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New Technology Revitalizes Permian Basin

The Permian Basin is one of the nation's oldest oil and gas producing regions. New technologies have transformed the region in the last decade, breathing new life into old wells and tapping new ones. Using the tabs below, learn more about the region's century-long history and explore how recent increases in production have affected labor markets and business activity.

  • The Region
  • History
  • Oil
  • Gas
  • Drilling Activity
  • Other Mining
  • Labor Markets
  • Business Activity
  • Resources

The Region

Highlights

The Permian Basin covers 55 counties in West Texas and southeast New Mexico. The region has been producing for nearly a century and still contains large resources of oil and natural gas.

Two New Mexico counties lead the Permian Basin in oil production: Eddy and Lea. They produced nearly 20 percent of Permian oil supply in fourth quarter 2013.[1]

Several counties across the Permian produce a substantial amount of natural gas, but only Eddy (NM) county averaged more than 500 million cubic feet per day in fourth quarter 2013.[1]

Location of permian basin counties

Oil production zones in the Permian Basin

Gas production zones in the permian basin

Note
  1. For more information on the computation of county-level production, see Energy Data Explanatory Notes and Resources.

History

The Permian Basin’s long history is characterized by ups and downs. W.H. Abrams drilled the first well in 1920, but it produced only 10 barrels of oil per day. Although many experts considered the region a “petroleum graveyard,” Texon Energy tried again in August 1921. It spudded a well in Reagan County, near Big Lake, Texas. Its cable-driven drill descended less than 5 feet per day, so progress was slow. After several months without success, a particularly nervous investor sprinkled rose petals over the site and christened the well Santa Rita in honor of the Patron Saint of the Impossible. His commitment paid off after nearly two years of drilling when oil burst out of Santa Rita No. 1 in May 1923. The well produced for nearly 70 years before it was capped in 1990.

The Santa Rita discovery prompted many investors to explore the Permian Basin, which is noted for its size and diversity. It covers over 75,000 square miles in West Texas and southeast New Mexico, consisting of several layers of rock that contain vast reserves of oil and natural gas. In the three decades following Santa Rita, discoveries of these resources led to large and steady increases in oil and gas production. Oil production peaked at nearly 2 million barrels per day in the early 1970s and gas production soared to almost 10 billion cubic feet per day (Chart 1). During this boom, the Permian Basin accounted for over 20 percent of U.S. oil supply and 15 percent of U.S. natural gas supply (Chart 2).

New technology extracts gas from shale

New technology extracts gas from shale

A bust followed, lasting almost two decades. By the mid-2000s, oil production had declined more than 60 percent from its peak in the early 1970s. However, in recent years, operators have applied horizontal drilling and hydraulic fracturing techniques with great success. Since February 2011, the portion of rigs dedicated to horizontal drilling has more than doubled (Chart 3). As a result, production in the Permian Basin has picked up.

Share of rigs that are horizontal in Permian Basin

Sources

Oil Production

Highlights

After many years of decline, oil production in the Permian Basin began climbing at the start of 2010. Since then, production increases have averaged 13 percent per year.

The share of U.S. oil produced in the Permian Basin has also increased since 2010, though it has been declining since 2012. In 2014, the Permian Basin has accounted for 18.3 percent of U.S. oil, up from 18.1 percent in 2013.

The Texas counties in the Permian Basin produce over 1 million barrels per day, but production growth in this region has lagged behind the rest of the state.[1] This is largely due to staggering production increases in the Eagle Ford in South Texas.

In New Mexico, the four counties in the Permian Basin dominate oil production, accounting for more than 95 percent of state supply.[1] Oil production in these counties is also growing faster than in their Texas counterparts.


Oil Production
Fourth quarter 2013
  Barrels per day
(thousands)
Year/year change
(percent)
Texas
Permian counties
1,140.6
12.2
 
Rest of Texas
1,630.9
37.3
 
New Mexico
Permian counties
273.5
12.4
 
Rest of New Mexico
12.5
74.1
 
SOURCES: Energy Information Administration; Oil Conservation Division of New Mexico; calculations by Federal Reserve Bank of Dallas

Note
  1. For more information on the computation of state-level production, see Energy Data Explantory Notes and Resources.

Natural Gas Production

Highlights

Natural gas production in the Permian Basin declined steadily for most of the last two decades. Since mid-2011, natural gas production in the region has increased, rising over 25 percent.

The share of U.S. natural gas produced in the Permian Basin has also ticked up since 2011. In 2014, the region has accounted for 6.3 percent of U.S. production, up from 5.4 percent in 2011.

