About $9 billion in revenue was expected in the next fiscal year for New Mexico, per a state financial report, about $1.6 billion more than was spent in FY 2022’s total allocation of $8.4 billion.
Eddy County Manager Allen Davis said all that money came from the oil and gas industry in southeast New Mexico’s Permian Basin region.
He urged lawmakers to reinvest in what he characterized as the state’s biggest money maker, accounting for up to 35 percent of New Mexico’s budget.
“Successful companies reinvest in their powerful economic drivers for their businesses for their continued to success,” Davis said. “Investing to support one of the state’s most powerful economic drivers would seem prudent for the future success of New Mexico.”
His comments came during a meeting of the Legislative Finance Committee (LFC) May 18 in Artesia, as the group made up of New Mexico lawmakers prepares to issue its next budget recommendation by the end of the year ahead of the 2023 Legislative Session starting in January.
Fiscal years in New Mexico run from June 30 to July 1 of each year, and at the start of the lawmaking session the LFC recommends how state money should be budgeted for the next year.
Davis said economic planning for the state was dependent on oil and gas he said his county led the state in, along with neighboring Lea County.
Records show Eddy County was the third-highest contributor of gross receipts, or sales, tax revenue to the State of New Mexico at about $1.8 million a month, or 10 percent, in the first quarter of 2022.
Eddy County was only behind Lea County, which is also in the prolific Permian Basin oilfield, and the state’s biggest urban area in Bernalillo County.
While Eddy County has only about 6 percent of the state’s population, Davis said it contributes a total of about 20 percent of New Mexico’s tax revenue.
And that’s due to the financial might of oil and gas, he said.
He said of the 1,500 oil and gas wells drilled in New Mexico last year, 96 percent – 1,436 were in Eddy and Lea counties.
The state produces about 40 million barrels of oil a month, Davis said, with 16 million coming from Eddy and 22 million coming from Lea.
For natural gas, 80 billion cubic feet (CF) of New Mexico’s total of 200 billion CF per month came from Eddy, he said, and 70 billion from Lea.
About 60 percent of Eddy County’s 2.7 million acres were federally-owned, Davis said, meaning the area was heavily impacted by federal energy policy, compared with largely-unencumbered counties West Texas which is mostly private land.
When he took office in 2021, President Joe Biden’s administration enacted a temporary halt on new federal oil and gas leases.
This stymied growth in the state’s Permian Basin region, Davis said, as rising rig counts throughout the basin, which is shared with Texas, were not reflected in New Mexico.
“With all of the federal property that is used by the oil and gas industry, when actions are taken that put a risk on that property, whether it’s an executive order, things like that, private companies have a choice,” Davis said.
“They can choose where they invest their money. The rocks don’t recognize state lines.”
The importance of oil and gas produced in southeast New Mexico could become increasingly obvious, Davis said, as demand rose amid recovery from the COVID-19 pandemic and the removal of Russia – the world’s second-largest oil producer – from the global market following its invasion of Ukraine.
“Our production helps meet the current demand that is growing and growing in the world. That’s what’s driving our prices,” Davis said. “There’s an insufficient supply to meet the demand that exists so prices continue to climb. The revenue from oil and gas is a significant engine for New Mexico.”
LFC member Sen. Gay Kernan (R-42) argued the industry in southeast New Mexico contributes not only to the region, but all of New Mexico.
“As communities in the area, we benefit as well,” she said. “But if you look at it, many of the resources are distributed throughout the state in every community.”
Oil and gas’ ups and downs continue to impact New Mexico
Geoff Jay, a partner with Houston-based energy consulting firm Daniel Energy Partners backed up Davis’ assertions as to the significance of the Permian Basin and southeast New Mexico for oil production and the importance of fossil fuels in the coming years.
He said COVID-19 caused dramatic volatility in fuel markets, disrupting global demand.
On April 20, 2020, about a month after the virus was found in New Mexico, oil plummeted to -$40 – the first time in recorded history it fell below $0 a barrel.
Drilling activity in New Mexico dropped by 50 percent, with production falling by 25 percent, Jay said.
He said demand returned to previous levels this year, two years after the pandemic, and were sent even higher amid the conflict in Ukraine to more than $100 a barrel for much of the spring.
“These changing fortunes have had a big impact on New Mexico,” Jay said to the LFC. “You have the unenviable task of setting a budget partly funded by a commodity that was worth less than nothing two years ago and is now reaching the highs of 2008 when we believed the world was running out of oil.”
The LFC published its post-session financial report in April, continuing to tie New Mexico’s economic success to oil and gas, reporting regrowth in the market accounted for about 60 percent of New Mexico’s increase in general fund revenue.
“New Mexico oil production continued to reach new records as strong prices encourage rapid withdrawal of resources in the state,” the report read.
But the report warned that the state’s dependence on oil and gas could set it up for future vulnerabilities due to the industry’s traditional boom and bust nature.
“New Mexico is experiencing unprecedented revenue growth as oil and gas production in the state grows rapidly and oil prices climb,” read the report.
“The state’s strong reliance on the oil and gas industry creates a highly volatile tax structure dependent on the booms and busts of the industry.”
The report suggested diversifying New Mexico’s economy and energy production to include renewable sources like wind and solar, a move that could mitigate pollution and also insulate the state from future economic depression.
“As the world transitions away from fossil fuels, the state will likely need to consider viable ways to bring wind, solar, and hydrogen-based energy into its recurring tax base while balancing the taxation of renewable energy with the state’s competitiveness for the industry to grow,” read the report.