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.