From Boom to Bloodbath

The Permian Basin’s shale revolution is over and renewable energy is surging. What does that mean for Texas’ future?

From Boom to Bloodbath

The Permian Basin’s shale revolution is over and renewable energy is surging. What does that mean for Texas’ future?

An illustration of COVID molecules and a field of oil rigs.

Doug Chayka

By Justin Miller
July 27, 2020

For the past three years, Josh Thomas labored away on a sweltering shop floor as a valve technician. He would build, inspect, and test frac stacks—looking for the smallest imperfections, flagging parts in need of repair or replacement, testing components, and then assembling the stacks before they were sent out to drilling rigs in the Permian Basin.

Hydraulic fracturing requires almost unfathomable amounts of pressure, as truckloads of water, sand, and chemicals are pumped into the ground to open tiny fractures and release previously inaccessible pockets of oil and gas. To control that pressure, workers mount hulking assemblages of steel valves and piping—the frac stacks—at the wellhead.

“A little scratch can turn into a major leak,” Thomas says. “When something fails at that kind of pressure, it’s like a bomb going off. It would cut you in half, probably before you even knew what happened.”

With the Permian Basin in the middle of a historic oil boom and companies feverishly drilling more wells, assembling these frac stacks has been critical, high-demand work. During especially busy times, Thomas sometimes worked shifts that went well over 24 hours straight, racing to turn around orders.

The pay was great and the jobs plentiful. Thousands flocked to the region to get a piece of the boom. “You could be someone with no college degree, no high school diploma … and get out here and make $50,000 to $60,000 a year, easy,” says Thomas, who was born and raised in Odessa.

And with more than 400 drilling rigs operating throughout West Texas—accounting for nearly half the nation’s total rig count—a better job was bound to come up. After a few years with Quarter Turn Pressure Control, Thomas had gained enough experience to do quality-control work and was earning $20 an hour. Sure enough, another service contractor—Sentry Wellhead Systems—soon offered him a position at $22 an hour, and he jumped at it.

On Monday, March 9, Thomas started his new job. Two hours into his shift, his foreman—impressed by his experience—gave him an additional dollar in hourly pay. If he played his cards right, Thomas thought, perhaps he could reach his ultimate career goal: “Be important enough to be the guy sitting in an air-conditioned office instead of the guy sweating out [on the shop floor].”

Four days later, Thomas was out of work, along with almost everyone else at the company. With the price of oil plummeting, it could no longer turn a profit in the Permian. “It was very sudden,” Thomas says. “My first knee-jerk reaction was, ‘Well, I wish you would have said something the week before, so I wouldn’t have left the last job.’ … I was a little freaked out.”

His boss told him that the company hoped to restart operations by early summer and promised to give Thomas a call when that happened, but he isn’t holding his breath.

The volatile boom-and-bust nature of oil and gas is no secret in Texas. The ecstatic peaks and despondent valleys are hard-wired into the state’s DNA. But the fallout this time was unprecedented, casting the outsize risks of Texas’ economic dependence on fossil fuels in painfully sharp relief. “Since humans started using oil, we have never seen anything like this,” a commodities analyst told the Wall Street Journal. “There is no guide we are following. This is uncharted.”

In 2019, the oil and gas industry brought in more than $16 billion in state and local tax revenue and royalties, accounting for 10 percent of the workforce. Oil and gas extraction, along with mining and quarrying, generated $268 billion, which, at 15 percent, is the greatest share of the state’s annual GDP. But as the coronavirus pandemic continues, global markets remain in chaos, the scope of the Permian bust deepens, and renewable energy becomes a stronger force in the energy markets, the risk of tethering an economy to fossil fuels will likely only heighten in the years ahead.

The Permian Basin is a storied oil patch that sprawls across the expansive desert of West Texas and into southeastern New Mexico. Since the 1920s, it has generated enormous amounts of wealth. Impossibly hot, flat, and desolate, the Permian encompasses 86,000 square miles—an area roughly the size of Minnesota—and comprises a subterranean world of its own, one made up of several smaller basins, dozens of unique geologic formations, and thousands of oil-rich reservoirs.

