Texas’s Permian Basin: What’s Old is New Again

A bumper sticker popular years ago in Texas read: “If you don’t own an oil well, get one.” With nearly 16,000 oil and gas wells drilled in the state in 2011—and even more planned for this year—the possibility for many Texans of owning a portion of the production of an oil well is not that farfetched.

Take me, for instance, a freelance writer living in Houston. Since the 1980s I’ve owned, due to an inheritance, a fractional interest in the minerals underneath three tracts of land in West Texas, hundreds of miles from my home. Fortunately, those tracts are in Ward County near the heart of the Permian Basin, which, since the 1920s, has been one of the most prolific oil regions in the U.S. and source of more than two-thirds of all Texas oil production.

In Texas—as in the rest of the U.S.—the minerals below one’s feet are in private hands. You might own the mineral rights of your farm or ranchland, say, or you can purchase mineral rights from investors separate from the land. The hope is that an oil company leases your minerals, drills a well—or multiple wells—giving you the royalties, a.k.a. cash, to make all manner of your dreams to come true. Everywhere else in the world, minerals are claimed by governments, rulers, and despots.

My mineral interests in the Permian Basin are in three 160-acre tracts of flat, semiarid land, all a stone’s throw from one another. For years, various oil company brokers would seek to tie up my interests for three-year periods, waiting for the right opportunity or economic climate for drilling. Thumbing through my yellowed files, I noticed I leased my rights on one tract for as little as $50 between 2003 and 2006. In late 2011, a leasing company for Chesapeake and Anadarko oil companies made things a lot more intriguing, paying $1,187.5 to lease my interest—a piddling .475 mineral acres—in one of the tracts. Then in early 2012, an investment company offered to purchase my interest in the tract for $10,000! That got my attention. I didn’t take the offer, but asked, “What the devil is going on in the Permian Basin?”

I called Houston independent oilman Charles O’Neill for an answer. “Peter, what’s going on in the Permian Basin is beyond belief! With fracking and horizontal drilling—and $100 barrel oil—it’s an explosion out there, a rebirth.”

The Permian Basin is a huge oval-shaped area 300 miles long and 250 miles wide. For the past 90 years, this ancient field has produced more than 30 billion barrels of oil—20 percent of all U.S. oil production—and 75 trillion cubic feet of natural gas, according to the Texas Railroad Commission, which regulates the industry. The University of Texas Bureau of Economic Geology believes there are still 30 billion barrels hidden in numerous nooks and crannies, recoverable by deeper drilling and use of the twin techniques of horizontal drilling and multistage fracturing. Those methods, employed over the past decade in the U.S. to unlock vast amounts of natural gas in the Bakken, Marcellus and Eagle Ford shale plays, are now being applied to release large quantities of oil.

Nowhere is this more evident than in the Permian Basin, where there are now more than 400 drilling rigs—a quarter of the U.S. total—swarming over the area. Permits for drilling jumped from 3,369 in 2009 to a remarkable 9,347 in 2011. That number is expected to climb in 2012 and is being led by independent oil companies such as Apache, Anadarko Petroleum, Chesapeake, Cimarex Energy, Devon, EOG Resources and SandRidge.

Landowners and anyone who has a mineral interest in the area are all reaping the financial benefits. All three of my tracts will be drilled over the next year. Debra Harris, a petroleum landman for Cimarex, which will drill two of the wells, said, “Peter, you can tell everybody now that you’re in the oil business!” I laugh at the idea.

Some people in the Permian Basin are not laughing. Each well drilled using hydraulic fracturing can require several million gallons of water over days or weeks. The water, mixed with sand and chemicals, is sent underground at high pressure to fracture shale rock formations, forcing out the oil. Some small West Texas towns and ranchers have growing concerns that the drilling operations are sucking so much water out of the region’s aquifer that there won’t be enough for livestock and people.

Others who aren’t happy are environmental groups trying to put the brakes on drilling by appealing to the United States Fish and Wildlife Service to protect several animal species, including the five-inch dunes sagebrush lizard. The reptile lives among stands of shinnery oak, a relatively rare tree in the sand dunes of West Texas. Oil companies are working on a voluntary conservation program to locate new drilling so it will not disturb the lizard habitat.

While the water and lizard issues are being thrashed out, I’m keeping my fingers crossed that one of the wells being drilled on my three tracks hits. If it happens, I won’t be gauche and drink Champagne from my cowboy boots as some Texans have been known to do. No, I’d buy a new car or maybe a tractor for a little farm I have outside Houston. If there’s money left over, I’d take a sightseeing trip somewhere—maybe the Middle East.