Oil boom may be just starting in Permian Basin

FOR MONDAY

By Rob Nikolewski │ New Mexico Watchdog

SANTA FE, N.M. — Oil production in New Mexico keeps on booming. Don’t expect it to go bust anytime soon.

In fact, some energy experts say the peak still hasn’t been reached.

“I think the forecast is great” said Parker Hallam, president and CEO of Crude Energy in Dallas. “I’m excited.”

The Permian Basin, located in eastern New Mexico and West Texas, recently has become one of the world’s biggest sources for crude oil.

The Bakken Formation in North Dakota, the Eagle Ford “play” in South Texas and the Permian Basin are each producing more than 1 million barrels of oil per day, with the Permian leading the pack at 1.6 million barrels a day.

Domestic production has grown so large that last month, the International Energy Agency announced the U.S. surpassed Russia and even Saudi Arabia in oil production.

A report from the commodities division of Bank of America says daily output in the U.S. exceeded 11 million barrels in the first quarter of this year.

In New Mexico, field production has doubled in the past three years and is on the verge of surpassing 10 million barrels a month, according to figures from the U.S. Energy Information Administration.

And according to Bernstein Research, the Permian Basin can expect to see a 21 percent increase in spending growth this year.

“I think the next 10 years, we can expect to see three to three-and-a-half million (barrels a day from the Permian Basin),” Hallam told New Mexico Watchdog in a telephone interview. “We could see even more than that.”

The reason?

Horizontal drilling, using hydraulic fracturing — “fracking.”

In the past, drillers in the Permian Basin relied on drilling vertically — straight down to get to the crude oil. Horizontal drilling was used more widely in places such as the Bakken and Eagle Ford but now, the Permian is getting into the game.

In addition, the geology of the Permian Basin makes it a prime source for oil extraction.

Zones in the Permian Basin such as the Wolfcamp, Strawn, Fusselman, Cline, Mississippian and Atoka possess multiple layers of rock that are sometimes stacked on top of each other, making the geology in the area ideal for drilling.

“You may luck into something else because of these stacked formations,” said Raye Miller, the president of Regeneration Energy in Artesia, N.M. “That has significantly enhanced the recovery … It is now economical to drill and compete.”

All that has led to plenty of action in eastern New Mexico towns like Hobbs and Artesia.

The Permian Basin’s 560 rigs account for a quarter of the rig count for the entire country, Hallam said.

And that means more money for New Mexico’s general fund because of severance taxes taken from oil production in the state. Nearly one-third of the general fund comes from the oil and gas industry, and New Mexico’s Land Grant Permanent Fund has grown to nearly $14 billion thanks in large part to leases and royalties on extractive industries.

But environmental groups, which consider fracking dangerous to ground water, aren’t celebrating New Mexico’s oil boom.

“It’s very short sighted and it perpetuates our dependence on fossil fuels,” said Eleanor Bravo, senior organizer for Southwest Food and Water Watch. “And it eliminates the potential for creating new jobs in renewables.”

Can’t you do both?

“You could do both, but we are against the continued use of fossil fuels because of global warming and climate change,” Bravo said.

For now, though, the bloom is hardly off the Permian rose.

“I think the future is extremely bright and if prices stay the same, it will continue to be good,” Miller said. “If prices go up, it will be even crazier … I will caution, though, I’ve been in this business for a long time and if the prices go down to $60 or $40 a barrel, things can change quickly.”

Contact Rob Nikolewski at rnikolewski@watchdog.org and follow him on Twitter @robnikolewski