During a boom at the outset of the 1980s, the dusty outpost of Midland, population 70,000, became slick with oil money and gaudy opulence. Newly minted multimillionaires bought private jets and Rolls-Royce opened a dealership near the airport. In 1982, eight Midland oilmen made Forbes’ annual list of the nation’s richest people; together, they were worth an estimated $2.45 billion. But when the decade’s global oil glut came to Texas, the state’s boom went bust, devastating the energy industry and bringing the economy to its knees. In Houston alone, 225,000 jobs disappeared—roughly 1 out of 8 of the Bayou City’s entire workforce. The state’s oil production continued to fall, and by the turn of the century, the Permian had dwindled to a moribund region with few drilling prospects.

Then came the shale revolution. Technological breakthroughs in hydraulic fracturing and horizontal drilling in the late 2000s made it possible to split open shale formations miles below the surface and suck out pockets of previously inaccessible oil and natural gas in places like North Dakota, Pennsylvania, and Texas. Soon, the Permian was enjoying an enormous revival, becoming the epicenter of the country’s fracking frenzy. Water usage for fracking soared by 767 percent from 2011 to 2016. By 2019, frackers were using an estimated 60 million tons of sand each year.

In 2014, a major fall in oil prices prompted a downturn. Bankruptcies and mass layoffs ensued, spurring warnings of the shale boom’s demise. Still, Permian production kept growing. Then, after an intense lobbying campaign by the oil industry, Congress lifted the decades-old ban on crude oil exports in 2015, opening a vast new global market for Texas oil. The Permian entered into hyperdrive. A domestic energy renaissance began, upending energy geopolitics and, improbably, making the United States the world’s leading oil producer. Texas became the third-largest producer of crude in the world. Last spring, the Permian churned out more than 4 million barrels of oil each day, surpassing Saudi Arabia’s Ghawar oil field as the most productive oil patch on earth. It was political gold.

Upon his election, Donald Trump used the boom to hawk a jingoistic doctrine of “energy dominance” in which the United States would frack its way to freedom from oil despots. “The truth is, we now have near-limitless supplies of energy in our country,” Trump proclaimed in June 2017. “We are really in the driving seat, and you know what, we don’t want to let other countries take away our sovereignty and tell us what to do and how to do it. That’s not going to happen.”

Governor Greg Abbott added a new line in his speeches, gleefully boasting of how the state’s economy was now the 10th largest in the entire world and noting that the Texas economy was now larger than Russia’s. Then Abbott would, half-jokingly, deliver his punchline: “That makes me more powerful than Putin!” It was always a crowd-pleaser. Then, like a faulty valve, the boom burst.

When Thomas punched in for his first shift at his new job, the global oil market was headed into a free fall. Demand for oil was already down, as China went into lockdown to contain the COVID-19 outbreak. Then Saudi Arabia and Russia launched a high-stakes price war with both countries significantly ramping up oil production, flooding the market with crude and quickly creating a massive global supply glut. The price of a barrel of crude plummeted during his first week at work. Taken together, low prices and low demand had dealt a particularly devastating blow to oil and gas producers in West Texas.

In the days and weeks after Thomas lost his job, stay-at-home orders effectively shuttered broad swaths of the economy. Oil and gas companies big and small lost billions of dollars as their stock value evaporated. Executives shut down drilling rigs, capped wells, instituted steep cutbacks in planned spending, and handed out pink slips in droves. By the end of May, the number of active oil and gas rigs in the Permian Basin was 162, down from 451 a year earlier.

Almost two-thirds of the estimated global spending cuts in the industry were slated to come in U.S. shale fields—much of it in the Permian. As many as 240 energy companies could go bankrupt by the end of 2021 if oil prices stay low, according to one estimate.

Revenue from state oil and gas severance, property, and sales taxes took a dive, setting the table for a painful cost-cutting legislative session in 2021. Governor Abbott had already asked most state agencies for budget plans that incorporated 5 percent cuts. When Comptroller Glenn Hegar released the monthly state revenue figures from May, oil production taxes had fallen 75 percent from the year before, the most severe decline since 1988.

“We got very lucky through the 2008 financial crisis that the oil industry was able to stay relatively solid and buoy a lot of the state,” says state Representative Erin Zwiener, who chairs the Texas House Democratic Caucus’ committee on Clean Air, Clean Water, and Climate Change. “But we are clearly not getting lucky with that this cycle.”

