Booms And Busts Have Defined Midland's History, But Is It Time To Stop Using Those Terms?
By Mitch Borden
The Permian Basin has never been busier. More oil is being pumped than ever before, thanks to hydraulic fracking, and energy companies are making plans to stick around long-term. By most accounts, the region is booming. But, some analysts and community leaders believe the oil industry is entering into a more stable phase where the days of crazy booms and terrible busts may be a thing of the past.
And there's no place better to find out whether this is true than Midland, TX. The corporate center of the Permian Basin’s oil industry, which city has been for almost 100 years. This also means the oil and gas industry’s notorious boom-bust cycle is practically baked into the community’s DNA.
That’s why it was so surprising to hear that Midland’s Mayor Jerry Morales had said booms may be a thing of the past. He says Midland's changing and he wants people to know that.
“We’re rebranding Midland. We are not a man camp. We are not just someplace to get a job.”
Morales sees the oil industry as a stabilizing economic force that could put Midland on the path for sustained growth. That’s a hard sell to residents and investors if everyone believes the economy could fall out from underneath them when the next bust hits. So he doesn’t want to use the terms “boom” or “bust” to describe the region's economy anymore.
He said, “We’re not going to talk like that. We’re going to talk about sustainability, talk about the long-term future."
Morales does have reasons to be optimistic. Over the last ten years, the West Texas oil industry has been exploding. By combining hydraulic fracking and horizontal drilling oil, a process using water, chemicals and sand to extract oil from shale formations, companies have unlocked vast new reservoirs of oil and natural gas in the Permian Basin. This process is also cheap and really efficient so it’s easier for producers to make money even if the price of oil suddenly drops.
Morales explained, “So, we’ve seen the boom-bust cycles [in the past.] We’ve seen the economy go up and down. What ’s changed is we’re more sustainable.”
Midland’s past experience with devastating oil busts is a tough memory to let go of . To understand this, we need to go back in time about 40 years.
The price of oil was really high in the early ‘80s, at its peak, a barrel went for over one hundred dollars by today's standards. So, West Texans were getting rich. Stories of Midland at this time included tales of lavish mansions, crazy parties, expensive cars, and private planes.
But then suddenly in 1986 the oil market tanked.
In West Texas, the price of oil fell by about 50 percent in six months. The main cause of the crash was an oil glut and Saudi Arabia, and other OPEC, countries flooding the market with cheap oil, which caused oil prices to free fall. This turned Midland’s boom into a cataclysmic bust.
Businesses closed, home for sale signs popped up everywhere, and a lot of residents left town. There is still evidence of the crash in Midland today. In its downtown, there are skyscrapers that have sat empty for decades because of the 1986 bust. Reminding residents of the kind of damage a downturn can leave in its wake. On the other hand, there are also huge construction projects currently going on in Midland that send the message: oil is back and stronger than ever.
According to Midland's Mayor Jerry Morales, the Permian Basin's economy is nothing like what it used to be.
He said, “Oil and gas may drop. We saw that in 2015 when it hit $30, but you know what happened? Everybody stayed.”
Morales said during the price drop that hit about three years ago businesses didn’t shut down as they would’ve in the past. There also wasn't a major population drop, instead, people stuck around to weather the downturn. In fact, Midland is the fastest growing community in America, according to the U.S. Census Bureau.
Another reason the Permian Basin is becoming more resilient is there’s a huge demand for its oil overseas. Before 2015, the U-S banned exporting the majority of its oil, but now that ban’s been lifted. Opening up the world to Permian oil producers. Many think this is a good thing that’ll make the American oil industry more secure.
Trey Murphy, a geographer who studies the effects of the energy industry on communities, doesn’t see it that way.
He said, “It only takes one tweet or it only takes one gunshot in the Middle East to drastically change the price of oil.”
Murphy believes no matter what anyone says Midland is still in a boom. The city has all the classic symptoms. Rapid economic growth.Strained infrastructure. Along with labor and housing shortages.
He even said the sunny outlook on the oil industry’s future is pretty common.
“Everything looks great when you’re in the middle of a boom, but a bust really isn’t that far away.”
That’s hard for some to imagine when major oil companies like Chevron and ExxonMobil are snatching up land in the Permian Basin. The growing presence of the majors really only started recently and their continued investment in the region is reassuring to those who believe the West Texas oilfields are stabilizing.
People shouldn’t get too comfortable though, said historian Diana Davids Hinton, who lives in Midland and studies the Permian Basin oil industry.
"There’s no such thing as a sure thing, economically, in an environment like this.”
She agreed that the low cost of fracking somewhat shields the industry from dramatic market swings.
But, she said, “Things only stay booming while people are making money. And that’s something the industry can’t control.”
No matter what companies do to try and influence the price of oil — only the global market sets the price. That means the price of oil could go down, or up, for any number of reasons like if there was an oil glut or new restrictive legislation or something totally unexpected happens — like in 1986.
According to Davids Hinton, this means booms vary. They can go for weeks, months, years, or longer.
In the end, though, she said, “It’s impossible to say how long one is going to last.”
Right now, it does look like oil companies are set up to have a long run in the Permian Basin. Davids Hinton doesn’t dispute this, but she said just because a large bust hasn’t hit the region recently doesn't mean one isn’t right around the corner.