Lea County in New Mexico has seen the fastest growth among U.S. counties in oil production in recent years, becoming a key driver of the shale boom in the Permian basin.
The Permian shale boom has made New Mexico the second-largest U.S.-producing state, second only to Texas.
Lea County, with a population of about 75,000 residents in the southeastern tip of New Mexico, is fueling America's oil production growth and helping the United States keep its status as the world's largest crude oil producer.
While fracking boomed in the shale formations in Texas, the most recent advances in technology and drilling have made the Permian's Delaware basin—which spans into southeastern New Mexico—the most sought-after drilling location in the Permian. That's due to the heavily stacked pays in the Delaware basin, with two dozen potential drilling targets compared to about half a dozen such targets in the Midland basin in the Texas part of the Permian.
With technological advances and new drilling techniques, exploration and production companies are overcoming the more complex geology in parts of the Delaware basin and reaching oil-bearing layers that couldn't be reached 15 years ago.
New Mexico Drives Permian Growth
The New Mexico side of the Permian's Delaware basin now looks very promising to drillers who seek to tap more oil in the area that hasn't been drilled as extensively as the Midland basin in Texas.
"All the things that made it challenging back in the day are now the things that make it great," Andrew Parker, Senior Vice President of Geosciences at Matador Resources, told Bloomberg, commenting on the New Mexico part of the Permian.
"And they're the reasons that we prefer this side of the basin to the other side," Parker added.
At the center of the New Mexico boom is Lea County which, together with nearby Eddy County, drove much of the recent growth in Permian Basin crude oil output, the U.S. Energy Information Administration (EIA) said last year.
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Additionally, New Mexico's part of the biggest U.S. shale play has seen more extensive growth than the Texas part in recent years, data from the EIA has shown.
New Mexico saw the highest crude oil production growth of any U.S. state in 2022, with output gains of 300,000 barrels per day (bpd) accounting for half of America's oil production increase, the EIA said in a report last year.
Lea and Eddy county drove much of the recent growth in Permian Basin crude oil output, accounting for 29% of all crude oil production in the Permian Basin in the first quarter of 2023, averaging 1.7 million bpd, according to data from Enverus cited by the EIA.
Horizontal wells in Lea and Eddy counties accounted for 60% of total growth in the region in the first quarter of 2023, compared with 44% in the first quarter of 2022, the U.S. administration noted.
Large producers with a lot of inventory, including Chevron, can shift their Permian drilling programs to more single-bench, high-return developments in New Mexico, the U.S. supermajor said earlier this year.
Well performance in the Delaware basin has been very strong, Chevron's chief executive Mike Wirth said on the supermajor's Q2 2024 earnings call early this month.
A total of 80% of Chevron's drilling program is in the Delaware basin, which has seen performance up year on year, while early well results in the Midland basin are lower versus last year, Wirth said.
Chevron and other producers see an upside potential in Permian oil production this year.
The Permian is "exceeding expectations for this year. We've raised our full-year guidance, and we've got great confidence in what we'll deliver in 2025," Wirth said.
New Mexico Vs. Texas
Yet, New Mexico has more challenges to overcome than the Texas part of the Permian. Technology is making drilling in multi-stack pays possible but drilling in Delaware is more expensive than in the Midland basin, per Enverus data cited by Bloomberg. That's putting off some smaller drillers from expanding activity in New Mexico.
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Moreover, regulations and oversight are stricter in New Mexico than in Texas, while some areas in New Mexico are owned by the state or the federal government, unlike most of the land in Texas, which is in the hands of private citizens.
New Mexico has stricter flaring rules, with associated gas flaring mostly banned.
Last year, for example, New Mexico regulators fined a Texas-based oil and gas company more than $40 million for violating emissions standards and air quality rules. The New Mexico Environment Department (NMED) issued an Administrative Compliance Order to Ameredev for violations of state rules, including significant excess emissions of five regulated air pollutants from five facilities in Lea County. NMED identified five Ameredev facilities that actively extracted oil and natural gas without any means to transport the gas to a midstream pipeline as required by New Mexico state law.
Despite the stricter regulatory standards in New Mexico, oil production in the Permian in both New Mexico and Texas is rising and is set to rise further, authorities and analysts say.
Most of the forecast growth in oil and natural gas production in 2025 will come from the Permian region of western Texas and eastern New Mexico, the EIA said in its latest Short-Term Energy Outlook (STEO).
Productivity gains, new and expanded infrastructure, and high crude oil prices will support rising production, the EIA noted.
By Tsvetana Paraskova for Oilprice.com
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