Permian Basin asks: How long can boom last? [The Santa Fe New Mexican]

Jan. 14–There will be booms.

There will be busts.

But the oil and natural gas tucked beneath the surface of Eddy and Lea counties? Experts say those resources could be there forever.

When the U.S. Geological Survey last year announced the Permian Basin held massive amounts of oil and natural gas, it once again confirmed the industry that many see as the engine to New Mexico’s economy isn’t going away any time soon.

But economists warn oil’s long-term availability isn’t the only factor to consider.

New Mexico’s oil boom, rather, hinges on the whims of:

–Global economic forces — i.e., oil prices staying above $50 a barrel.

–The potential for another recession.

–The public’s appetite for gas-powered vehicles in an era when alternative fuels are increasingly gaining currency.

“I think the growing consensus is there is a whole new pool of oil, and in our lifetime we will not run out of oil [in the Permian Basin],” said Chris Erickson, economic professor at New Mexico State University.

However, he added, “We’re much more likely to have a post-carbon economy.”

In other words, we may have oil for the long haul. Whether it’ll be needed — and as lucrative — as it is today could be another question.

For now, though, oil revenues have brought both blessings and curses to the basin, which straddles the Texas-New Mexico border and is anchored in the Land of Enchantment by the communities of Hobbs, Carlsbad, Artesia and Lovington.

Those communities have seen big jumps in population growth — and huge strains on the infrastructure to support it. In some ways, the ripple effect stretches all the way to Santa Fe, where legislators in the 2019 session will happily allocate a $1.1 billion surplus in revenue while also wondering if the good times will last longer than a year.

Economists assign a lion’s share of the surplus in New Mexico to oil and natural gas revenue from the Permian Basin. But in Southeast New Mexico, they saw it coming long ago.

Hobbs Mayor Sam Cobb pegs 2012 as the launch of the current boom, though the national spotlight didn’t arrive until about two years ago.

Cobb said renewed full-throttle interest in the region by oil companies stem from the emergence of hydraulic fracturing technology — fracking — and the December 2015 elimination of the embargo to export oil put in place in 1975.

“That’s why most of the supermajors move here,” Cobb said. “Major oil makers have said ‘We are here to stay.'”

Common lore is $50 a barrel is the dividing line for profitability for most energy firms. The Permian Basin may be somewhat immune to soft oil prices, economists say.

“A lot of companies can hold on around $35,” said Janie Chermak, economics professor at University of New Mexico. “When it’s $50, a lot of companies are a lot more comfortable. A lot of producers will try to hold on because to shut down is expensive. What they will do is shut down expansion. It comes down to the drilling of new wells, that’s where you will see a slowdown.”

The boom could see an “abatement in growth” in the short term, but the industry looks solid over time, said David Hemley, a finance professor at Eastern New Mexico University.

“I don’t think over the long term it will have much of a negative impact,” Hemley said. “That’s going to continue to boom.”

Boom times equals boom workers swarming in, even to the remote reaches of southeastern New Mexico.

Example: The population of Hobbs has swelled by 10.4 percent to 37,764 from 2010 to July 1, 2017, according to the most recent Census Bureau figure available, and Carlsbad grew 9.8 percent to 28,774.

Carlsbad Mayor Dale Janway said the most recent oil boom comes with a cost: The area’s biggest road needs are completion of a loop road east of Carlsbad and a major renovation to U.S. 285 between Carlsbad and Pecos, Texas.

Carlsbad in December started construction on the third phase of a water system to support population growth, with Fort Worth oil company XTO Energy making a “significant contribution,” Janway said.

Carlsbad has built an average of 175 homes a year since 2014, plus 700 apartment units and 3,900 units to house temporary workers — modular structures or temporary “man camps” — are approved. Yet the mayor said the city entered 2019 with a shortage of about 1,200 homes.

“Plans have been submitted for about a thousand additional homes, with a major challenge being construction cost,” Janway said.

Hobbs has built 1,500 apartment units and 600 single-family homes since 2012 and expects a housing need of more than 2,000 more homes by 2020, Cobb said.

The mayor said the city of Hobbs reimburses developers on a lot-by-lot basis for what it would cost the city to create public infrastructure.

“It’s about a $12 million investment (for the city) for $303 million in housing,” Cobb said. “Housing is the overwhelming challenge. A one-bedroom Class A apartment costs $1,200 a month, and they are 100 percent occupied. Grandparents, parents, kids are living in the same house.”

Hobbs has invested heavily in quality of life improvement. In June, the city opened the $63.5 million Core of Recreational Excellence recreational center, a collaboration between the city, the JF Maddox Foundation, Hobbs Municipal Schools and New Mexico Junior College. Cobb said none of the entities could have built the facility on their own.

The center offers fitness; indoor turf for soccer, football and other turf activities; a gym with basketball, volleyball and pickleball courts; and aquatics including swimming pool, therapy pool and splash pool with slides.

Hobbs also used oil revenue for a $5.5 million upgrade of 12 baseball fields and to build a $16 million golf complex with a walking path.

“This enhanced the opportunities to bring visitors to the city,” Cobb said. “It’s not unusual to have 1,300 people in for tournaments.”

Building is necessary, but it can come as a double-edged sword in a small, remote, one-industry cities.

“You swell the town, but those folks may not stay there long term,” Chermak said.

In the meantime, Carlsbad has today’s growing pains to deal with.

“We are revising our long-term plan and adjusting our planning department to accommodate the large need,” Janway said. “We’re already setting up meetings with Gov. (Michelle) Lujan Grisham to explain our unmet infrastructure and road needs.”

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