HOBBS – You can measure the slow-rolling oil bust in the thousands of frack tanks, water-hauling trucks and port-a-potties parked in dirt lots, out of service.
Or take stock of it at a popular steak restaurant, where a year ago the bar was packed
three deep after 5 p.m. and
25-year-old Irma Zamudio was pulling $900 a week in tips. Today, she says she is lucky to take home $500.
See it in the “free rent” signs hanging on housing complexes, at the “unbelievably busy” Palmer Drug Abuse Program, and on the now-quiet highways to the oil and gas fields around Loco Hills and Eunice, where pumpjacks bob like flocks of hungry birds, but drilling activity has all but dried up.
The avalanche in oil prices that began in mid-2014 and bottomed in February is pummeling New Mexico’s oil producing regions the hardest – but the whole state is suffering as the oil and gas tax revenue that props up the state budget continues to drop.
Oil production in southeast New Mexico has only just begun to slip, with totals off just 1 percent in the first four months of the year, but drilling activity – and the thousands of jobs it supported in the region – has plummeted. Drill rigs in the field began disappearing last year, dropping from 104 in late 2014 to about 20 today.
In Lea County, which includes Hobbs, gross receipts fell 39 percent through April compared to the same period a year ago; it was the second-largest gross receipts decline in the state. The unemployment rate in Hobbs surged to 8 percent from 5.3 percent over the same time.
“The fact of the matter is, our little community lives and dies on oil,” said Larry Scott, president of Lynx Petroleum Consultants, a small oil and gas operator, and a Republican state representative.
The decline in oil prices was painfully swift compared to the climb.
A barrel of crude oil took 10 years to rise from around $11 in 1998 to $145 in 2008. With the exception of a short-lived dip in 2009, it took less than two years to slide from over $100 to under $28. The good times lasted a long time as oil booms go – so long that people began to believe it would last.
“People got accustomed to having work all day every day,” Scott said. “When that goes on long enough, you forget that things can change.”
Energy markets’ domino effect
Sharp movements in world energy markets can kick off domino effects in New Mexico that are felt in the industry, the local economy, the state budget and everyday lives. The domino effect of this downturn has gone something like this:
Drilling slows when oil prices drop below $65 a barrel, cutting off the flush production that comes from newly perforated wells.
Pumping at existing wells may continue as prices fall, but at slower rates as companies put off well maintenance. Historically, older wells also perform at lower rates than new wells, hurting production totals.
Although the price per barrel has been wavering between $45 and $50 in recent weeks, industry experts say that’s not high enough for a turnaround.
“When the number of rigs goes down as it has in the past year, you can imagine the effect on jobs and the community,” said Charles Salles, deputy director of the state’s Legislative Finance Committee. “It has a ripple effect. It has had a major impact on the state’s finances. We continue to be concerned today, even though oil prices have rebounded from where they were in February.”
As the rigs and well service towers fall off the landscape, jobs directly connected to drilling, fracking and well maintenance vanish. Out-of-town companies that came during the boom pick up and go. Local companies tighten their belts, cutting hours and salaries, and laying off staff, or they file for bankruptcy. If they are fortunate, they find new markets for their services and muddle through.
Paco Hernandez rents trash trailers and portable toilets to the oil industry. J&J Rentals saw 60 percent of its business evaporate over the past year, but Hernandez found a buffer market in the construction industry, which has continued apace as homebuilders who couldn’t put up houses fast enough during the boom continue to finish projects.
“The community, it’s taken a big old hit here,” he said. “We’ve been fortunate. We haven’t had to let go anybody. We’re stable enough that we can withstand this and hang on.”
The thousands of working people who came to work the boom begin to leave and homes for rent stand empty. Locals and those newcomers who choose to stay wait out the downturn on unemployment insurance or in lower wage jobs at fast food chains or Wal-Mart.
Gretchen Koether is president of the Hobbs realtors’ association. There were no
homes to be had for so many years that the Hobbs housing market is still absorbing demand, she said. It’s the rental market that is taking the hit right now as renters buy homes or leave the area.
A major property manager tells Koether that two-thirds of her business is “outgoing,” Koether said, and “50 percent of those are giving notice because they found jobs elsewhere, and 50 percent are coming in and throwing their keys on the desk and saying they can’t make it here anymore.”
There are social consequences to the downturn, too
“We see a big influx in people as the economy goes down,” said Stewart Sroufe, executive director of the nonprofit Palmer Drug Abuse Program.
“The impact is on the individual working in the field, working for one of these service companies, and all of sudden their salaries go to nothing,” he said. “It’s not just mom and dad, it’s the children who are affected. Because of the loss of income, dad and mom are not holding it together. To ease the pain of not having money, you’ve got drugs and alcohol. Our meetings have gotten larger and larger. The good part is some people are seeking help.”
Just a matter of time
The one thing Hobbs has always been able to count on is that what goes up will come down, and what comes down will go back up. Locals say it’s just a matter of when. In the meantime, the bust will continue to roll out its effects.
“Activity levels will not bounce appreciably higher if oil stays in the range it has been in for the last six weeks or so,” Scott said. “But there are companies making plans for going back to work because of the lead time with regard to these permits.”
The Oil Conservation Division of the state Energy, Minerals and Natural Resources Department has approved 310 drilling permits so far this year, ahead of the pace five years ago. Permits are good for two years and can be extended, but it’s unlikely that companies would act on those permits until prices return to the high 60s for a sustained period.
Another 1,200 wells have already been drilled, but not completed, as producers wait for the price to come up, according to Jim Griswold, OCD environmental bureau chief.
Hobbs Mayor Sam Cobb says this market “contraction” – the term he prefers to “bust” – is the second-worst he remembers in the five decades he has lived in Hobbs, second only to the market crash in the 1980s. But southeast New Mexico is in a much better position today than it was back then, when major energy companies picked up their things and fled.
“Today, we have a much different scenario,” he said. “We are seeing a reinvestment. Some of the companies that sold oil and gas producing properties in the ’80s are coming back in and purchasing some of their same assets back – Conoco, Shell, Chevron. Unrest globally and changes in technology – horizontal drilling and its suitability to this area – has made the Permian Basin, of which Hobbs, and Eddy County and Lea County are a part … competitive with any other oil field in the world. I think we’ll see sustainability like we’ve never seen since before the ’70s.”
Irma Zamudio, the 25-year-old bartender who works at the popular steak restaurant, said her husband had been working in the oilfield since he was 18. Their whole adult lives were boom times – until the bust. He was out of work for a while before he found a job with the city of Lovington, for less pay, she said.
“It really caught us by surprise,” she said. “We didn’t save. In the back of our heads, we always knew it wasn’t guaranteed. It can go back up and fall right back down again. Next time, we’ll prepare for the worst.”