Smack in the middle of Grier Brunson’s family’s ranch, a patch of West Texas dirt that sprawls across 45 square miles, sits a lush, green dip in the land that the family calls “the draw.”
Thousands of years ago, Pueblos built rocky settlements here. Hundreds of years ago, Comanches thundered on horseback across this plain. Today, the natural bounty in and around the draw is producing a rather more modern stampede.
On the rim of the draw, amid the mesquite trees and the sagebrush, oil rigs loom like rockets at launch, and a team fracking a well shoots untold thousands of gallons of water and hundreds of truckloads of sand down into the earth, using huge hydraulic pumps that emit a dull, constant roar. For the Brunson family, these are the sights and sounds of money: Two miles underground, oil—thousands of barrels of it every day, worth millions of dollars—is being cracked loose from the rock and pulled up through carefully engineered holes.
Under the terms of the mineral leases they’ve signed with oil companies, Brunson and his extended family receive one-quarter of the revenue from every barrel the drilling companies pull up. The Brunsons have about 50 wells on the ranch, of various sizes and ages. With oil trading around $70 per barrel, among the most prolific of those wells could generate as much as $3.8 million per year in royalties before taxes for the Brunsons. And that’s just for the oil. The Brunsons earn additional royalties from the sale of the natural gas and other hydrocarbons that come up with the oil. And they earn fees from the drilling companies for permission to install infrastructure such as pipelines.
The size of this unexpected windfall is a bit bizarre and more than a little embarrassing to Brunson, who drives a GMC pickup, idolizes a grandfather who rustled cattle here nearly 100 years back, and curses like a cowboy—“goddamn it!”—when he drives across his ranch and sees what he regards as messy operations by the oil companies leasing his land. The money “is more than we need. We don’t know what to do with it. But it keeps coming,” says Brunson, a lanky, bespectacled 73-year-old, who evokes Colonel Sanders with his silver goatee and Will Rogers with his silver tongue.
“We have no inclination to be rich beyond our wildest dreams,” he adds. “Apparently, it’s going to happen anyway.”
Indeed, it’s hard not to rack up wealth when fate puts your ranch at the epicenter of one of the biggest oil booms in history. Brunson’s land sits in the bull’s-eye of the Permian Basin, a petroleum-rich swath of western Texas and southeastern New Mexico—bigger than North Dakota—that is experiencing a gusher of production growth epic even by the outsize standards of the Lone Star State. The boom is remaking every aspect of life in this parched part of the country, for good and for ill. And it is reverberating across the globe.
The emergence of the Permian is changing the geopolitics of energy. Oil production in the Permian soared to 3.2 million barrels per day in May. And it helped push total U.S. production above 10.2 million barrels per day in February. That was the highest that U.S. production has been since the federal government began keeping records in 1920—higher even than the prior peak of 10 million barrels per day in November 1970, according to the U.S. Energy Information Administration (EIA). In April, an average of 449 rigs were drilling holes in the Permian, according to market-data firm Baker Hughes. That was 44% of all the rigs drilling that month in the U.S. And it was 22% of all the rigs drilling in the world. Over the past two years, Baker Hughes figures show, the number of rigs drilling in the Permian has more than tripled. A surge in the price of oil over the past year has only added to the urgency of the drillers piling in.
Some compare the Permian’s buried treasure to that of Saudi Arabia’s Ghawar field, widely regarded as the mother of all giant petroleum troves—what the industry calls “elephants.” The Permian is “a huge resource, and it will play out globally,” says Sara Ortwein, president of the XTO Energy unit of Exxon Mobil, No. 2 on this year’s Fortune 500, which already is one of the Permian’s biggest producers and plans to triple its output here by 2025. Adds Vicki Hollub, CEO of Occidental Petroleum, No. 220 on the 500 this year, and another major Permian player that’s doubling down in the region: The region is among “the best basins of the world.”
What has oil executives salivating is that the Permian, as it finishes its first century of production, may just be getting started.
