Oil and Gas Boom may boost New Mexico’s lifestyle ranking.

The Delaware basin.
• How much oil?
• Budget surplus.
• Will the shale oil boom improve New Mexico living conditions?
• What about wind and solar?

We’ve always had the mighty San Juan basin, in the northwest of the state, but that’s been predominantly a natural gas basin. Then in the 1980’s coalbed methane came on and that boomed for quite a while. While working at Amoco, I was lucky to be able to work on coalbed methane in the San Juan basin in the late 1980s and most of the1990s.

The San Juan basin was ranked at the top of natural gas basins in the USA. But that was before shale-gas became a revolution in the 2000 years – which pushed the San Juan down to fifth by 2015.

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Oil rigs in the Loco Hills field in Eddy County, near Artesia in the Delaware basin of New Mexico (AP Photo). Click image to enlarge or to source, then back arrow to return to blog article.

But New Mexico had another basin, less well known. After 2013, shale-oil started taking off in the Delaware basin in southeast New Mexico, but was stalled by the serious oil price drop of 2014 — from $100 down to $30 per barrel.

In September 2016, I attended an annual oil show put on by the mayor of Carlsbad (in the middle of the Delaware basin), and 1,000 folks showed up for a steak luncheon. Although oil prices had rebounded a little, the attendees were still concerned about the future.

But the lunch speaker, who was a Frenchman working in Washington, shared his global supply-and-demand analysis that the price of oil would continue to rise. And it has. As a result, the shale revolution is alive and well, and 2017 was a revival year for production of shale-oil. The Frenchman was right, the drillers of the Delaware were happy, and the steak was pretty good too.

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Carlsbad is near the middle of the Delaware basin in New Mexico and Texas. Click image to enlarge or to source, then back arrow to return to blog article.

According to one report, Southeast New Mexico and West Texas are sitting on a sea of oil and gas in the Delaware Basin, as predicted by the U.S. Geological Survey (USGS).

Two underground layers in the Delaware, known as the Wolfcamp Shale and Bone Springs Formation, together contain 46.3 billion barrels of oil, 281 trillion cubic feet of natural gas, and 20 billion barrels of natural gas liquids (NGLs). These layers are identified in the next figure and they contain enormous amounts of shale-oil. Note: NGLs are valuable higher-carbon compounds such as pentane and ethane and are usually in liquid form.

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This is a picture of a slice of the earth in the Delaware basin, from west to east for example, at depths around 10,000 feet. Yellow = sandstone. Green = shale. Brown = mixture. There are three layers of the Bone Spring formation. Source: drillinginfo.

The immense quantities of oil in the Delaware basin are the largest “pool” of oil and gas ever announced by the USGS anywhere in the USA, making it the nation’s premier zone for energy production with some of the largest recoverable reserves in the world.

The new shale technology of drilling a long horizontal well, and fracking at many points along the well, is continuing to make oil production in the Delaware Basin highly successful.

The oil boom in southeast New Mexico has generated $1.2 billion in surplus, meaning new money available for state spending in the next fiscal year budget. New Mexico will likely benefit from high levels of oil production, and budget surpluses, for many years to come.

Another report has this to say. New Mexico’s boom has helped to drive production in the state to record levels in 2017. 2018 is expected to be another banner year as industry officials say the state is on pace to surpass 200 million barrels.

One consequence of the boom is a flurry of activity in southeast New Mexico — putting pressure on everything down there from housing and schools and hotels to highways. If you need a job, go down to Carlsbad!

Another consequence is the new Governor, Michelle Lujan Grisham, and the Democrat-led Legislature have lots more options as they hash out spending priorities for everything in the state from education and public safety to infrastructure.

Sadly, New Mexico does not rank well by comparison with other states. The overall ranking is #46 out of 50 states. The chart gives the specifics.

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How New Mexico compares with other states. Click to enlarge or to source.

Much of the state’s income is derived from oil and gas. The Delaware Basin in New Mexico already had more than 25,000 oil wells in 2015. The boom in the Delaware is and will continue to have a strong effect on the state’s economy and hopefully also boost the state’s ranking over time.

I’m often asked why I’m happy living in New Mexico? Answer: the bottom line in the chart: the Quality of Life ranking is very high, due to (1) climate and high amount of sunshine, (2) geography including mountains and desert and even a few lakes, (3) multi-cultural population with enchanting cities like Santa Fe, (4) Mexican food such as huevos rancheros, posole, and blue-corn pancakes with blueberries and pine-nuts inside. Mmm.

