,” Mullinix said.
Motel 6 and Studio 6 franchises in Midland; Odessa, Texas; Lewiston, North Dakota; Miles City, Montana; and Bakersfield, California, are all operating near shale deposit drilling sites. As for the occupancy mix in these properties, “over 80% is associated with oil or oil shale gas business,” said Dean Savas, senior VP of franchise for Motel 6 and Studio 6 management arm G6 Hospitality. Savas also sees more of a demand for extended-stay hotels in these drilling areas, with Studio 6s slated to open in Texas, North Dakota and Pennsylvania.
Sky Hospitality, a hotel management company based in St. Petersburg, Florida, operates Microtel Inn & Suites in Dickinson, North Dakota; Lewiston, North Dakota; Minot, North Dakota; Buckhannon, West Virginia; and Morgantown, West Virginia—all areas that are experiencing shale booms. In these hotels, occupancy ranges from 70% to high 90%, said Marian Goodman, CEO of Sky Hospitality. As far as future projects, Goodman said Sky Hospitality has several Microtel Inn & Suites currently under various phases of development, slated to go up in Fairmont, West Virginia; Steubenville, Ohio; Aztec, New Mexico and Texas’s Permian basin.
Compared to oil booms of the past, Mullinix said he sees more longevity in shale.
“The indication that the energy companies are giving, their demand is a minimum of five to six years,” Mullinix said. “And that doesn’t seem like a significantly long period of time, especially when you’re building a costly structure like a hotel. But it is relevantly a longer period of time compared to some of the former technology, where the re-drills that the oil companies were doing at the time, they were only two- or three-year periods of time. So this is almost double in duration.”
In large shale deposits like the Permian and Bakkan, some estimate the drilling could last up to 20 or 25 years—and that’s just with current technology. Considering the advancements in drilling technology of the last decade, from horizontal drilling to multistage fracking, it seems plausible that more are to come.
What is the fate of towns like Lewiston, which had no hotels, restaurants or housing before the boom, and relies heavily on the shale oil industry?
“If oil and gas go away tomorrow, will everybody be in trouble? Absolutely,” Savas said. “However, what we’re saying is everybody believes very strongly—because if you haven’t noticed, the U.S. is becoming very energy independent—this is not something that’s a flash in the pan. I believe that we will follow this road at least for the next five or 10 years.”
The hope expressed by those in the hospitality industry is relatively simple. As the shale mining industry permeates these towns, an infrastructure forms around it. Local businesses open to keep up with the demand for necessities such as housing, dining and entertainment. And the longer the industry sticks around, the larger the infrastructure becomes, eventually enabling these towns to succeed on their own, even if the shale mining industry dries up in those areas.
“I think the general consensus is it will be very, very strong in 10 years,” Savas said. “I think there’s a feeling that if it’s strong for 10 years, there will be enough of an infrastructure built during that period of time that other things may occur as a result of that.”