State Land Office proposes oil well pauses without penalty
Pandemic, Russian-Saudi dispute cause dramatic, adverse impact on prices
State officials soon might allow oil and gas companies in New Mexico to temporarily shut down oil wells without a financial penalty.
A proposed emergency rule comes during a price war between Russia and Saudi Arabia compounded by the new coronavirus — two factors that have dramatically slashed the price of oil in a state that depends on it to pay for a substantial portion of government services.
Overproduction of oil in the world market has slashed the price of oil and “created a situation where some U.S. companies are being forced to scale back production because pipelines and storage facilities are at holding capacity,” the State Land Office said in a news release.
But temporarily pausing oil production without a penalty likely would not have any impact on the state budget, according to Sen. John Arthur Smith, D-Deming, chairman of the Senate Finance Committee.
The State Land Office will accept public comment on the proposed emergency rule until April 17 and will host a virtual public hearing on the rule that day.
Budget experts in New Mexico had worried that oil producers in the resource-rich Permian Basin would have to “shut in” oil wells if an oversupply of crude oil pushed pipelines to capacity. A “shut in” could have a bearing on budget problems at a time when
New Mexico legislators are already projecting a $1.5 billion to $2 billion shortfall and are considering a special session to shore up spending approved in February.
“The COVID-19 pandemic brought home, almost overnight, the risks of our dependence on oil and gas,” State Land Commissioner Stephanie Garcia Richard said in a prepared statement.
“Here in New Mexico, the ripples of this situation hits hard, not only when thinking about the state budget, but within communities where people rely on the boom for jobs to support their families,” she said. “Due to these factors, I’ve determined that it is in the best interest of the beneficiaries of state trust land — our public schools, hospitals, and universities — as well as the employees dependent on this industry, that we allow companies to apply for these temporary shut-ins until we can better predict the future of the Permian Basin.”
Robert McEntyre, a spokesman for the New Mexico Oil and Gas Association, called the proposed emergency rule “a sensible, temporary flexibility that will help ensure reasonable longterm returns for the state and producers, and will allow the industry to better handle current challenges in the global energy markets.”