“Estimates Include 46.3 Billion Barrels of Oil, 281 Trillion Cubic feet of Natural Gas, and 20 Billion Barrels of Natural Gas Liquids in Texas and New Mexico’s Wolfcamp Shale and Bone Spring Formation.” (source)
The Delaware Basin straddles the New Mexico and Texas border Northeast of El Paso, TX and South of Carlsbad, NM. It is part of the overall Permian Basin; which to the casual observer resides in Midland / Odessa, TX, but is actually made up of three main formations (Midland, Central and Delaware Basin) that span a vast region of West Texas as well as Southern New Mexico.
In the next few years, the Delaware Basin will own the lions share of tight oil production activity due to its sheer size, depth and low production cost. While activity in the Midland Basin will continue, the Delaware Basin in comparison is twice the volume and companies are aggressively ramping up activity to take advantage of its available energy stores.
ExxonMobil (XOM) and Chevron (CVX) lead the charge in the region, with Exxon under the XTO Energy banner aiming to increase production by 80% within the next 5 years.
Chevron expects to increase their output from 600,000 BPD to 900,000 BPD in the next four years. (source)
Other less major, but serious players are also entering the fray like the recent Noble Midstream’s (NBLX) 50/50 joint venture with Salt Creek Midstream LLC, creating Delaware Crossing LLC. And Matadors alignment with Five Point Energy creating their own JV in the region.
It isn’t all good news however, New Mexico’s infrastructure; specifically in the region South of Carlsbad isn’t equipped for the increased vehicular traffic and overall activity.
Case in point, Highway 285 which is the main artery linking the Delaware Basin between New Mexico and Texas is known as ‘Death Highway’ due to the number of daily fatalities that occur on that treacherous stretch of road.
Since 2012 there has been a 43% increase in fatalities along Highway 285 and unless something is done to mitigate the problem soon, the overflow of activity along the Delaware Basin will only multiply that number. (source)
Furthermore, restaurants, gas stations and other ancillary service providers aren’t equipped to manage the glut of foot traffic that comes during boom times. It certainly seems like a good problem to have; but it is a challenge none the less.
A recent article in the Wall Street Journal cited hair stylists earning well over $180,000 a year due to the number of people needing hair cuts and each hair cut costing $75.00 or more in some cases. (source)
An interesting point to mention is the economic strain felt by those in the region who aren’t working directly in the oilfield or its related services. When I visited the region earlier this year, I spoke to a local whose cost of housing has multiplied significantly but his wages have not increased accordingly. The options he is left is to either leave town or join the oilfield which isn’t his core area of expertise.
This is consistent with an article published in the MRT (Midland Reporter-Telegram) citing a 28% increase in rent and an average $20,000 increase in home prices YoY. (source)
While rig count in New Mexico hasn’t reached its 20 year peak, it is certainly well above the depressing 20 year lows of 2016 when it felt the oil market would collapse onto itself.
One thing for certain is that major players and a critical mass of mid to smaller companies are pumping hundreds of millions of dollars into this region. With this, the pessimism of the last few years has evaporated and it is safe to say Southern New Mexico will soon be our next great American boom town.