It’s hard to overstate just how big the blow to the oil industry was—and how uncertain its future has become. April 20 brought the absurd chaos to new heights when, for the first time ever, the futures contract price of crude dropped below zero—ultimately to below negative $30.

The world’s oil storage capacity had reached its limits. Supertankers sat idle in the ocean, full up with millions of barrels of crude oil and nowhere to take it. Commodities traders panicked and resorted to selling their holdings—literally paying someone to take the crude off their hands.

The immediate casualties have been immense, decimating the livelihoods of tens of thousands of workers. In April alone, the industry laid off a record-breaking 26,300 workers, according to the Houston Chronicle.

Experts predict the pain to continue. Ray Perryman, a prominent economic analyst in Texas, estimates that the state could lose as many as one-third of its 300,000 exploration and production jobs. Such a wipeout could have a cascading effect throughout the state’s economy, leading to as many as 1 million total jobs lost, according to his projections.

Many oil executives began begging federal and state governments to send a lifeline. The Trump administration ultimately loosened restrictions on the Federal Reserve’s emergency loan program for small businesses, freeing up billions for embattled energy companies, and the Texas Railroad Commission waived a bevy of industry regulations.

Critics warned that Trump was merely propping up his friends in an already-doomed industry. Indeed, the shale revolution was showing dire weaknesses in the several months before the pandemic hit.

Overleveraged producers were going broke, with many more on the verge of collapse. In pursuit of their share of the boom, more and more frackers drilled more and more wells at an increasingly frantic pace, all enabled by a near-limitless credit line from Wall Street bankers and private equity firms. But even when the price of West Texas crude was north of $70 a barrel, many frackers couldn’t turn a profit. In 2019 alone, these companies reported a combined net loss of almost $7 billion.

The pandemic simply accelerated an impending implosion of the shale revolution. “Instead of quarter after quarter, we’re now seeing it in a condensed timeline,” says Clark Williams-Derry, an energy finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA). Even if oil prices tick higher as demand returns, skeptics like Williams-Derry expect that the Permian shale boom will not return in full force.

“At minimum, what investors are going to see is that this is not an industry that has ever been able to produce clear returns,” Williams-Derry says. “It seals the fate of oil and gas as a hyper-volatile industry that, in the best of times, has meager financial returns and, in the worst of times, is a complete wipeout.”

While it’s all but assured that activity in the Permian will eventually return in some form or fashion, few expect a return to the boom times of recent years. Some experts predict that this global downturn will usher in a new era of lower oil consumption as businesses rethink the necessity of office work, people commute less, and technological advancements in renewable energy and electric vehicles upend the energy landscape.

The fallout from the global pandemic and the ensuing oil bust may have wedged open an opportunity for Texas. “We need to take action both to mitigate climate change and also protect Texas’ economic position as the inevitable shift in where we get our energy occurs,” Zwiener says. “I envision a future for Texas where we continue to diversify our economy, where we continue to be energy leaders, but leaders in renewable energy and leaders in the nascent industry of carbon capture and sequestration.”

But while the market realities are becoming clearer, the political realities of Texas create seemingly intractable obstacles. Can a state so deeply tied to and influenced by oil and gas actually disentangle itself from fossil fuels and aggressively position itself on the forefront of the global clean energy transition?

In 2005, Rafael Anchía, an ambitious Dallas Democrat, entered the Texas House of Representatives with an interest in expanding Texas’ fledgling renewable energy capacity and lessening its dependence on fossil fuels. “When I got there, wind was in its infancy,” Anchía recalls. “It was kind of a curiosity. Nobody paid it much mind.”

But in his first session, he was part of a coalition that passed the landmark Senate Bill 20, which financed the construction of 3,600 miles of transmission lines—known as the Competitive Renewable Energy Zone—bringing power generated in the wind hot spots of West Texas and the Panhandle to the state’s major population centers. This provided critical infrastructure necessary for a surge in new investment and a dramatic expansion of Texas’ wind capacity. “That was an important step forward,” Anchía says, and would cement Texas’ status as the nation’s leading producer of wind power.

This spring, wind supplied more than three times as much electricity to Texas’ grid than coal, far exceeding goals set at the turn of the century. In just two decades, the state’s wind capacity has grown from virtually nothing to more than 25 percent of the country’s entire wind power generation.

