Justin Fox / Bloomberg : What the Permian oil boom looks like
RV parks, 24-hour laundromats, a brand-new Bennigan's and other signs of a world-changing oil rush.
The first clear indication that I had entered an area experiencing an oil boom was the Halliburton Co. office with a “Now Hiring” sign out front on the north side of Artesia, New Mexico. Next came a couple of equipment rental places with some unfamiliar-looking equipment on their lots, then the first of what were to be many billboards advertising personal injury lawyers specializing in oilfield injuries and truck accidents (“$5.2 Million: Oilfield Explosion, Burn Injury” read one that I saw a little later from the Albuquerque law firm of Glasheen, Valles & Inderman ). Tanker car after tanker car after tanker car sat on the railroad tracks to the left of the road, followed by what I eventually realized were lots of cars for hauling sand. Behind the railcars, I began to see the outlines of what appeared to be a giant refinery complex.
Artesia is at the northwestern edge of what is known as the Permian Basin, named for the geologic period that came right before the Triassic and the Jurassic (which, as a childhood dinosaur fanatic, I find useful as context) and left a whole lot of marine organic matter across West Texas and southeastern New Mexico that spent the next 252 million years turning into oil and natural gas. Humans drilled the first successful oil well in the Texas part of the Permian in 1921, and the first big New Mexico strike came in 1928.
Drilling for oil is nothing new for the region, then. That refinery I saw in Artesia, HollyFrontier Corp.'s Navajo Refinery , has been in operation since 1969 . But Permian oil wells had been in decline for decades . Even as advances in mapping, horizontal drilling and hydraulic fracturing began to bring big gains in oil and gas production in other regions such as the Bakken in Montana and North Dakota and the Eagle Ford in South Texas starting a little over a decade ago, the Permian at first lagged. During the brief oil bust of 2015 and 2016, though, production grew modestly in the Permian while falling in other regions. Since then, it has taken off. Its production is now second among the world's oil fields, after Saudi Arabia's Ghawar Field, and some boosters think it could surpass even that in a few years.
That chart features the five biggest oil-producing regions among the seven regions on the rise (or at least not on the decline) that the U.S. Energy Information Administration tracks 1.Per way of looking at production is by state : Thanks largely to the Permian, Texas now accounts for 40 percent of U.S. oil production, while New Mexico has recently passed Alaska and Oklahoma.
I'm not the best person to explain why this shift to the Permian has happened. From what I've heard so far, it's some combination of the geology of the region, which features layer upon layer of hydrocarbon-bearing rock, and the unique mix of infrastructure, skills and attitude one finds in an area that, especially on the Texas side of the border, has been all about oil and gas for almost a century now (it's where young George H.W. Bush moved in 1948 to seek his fortune, for example). There's also already been a lot of great reporting on the craziness that the Permian has recently been experiencing, much of it by Bloomberg's Kevin Crowley and David Wethe . There's a big story by Crowley in Bloomberg Businessweek that cautions that a lack of pipelines, sand (a key fracking ingredient) and labor are endangering the Permian boom.
But I was driving across the country, and I thought I should see the Permian for myself. My first taste of the current state of things in the region came when I tried to book a hotel room in Midland, Texas, where the Permian oil and gas industry is headquartered:
It didn't get any better further down the list. The Midland Super 8 motel, if I recall correctly, was $540 a night. Things were a little better in Midland's twin city of Odessa, so I ended up at the Super 8 there, located on a charming freeway on-ramp, for $319 pretax and $390 after (Texas doesn't have an income tax, so they have to make it up somewhere). Hotel prices aren't always this high in Midland: I just checked and you can get into the Quality Inn next week for only $242 a night if you act right now . In general, around $300 a night seems to be the standard hotel room rate in the area.
Most oilfield workers can't afford that, and there aren't enough hotels in the area to house them all anyway. Somewhere between Artesia and Carlsbad, New Mexico, the next town to the south, I saw the first “RV camp” — row after row of trailers parked on a dirt lot beside the highway. In Carlsbad, I also noticed a lot of laundromats, which made sense given all the RV camps. In the next town after that, tiny Loving, New Mexico, there was a sign pointing toward a 24-hour laundromat on a side street.
Loving was also where U.S. 285 went from four lanes to two. I had turned onto the highway from Interstate 40 at Clines Corners, about 60 miles east of Albuquerque, and drove southward for hours on a smoothly paved near-freeway intended to convey summer tourists through the rolling landscape to the International UFO Museum and Research Center in Roswell and Carlsbad Caverns National Park , among other attractions. It was lovely.
