From Carlsbad Current Argus
No bigger impact of halting federal oil and gas leasing and approvals of drilling permits and rights of way would be felt than in New Mexico, economists warned.
New Mexico lawmakers are studying the impact recent executive actions by the administration of President Joe Biden could have in curtailing oil and gas production on federal land and the implications for the state’s finances.
Last week, Biden signed a federal order to place an indefinite moratorium on new leases on federal land for oil and gas extraction following a 60-day suspension of the authority of agency field offices like the Bureau of Land Management to approve leases, drilling permits and other activities.
New Mexico’s Senate Finance Committee received a briefing on the effects of the recent actions from state regulators and representatives from the fossil fuel industry.
More than half of oil and gas production in New Mexico occurs on federal land as the land is leased by the federal government to oil and gas companies, representing $1.5 billion in state revenue in Fiscal Year 2020, per an industry report.
Looking ahead, New Mexico had three federal lease sales planned for 2021 in April, July and October, said Dawn Iglesias, an economist with the state’s Legislative Finance Committee, which were expected to earn up to $4 million each for the State of New Mexico – revenue that could be blocked by the halt on new leases.
Director of New Mexico Oil Conservation Division Adrienne Sandoval said the short-term impact of the orders could be minimal as they don’t apply to previously-approved leases and activities.
She said 6,089 applications to permit drilling (APDs) are approved in New Mexico and could prove productive the next eight to 12 months.
Sandoval said many oil companies sought more permits than they needed in preparation for the changing federal administration after Biden vowed during his campaign to enact stricture
But wells in the Permian Basin in southeast New Mexico – the state’s most active oil play – decline rapidly in production and new wells would eventually be needed to maintain production levels.
“We are expecting minimal production impacts over the next eight to 12 months,” Sandoval said. “Industries hedged themselves very well over the past couple of years.”
But if the ban on federal leasing and approvals were to remain, operations on state land could also be impacted as New Mexico’s land is mixture of federal, state and private land that see pipelines crossing over and other shared uses associated with fossil fuel development.
“New Mexico can be a very complex state for developers to operate in. There is an intertwined matrix federal land, state land and private land,” Sandoval said. “Higher initial capital and operating costs are expected for operators in this state. That’s because of a lack of infrastructure. Many operators will not bring wells online until they have that takeaway capacity.”
Jordan Kessler, deputy commissioner of minerals at the New Mexico State Land Office which manages about 13 million acres of State Trust land said that while the state can still lease land for oil and gas operations but many horizontal wells drilled could stretch into federal land and could be impeded by the orders in the long-term.
She said the office was already taking steps to diversify its activities and revenue generation away from its reliance on extraction.
“There will likely in the short term not be an impact on the state land office. In the long term there could be an impact from neighboring federal lands,” Kessler said. “We foresee a possibility of impacts on long term royalties. We will continue to work to diversify to account for that.”
Sarp Ozkan with Enverus, an energy industry analytics firm, said with no new wells drilled in New Mexico on federal land for the 60 days prescribed in the moratorium, New Mexico would see a 15 percent decline in oil production and a 7 percent decline in the production of natural gas.
This could lead to higher prices as supplies dwindle and ultimately translate to motorists paying more for gasoline as producers of petroleum could be forced to move operations to places less economical than New Mexico’s Permian Basin.
“Even 60 days makes a huge dent in production in New Mexico,” Ozkan said. “It also means operators have to move to less economic areas. That could mean over the border to Texas. This may lead to prices of oil and gas ticking up due to supply site destruction.
“It would require a much, much higher price that we see as possible. We would also be talking about impact of U.S. consumers at the pump.”
Ozkan said no state would be impacted more than New Mexico, even as policy makers and regulators seek to increase the state’s renewable energy production.
While the shift to new sources of energy is inevitable, Oskan said, Biden’s sweeping executive orders could prove too rapid of a shift for the state’s fossil-fuel-dependent economy.
“New Mexico is the state that is most impacted by this. The energy transition is certainly under way. We’re not saying that it shouldn’t be,” he said. “That transition should be just that. A transition. It should not be a flip of the switch.”