The Permian Basin, which straddles Texas and New Mexico, is hot. Oil companies spent more than $25
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The Permian Basin, which straddles Texas and New Mexico, is hot. Oil companies spent more than $25 billion buying into it during the second half of 2016. The reason: Its geology is ideal for hydraulic fracturing, and well served with pipelines. Its oil shale fields are profitable even when oil sells for only $40 a barrel.
a. Explain why the demand for land in the Permian basin increased.
b. When an oil company buys land and the right to its oil reserves, what is its assumption about the future price of oil?
c. What could cause the price of oil to fall in the future?
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