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Haley Zaremba

Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the…

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From Boom Town To Ghost Town: Texas Grapples With Low Oil Prices

Ghost town

Times are tough in the Permian Basin. The massive shale play that stretches across West Texas and southeastern New Mexico has gone from boom to bust in a swift downturn that began even before the spread of the novel coronavirus. The gushing Permian Basin created a shale revolution and jettisoned the United States to the top of the world’s oil-producing charts, surpassing even Saudi Arabia, but production has been slowing down over the last couple of years. “The nature of shale wells is that the decline in production much more rapidly than conventional wells, leading to inevitable slowdowns such as what we are currently witnessing in the once almighty Permian,” Oilprice reported last September. But while the U.S. shale industry was already in decline, the COVID-19 pandemic may just be the sector’s coup de gras.  The oil price crash brought on by lagging oil demand and contentious geopolitics leading to an all-out oil price war between the OPEC+ members of Saudi Arabia and Russia has slammed the already precarious Permian, which is now reeling with a wave of bankruptcies and tens of thousands of fired and furloughed employees. “[West Texas Intermediate] WTI crude at under $20 a barrel, is less than half the $40-plus-a-barrel breakeven needed by the shale industry,” reported RigZone earlier this month. “The slump in crude prices and a supply glut lasting into the foreseeable future leaves the shale industry with stark choices: to limit production, cut costs and increase productivity.”

The impact of these low oil prices has taken a serious toll on the oil town economies in the Permian Basin. A Reuters report titled “U.S. shale bust slams rural economies as oil checks shrivel” paints a stark portrait. “The worst oil bust in decades has slashed the bounty that flowed to millions of rural Americans” and “has erased tens of thousands of jobs in the drilling and service sectors, dried up local tax revenues and charitable largess that flowed along with crude oil to Texas, North Dakota and Oklahoma.”

Related: 5 Points To Consider Before Buying Oil Stocks In 2020

While there are hundreds of thousands of individual sob stories spread across West Texas, the impact on entire communities and local, rural economies is massive. The Houston Chronicle describes the situation in Kermit, Texas, one such oil town in their report “Texas boomtowns have gone bust with oil.” “In Kermit, Covia Corp., a minerals and materials services company, last month laid off 82 of its local employees at a now idle sand mine as hydraulic fracturing [...] has ground to a halt. At least two more frac sand mines have closed or severely cut back operations near Kermit, ripping through the local economy as companies that haul and deliver the materials also are forced to cut back.” 

And the damage is far from limited to shale-industry companies. Oil boomtowns like Kermit see their population wax and wane dramatically along with the price of oil and the level of local production. When oil workers pack up and leave, entire towns are left in the lurch. “Companies that support the oil industry are wondering how to survive. Retailers, fitness facilities and salons popped up to cater exclusively to the oil field workers; now, their customers have packed up and left.”

It won’t be long before we start seeing a widespread of oil ghost towns sweep West Texas’ once-vibrant communities. We’ve already seen what can happen to small oil economies when the local wells run dry, as exemplified by Bloomberg’s 2017 report on “The Oil Ghost Towns of Texas.” “Lives are turned upside down. Plans are crushed. Savings are drained,” the article reads. But up until now, that has been a tragic side story in the Permian. Now it threatens to be the main narrative. It’s much easier to shut in a well than it is to bring it back online. The same goes for a local economy. These towns have lost everything almost overnight, but it will take a lot more than a stimulus check to bring these local economies back to life. 

By Haley Zaremba for Oilprice.com 

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