The Permian Oil Boom Is Showing Signs of Overheating

At 10:30 p.m. on an 85F August night in Penwell, West Texas, a 69-year-old repairman is hammering away at the frame of an 18-wheeler in the forecourt of an abandoned truck stop. The song Free Bird by Lynyrd Skynrd blares from the radio. “I’m making more money than I ever did,” says Don Suggs, who spends nights inside a vacant, graffiti-covered shop nearby, where he sleeps in a hammock. Just six weeks earlier he was retired, living near Dallas. He’s here now, he says, “for one last hoo-rah.” The Permian Basin is six years into a boom sparked by advances in drilling methods that have unlocked a sea of hitherto unattainable oil buried inside a 90,000-square-mile stretch of sedimentary rock straddling Texas and New Mexico. But as the area’s production approaches the level of Iran—the third-largest OPEC member—growth has begun to slow, throttled by shortages of pipelines, workers, power, and roads. There’s a lot, in terms of energy as well as geopolitics, riding on whether this is just a temporary blip or a longer-term deceleration. The U.S. has become an energy superpower because of the Permian. The region’s crude output has doubled in the last four years, and could rise another 50 percent by 2023, according to industry consultant IHS Markit. That could propel the U.S. past Saudi Arabia and Russia, which in recent years have alternated in the role of world’s top oil producer. Such a development would have far-reaching economic and political implications for everything from America’s foreign policy to OPEC’s influence in global energy markets. Growth has been powered by improvements in oil extraction methods—notably horizontal drilling and fracking, which pushes sand, water, and chemicals down into the ground to force out oil and natural gas trapped in layers of shale rock that run three-quarters of a mile thick combined. Both technologies had been around for decades; the breakthrough came from deploying them in combination. That’s what wildcatters, including Scott Sheffield at Pioneer Natural Resources Co. and Mark Papa at EOG Resources Inc., began doing in the Permian around 2012. Their success attracted the oil majors: Chevron, Exxon Mobil, and Royal Dutch Shell are all heavily invested in the region now...MORE