On Monday, August 05, 2019, political blogger Joe Monahan on his blog “New Mexico Politics With Joe Monahan” publish a very insightful article on the Southern New Mexico oil boom. The article was entitled: “Special Report: Blog In The Basin; Historic Oil Boom Examined From The Ground And Air; Why It’s Different This Time And What That Could Mean For New Mexico’s Future.” Following is the complete article with the link to Mr. Monahans blog:
Flying low over the Permian Basin to look directly in the eye of the latest and perhaps most profound chapter in New Mexican history, it is the vastness of the oil fields that leave you awestruck. Inevitably an emotional chord is also struck. The realization, held until then in the abstract, is now crystallized. What lies below has the power to literally transform this state from being perennially last in the nation in a basket of vital social standings to a stand-out state where poverty is finally shoved into the back seat and where opportunity is a neighbor not a stranger.
The Permian, mostly in Texas but crossing the border into SE NM and especially southern Eddy County, is now the largest oil producer on the planet. Staring down at the immensity of this enterprise I thought, “Okay, now I really get it. This is how you get billion dollar state budget surpluses.”
Coincidence made the awareness even more keen. Just as our group took flight Friday from the Carlsbad terminal Exxon dropped its second quarter earnings. In just those three months the company earned $3.1 billion, a good portion of which came from the Permian.
“It’s a wild ride,” longtime Carlsbad Mayor Dale Janway told me. “Exxon recently held a Board of Directors meeting here. Who would have thought?”
NAVIGATING THE BOOM
Carlsbad, a half hour drive from the fields, is ground zero for the NM portion of the boom. 2018 estimates put its population at 29,000, the largest in history. But Janway says local water usage indicates it is much higher.
The tight-knit community and its political leadership is not unlike a juggler with a dozen plates in the air, trying to keep them spinning and not crashing to the ground.
On the plus side, the job market is so robust a Taco Bell is already offering the $15 an hour wage being sought as the federal minimum by many Democrats. Some restaurants have had to abbreviate their hours because potential employees have been lured to the Permian. Truck drivers there can earn well north of $30 an hour.
The real estate market in Carlsbad is soaring. Locals are able to sell their homes and build new, upscale digs, like those dotting the scenic and soothing banks of the Pecos River that runs threw the city and which we boated on with community leaders.
Developer Valerie Murrill says she is getting ready to build more apartments. Others are too.
“Man camps,” small housing units strung together, have sprouted up across the city to meet the heavy demand to house the young men who work the fields.
Calling into direct question the contention that the Permian Basin boom is just another in a century long line that will end in a bust, the Hyatt and Hilton chains are now building hotels on Main Street. Exxon and Conoco are establishing permanent Carlsbad headquarters.
That is the crucial and historic difference. Like past booms this one will no doubt level off but it is not going bust–not anytime soon.
INSIDE THE BOOM
At the local Bureau of Land Management (BLM) headquarters, swamped with applications for drilling permits and other regulatory issues on the state’s federal lands that host much of the boom, I met with four experts. One helped me understand things this way:
Joe, imagine a layer cake with 27 layers. That’s the Permian. This large number of oil layers to frack is very unusual. Each one will be tapped for the oil it holds.
“How long will this go on?” I ask. Cautious not to be too specific, the BLM manager replies: “For years.”
You can throw out the conventional wisdom prevalent in many quarters in Santa Fe that the immense wealth being accumulated by the state needs to be mostly hoarded and used to preserve the failed status quo when the inevitable bust comes.
The reluctance to deal with the new paradigm is somewhat understandable. A hundred years of boom and bust gets into the political DNA. But the state’s political leadership will soon be unable to push away the challenges of dealing substantially with this epic event. You can only save so much. As Robert Defer, CEO of the Carlsbad Chamber of Commerce, put it to me:
So you save. Fine. But what do you do about being 49th or 50th in the nation?