Things started to get less scenic after Carlsbad, and a lot more crowded. For the 75 miles of two-lane highway from Loving to Pecos, Texas, there was not a single southbound passing lane (there are a couple under construction on the Texas side). On Monday afternoon, traffic was tightly packed but moving at 50 to 60 miles an hour most of the time, on a disintegrating road. One daredevil in a white pickup with Texas plates succeeded, at great risk to himself and vehicles headed in the other direction, in passing me and a couple of pickups in front of me, but he eventually had to give up and accept his place in the endless line headed toward Pecos.
It was between Carlsbad and Loving, I think, that I saw my first natural gas flare. In the Permian, oil is usually the first priority, and while natural gas production in the region is large and rising, the infrastructure to capture and convey it has lagged, so lots gets burned off in the field. Farther south, there were times when I could see flare after flare after flare all the way to the horizon, until the land got so flat that I couldn't see the horizon anymore. There were lots of old-style pumpjack oil wells seesawing back and forth all along the route from Artesia southward; the new fracked and horizontally drilled wells don't need pumps and were thus harder for an untrained eye to spot. There was certainly lots of other evidence of this work, though, from drilling rigs to piles of sand to tank stations supplying water and brine (all used in hydraulic fracturing) along the way. What else was there to see? Workers laying a pipeline, a couple of roadside taco trucks, a few new settlements of small prefab cottages that seemed nicer than the RV parks, lots of outposts of oilfield services companies. There was surely much more, but I kind of had to keep my eye on the road — where I saw endless trucks of various shapes and sizes.
hen, after stop-and-go traffic through the town of Pecos, home of the Judge Roy Bean Courthouse and Jail Replica , I breathed a sigh of relief, got on Interstate 20 (speed limit: 80), and drove east for 38 miles to the next significant settlement, Monahans, where I had arranged to meet Mayor David Cutbirth at the back corner table of the Bennigan's he owns. Yes, Bennigan's — which filed for Chapter 7 bankruptcy in 2008 and then more or less disappeared — has been reborn. The company's tenuous status, plus the Permian boom, helps explain why it was willing to grant one of its first new U.S. franchises to a restaurant novice in a West Texas town with a population of 7,520.
Cutbirth has been mayor for 26 years, and has with his brother been running Monahans Nipple-Up Oilfield Service — which installs blowout preventers on oil wells, among other things — for 40. Over iced tea, mozzarella sticks, Sheela's Sriracha Shrimp (him) and Kilkenny's Country Chicken Salad (me), we talked about the boom and the challenges it poses. The main one is housing, especially for people who work at places like the Bennigan's rather than in the oilfields. The city of Monahans subsidizes housing construction using the proceeds from a local economic development sales tax. “If they [the developers] go bankrupt, well, then we get cheap housing,” Cutbirth said. “We've seen so many ups and downs in the oilfield that if they build housing that doesn't have wheels on it, somebody's going to live in it.”
Then it was on in the dark to Odessa, another 35 miles to the east on I-20. On the way, I saw one of the new sand mines that have opened to supply the oil wells — the realization that local sand is about as good for hydraulic fracturing as the stuff brought by rail from Wisconsin is a recent one — and some huge gas flares in the distance. After detouring past Permian High School of “Friday Night Lights” fame (it's big), I found the Super 8, where there were a lot of big pickups with oilfield services company logos parked in the lot. The next morning, I drove to Midland (another 20 miles east), where I had breakfast at the Main Street Diner (“Your Oil Field Grub Supplier”) and coffee in the basement of the Bank of America Building — the city's tallest, at 24 stories, it was built during an earlier oil boom in 1978 — with a young oil and gas entrepreneur I'd met on Twitter.
I drove around the city a bit after that (it's pretty ugly!), then into the fields to its north, where I saw lots of pumpjacks, most of them not pumping, and lots of big drilling rigs, but not the congested craziness of U.S. 285 — Midland and environs seem to have more of the infrastructure needed to cope with an oil boom. Then it was east toward Dallas, another 300 miles. Somewhere between Midland and Abilene, the landscape went from flat to slightly undulating. Atop one set of small hills was a big array of wind turbines. That seemed like a sign that I had left the Permian.
The Anadarko is mostly in western Oklahoma, the Niobrara mostly in Colorado and Wyoming. The other two regions the EIA tracks are the Haynesville, mostly in Louisiana and Texas, and the Appalachian, mostly in Pennsylvania and West Virginia.
Story by Justin Fox from Bloomberg.
bloomberg.com 10 19 2018
Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.” . Petroleumworld does not necessarily share these views.
Editor's Note: This speech was originally published by Bloomberg, Oct 19, 2018 . All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld.
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