Ever since 1923, when a now legendary oil well southeast of Midland called the Santa Rita No. 1 struck black gold, the Permian Basin has been known as a big one. The pump jacks dotting the landscape are iconic evidence that generations of oilmen have drilled this turf. Geologists estimate that the existing wells—more than 400,000 so far—have pulled up about 30 billion barrels of oil. Yet industry analysis firm Wood Mackenzie estimates two or three times that amount of oil remains underground, and “recoverable,” in industry terms.
What makes the Permian so alluring is that it’s a massive geologic platter. Over millions of years, the death and decay of critters and the buildup of sediment has produced countless layers of oily rock—in particular, shale. Oilmen call each layer a “pay”—a rock-hard pancake full of hydrocarbon syrup just waiting to be tapped and sold. In the number of these pancakes and in their thickness, the Permian may well be unparalleled.
For decades, the oil industry was unable to profitably pull much oil from shale—only from other, easier-to-tap, rock formations. Understanding why requires realizing that buried oil doesn’t exist in vast pools; rather, it sits, as if in a sponge, inside tiny holes in rocks. The rocks that are easiest to tap have both high porosity (meaning: big holes) and high permeability (holes that connect well to each other). Shale tends to have both low porosity and low permeability. It is, in the lingo, tight. Which used to mean the oil was essentially trapped.
Then the fracking revolution changed the game. About a decade ago, new technology made it cost-effective for oil companies to drill in tight shale. The trick was to combine horizontal drilling, enabling each well to fan out across a wide area, with industrial-scale hydraulic fracturing, or fracking, to crack up the innards of tight rock. Initially, the industry deployed these techniques in lesser shale plays such as the Bakken formation—in North Dakota, Montana, and Canada—and in the Eagle Ford, in South Texas, because they were simpler to drill. The Permian is a more complex area, but it’s also vastly richer with oil. Now that the drillers have mastered its geology, the basin’s production has begun to explode.
Over the next decade, the Permian will account for two-thirds of the increase in total U.S. oil production and one-quarter of the increase in total global oil production, projects Wood Mackenzie. Simon Flowers, Wood Mackenzie’s chief analyst, likens the global impact of the Permian to that of North Sea, which ushered in the era of large-scale deepwater drilling some 40 years ago. “The Permian,” he says, “is of that scale.”
Because of its stack of pays and because it already has extensive oil-producing infrastructure in place, the Permian could be a cheaper place to boost global oil production than even some of the spots that traditionally have dominated the oil industry—places such as Russia and Middle East. There are quite a lot of locations in the Permian, “in the best of the sweet spot,” says Flowers, where companies are reporting that they can produce oil with favorable returns at a global oil price lower than $30 per barrel—significantly less expensively than in some other parts of the world. That, says Flowers, raises a discomfiting question for Russia and OPEC: “What do I do when the Permian is eating my lunch?”
The Permian, in short, is a window onto an energy system that’s heading back to the future—to a time that, in fundamental ways, looks a lot like the start of the Oil Age a century ago. Over the years, Big Oil has buzzed over a succession of faraway frontiers: Saudi Arabia, Russia, West Africa. Now it’s agog anew about the place where it effectively was born: the West Texas desert.
On the ground in the Permian, the impacts of the boom are visible everywhere, and many of them aren’t good. Though the haves are cashing in, the have-nots are having trouble affording rising prices for everything from groceries to housing. The boom also is straining infrastructure, sometimes dangerously. Local roads are too narrow, boosting traffic deaths. Pipelines are inadequate, forcing buyers to truck out much of the oil, which is worsening gridlock and increasing pollution. Meanwhile, the ground itself is convulsing in earthquakes and sinkholes.
The Permian’s hub is Midland, a city of about 150,000 people. It was founded in the 1880s essentially as a way station—the midway point on the Texas and Pacific Railway between Fort Worth and El Paso. Ever since the 1923 Santa Rita bonanza, Midland’s history has tracked the ups and downs of oil. The downtown architecture reflects waves of construction during periods when oil boomed. The most iconic structure remains downtown’s Petroleum Building, an ornate 12-story tower that was finished in 1929, months before the economy and oil prices crashed.
