Financial History Issue 133 (Spring 2020) | Page 34

Centennial of
Southwestern
Oil & Gas
Recalls Epic
Bank Failures
32    FINANCIAL HISTORY  |  Spring 2020  | www.MoAF.org
Roughnecks of the Permian
Basin have ridden many
boom and bust cycles. Some
regional banks, that should
have known better, have
succumbed.
By Gregory DL Morris
It is flat in the Permian Basin region of
west Texas and southeast New Mexico. So
flat that the locals say, “You’ve got to be
nice to your dog because if he runs off, you
can watch him go for days.”
One hundred years since the first com-
mercial oil well was drilled in the region,
the Permian has had another renais-
sance thanks to unconventional develop-
ment technology. That includes three-
dimensional seismic surveys, directional
drilling, and hydraulic fracture and well
stimulation.
The bonanza has put the Permian at the
top of the league table for North Ameri-
can hydrocarbon producing regions, and
also put the United States near the top
of oil and gas producers worldwide. That
statistic alone is stunning to anyone who
remembers the “Arab oil embargoes” of
the 1970s: long, angry gas lines and seem-
ingly futile foreign and economic policy.
While the industry and the economy have
recovered through multiple economic and
commodity cycles, many individual drillers
and bankers did not. Money is just as much
a commodity as are oil and gas. Both were
highly volatile in the ’70s and ’80s, and that
showed: Of the total failure-resolution costs
borne by the Federal Deposit Insurance
Corporation (FDIC) from 1986 to 1994, half
(a hefty $15.3 billion) was accounted for by
one region: the Southwest.
Big Trouble in Little Texas: Oil was struck in central
Texas near the tiny town of Desdemona, east
of Abilene, in 1918, two years before the first
commercial well in the Permian basin. The good
times lasted just a few years. Heavy rains and
flooding hampered production and public health.
But it was frontier lawlessness that suffocated
Desdemona, culminating in 1920 with the
burning of the Baptist church. The Texas Rangers
swept the area, arresting more than 100 people.
But oil production slumped and most people
headed west. Fire ravaged the nearly empty town.