WHAT ABOUT WIND AND SOLAR ENERGY? Also known as The Land of Sunshine, the state has on average 320-plus days of sunshine per year. And with its empty land, New Mexico has room for many solar and wind energy projects.

As reported by the Albuquerque Journal last week, Governor Michelle Lujan Grisham threw her support behind a new comprehensive energy bill that could pave the way to a 100 percent carbon-free electric grid in New Mexico by 2045.

In particular, the bill would require public utilities to derive 50 percent of their electricity from renewable resources by 2030, and 80 percent by 2040. They would completely eliminate carbon-emitting generation by 2045, relying on new technologies such as battery storage systems to make up the difference.

Officially called the “Energy Transition Act,” this bill creates a pathway for New Mexico to replace coal and other fossil fuel-based generation with a clean energy economy over the next 25 years. It also authorizes creation of two new funds for economic development and worker re-training to mitigate the impact of closing the San Juan coal plant and mine.

Even though only 12% of the state’s electricity comes from fossil fuel (by burning natural gas), it would be kind of irony if the new funds created were to come from the state’s surplus oil and gas taxes from the Delaware basin.

Note: 56% of the state’s electricity comes from coal plants, and 22% comes from nuclear, whereas only 10% comes from wind and solar. Burning coal to make electricity is very dirty (air pollution and global warming), so something certainly needs to be done to redress this situation by increasing wind and solar. Burning natural gas is much cleaner than coal and could serve as a halfway house to the final goal.
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The Gray Nomad ….. Read well and stay informed.

I stand between the years. The light of my presence is flung across the year to come — the radiance of the sun of righteousness. Backward, over the past year, is my shadow thrown, hiding trouble and sorrow and disappointment.

[From God Calling]

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5 years ago

Thanks again Ian for an interesting and informative blog post. I remember when driving between Roswell and Hobbs at night, there were oil rig lights as far as the eye could see. This was in the 1950s. It is amazing that NM ranks so high in oil and gas reserves. NM surely needs the economic boost that this has brought about. I resided in several cites in NM over the thirty two years I lived in NM, and I can say that I enjoyed each area very much. NM is truly a land of Enchantment. Nothing like it in the entire 50, from the beautiful deserts to the alpine high mountains. Good blog!

David Burnett
5 years ago

Each well drilled in the Basin is going to require millions of gallons of water — one of the main costs and constraints of the scenario you write about. But we’re working on answers as to where that water comes from. This might be a follow up article in the blog eh?
Hello Ian, long time since we’ve talked. Unconventional energy is where I’ve been working for the last 15 years and the NM Delaware is one of my projects.
Dave Burnett Texas A&M GPRI Designs

5 years ago

Your blog today is an interesting read…

As a life-long Oklahoman, I’d say this to New Mexicans celebrating this “oil boom” moment: Be careful what you do with all the income flowing in now… because it won’t always. If you invest in infrastructure, then also permanently set aside funds for on-going maintenance of that infrastructure. If you decide that educational (or other social) programs are to benefit, then have some restraint in what you promise… and phase in only the new portion of programs that can be fully underwritten by endowments. You won’t get as many ‘cool toys’ (lifestyle upgrades of any kind) this way, but what you get, you’ll get to keep.

It doesn’t matter whether what is desired is “physical” or “organizational”, it will have both an initial cost and an on-going cost (whether it is due to wear & tear, obsolescence, or salary out-lay). As the state gets used to having those new capabilities and features in place, they’ll shift from celebration into an on-going expectation that those items will always be there… and they’ll be hard-pressed to choose (in the future) as to where to make cuts if & when then oil & gas markets shift – as they WILL.

I have worked in an oil boom ghost town. It is a social and economic tragedy. And, that’s a cycle that will repeat wherever short-sighted decisions are made in the midst of celebration.

5 years ago

Nice summary Ian. We are so lucky this huge Delaware dinosaur died in the Permian Basin where existing expansive infrastructure already exists, making the discovery even more valuable. Did you know–if the Permian Basin alone was an entire country, it would rank fourth among OPEC-member nations? This NM oilfield may one day surpass Saudi Arabia’s largest oilfield Ghawar. Not bad for a state–in my opinion–that gets little recognition (Is that in Mexico somewhere? Have we not often heard from East coasters?)
It will be good not to go to war over oil. It will also be good to transition to renewables, which we must do… but until then… may our state enjoy and fully capitalize on this amazing window of economic boom!

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