Financial hit from oil and gas lease moratorium could be delayed
The state of New Mexico is expected to take a major financial hit under executive orders issued by President Joe Biden to fight climate change, including a moratorium on new oil and gas leases on federal lands.
But the impact may not be felt right away.
After a presentation Tuesday (Feb. 2) by a chief economist and other state officials, as well as representatives from the oil and gas industry, the new chairman of the Senate Finance Committee said the budget for the upcoming fiscal year will see little, if any, impact.
“But in the next years, you will see a great decline,” said Sen. George Muñoz, D-Gallup. “So as [lawmakers file requests for] recurring money or send bills to us, be prepared to look to the future and what that looks like because if we add additional money and recurring money, cutting will not be any fun at all.”
Ryan Flynn, president and CEO of the New Mexico Oil & Gas Association, told committee members a study of the economic consequences of a federal leasing ban found $1.5 billion of revenue could be at stake.
“Why would a one-year moratorium or a multiple-year moratorium impact us in New Mexico?” he asked. “Well, the shale play that New Mexico has benefited from over the last couple of years has highly productive wells. But those wells rapidly decline over the first three years. So, in order to offset that decline in production associated with shale wells, we need to be consistently bringing new production online in order to sustain the pace of that production.”
Flynn said more than 54 percent of the total oil and gas revenue the state receives comes from revenue generated by federal lands.
Concerns about the financial impact on state coffers — the oil and gas industry contributes as much as $3 billion a year to the state budget — come as Sen. Antoinette Sedillo Lopez, D-Albuquerque, pushes for the third time a bill that would ban the issuance of new fracking permits for four years. The bill seeks research on the environmental impacts of fracking, among other areas of study.
Robert McEntyre, a spokesman for the Oil & Gas Association, said Sedillo Lopez’s bill is “parading as a fact-finding mission” but is “really geared toward a political objective.”
Flynn said a U.S. Department of the Interior order mandating a 60-day moratorium on approvals of new drilling permits and other regulatory documents is of greater concern, at least in the short term. He said it will have “the most significant immediate impact on existing operations in New Mexico.”
“There are numerous companies in New Mexico who either had permits that were issued and then revoked in the last week or who had permits that were issued and drilled wells, and then they’re unable to actually connect those wells to pipelines so that they
can transport the oil or capture the gas,” he said. “There’s a lot of routine authorizations that are the bread and butter of the Bureau of Land Management that have now essentially ground to a halt.”
Adrienne Sandoval, director of the state’s Oil Conservation Division, said the reason the state can expect “very little short-term impact” is “because the industry has hedged themselves very well over the past couple of years.”
“There are approximately [6,000 drilling permits] out there right now that operators have acquired that have not been drilled yet,” she said.