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Oil industry dives head-on into NM’s Delaware Basin

Copyright © 2018 Albuquerque Journal

Battle Axe Road cuts smack through the heart of New Mexico’s side of the Delaware Basin, a previously marginal zone along the Texas border that is rapidly turning the state into a global player in the oil industry.

Until recently, it was just a dirt path that cut through desert scrub. But now, the newly-paved road takes a daily beating as thousands of trucks and heavy equipment pound their way to and from hundreds of new, or soon-to-be-drilled, oil and gas wells that dot the landscape in this isolated patch of Lea County.

A truck carries equipment for a drilling operation off Battle Axe Road near Jal.

Towering drilling rigs and massive tanks filled with oil, water and liquid gas line the roadside. Hard-hat construction crews, service workers, and drilling teams swarm around as heavy machinery cuts deep into underground shale rock beds to suck out the oil and gas trapped there for millenniums.

Rectangular sand lots where workers have scraped away the surface vegetation pop up everywhere, some already holding storage tanks and a first well head in preparation for the drilling that will soon turn them into oil pads with multiple wells.

Industry titans like ExxonMobil, Chevron USA, EOG Resources and Concho are pumping billions of dollars into this zone, which holds some of the most-productive oilfield geology in the nation, said long-time oilman and former county commissioner Gregg Fulfer during a three-hour drive through the area. It’s the latest and most promising boom to emerge on the New Mexico side of the Permian Basin in decades, thanks to technology that allows operators to slice into layers of underground hard shale rock to reach huge pools of hydrocarbons they couldn’t tap into before with conventional drilling methods.

Workers install infrastructure for separating oil, gas and so-called produced water, a waste product from fracking operations. (Roberto E. Rosales/Albuquerque Journal)

“The shale revolution is dwarfing anything we’ve seen here before,” Fulfer said. “The major oil companies invested between $12 billion and $14 billion just last year to build all the infrastructure they need to drill wells and store, process and transport everything connected to their operations.”

That turned New Mexico into the nation’s third-largest oil-producing state last year after Texas and North Dakota. Production reached 171 million barrels in 2017, the highest output by far in New Mexico history.

And today’s boom may be only the beginning, since major companies like ExxonMobil expect to ramp up operations over many years. To date, operators have barely scratched into a few of the shale layers that that line the New Mexico side of the Delaware Basin, an oval-shaped rock formation within the Permian that protrudes from southwestern Texas northward into Lea and Eddy counties.

Most of today’s operations rest within a six-mile stretch northward from the Texas border between Jal and Carlsbad. As companies dig deeper into the shale rock in coming years, activities in this zone will intensify, and slowly spread to areas farther north and east.

Workers install a new pipeline west of Jal. The highly productive Delaware Basin has made New Mexico the nation’s third-largest oil producing state.

“It’s really just in its infancy,” Fulfer said. “The major companies all use 3-D seismic imaging to assess potential areas before they drill, and that can take like three years. As they continue to develop all those 3-D assessments, they’ll move their way little by little east and north.”

The flat, layered geology of the Delaware that’s stacked with up to six or seven potentially productive shale-rock drilling levels in many areas, allows companies to begin operations in in just one layer in a single area and then work their way up and down the stack. They use hydraulic fracturing to crack open the tough rock formations, and then drill horizontally to penetrate sideways deep into the nooks and crannies where hydrocarbons are trapped in the shale.

That stacked formation has whipped up local optimism about the Delaware’s long-term potential, easing concerns about the boom-and-bust cycles that have long plagued the local industry.

“The Delaware’s ‘stacked play’ creates tremendous opportunities,'” said Hobbs Mayor Sam Cobb. “Hydrocarbon formations follow the geological contours of the underground platforms, and the contours here are much flatter than other places in the U.S., allowing companies to penetrate deep into those zones through fracking and horizontal drilling. All of that is creating a sustainability in the oil and gas sector here that we’ve never had in the history of the industry.”

The gushers that sprout from those stacked plays produce immediate returns for operators, making the Delaware one of the most productive and lucrative basins in the nation, said John Raines, vice president for the Delaware Basin business unit of Devon Energy, one of the area’s most active operators. That, along with broad technological and business innovations introduced after world oil prices crashed in 2014, has allowed producers to operate more efficiently and at much lower cost.

This fracking operation is underway in southeastern New Mexico’s Delaware Basin, one of the country’s hottest oil fields.

“Modern technology has enabled production at lower commodity prices, but what really sets the Delaware apart is its world-class reservoirs,” Raines said. “The basin has a geological complexity with reservoirs and zones that stack on top of one another in a way that industry is only now starting to fully understand. We’re now locating those sweet spots where the most productive reservoirs are and keying in on them, and that’s rapidly turning the Delaware into the premier basin in all of the lower 48 states.”

That’s allowed major oil companies to operate profitably in the Delaware even when oil was stuck at around $45 to $50 per barrel last year. And since last fall, prices have climbed back above $60 per barrel for the first time since 2014, thanks to a combination of production cutbacks by the Organization of Petroleum Exporting Countries and economic growth in many nations that’s spurring a rise in demand.

With the renewed oil boom in southeastern New Mexico straining housing availability, many workers live in RV parks

World oversupply that cut oil prices from about $100 a barrel in early 2014 to just $27 in 2016 is finally thinning out, providing more incentive to increase drilling in the Delaware and elsewhere. As production increases, prices could come down again. But the big companies operating in New Mexico’s side of the Delaware are now well-poised to stay profitable given the lucrative returns there.

ExxonMobil, which invested about $5.6 billion last year to nearly double its holdings in the Permian Basin to about 6 billion barrels of oil equivalent hydrocarbons, said in January that it plans to invest more than $2 billion in transportation infrastructure in the region and triple its output here from about 200,000 barrels per day now to 600,000 by 2025.

Longtime oilman Gregg Fulfer supplies water for oil and gas operations in the area from this retaining pond near Jal. (Roberto E. Rosales/Albuquerque Journal)

At the New Mexico-Texas border, the results are already stunning as service companies scramble to erect huge oil and gas gathering stations and lay thousands of miles of pipeline.

“ExxonMobil had moved out of here like 20 years ago, and now they’re back big time, along with many other companies that are investing billions here,” Fulfer said. “That’s huge for New Mexico.”

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