The area that makes up the Permian Basin, which consists of the Delaware and Midland basins, was so named because it has one of the world’s thickest deposits of rocks from the Permian geologic period. The basin extends beneath an area approximately 260 miles wide and 300 miles long, and has become famous for its productivity and natural resources. The Permian Basin is a major source of potash, or potassium salts, which are mined from bedded deposits of sylvite and langbeinite in the Salado formation. However, the area’s main recognition comes from its abundance of oil and natural gas, which is produced from approximately 53,000 wells throughout the basin. In fact, the Permian Basin is second to none in terms of crude oil production within the United States.
Where exactly is the oil and natural gas and how and when was it formed? The hydrocarbons are found within the rocks of many producing formations such as the San Andres, Grayburg, Clearfork, Spraberry, Wolfcamp, and Bone Spring to name a few. These formations are found at different depths in different places. The sediments that make up these formations were left behind during various geologic periods ranging from Cambrian to Cretaceous. However, most hydrocarbons are found in rocks of Paleozoic age (Permian age included in the Paleozoic age), or between roughly 570 and 225 million years ago.
The environment and landscape during each of these geologic eras determined whether we would one day find hydrocarbons in each of their respective layers of sediment. Today’s oil was formed from the preserved remains of prehistoric zooplankton, blue-green algae, green algae, sponges, and other marine animals that lived in the area’s warm, shallow seas. Much of the production today comes from buried reefs. El Capitan, for example, is a landmark in the dry country near the Texas-New Mexico border. Once, however, it was a tropical reef covered with water and teeming with many forms of marine life. Large masses of organic material from such reefs were buried under sedimentary deposits such as shale, limestone, and sandstone. This massive organic deposit later transformed under heat and pressure to become oil. Geologists refer to the temperature range in which oil forms as an “oil window.” Below the minimum temperature oil remains in the form of kerogen, and above the maximum temperature the oil is converted to natural gas. Oil from various producing zones have varying attributes such as the oil’s gravity and its sulfur content. Petroleum is considered “sweet” if it contains less than 0.5% sulfur, compared to a higher level of sulfur in sour crude oil.
This supply of hydrocarbons thousands of feet below the surface would have remained relatively valueless without two important factors; a demand for energy, and a means of extracting the oil from the Earth. A demand for oil began during the mid-1800’s in the form of kerosene used for heating. This led to exploration of “rock oil,” which was first discovered in 1859 near Titusville, Pennsylvania when a homemade rig found oil at a depth of 69 feet. Not until the 1890’s did the mass production of the internal combustion engine create a large demand for gasoline. Oil and gas exploration spread to the western states and the first commercial oil well in the Permian Basin was completed in 1921 in Mitchell County, Texas. Santa Rita No. 1 was completed in 1923 in Reagan County, Texas and the first New Mexican discovery well of the Permian Basin was completed in 1924 in the Dayton-Artesia field.
From the time of the first Permian Basin oilfield discoveries until approximately 1973, the demand for oil and natural gas steadily increased as developed nations continued to grow and use more energy. However, the supply of oil and natural gas also steadily increased as the OPEC (Organization of Petroleum Exporting Countries) countries of Saudi Arabia, Iraq, Iran, Kuwait, and Venezuela discovered large reserves and created a global market for energy. The price per barrel of oil during this entire period (1920’s to 1973) ranged from $0.65 to $4.00 in nominal dollars ($10 to $25 inflation adjusted). Then in 1973 several Arab nations embargoed, or stopped selling, oil to the U.S. and Holland to protest their support of Israel in the Arab-Israeli “Yom Kippur” War. Arab OPEC production was cut by 25 percent, causing some temporary shortages and the tripling of oil prices. Some filling stations ran out of gasoline, and cars had to wait in long lines for fuel.
By 1975 Congress had passed the Strategic Petroleum Reserve (SPR) and required an increase in the fuel efficiency of automobiles. Such government programs had little impact on the increasing price of oil as the Iranian Revolution, which began in 1978, simultaneously resulted in a drop of 3.9 million barrels per day of crude oil. Then in 1980, the Iran-Iraq War began, and many Persian Gulf countries reduced output as well. By 1981, OPEC production was about ¼ lower than it had been in 1978. Prices rose to $35.75 in nominal dollars ($86 inflation adjusted). Between 1980 and 1985 OPEC kept prices high by producing less oil. Saudi Arabia acted as a “swing producer” cutting more production than any other OPEC country. But high prices caused less oil to be used. For example, cars became smaller, using less gasoline. The drop in oil consumption meant that less oil needed to be produced. As a result, oil production from Saudi Arabia fell from 9.9 million barrels per day in 1980 to 3.4 million barrels per day in 1985.
In 1986 Saudi Arabia stopped holding back production, and other OPEC members increased production, resulting in an oil glut, and prices were substantially reduced. Oil consumption grew rapidly in the late 1980’s as prices remained low. From this time until 2004 oil remained below $30 in nominal dollars ($40 inflation adjusted). By 2005, several factors including the emerging economies of China and India and their demand for fossil fuels resulted in oil prices reaching $50 per barrel. Then, in 2008, oil broke $100.00 per barrel and gasoline broke $4.00 per gallon for the first time in history.
It’s fascinating to think that the reefs and marine life of the Permian Basin that existed 500 million years ago would be used to power an excavator or push a jet airplane through the air. It’s also fascinating to study the techniques that continue to develop for exploring and developing oil and natural gas and the techniques that continue to develop for maximizing the recovery of oil and gas once it’s been found. Throughout oil embargos, market gluts, and all events in between, the men and women of the Permian Basin have continued to be a major contributor in the global market for oil and natural gas.
