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Here’s to the diversification efforts in SE NM

Years ago, I traveled to Villahermosa, Tabasco, in southern Mexico as a guest of Tabasco’s governor, and for a round of business meetings. Never having been to that part of Mexico, I didn’t know what to expect. I was entranced by the low-lying jungle setting and overwhelmed by the oppressive humidity. Driving into the city, I was taken aback by the modern infrastructure and buildings. The first thing I was encouraged to do was ditch my suit and tie and go directly to the local mall for more climate-appropriate clothes. The mall was very modern, and I felt like I was back in one of the big malls in the U.S.

Commerce was brisk within the city, with people scurrying around and going shopping. One thing I noticed was the dominant presence of women in the city and the scarcity of men. An associate from Villahermosa explained to me that due to the oil boom in that part of Mexico, most of the men were working in the oil fields or on offshore oil rigs making good money, which was then spent back at home, thus creating an economic boom. While this was a good thing for the economy, inflation had crept up causing prices to rise, and some products were harder and harder to find in the stores.

A few weeks ago, I had business meetings throughout Hobbs, New Mexico, and Lea County. I had not been to this part of petroleum-rich, southeast New Mexico in a few years. The last time I visited, the area was in an economic downturn due to a crash in oil prices. I saw many businesses shuttered, houses for sale at discount prices, and a discernible malaise that comes with economic recession.

This time my experience was completely different. There was traffic everywhere as commercial trucks were driving in and out of Hobbs and the oilfields. Food franchises and sports bars are everywhere. The oil boom in the Permian Basin has exploded the economies of southeastern New Mexico towns such as Hobbs, Carlsbad and Jal. Watching all the activity, I was reminded of my visit to Villahermosa years ago.

During meetings, I learned some incredible facts about the region. The oil production of that area has made New Mexico the nation’s third-largest oil producer and ninth in natural gas production. Oil production is responsible for 14.5% of New Mexico’s GDP, and contributes approximately 35% of the state’s general fund, which helps to form the annual state budget, funding everything from teachers’ salaries to roads. Ten percent of New Mexico’s jobs are connected to oil production. Lea County, in which Hobbs is the largest city, is the number one oil-producing county throughout the entire Permian Basin.

This boom has created good-paying jobs in the area and has attracted billions in commercial, industrial and petroleum-based investment. However, much like Villahermosa years before, a boom can create challenges. Because of heavy truck traffic, roads in parts of Lea County are deteriorating quickly. Hotels and hospital services have gotten expensive. Housing is extremely scarce and homes that are readily occupiable in Carlsbad can average between $263,000 to $273,000. During my visit, fewer than 200 homes were currently listed in Carlsbad, while 157 homes were listed in Hobbs. When put on the market, houses typically sell within a week. A very nice home in Carlsbad that previously sold for $500,000 can now fetch up to $1.2 million. Rentals in Lovington, just north of Hobbs, are averaging $1,400 per month.

It is not so easy to simply build new housing because land has become very expensive, and many people are wary of investing in multi-family housing because of the pain of previous oil busts. Hobbs has approximately 2,300 multi-family units and it is estimated that an additional 2,300 units could be occupied immediately. The larger oil companies have so far chosen not to guarantee new housing projects.

There is also the issue of how many of the transient oil workers will actually stay and build their lives in that region, especially when economic downturns occur.

Unfortunately, because of the lack of agreement between Russia, Saudi Arabia and OPEC in limiting oil production, and an economic downturn being accelerated by the coronavirus pandemic (both global factors), the region appears headed toward an economic down-cycle.

Economic developers and stakeholders in the region are working hard to diversify their economy so that economic cycles in the oil industry are not as severe. A major goal is to develop value-added businesses related to petroleum such as plastics. The Permian Basin is predominantly an extraction area where oil is taken out of the ground and shipped elsewhere to be refined or made into other products that are sold for higher prices than the basic commodity.

As we sail through this era of economic uncertainty, I will be rooting for my friends in southeast New Mexico and Villahermosa, both strong communities that have weathered boom and bust times. A light is always a little ways up the road.

Jerry Pacheco is the executive director of the International Business Accelerator, a nonprofit trade counseling program of the New Mexico Small Business Development Centers Network. He can be reached at 575-589-2200 or at jerry@nmiba.com.

 

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