A TURN IN THINKIN
It was fascinating to see that turn in thinking in this traditionally conservative region. The unbridled capitalism that is on the loose and shaking up their economy and society seems to have invigorated the risk appetite of the SE business and political community.
Even the little guy is getting in on the act. A food truck belonging to the Chubby Burrito chain parked on one of the busy oil field roadways alerts potential customers that they accept debit cards, credit cards as well as cash.
The Carlsbad leaders we spoke with took to heart that simplistic notion that “it takes money to make money.” It is playing out before them in ways never seen in NM and it has them looking through the lens of opportunity, not the poverty mentality that has been a state mainstay.
Again, that’s different from the past. Uncertainty remains part of the picture but fear of failure has been replaced with the fear of missing out. As Eddy County Commissioner Susan Crockett said over lunch at the Carlsbad Country Club:
What worries me is that we do not provide the proper infrastructure–the roads, the housing the education and other necessities and amenities, We could end up keeping the oil but the people move across the border to Pecos, TX.
GOP state Senator Gregg Fulfer of Jal, an energy industry veteran, frets over possible regulatory overreach, citing a bill introduced at the last legislative session to slap a statewide moratorium on fracking because of environmental concerns. The bill went nowhere but he said “it sent a shudder” through the industry.
We asked the BLM officials about the environmental aspect of the boom. They report that the land that the drilling pads are on is eventually reclaimed and restored to its original condition. The huge amounts of wastewater created by the the fracking process is not a major problem especially now that new state regulations encourage recycling. A cottage industry valued in the billions has popped up to handle the recycling.
There is work to be done on methane and natural gas flares that contribute to climate change. The MLG administration is working on new rules and the oil industry is not resisting. We did not meet any climate change deniers during our visit.
A PRAGMATIC VIEW
Some of our readers come at this boom from the perspective of climate, saying that encouraging oil and gas production is inherently wrong because of the climate crisis caused by fossil fuels. We come at it from a pragmatic view, that the Permian oil boom is here for the foreseeable future. It is not a moral failing to advocate for having the resulting monies put to work to reverse our high rate of poverty and our very low child well-being ranking. In other words, to change the course of state history.
Many of you have heard about what amounts to an emergency on state roads in and out of the Permian. Their rapid deterioration from heavy use and the unsafe driving sparked by the oil field frenzy have led to a dramatic escalation in fatalities—at least several each week. When I asked anyone in Carlsbad about the boom it was always among the top concerns.
One afternoon Carlsbad banker Jay Jenkins and I braved some of the worst stretches. We cruised in his SUV absorbing shocks from the washboard like roads also riddled with potholes. It wasn’t long before an 18 wheeler that meant business came barreling down a narrow two lane unstriped roadway. Much of the lanes were chipped away leaving it more like one and a half lanes. No problem for that trucker. He created a wider lane out of the dirt berm, forcing a third of his trailer onto it as Jenkins jerked to the right to make more way for him and to ensure the oil patch did not become our final resting place.
That experience was repeated throughout the tour with speeding welders in pickups and other workers trying to navigate now decaying roads that were built for leisurely drives of the last century not for the pressure packed business of extracting black gold from the largest producing oil fields on planet Earth.
WANTED: ROAD RELIEF
Eddy County Commissioner Ernie Carlson is determined to resolve the road woes as is GOP state Rep. Cathrynn Brown who is seeking specific funding for the most dangerous stretches. And the legislature has passed a several hundred million dollar road bill that will begin to bring relief.
But Carlson says Eddy County needs a dedicated stream of revenue from the state as the boom stretches into the next decade. He warns:
We need to get back some of our taxes from this boom that is going up to Santa Fe so we can address the road danger. That is good for our citizens, the energy business and the entire state. Otherwise, we are going to jeopardize the opportunity this once-in-a-lifetime event represents.
