Texas Will Reduce Drilling — New Mexico Will Increase
The growth of oil production in New Mexico overtakes the growth of production in other oil-bearing areas of the United States.
Two counties in New Mexico – Lee and Eddy—accounted for 17% of all onshore oil production in the continental United States last year. They are expected to produce more oil by 2030 than the other five largest oil-bearing regions of the United States combined, Bloomberg writes.
“Since the Covid pandemic, the Permian Basin has become the only significant source of supply growth,“ said Garrett Golding, energy economist at the Federal Reserve Bank of Dallas, “and since the growth of the Permian Basin is concentrated in New Mexico, technically this means that the global oil market depends on what happens in New Mexico.“
The oil-bearing basins of Texas are more convenient for production in geological terms. The oil in Delaware, a subbasin of the Permian Basin that juts into New Mexico, lies beneath the surface in more inaccessible formations than in Texas. Stricter drilling and environmental regulations in New Mexico do not make life easier for oil workers either. In the state, for example, the burning of associated gases and high requirements for the disposal of process water are completely prohibited.
However, production in Texas is now slowing down as the Permian Basin, the busiest basin in the Western Hemisphere, ages. In New Mexico, by contrast, there are still many untouched areas, and only about a third of the Delaware basin has already been drilled, according to Novi Labs.
On the plus side, improved technology makes oil production in New Mexico easier, and the construction boom of infrastructure facilities, including pipelines and oil pumping stations, has made the Delaware basin more accessible.
Nevertheless, mining companies in New Mexico have their own problems. Drilling in Delaware is more expensive: the average cost of wells is about $9.8 million apiece, compared with just over $8 million in the Michigan Midland area, data from Enverus show. For small companies, this means a high barrier of entry, which not everyone can overcome, so financially secure oil giants have a better chance of success in the New Mexico basins.
