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Breaking the oil and gas bust

CARLSBAD — The boom town: where old meets new and where the small town meets big industry.

For the last seven years Carlsbad located in the Northwest portion of the Permian Basin, has been a boomtown.

The Permian Basin — one of the largest oil and gas regions in the U.S. — stretches across most of Southeast New Mexico and West Texas.

However, a global oversupply has made oil prices spiral down to $44.68 per barrel as of Friday, which is expected to have a serious impact on the region’s economy.

If the price of crude oil stays at or below $45 per barrel, it will may mean companies cutting their production even more, which will result in more layoffs and adversely affect the economy in the region.

Whichever way oil prices swing, the challenges faced in Eddy County will still be here.

While the downturn in the industry has many worrying what’s next, many recognize that the boom has created serious troubles for the communities they also help support.

With the bustle of the boom has created a population increase affecting the amount of available housing and creating a high-priced housing market that few can keep up with despite the prosperity of Lea and Eddy counties.

These are challenges that, even after being in a “boom” for seven years, city and county leaders have not yet learned to approach.

At the third annual Southeastern New Mexico Mayor’s Energy Summit the last panel included the most insight about what problems plague those living in the Permian Basin region.

The panel included five community members from Eddy and Lea counties; Hobbs Mayor Sam Cobb; Artesia Mayor Pro Tem Terry Hill; Eddy County Commissioner Stella Davis; Eddy County Undersheriff Mark Cage; and Carlsbad Fire Chief Rick Lopez.

Despite facing these challenges, the current downturn is seen as an opportunity to fix the problems faced in the area.

Cobb and Hill both echoed the need for more housing that is affordable, another issue created from the increase of population.

Unlike other issues some communities are attempting to find solutions to the housing problems, such as Hobbs who has used incentives to attract home developers.

“Incentivizing housing needs to be an everyday plan,” Cobb said. He said that when URENCO, a nuclear fuel company, first came to Hobbs, the city was then faced with a housing shortage.

Cobb explained that the city will reimburse developers after they finish a project if they’ve used city sources such as water and electricity.

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Despite the attractive incentive Hobbs still faces a housing shortage as developers continue to shy away from the city.

Carlsbad, who also offers an incentive plan, faces the same issue. Some developers are being attracted to the area but not enough to fill the demand and help with current cost of living.

Cobb said that he looks at this current downturn in the industry as an opportunity for Hobbs to catch up in housing, meaning the city is prepared for a second boom.

When crude prices will go back up, however, is unknown.

“I think the future for oil and gas in this region is bright,” Carlsbad Mayor Dale Janway said in an email. “We hear over and over that the reserves near Carlsbad are among the most prolific in the world.”

Crude oil first dropped in November 2014, falling below $70 per barrel for the first time since May 2010.

“The Economic Impact of the Permian Basin’s Oil and Gas Industry,” a 2014 report, states the Permian Basin’s oil and gas industry sustained more than 546,000 jobs and generated about $137.8 billion in economic output in 2013.

Oil and gas experts agree the drop in crude oil prices indicate that the boom in the region may be at an end and what the future holds for the industry and the community it supports, at the moment, is not certain.

On Sept. 14, the 2015 Southeastern New Mexico Mayor’s Energy Summit was held in Carlsbad.

Experts, CEOs and other business people in the oil and gas industry gathered to discuss the future of those commodities in Southeastern New Mexico.

Private Equity Investments Manager for Mack Energy Corporation, Billy Munn said that those who have been in this business (oil and gas) know that it won’t rebound back fast.

“I don’t know the future,” Munn said. “This is going to be a very different struggle coming out of this.”

Munn before said that the difference between this bust and the last oil bust in 1986 is that drilling prices are far more expensive than they used to be.

“The thing that concerns me most is how you deal with a cut that fast and how we deal with that moving forward,” Munn said about oil prices descending last November.

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The headlining name at the summit was oil billionaire T. Boone Pickens.

Pickens, 87, founder of Mesa Petroleum and current chairman of the BP Capital Management hedge fund, predicted crude prices would rebound no later than summer of next year.

Pickens said that global issues such as the Iran deal or Saudi Arabia not cutting their own production hurts the U.S. oil industry right now, but that it won’t be forever and, hopefully, not too much longer.

“We have more resources than any other country in the world, and when we produce, we let it rip,” he said, adding that the U.S. needs to no longer be dependent on oil from the Middle East.”

While Pickens is making pleasant predictions, others are not so sure.

Wally Drangmeister, vice president and director of communications for the New Mexico Oil and Gas Association, said there are no signs that show if the price of oil will go up or down in the next few months.

“It is a volatile and dynamic market and they’re so many factors that can impact the price of oil,” Drangmeister said

Drangmeister said one thing that is for sure that in the current low-price environment, producers will focus on existing operations to be cost effective.

Sarah Matott may be reached at 575-628-5546.

This article was written by Sarah Matott from Carlsbad Current-Argus, N.M. and was legally licensed through the NewsCred publisher network.

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