Jim Henry may be Midland’s paradigmatic oilman. In 1969, in his mid-thirties, he started Henry Petroleum. In 2008, he sold it for $600 million. “Point-six billion,” Henry, now 83, tells me when I visit him in his Midland office, making sure I get the number right. He keeps a maroon book of biblical references, God’s Promises for Your Every Need, on his desk; photos of his friends the Bushes, the presidential family that once lived in Midland, on a wall; and a Learjet at the airport. In his head, framed by wire-rimmed glasses and thick white hair, he keeps an encyclopedic knowledge of the land that has made him rich.
When Henry began producing oil, in a stack pay called the Spraberry about 9,000 feet below Midland, leasing mineral rights cost perhaps $300 an acre and drilling a vertical well cost about $150,000. After Henry cashed out in 2008, selling to Concho Resources, a local rival, he took half the money he banked in the deal and founded a new oil company, Henry Resources. Today, leasing the mineral rights in the Spraberry around Midland can cost as much as $40,000 an acre, and the horizontal wells Henry drills and fracks cost about $8 million each.
Modern oil production in the Permian resembles a gritty but sophisticated open-air assembly line. Unlike in, say, deepwater basins off Africa or Asia, the goal in the Permian isn’t so much to find the oil, because the oil here in West Texas long ago was found. The goal here is more workmanlike: to assemble the acreage that contains the most oil and to execute the drilling and fracking plan that will pull it out at the lowest cost.
Just as software engineers in Silicon Valley massage code to improve apps, petroleum engineers in the Permian use computerized profiles of the local geology to tweak everything about the production process and wring more oil from the rock. They decide how many wells to cram into each one-square-mile patch of land, called a “section”; at what depth and what distance from each other to drill the horizontal extensions of those wells, which typically run for two miles; and the precise amount and granularity of the specially engineered sand they buy from mines around the U.S. to mix into the million or so gallons of water that, often with certain chemicals, they use to make the fracking fluid they shoot down into a well.
A typical modern rig is several stories tall, its drill bit controlled by an operator who, sitting in a booth called a “doghouse,” monitors a bank of computer screens and guides it with a joystick. When the rig finishes drilling one well, a process that often takes about three weeks, it stands up on its four monstrous steel feet and walks, one foot about every two minutes, to the spot where it will drill the next one.
“It’s taken a long time and a lot of capital to figure out the recipe,” says J. Craig Corbett, who headed exploration at Henry Resources for a decade until he retired last fall. His house, on an upscale street in Midland called Charismatic Drive, has a movie theater, a two-story wood-paneled library, and garage that holds, among several other throaty conveyances, two particularly fast Porsches. “I’ve done okay,” he allows.
THE PERMIAN BASIN BY THE NUMBERS
|449||3.2 million||60 to 90 billion|
|Number of oil rigs drilling in the Permian in April. That was 44% of all rigs drilling in the U.S. and 22% of the number worldwide.||Barrels per day of oil produced in the Permian in May. The Permian boom has helped push U.S. production to a record 10.2 million barrels per day.||Barrels of “recoverable” oil remaining underground in the Permian region.|
|SOURCES: Baker Hughes; U.S. E.I.A.; Wood Mackenzie|
Henry today is but a small player in the Permian. That’s because the big boys are piling in. Many of the multinational oil giants were here a generation ago but pulled out or pulled back in the 1990s or 2000s, convinced the deep water would be far more productive than this desert. Back then, Corbett recalls, the Permian Basin was known among many oil executives as the “Permanent Basement”—the godforsaken spot in the sand where careers went to die.
The innovations in fracking upended that view. Today, oil’s “super majors” are betting they can bring to bear the large-scale corporate efficiencies they have been testing in shale plays elsewhere to squeeze out the Permian’s vast quantities of oil more cheaply and profitably than can scrappy independents like Henry.
