Frackers Jockey With Potash Miners for Space to Grow in Top U.S. Oil Field

The two industries are competing for the land that houses both resources. They have slowed each other’s efforts recently and diverged on critical matters such as how to keep the mining industry’s underground workforce safe.

The Delaware basin is a rare location where oil companies conduct high-pressure fracking near miners working underground to extract potash and other minerals. Frackers have had the upper hand for years, pushing deeper into the nearly 500,000 acres of New Mexico’s U.S.-designated potash territory, following a 2012 order by the Interior Department that effectively enabled far more oil and gas drilling there.

Miners say they want oil and gas wells farther away from their operations for safety reasons. Oil executives say that is unnecessary, and that a larger buffer zone would leave them fewer places to drill and would eat into production.

New Mexico’s largest miner,

Intrepid Potash Inc.,

IPI 1.25%

said it is practically hemmed in by shale drillers circling its operations. It says it has tried to fend off oil companies’ attempts to drill wells it deems dangerously close to its mines by protesting proposed drilling sites. It said it gets several permit proposals each week from companies looking to drill nearby.

The flurry of activity has made it difficult to boost mining output, and fracking could carry significant safety risk to mines if conducted with inadequate equipment or planning, said Intrepid Chief Executive

Bob Jornayvaz.

He cited oil-industry research showing couplings on steel casing of a well fail or become deformed more frequently than many believe, and could cause gas or fluids to leak into mines operated by underground workers.

A 2012 order by the Interior Department set buffer zones from potash mines of a quarter-mile for oil wells and a half-mile for gas wells. But in the 10 years since then, the Bureau of Land Management hasn’t delivered independent, scientific studies on safe operations required by the order, according to Mr. Jornayvaz. BLM didn’t respond to requests for comment.

Mr. Jornayvaz said the oil industry should join him in urging regulators to finish the mandated studies, but he said oil companies prefer to rely on their own engineers rather than third-party studies to assess operational safety matters. Oil executives say the industry is operating safely, and the current buffer zones are adequate.

Intrepid’s mines in New Mexico have about 4.3 million tons of potash product reserves, according to a 2021 report prepared for Intrepid by Agapito Associates Inc. But the industry has shrunk for years as companies closed down mines because of low prices and poor economics. New Mexico’s potash operations account for roughly 1% of the world’s overall supply. Meanwhile, New Mexico’s oil production is about 1.6% of supply.

The clash comes as global potash supplies have fallen sharply following Western sanctions on two key producers, Belarus and Russia, and analysts say additional investments are needed. The global shortfall has kept prices high for everything from coffee, corn and cotton to soybeans and sugar.

“Right now, every [potash] ton in the world is important because of the missing Belarus tons,” said Joel Jackson, an analyst at BMO Capital Markets.

The modern U.S. potash industry was created during World War I after a German embargo caused prices to soar. In 1934, the Interior Department designated about 425 square miles in New Mexico containing potash as a strategic reserve, restricting oil and gas development there.

The Interior Department’s 2012 order enabled more oil and gas drilling when new techniques, including the combination of horizontal drilling and fracking, set off the shale boom and allowed companies to tap oil deposits underneath potash mines. From 2012 to 2022, oil companies have drilled roughly 2,000 wells in the potash area.

To effectively drill under the potash area, companies operate from drilling islands, packing wells tightly together from a single site and spreading underground, horizontally drilling out in different directions—a concept similar to the way an offshore oil platform operates.

The oil company with the biggest presence in the potash area is

Exxon Mobil Corp.

, which in 2017 spent nearly $6 billion on land in southeastern New Mexico. About 35% of the wells that Exxon is drilling in the Permian are located in the potash area, it said.

Jason Gahr, unconventional-wells operations manager at Exxon, said the company has studied how to ensure the safety of potash mines and oil and gas operations nearby, and developed methods to do so.

“We learned a lot of things along the way,” Mr. Gahr said. “What we try to do is take those learnings and try to mix those with operational plans that are safe and continue to get better.”

Exxon said that based on its research it isn’t clear that expanding the buffer zones would make operations safer and that doing so would be an arbitrary exercise.

Intrepid has doubled spending compared with last year to boost potash output and plans to increase investments again next year. The company would be able to reach more resources within a few months if oil companies agreed to plug some older wells, but Mr. Jornayvaz said they haven’t done so.

