Per­mian Basin asks: How long can boom last?

Towns in south­east­ern New Mex­ico build up in­fra­struc­ture for tran­sient pop­u­la­tion

Santa Fe New Mexican - - FRONT PAGE - By Teya Vitu [email protected]­i­can.com

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 bless--

ings 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 sin­gle­fam­ily 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.”

TEYA VITU/THE NEW MEX­I­CAN

The Navajo Re­fin­ery in Arte­sia has a crude oil ca­pac­ity of 100,000 bar­rels per day.

COUR­TESY PHOTO

The oil boom has al­lowed Hobbs to build a $63.5 mil­lion recre­ational cen­ter with no debt. The cen­ter has in­door turf, a gym with bas­ket­ball, vol­ley­ball and pick­le­ball courts, and swim­ming pools.

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