One of the biggest is Exxon Mobil. It has a position of 1.8 million Permian acres, an area larger than Delaware. That includes about 250,000 Permian acres to which Exxon bought access in January 2017 from companies owned by the Bass family of Texas. The deal, valued at $5.6 billion up-front with a potential additional payment of $1 billion, implied a per-acre price of $20,000, according to PLS Inc., a provider of data about oilfield transactions.
Globally, Exxon produces about 4 million barrels of oil equivalent per day. It produces about 4% of that in the Permian, and it plans to triple its Permian production by 2025. Its cost to develop and operate wells in the Permian is below $15 per barrel—on the “low range” of Exxon’s costs to develop shale plays around the world, says Ortwein, the XTO unit’s president.
A major concern for Permian producers is that oil production in the basin has outstripped the capacity of pipelines to get it to market. Customers thus have to transport much of the oil they buy via truck, or let their oil sit until room opens up on today’s pipelines. Both options can inflate costs. As a result, the buyers have been paying Permian producers as much as $10 less per barrel than the prevailing market price—the “basin differential,” as insiders call the gap.
“It is a problem, and it’s going to be a problem until the next pipeline is built, which is not scheduled to come online until 2019,” says Hollub, Occidental’s CEO. Oxy, which has a position of 1.4 million acres of what it calls “unconventional”—essentially, shale—production in the Permian, only slightly less than Exxon Mobil, is angling to exploit the pipeline crunch to its own advantage. Hollub says Oxy has more than enough pipeline capacity to transport what it produces and to charge others to transport some of theirs. “We’re very well suited not only to get our production out but also to get third-party production out and make money on it.”
Royal Dutch Shell also is pouncing in the Permian, which it abandoned in 2000 and then reentered in 2012. Its Permian position is far smaller than Exxon Mobil’s and Oxy’s—Shell has a position of about 265,000 acres. But, contends Amir Gerges, Shell’s general manager for the Permian, it’s in “the thickest part of the formation.”
Shell, like most Permian players, is busy swapping one-square-mile sections of land with other oil companies to assemble holdings of two sections apiece. It needs those contiguous sections to drill the crucial two-mile-long horizontal wells. Shell likes to drill between four and eight wells per section, but, notes Gerges, other companies are “more aggressive,” poking as many as 16 wells into a given square mile. Squeezing every dollar from every acre is crucial in large part because land prices have risen so high. “There is hype in the market now,” he says. “Everybody is trying to build a position in the Permian.”
Traveling around the Permian for a few days, I’m confronted by evidence of the boom everywhere. I hear and see it in the orange flames that dot the landscape, roaring like jet engines and lighting up the night sky. These are flares of the natural gas that comes up from the ground along with the oil. Natural-gas pipelines, just like oil pipelines, are insufficient in today’s Permian; with gas prices low, oil producers are, with permission from Texas regulators, burning gas for specified periods as part of the race to maximize the output of oil.
I feel the boom when I stop in at Oilfield Fishing and Rental, a hangar-size shop in Midland that fixes and rents oil-production equipment. Darrell Weddle, wearing a head wrap that bears a Confederate flag and a flame, is repairing a “power take-off,” a heavy metal device that oil workers often hook to a truck to power a pump in the field. With the Rolling Stones’ “It’s Only Rock’n’ Roll” blasting, Weddle, the head mechanic, tells it like it is: “We’re busier than a one-legged man in a butt-kicking contest.”
2017 Sector Profile: Energy
|$1.4 Trillion||$85 Billion|
|Employees||Total return to shareholders|
|*Total Return to Shareholders assumes the 2007–2017 Annual Rate.|
I sense the boom when, after a night at Midland’s Hawthorn Suites hotel, I chat with V.J. Singh, the 30-year-old front-desk clerk. He moved to Midland two years ago from Mumbai following his wife, who already had gotten a hotel job in town. In early 2017, a room in the hotel, which is best described as serviceable, went for about $100 a night, he says. Now, in the middle of the week, when business is brisk, that room typically fetches between $300 and $800—and sometimes even more. Late one night in April, Singh tells me, two men desperate for a place to sleep paid the going rate for the hotel’s last two open rooms: $1,000 apiece.