While the fracking boom was teetering before the pandemic hit, Texas’ renewable energy sector was on the verge of its own boom. Wind energy is responsible for about 25,000 jobs, far more than any other state, and with more and more projects in the pipeline, wind turbine service technicians are one of the most in-demand jobs in the state’s labor market. The number of those technician jobs could double by 2026. Solar, too, is poised for a massive expansion after struggling for years to establish a footprint in Texas. Back in 2008, ERCOT—the state’s independent electricity grid—had just 4 megawatts of utility-scale solar power on its grid; in May, solar energy development was greater than 4,000 megawatts. While the clean energy sector has been marred by layoffs across the country, advocates are hopeful that the industry will bounce back.

Under the Green New Deal framework, activists are calling for an ambitious national transition to clean energy over the next decade, which includes a managed decline of the country’s fossil fuel industries. In Texas, Democratic lawmakers, environmentalists, and renewable advocates are trying to toe a narrow line: When it comes to the need for an energy transition, they’ve avoided demonizing the oil and gas industry and pitting clean energy against fossil fuels. Instead, they’ve emphasized markets, competition, and innovation.

It’s not just about the climate and environmental concerns. It’s about protecting Texans from the inherent volatility of energy markets. Even if oil prices and demand recover, “I think we’ve got about a 10-to-25-year window before technology is going to cause oil and gas to be permanently, substantially de-emphasized,” Anchía says. “That eventuality is something that the state needs to be planning for now so that we avoid a Texas debacle just like we enjoyed a Texas miracle.”

Since the passage of SB 20, the politics of energy have become increasingly polarized. Climate change is now part of the broader culture wars, and many elected Republicans question the very legitimacy of climate science. During the 2019 session, not a single bill that focused on climate change was granted a committee hearing. Along the way, renewables have become a political casualty. “It’s a new business that has created a lot of wealth for a lot of people. I don’t understand the resistance,” Anchía says.

In the 2019 session, South Texas Democrat Terry Canales put forward a bill that would require wind turbine operators to adhere to certain bonding requirements for land restoration work when, eventually, the turbine is removed. The measure passed overwhelmingly in the House and Senate—with bipartisan support—and was promptly signed into law by the governor.

But when Zwiener, the Hays County Democrat, authored a similar bonding requirement bill for pipeline companies, she hit a brick wall. As part of a massive infrastructure build-out, Kinder Morgan is building a 42-inch-wide pipeline from West Texas to the Gulf Coast, and it cuts squarely through her district in the Hill Country, despite widespread opposition from landowners. After significant effort, she managed to get the bill a hearing, but it died in committee without a vote.

“That the same legislation that my colleagues could see made perfect sense for the windmill industry … was a nonstarter for the oil and gas industry,” Zwiener says. That, she says, sums up the political disparity. As she puts it, any bill that might negatively affect oil and gas would always get the same response from colleagues: “Well, do you want our schools to be funded? Well, do you want us to have money for XYZ? We get it all from oil and natural gas.”

As Anchía puts it: “Nothing moves in the Texas Legislature without [the Texas Oil and Gas Association’s] blessing. Nothing that impacts their business.”

But Democrats like Anchía and Zwiener are cautiously hopeful that the Legislature can at least have a franker conversation about the state’s dependence on fossil fuels next session, especially if their party succeeds in its quest to take control of the lower chamber for the first time in two decades. Even still, they acknowledge that this is not something that will happen overnight. There are still many Democrats in the statehouse, particularly from Houston and South Texas, who are supportive of the industry. Meanwhile, the GOP has grown ever more aligned with oil and gas in recent years.

The state’s powerful right-wing firmament—led by the oil-backed Texas Public Policy Foundation and West Texas oil moguls like Tim Dunn and the Wilks brothers, who finance the far-right Empower Texans—is waging an aggressive war on wind and solar. In 2019, fossil fuel allies advanced a battery of bills that sought to undermine federal tax incentives for renewables and to exempt wind and solar projects from generous local property tax breaks that oil and gas projects also enjoy.