Carlson is a long ago Democrat turned Republican, a semi-retired chief financial officer who sports a CPA title along with Ostrich cowboy boots. He is representative of the new thinking in some conservative circles regarding the boom, arguing that missing the opportunity to turn around the state with an education investment is as important as not recklessly squandering the newfound treasure. He says:
You can’t budget for when you think the sky is falling. You’ve got to budget and invest for the opportunity that is right in front of you. For New Mexico and Eddy County that time is now.
NO MAGIC WAND
The Permian is not a magic wand. The employment it offers is confined to the region and suitable for a select group. The direct economic impact will be largely confined to Eddy and Lea Counties. That’s why the immense surplus being accumulated in Santa Fe is so critical. The Governor and the legislature will be challenged to effectively deploy those funds to benefit the entire state, especially in delivering an educational system that reaches all and that will be key to changing the poverty culture that has held us back.
It will be the next generation of students funded by this boom who can begin to resolve the dilemma of dangerously dysfunctional families, who can be taught to adapt to a more entrepreneurial culture and who can be made employable here or most anywhere. Those oil fields can be their field of dreams.
The last legislative session had some promising starts but those in Santa Fe who would stuff the hopes and dreams of the coming generation into the savings mattresses still don’t get it. For them we recommend a long, contemplative flight over the booming Permian Basin to rethink their position.
THE BOTTOM LINES
Thanks to Carlsbad Mayor Dale Janway and his assistant Kyle Marksteiner for a productive and intense tour of the region. Thanks also to Valerie Murrill for the lodging; to Jay Jenkins for the daredevil chauffeuring; to pilot James Ballard and Chandler Aviation for the flight over the Permian; to Carlsbad City Administrator Michael Hernandez for assisting with photos and to all of those in Eddy County who took the time to inform us for this report.
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A CONTRARY VIEW
On Tuesday, August 06, 2019, Joe Monahan in his blog published the following reaction to his article on New Mexico’s Oil Boom And What It Means For New Mexico’s Future:
Former ABQ Mayor Jim Baca, who is also a former director of the federal Bureau of Land Management, took a contrary view from ours:
This is all headed for a disaster in terms of climate change. If the Permian indeed is the biggest producer on the planet, then we should be ashamed. Climate change is real. Fossil fuels are making it happen. Yes, the money is good, but the Feds and state are letting the oil and gas go for a song. I was the last Commissioner to raise royalties and the feds have never done so. It is almost criminal. Joe, you need to write on the bigger picture. You spent time with the cheerleaders but not with the scientists who say time is running out. And it is.
The link to “New Mexico Politics With Joe Monahan” is as follows:
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DINELLI COMMENTARY AND ANALYSIS
One looming financial crisis where the new revenues from oil and gas development should be used is to wipe out the $6.1 billion unfunded liability in New Mexico’s pension system for municipal, county and state workers. The unfunded liability represents the difference between assets on hand and future retirement benefits owed. There are over 40,000 retirees that now draw pensions from PERA, and about 50,000 employees who are working and paying into the system.
Governor Michelle Lujan Grisham’s 2019- 2020 approved budget attempted to shore up New Mexico’s two major pension funds by increasing how much the state pays into workers’ retirement accounts with $13.7 million in funding. A PERA Task force appointed by Governor Michelle Lujan Grisham is recommending major changes to the PERA system to wipe out its $6.1 billion unfunded liability within 25 years based on projections by actuaries working for the task force. Some of those changes include getting rid of cost of living adjustments to retirees, mandating an increase in employer and employee contributions and reliance on market investment returns. A 25 year payoff on a $6.1 Billion dollar debt is unrealistic given the volatility of the markets. Revenues from the oil and gas boom could in all likely reduce the $6.1 unfunded liability within a 5 to 10 year span. Such infusions of funding would no doubt benefit no less than 90,000 workers not to mention their family’s over many more years.
For more on the PERA Task Force recommendations see:
No matter who you believe, Joe Monahan or Jim Baca, or even both, New Mexico financial fortunes are about to change. Only time will tell if our New Mexico elected leaders will show the courage to take advantage of it and set aside their own personal agendas for the benefit of all New Mexico.