And I’m struck by the boom—both sides of it—when I stop for a cold drink at a Kwik Chek gas station by an on-ramp to Interstate 20 in Midland. It’s late afternoon. Oil workers are coming in from the fields. The place is hopping.
On the customer side of the counter is Zach Eeckhout, 24, a tow-truck driver who moved to Midland from Nebraska about six months ago. He works long hours, and he takes home, on average, $10,000 per month. “I don’t know what to do with it sometimes,” he says, “other than spend it on stupid stuff,” such as Rock Revival jeans, which sell for upwards of $160 a pair. “Last week I went to the mall and spent $3,000,” he recalls. His credit card had a $1,500 limit, so he had to phone the card company and “up it for the day.”
On the employee side of the counter is Shawna Lewellen, who has lived in Midland for all of her 39 years. The mother of two works up to 35 hours a week at the Kwik Chek, for $12 an hour. To make ends meet, she also cleans houses and RVs, typically at least six per week, for $150 apiece. Many of the homes are rented by oilfield workers, whose clothing, she notes, requires intense scrubbing. “You learn to juggle a lot out here. Everything’s really fast,” she says, lingering on the thought. “It’s really fast.”
If the boom is palpable in Midland, it is utterly remaking Pecos, about 95 miles to the southwest. Officially, Pecos’s population is 8,780; in fact, officials say, it’s probably 50% more than that. Pecos (pronounced PAY-cuss) is the main town on the Permian’s western flank, perched atop a particularly hydrocarbon-rich portion of the Permian known as the Delaware Basin. The Delaware extends from Reeves County, of which Pecos is the seat, north to Loving County, where Grier Brunson’s ranch sits, and then up into southeastern New Mexico. As of mid-May, according to Baker Hughes, 66 rigs were operating in Reeves County—more than in any other county in the nation. Midland County, with 49 active rigs, was No. 2.
Pecos historically has been a sleepy place. It claims to be the site of the world’s oldest rodeo. Its chief landmark is the West of the Pecos Museum, a trim sandstone building in front of which stand twin sculptures: brightly painted, 8-foot-tall cowboy boots.
Pecos and its surroundings are sleepy no more. Today the town bursts with “man camps”—hastily built encampments of dormitories, that, throughout Reeves County, probably house several thousand oilfield workers, officials estimate. Pecos’s Dairy Queen has sold more hamburgers than any other in Texas for six years running—exactly 149,897 in 2017. New truck stops anchor Pecos’s handful of highway intersections; they pulse at sunup with pickups at the pumps and at night with roughnecks buying Monster caffeine drinks and cold beer.
Typically, when a new man camp or truck stop opens in Pecos, the town’s mayor, Venetta Seals, shows up to cut the ribbon. “It’s a double-edged sword,” she says of the boom when I meet her at the local hospital, where she works as director of community relations. Her office is painted in two tones of purple; on one wall hangs a promotional poster from the town that reads, “This ain’t our first rodeo.”
On the upside, she notes, the tax base is bulging, and six-figure salaries are available to anyone who wants to work hard and can drive a big rig. On the downside, the dumpsters are overflowing, the school district is experiencing a constant churn of students, and 140-car trains carrying fracking sand regularly arrive from the Midwest at a massive unloading yard in Pecos, halting traffic at the railroad crossing in the center of town. Much of the gridlock consists of 18-wheelers that, as they idle, spew diesel soot.
All those trucks carrying sand—and thousands more carrying water, oil, pipe, pumps, tanks, and everything else an oilfield needs—are turning Permian roads into graveyards. U.S. 285, a two-lane road that runs through the heart of the Delaware Basin, chokes at all hours with semis turning into and out of the gravel paths that access the wells.