Write to Collin Eaton at [email protected]

The two industries are competing for the land that houses both resources. They have slowed each other’s efforts recently and diverged on critical matters such as how to keep the mining industry’s underground workforce safe.

The Delaware basin is a rare location where oil companies conduct high-pressure fracking near miners working underground to extract potash and other minerals. Frackers have had the upper hand for years, pushing deeper into the nearly 500,000 acres of New Mexico’s U.S.-designated potash territory, following a 2012 order by the Interior Department that effectively enabled far more oil and gas drilling there.

Miners say they want oil and gas wells farther away from their operations for safety reasons. Oil executives say that is unnecessary, and that a larger buffer zone would leave them fewer places to drill and would eat into production.

New Mexico’s largest miner,

Intrepid Potash Inc.,

IPI 1.25%

said it is practically hemmed in by shale drillers circling its operations. It says it has tried to fend off oil companies’ attempts to drill wells it deems dangerously close to its mines by protesting proposed drilling sites. It said it gets several permit proposals each week from companies looking to drill nearby.

The flurry of activity has made it difficult to boost mining output, and fracking could carry significant safety risk to mines if conducted with inadequate equipment or planning, said Intrepid Chief Executive

Bob Jornayvaz.

He cited oil-industry research showing couplings on steel casing of a well fail or become deformed more frequently than many believe, and could cause gas or fluids to leak into mines operated by underground workers.

A 2012 order by the Interior Department set buffer zones from potash mines of a quarter-mile for oil wells and a half-mile for gas wells. But in the 10 years since then, the Bureau of Land Management hasn’t delivered independent, scientific studies on safe operations required by the order, according to Mr. Jornayvaz. BLM didn’t respond to requests for comment.

Mr. Jornayvaz said the oil industry should join him in urging regulators to finish the mandated studies, but he said oil companies prefer to rely on their own engineers rather than third-party studies to assess operational safety matters. Oil executives say the industry is operating safely, and the current buffer zones are adequate.

Intrepid’s mines in New Mexico have about 4.3 million tons of potash product reserves, according to a 2021 report prepared for Intrepid by Agapito Associates Inc. But the industry has shrunk for years as companies closed down mines because of low prices and poor economics. New Mexico’s potash operations account for roughly 1% of the world’s overall supply. Meanwhile, New Mexico’s oil production is about 1.6% of supply.

The clash comes as global potash supplies have fallen sharply following Western sanctions on two key producers, Belarus and Russia, and analysts say additional investments are needed. The global shortfall has kept prices high for everything from coffee, corn and cotton to soybeans and sugar.

“Right now, every [potash] ton in the world is important because of the missing Belarus tons,” said Joel Jackson, an analyst at BMO Capital Markets.

The modern U.S. potash industry was created during World War I after a German embargo caused prices to soar. In 1934, the Interior Department designated about 425 square miles in New Mexico containing potash as a strategic reserve, restricting oil and gas development there.

The Interior Department’s 2012 order enabled more oil and gas drilling when new techniques, including the combination of horizontal drilling and fracking, set off the shale boom and allowed companies to tap oil deposits underneath potash mines. From 2012 to 2022, oil companies have drilled roughly 2,000 wells in the potash area.

To effectively drill under the potash area, companies operate from drilling islands, packing wells tightly together from a single site and spreading underground, horizontally drilling out in different directions—a concept similar to the way an offshore oil platform operates.

The oil company with the biggest presence in the potash area is

Exxon Mobil Corp.

, which in 2017 spent nearly $6 billion on land in southeastern New Mexico. About 35% of the wells that Exxon is drilling in the Permian are located in the potash area, it said.

Jason Gahr, unconventional-wells operations manager at Exxon, said the company has studied how to ensure the safety of potash mines and oil and gas operations nearby, and developed methods to do so.

“We learned a lot of things along the way,” Mr. Gahr said. “What we try to do is take those learnings and try to mix those with operational plans that are safe and continue to get better.”

Exxon said that based on its research it isn’t clear that expanding the buffer zones would make operations safer and that doing so would be an arbitrary exercise.

Intrepid has doubled spending compared with last year to boost potash output and plans to increase investments again next year. The company would be able to reach more resources within a few months if oil companies agreed to plug some older wells, but Mr. Jornayvaz said they haven’t done so.

Write to Collin Eaton at [email protected]