Environmental Groups Cheer Gov’s Veto of Tax Credit for Small Oil and Gas Wells

Operators of small oil and gas wells in New Mexico won’t receive a tax exemption on fossil fuels they extract, thanks to a veto from Gov. Michelle Lujan Grisham in the catch-all tax package approved last month by the Legislature.

Excising the exemption for “stripper” wells was the governor’s lone veto in a 149-page tax package sent to her by lawmakers. Under state law, “stripper” wells are those that have an average daily production of fewer than 10 barrels of oil or less than 60,000 cubic feet of natural gas.

A coalition of 29 environmental groups, including the Western Environmental Law Center, called it an “unnecessary and unsound tax giveaway” to polluters and thanked the governor for vetoing it. The New Mexico State Land Office, led by Commissioner Stephanie Garcia

Richard, also posted to social media in favor of the veto, saying it “would have given millions in tax breaks to billiondollar oil and gas companies to clean up their own messes.”

The provision would have allowed operators of those wells, so long as they produced fewer than 1,000 barrels of oil a day, to be excluded from the state severance tax. The intent was that producers would use money saved on taxes to make investments in reducing the venting and flaring of natural gas.

The exemption started as Senate Bill 64, titled “Severance Tax Exemption for Certain Projects” and sponsored by Sen. Ron Griggs (R-Alamogordo).

The tax credit, if approved, would mean a $9.7 million reduction in taxes each year for at least the next four years, according to an analysis by the nonpartisan Legislative Finance Committee.

There were over 27,000 active “stripper” oil and natural gas wells operating in New Mexico in 2021, according to the LFC. That’s over 20% of all active wells in the state, but they produced less than 1.5% of oil and less than 6% of natural gas statewide that year.

The LFC analysis also warned that the legislation could spur wells that would otherwise be shut off to actually continue operations, plus create future financial liability for the state.

Lujan Grisham, in her message striking the 20-page exemption program from the tax bill, said she was skeptical the exemption would be adequately targeted to small operators and “work counter to my Administration’s climate change goals.”

However, the governor asked lawmakers to take another crack at the policy for the next legislative session.