During the governorships of George W. Bush and Rick Perry, there was “enthusiastic investment in clean energy, and wind was seen as a very Texan thing,” says Adrian Shelley, director of Public Citizen Texas, a good-government advocacy group. As renewables become more competitive in Texas’ open energy markets, advocates are concerned that fossil fuel boosters will become even more protective of the oil and gas industry and antagonistic to other energy sectors. “I worry that the state is shifting from a really free-market and entrepreneurial [approach] to one that is dominated by reactionary economic policies from the oil and gas industry,” Shelley says. “I think it’s a real concern right now, and it might affect private investment [in renewables].”

Big money has helped to shift the politics of energy. Oil and gas interests funneled $17.2 million into state politics from 2013 to 2016, more than any other sector except for lobbyists and lawyers, according to a 2017 report by state politics watchdog Texans for Public Justice. The average member of the state House of Representatives took in about $38,000 in contributions from the industry between 2013 and 2016; the average state senator, just over $109,000. Abbott built up his juggernaut of a campaign war chest thanks to the fossil fuel industry, too, which gave him $16.5 million during that period.

State Representative Brooks Landgraf, an Odessa native whose district sits at the heart of the Permian Basin, downplays the political tensions between fossil fuels and green energy. He’s a big booster of oil and gas, but he’s also supportive of the renewable projects that have sprouted up across a region known for its bountiful sunshine and wind. He expects that global demand will return in the future and that the region will once again rebound. “When the world needs energy, they look to the Permian Basin to meet that need,” Landgraf says. But he also believes that the latest downturn could provide an opening for wind and solar.

In the mid-’80s, for instance, Landgraf says that oil patch workers in the Permian fled for other jobs across the country. But in a nationwide economic crisis, there aren’t a lot of other jobs to go to. “I do think that creates an opportunity to diversify [the economy] a little bit,” Landgraf says—including in renewables. “A lot of workers who could have earned higher wages in the oil field are now a ready workforce to be involved in solar farms, wind turbine maintenance, and things like that,” he says. “So you have a plug-and-play workforce that’s ready to work on projects that, historically, have had difficulty competing … with the oil field.”

Josh Thomas was one of the lucky ones in the Permian Basin. He got laid off early in the bust and was able to land a job with a contractor doing road construction for the Texas Department of Transportation. His crew fills potholes and rebuilds stretches of country roads that have been beaten down by trucks carrying frack water, sand, and heavy machinery throughout the region. He’s making less money than before—$17 an hour—but he’s working full time: far better off than most people he knows in the area.

In the wake of the bust in the 1980s, bumper stickers that read, “Please God Let There Be Another Oil Boom, I Promise Not To Piss It All Away This Time,” aptly captured the mood in Texas. But the economic destruction caused by the bust struck fear in state leaders, who scrambled to find ways to better insulate Texas from the unstable nature of the oil industry, both by diversifying the economy with investment in new sectors like microelectronics and creating the Economic Stabilization Fund—a rainy day savings account where excess oil and gas revenues are funneled. “When you’ve been on top of the world for so long, you’ve got a natural tendency to have a head-in-the-sand syndrome,” Harden Wiedemann said in 1984, when he was executive director of the Texas Economic Development Commission.

The markets, the climate, the state budget—they all seem to be sending the same signal, state Representative Anchía warns: If Texas wants to remain an economic powerhouse, it would do well to begin winding down its volatile relationship with fossil fuels and prepare for the future.

Alas, far beneath the sand in which the state’s head is once again stuck, there is still more oil. Lots more. In 2018, the United States Geological Survey estimated that the basin held 46.3 billion barrels of recoverable crude oil. The ever-alluring prospect of more oil has been enough for Texas to stay tethered to the industry for more than 100 years, ever since the state’s first gusher at Spindletop sent oil hundreds of feet into the air.

“We can’t keep dropping everything in the basket of oil and gas and expect the good times, because this shit happens over and over and over and over again,” Thomas says. But “the people that have been here for 30 years—they know that. They accept it.”

Even with more and more renewable energy projects coming to the Permian Basin—driven in part by the oil field’s huge appetite for electricity—this is still oil country. Thomas says he’d be willing to leave behind the oil and gas industry for a more stable job in the renewables sector, but has found that many entry-level positions in the field require a technical degree.

“I’d like to see more entry-level green energy [jobs] in the area,” Thomas said. “But I’m worried that we’re never gonna get that here because the powers that be are very much tied in to what is. I don’t think they’re too worried about what could be.”

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