Dubbed by locals “Death Highway,” 285 was the site of eight of the 14 auto-related fatalities that, as of mid-May, had occurred this year in Reeves and Loving counties. “The oilfield changed everything for us,” says Robert Orr, the Texas Department of Public Safety sergeant who heads the Pecos office, adding that 12 of the 14 deaths were oilfield-related. He laments oilfield workers behind the wheel who are using drugs, who are overworked and tired, or who are driving too fast as they race to deliver another paying load.
Other dangers are coming from the ground itself. Residents, particularly around Pecos, report periodic earthquakes. In March, “it happened every Thursday,” says Mayor Seals, who says she felt the tremors. Kenneth Winkles Jr., executive director of the Pecos Economic Development Corporation, lives with his wife six blocks from Seals. As he, Seals, and I drive around Pecos in his Chevy Suburban, he tells me that the prior night, after he got out of the shower, his wife shouted to him: “Did you feel it? We just had another boom.” She meant the seismic sort.
In some places in the Permian, the ground isn’t merely shaking, it’s caving in. Wink, a Permian town northeast of Pecos, calls itself “The City That Oil & Friendship Built.” For decades it was known mainly as the onetime home of Roy Orbison, the rockabilly crooner. Now Wink also is gaining fame for its sinkholes. One especially deep one developed as far back as 1980. Another isn’t yet a true sinkhole; it’s a series of ominous ripples in the asphalt on County Road 201, northeast of town.
Zhong Lu, a geophysics professor at Southern Methodist University in Dallas, is part of a scientific team that has used satellite imagery to study what it regards as alarming land subsidence throughout the Permian. Over time, he believes, water from decaying oil-and-gas-related wells has leaked, dissolving subterranean salt layers and causing the ground to shift and ultimately, in places, to cave in. He warns that the industry needs to better shore up its aging wells against leaks. “We’re not trying to point fingers,” he tells me. “Everybody is enjoying the prosperity of oil and gas. But there’s technology we can use to modify the health of these wells.”
When I mention to Lu that I’m planning to visit the cracking section of County Road 201, he offers some advice: “I wouldn’t park my car there.” At any time, he warns, the road might “collapse.”
Loving County, where Grier Brunson’s ranch sits, has just one resident for every five miles, according to the latest count, in 2017. With 134 official residents, Loving is officially the second-least-populous county in the nation, behind Kalawao County, Hawaii, a tiny sliver of land that was set aside in the 1800s as a colony for people with leprosy. The emptiness of the landscape in the Permian tends to magnify the outsize benefits accruing to its beneficiaries.
One night I meet Brunson in the backyard of the suburban Midland house where his 24-year-old son, Evan, and Evan’s wife, Taylor, live. Taylor, for whom the Brunsons have named three of the newest wells on the Loving County ranch—Taylor 1, Taylor 2, and Taylor 3—pours me a glass of Cabernet Sauvignon from a South African winery owned by friends of a member of the extended Brunson family.
Brunson, sitting in a lawn chair, starts telling stories. Some are about his grandfather, “who husbanded these ranches through the Depression, two world wars, and the Dust Bowl. Those were hard times.” One is about a well on the family ranch that exploded in 1980, burning stupendously and earning the moniker the Brunson Burner. The operator of that well was Getty Oil, whose founder, the legendary oilman J. Paul Getty, had a famous line: “The meek shall inherit the earth, but not its mineral rights.” Says Brunson, “That’s my mantra.”
But Brunson is conflicted about the unprecedented drilling going on today. That’s why he spends his days bird-dogging the oil companies to which his family has leased its mineral rights: He’s hell-bent on forcing them to honor their contracts and minimize the scars they leave on his land. “I have been literally crying because I have seen the damage done to Texas in my lifetime just to get natural resources out of this ground,” he says.
As he speaks, late at night under a dark West Texas sky, the drilling rigs that ring the grassy draw on his ranch are still cranking. Unless geologists, investors, and oil companies from around the planet are dead wrong, the Permian’s star will be rising for years to come.
This article originally appeared in the June 1, 2018 issue of Fortune.