New Mexico hopes for oil and gas windfall as US recovers from COVID-19


New Mexico’s oil and gas production this spring is back to levels not seen since the COVID-19 pandemic hit the state and nation last year, propelling the Land Enchantment to overtake Dakota from North as the second largest oil producer in the United States

In April 2020, a month after the onset of the health crisis, the price of a barrel of domestic oil collapsed to -40 $ a barrel, and the number of rigs in New Mexico rapidly declined, falling to a low. minimum of 44 platforms in September 2020, compared to 116 in March of the same year, by data from Baker Hughes.

The number of platforms in Texas increased to 105 platforms in August 2020, from 394 platforms when the pandemic began five months earlier.

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But as the pandemic appeared to be easing, vaccines became more available and restrictions on travel and business were lifted, the price of a barrel fell back to $ 74 a barrel on Friday – highest since 2018, according to Nasdaq records.

The rebound also restored drilling rigs in New Mexico, with Baker Hughes reporting 75 rigs in the state on Friday, as well as 221 in Texas and 236 in the Permian Basin stretching from southeastern New Mexico west of Texas.

New Mexico’s total monthly oil production reached 35.8 million barrels in March, according to the latest report of the Federal Energy Information Administration, up from about 33.7 million barrels at the start of the year in January and ahead of North Dakota’s total of 31.8 million barrels of oil in March.

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North Dakota was generally ahead of New Mexico in oil production, just behind Texas, and leading New Mexico comfortably since 2010.

State lawmakers seemed increasingly optimistic about the recovery, after declining fossil fuel production created a budget deficit of $ 400 million last year, when there was previously a surplus of $ 2 billion thanks to record production in 2019.

Oil and gas rise in New Mexico amid COVID-19 recovery

At a meeting in Ruidoso last week of the state’s Legislative Finance Committee (LFC), analysts reported to lawmakers the record numbers for fossil fuel extraction, New Mexico’s largest economic engine centered in the southeastern region of the Permian Basin.

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Bernadette Johnson, vice president of strategic analysis at Enverus, an international energy information company, said U.S. oil prices had benefited from increased demand, but also agreed supply cuts from Organization of the Petroleum Exporting Countries (OPEC).

“With the deployment of the COVID vaccine (-19), with a return to activity, the movement of people and the driving of vehicles and the return to work for many, this behavior causes a strong demand for oil,” he said. she declared. “This means that we are seeing a marked improvement in demand. “

The New Mexico Legislative Finance Committee discusses oil and gas production at a meeting June 23, 2021 in Ruidoso.

The Delaware sub-basin on the west side of the Permian on the New Mexico side of the region was “well positioned,” Johnson said, to compete with other oil-producing regions in the years to come, as costs d exploitation are lower and the wells are often very productive.

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She expected crude prices to average around $ 64 a barrel through 2021, and that several pipelines entering service this year would support the market in the Permian Basin region.

LFC Chief Economist Dawn Iglesias said the industry in FY2020 generated more than $ 4 billion in national and local revenues, including $ 2 billion in the New Brunswick General Fund. Mexico.

“This faster than expected recovery in prices and production results in an increase in revenue for this fiscal year compared to our consensus forecast and will likely lead to an increase in projections for the next fiscal year,” she said.

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Federal actions have dire implications for New Mexico oil and gas

Adrienne Sandoval, director of the New Mexico Petroleum Conservation Division (OCD) – the state’s primary regulator for oil and gas activities – said the use of hydraulic fracturing and horizontal drilling meant a higher production when the well was first commissioned, but a faster drop compared to traditional wells.

This expansion in the use of unconventional wells defined by hydraulic fracturing and lateral drilling has allowed New Mexico and the Permian to occupy a significant place in the oil market in recent years, Sandoval said, but has also forced operators to drill and complete more and more wells.

Adrienne Sandoval was hired in April as director of the New Mexico petroleum conservation division.

“While drilling activity doesn’t have a direct correlation to your immediate production numbers, it can impact six or 12 months down the road,” she said.

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Other potential obstacles to future growth in oil production, Sandoval said, were a break on new federal oil and gas leases imposed by President Joe Biden when he took office in January as the federal government revises its federal fossil fuel program.

A federal judge in Louisiana recently filed an injunction to block the end of new federal leases and it was unclear how the DOI planned to respond.

The U.S. Department of the Interior (DOI) also issued an order alongside Biden’s hiatus to elevate the decision-making process for necessary approvals by operators like rights of way and permits to drill from local offices to the United States. within licensing agencies like the Bureau of Land Management, to senior DOI officials.

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The two federal government measures had a strong impact on New Mexico, where more than half of the mining activity takes place on federal lands.

Governor Michelle Lujan Grisham and Sarah Cottrell Propst, cabinet secretary of the New Mexico Department of Energy, Minerals, and Natural Resources – OCD’s parent agency – wrote letters to federal leaders and the President expressing concerns that additional federal regulations could cause energy companies to relocate. in Texas, where much of production takes place on private land unaffected by policy changes.

Sandoval said that in the months following the federal orders, New Mexico lost rigs and Texas won.

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“There was confusion among the operators as to what this meant, how it was going to be implemented and part of that we saw the impacts of that as the operators tried to figure out what it meant to them and how they were going to move before, ”Sandoval told lawmakers.

“What we would expect is that these platforms moved across the border to Texas where there was more certainty.”

Johnson said the actions of foreign countries like Iran and the potential resumption of the Iran nuclear deal could mean fewer sanctions on the Middle East oil producer, more Iranian oil on the market. and a potential drop in the price of US crude.

Another trend that could define the oil market for years to come, Johnson said, is storage.

The United States recently saw lower levels of oil storage as more barrels were released for consumption, she said, which reduced supply but indicated growth in demand, thus raising the price.

“These numbers showed a pretty big drop in inventory, indicating that people are driving and moving again, at really much more normal levels,” Johnson said.

Adrian Hedden can be reached at 575-618-7631, [email protected] or @AdrianHedden on Twitter.


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