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Oil industry leader: 2021 investment will be driven by policies

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New Mexico’s oil and gas industry will remain a strong contributor to the state economy in 2021 unless federal and state policy deter investment here, according to the head of a state industry group.

Ryan Flynn, president and chief executive officer of the New Mexico Oil and Gas Association, said Tuesday morning that rig counts in New Mexico and especially the southeast Permian Basin are not going up as quickly as prices, which have recovered since their crash in early 2020. Rig counts in the Texas portion of the Permian Basin, however, are rising along with increased prices.

Flynn attributed New Mexico’s less robust drilling activity to uncertainty regarding federal regulations for oil and gas activity on public lands, which is much more prevalent in New Mexico than in Texas.

“Prices, which used to historically drive production, are no longer a major factor in terms of maintaining high levels of production in the Permian Basin,” he said. “It is really policies that are the only limiting factor for record-setting production and a high level of production to continue.”

Speaking at a Virtual Roundhouse session organized by the New Mexico Chamber of Commerce and other business organizations, Flynn said the state industry has shown remarkable stability and resilience during the coronavirus pandemic and the resulting decrease in air and vehicle travel.

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The industry contributed $2.8 billion in taxes and royalty payments to the state budget in 2020, which is 33.5% of the total state budget. According to an association report, the 2020 amount is second only to 2019, when the direct contribution was $3.1 billion.

Flynn also said the indirect economic contribution in 2020 when considering wages for about 134,000 jobs, personal taxes, related business activity and other factors was $17 billion.

According to the association’s 2020 report, Chaves County had 5,649 jobs and $488.7 million in labor income tied to the oil and gas industry. The industry’s total economic contribution to the area was $833.4 million.

Flynn said the industry performance for 2021 will depend on whether President Joe Biden, Cabinet members and federal regulators give the industry the ability to plan for capital projects and drilling operations on federal lands. In 2020, oil and gas activity on federally owned lands represented $1.5 billion of the $2.8 billion paid to the state, he said.

After the inauguration of Biden in January, two orders took effect that Flynn said could lead to less investment, as well as other “unintended consequences” such as more greenhouse emissions. One order, which Flynn described as highly disruptive, halts all energy-related decisions at the Department of the Interior and its Bureau of Land Management for 60 days in most circumstances. The other was an executive order that placed a 60-day pause on the granting of any new leases for oil and gas activity on federal lands and waters.

“The federal leasing ban or pause, whatever you want to call it, today does not have a huge impact,” Flynn said, “but, if it lasts for multiple months or years, then it will absolutely have a major revenue impact and job impact in the state.”

A University of Wyoming report, which included information from the New Mexico Revenue and Taxation Department, estimated that New Mexico would lose 36,000 jobs and $12.5 billion in capital projects if a federal lease ban continues until 2024.

Flynn said that federal actions would not necessarily be disastrous to New Mexico if the Biden Administration “provides clear direction as to the regulatory path forward regarding production on federal lands.”

Regarding state action, he said the new methane emissions control regulations being developed by the New Mexico Energy and Natural Resources Department are a good example of how the industry and government can collaborate on practices and policies that will improve environmental conditions without harming industry. But he labeled bills introduced to the New Mexico Legislature this session to prohibit more fracking permits, raise air quality standards above federal levels and allow individuals to be held legally liable for industry actions as “harmful” and “irresponsible.”

“They aren’t necessarily trying to do much to increase the stringency of the environmental regulations,” he said. “It seems to be much more punitive in nature.”

About Senate Bill 149 that would prohibit the issuance of new fracking permits for four years, he added, “If you are going to ban oil and gas activity, then you need a plan in place to replace that revenue.”

A Fiscal Impact Report for the bill estimated it would lead to about $12 billion less in state revenues from fiscal year 2022 to fiscal year 2025.

The oil and gas industry is the largest source of greenhouse emissions in New Mexico, according to the New Mexico Environment Department. Environmental groups and sponsors of the fracking legislation have said that land, water, air and public health in New Mexico are experiencing severe problems due to emissions and that a four-year ban on new permits would give all parties a chance to assess the impact of fracking on people and communities. They also said that plenty more drilling could continue in coming years because 6,000 permits already have been granted but not used.

Senior Writer Lisa Dunlap can be reached at 575-622-7710, ext. 351, or at reporter02@rdrnews.com.

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Lisa Dunlap is a general assignment reporter for the Roswell Daily Record.