The Texas counties in the Permian Basin produce the majority of the region's natural gas, and these counties have recorded strong natural production increases in the last two years. Production in fourth quarter 2013 was 15 percent higher than production in first quarter 2011.[1]

Similar to the Texas Permian counties, the New Mexico counties in the Permian Basin have experienced robust growth in natural gas production. Production in fourth quarter 2013 was 19 percent higher than production in first quarter 2011.[1]


Natural Gas Production
Fourth quarter 2013
  Cubic feet per day
(billions)
Year/year change
(percent)
Texas
Permian counties
3.9
16.7
 
Rest of Texas
18.7
–1.7
 
New Mexico
Permian counties
1.3
2.4
 
Rest of New Mexico
2.0
–9.5
 
SOURCES: Energy Information Administration; Oil Conservation Division of New Mexico; calculations by Federal Reserve Bank of Dallas.

Note
  1. For more information on the computation of state-level production, see Energy Data Explanatory Notes and Resources.

Drilling Activity

Highlights

The rig count in the Permian Basin increased steadily from mid-2009 to mid-2012. In May 2009, just 92 rigs operated in the Permian Basin; by June 2012, there were 525 active rigs in the region. The rig count declined in the second half of 2012, leveling off in 2013 at around 465 rigs. The Permian rig count has increased steadily in 2014, reaching 550 in May 2014, up from 474 in January.

The number of wells per rig in the Permian Basin peaked at 5.08 in fourth quarter 2013. It declined to 4.84 in first quarter 2014.


Rig Count
May 2014
  Number of rigs Year/year change
(percent)
Permian Basin
550
17.5
 
SOURCE: Energy Information Administration.

Other Mining—Potash

Highlights

The New Mexico portion of the Permian Basin is the No. 1 producer of potash in the United States. Potash is a mineral rich in potassium, so it is most commonly used as an agricultural fertilizer. In New Mexico, this industry is concentrated in Eddy and Lea counties in southeastern New Mexico.

For most of the past three decades, potash prices hovered around $150 per ton, but prices spiked in the last few years, exceeding $750 per ton in 2009. These increases have brought new jobs and revenue to Eddy and Lea counties; employment dedicated to potash production increased 7.1 percent per year since 2006.

Potash production increased steadily from 2006 to 2008, but declined sharply in 2009. By 2011, production still lagged behind the 2008 level, but because of steep price increases, the value of potash production increased steadily. In 2012, New Mexico potash production doubled, reaching a record high of 1.4 million tons.


Labor Markets

Highlights

The Texas Permian counties have enjoyed strong employment growth in recent years. Since 2010, employment in these counties has grown 3.8 percent per year compared with 3.0 percent for the rest of the state. Wages in the Texas Permian counties remain lower than in the rest of the state.

In New Mexico, the differences in employment growth between the Permian counties and the rest of the state are particularly stark. Employment in the Permian counties has fully recovered from the recession in 2008, while the rest of New Mexico has remained well below prerecession levels. Average weekly wages in the New Mexico Permian counties have also grown strongly in the last decade, allowing wages in the region to surpass those in the rest of the state.


Employment
Fourth quarter 2013
  Employment
(thousands)
Year/year change
(percent)
Texas
Permian counties
485.4
 
1.6
 
Rest of Texas
10,723.8
 
2.7
 
New Mexico
Permian counties
86.3
 
1.8
 
Rest of New Mexico
711.0
 
–0.4
 
SOURCE: Bureau of Labor Statistics.
Wages
Fourth quarter 2013
  Average weekly wage (dollars) Year/year change
(percent)
Texas
Permian counties
$940
 
1.3
 
Rest of Texas
$1,216
 
6.1
 
New Mexico
Permian counties
$893
 
3.1
 
Rest of New Mexico
$804
 
1.1
 
SOURCE: Bureau of Labor Statistics.

Business Activity

Highlights

Taxable sales in the Texas Permian counties have grown much more quickly than in the rest of the state. From first quarter 2004 to third quarter 2013, this metric grew at an annualized rate of 10 percent in the Permian counties compared with 5.5 percent growth in the rest of the state.

The Permian counties in New Mexico have enjoyed similar success. Since 2004, taxable sales in the New Mexico Permian counties have grown 10 percent per year on average compared with 2 percent per year for the rest of the state.

Taxable Sales
Third quarter 2013
  Sales
($ billions)
Year/year change
(percent)
Texas
Permian counties
5.2
4.2
 
Rest of Texas
81.3
5.1
 
New Mexico
Permian counties
2.5
5.0
 
Rest of New Mexico
10.5
–0.2
 
SOURCES: Texas Comptroller of Public Accounts; New Mexico Taxation and Revenue Department.


Resources

 

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