Oil and gas drives billions in extra funds for New Mexico in the next year

Billions of dollars in “new money” to the state of New Mexico was expected in the next fiscal year, driven by increased oil and gas production in the southeast corner of the state and the oil-rich Permian Basin.

The latest report from the Legislative Finance Committee (LFC) showed about $3.6 billion in new revenue for Fiscal Year 2024, running from July 1, 2023, to June 30, 2024, a 42.7 percent growth from the FY 2023 budget.

That followed a steady growth in total revenue to the state from about $9.7 billion in FY 2022 to $10.8 billion in FY 2023 and about $12 billion in FY 2024, according the LFC’s December forecast.

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Growth was fueled by oil and gas, analysts explained, as New Mexico maintained its position as the second-largest producer of crude oil after Texas and in the top 10 states for natural gas.

New Mexico shares the Permian Basin – which accounts for almost half of total U.S. oil production – with Texas, and demand for domestic oil soared this year as the nation and world recovered from the COVID-19 pandemic and Russia was removed from international markets following its invasion of Ukraine.

Even as recessions sets in throughout the world, driving down oil prices, the LFC report said New Mexico oil and gas producers continued to drill, driving revenue via taxes and royalties paid to operate in the state.

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The global economic events could impact New Mexico’s bottom line in the coming years, the report warned, but present analysis showed continued growth.

“As severe sanctions disrupted Russian energy supply deliveries, prices spiked worldwide. As a recession begins in many parts of the world, expectations for global oil demand have fallen, bringing energy prices with it,” the report read.

“Despite the lower prices, energy companies in New Mexico have continued to drill at production expanding rates, as well as increasing the productivity per well, breaking production records each month.”

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The price of New Mexico was forecast to gradually decline from $88 a barrel in 2022 to $85 a barrel in 2023 and $76.5 a barrel in 2024, the report showed.

Despite this, production in the state was predicted to continue growing amid the lower-price market, read the report, hitting a recent peak of 1.7 million barrels a day in September 2022, a 49.4 percent growth from pre-pandemic levels.

The state was estimated to have produced up to 531 million barrels of oil in FY 2022, read the report, a 30 percent increase from FY 2021’s production.

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In FY 2023, production could climb to 618 million barrels of oil and 660 million barrels in FY 2024.

Declines were reported in Texas, which saw its daily production drop 5.6 percent from pre-pandemic levels as of September 2022, the report read, and North Dakota which dropped 26.1 percent during the same time frame.

“To date, New Mexico is the only top oil producing state to have recovered above pre-pandemic production levels,” read the report.

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Natural gas production also grew by 21 percent between FY 2021 and FY 2022, records show, for a total of 2.6 trillion cubic feet that was expected to grow to 2.74 trillion cubic feet in FY 2023 and 8.3 trillion cubic feet in FY 2024.

Joe Vigil, spokesperson for the New Mexico Oil and Gas Association said oil and gas money is necessary to New Mexico to fund public services like education and roads, providing about a third of the state’s budget each year since 2014.

He said oil and gas in New Mexico generated about $63.3 billion in industry revenue, contributing about $5.3 billion to state and local governments in the past year.

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That also contributed $2.96 billion to the state’s General Fund, $1.4 billion to public and higher education, and $268 million to capital outlay projects across New Mexico, according to records from the Association.

“New Mexico produced another record-breaking year of production, remains New Mexico’s No. 1 revenue producing industry, and the nation’s second largest oil and natural gas producing state,” Vigil said.

“With the growth of our industry, these funds ensure New Mexico will continue to have the resources to invest in our children’s education.”

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He touted efforts by oil and gas companies in the state to reduce their environmental impacts, as the state recently enacted regulations at both the New Mexico Environment Department (NMED) and the Energy, Minerals and Natural Resources Department (EMNRD) to increase gas capture and tighten restrictions on emissions.

Both rulemaking processes were conducted with input from the oil and gas industry.

“This fiscal and economic leadership goes hand in hand with environmental stewardship and the protection of our state’s natural resources,” Vigil said.

“Our operators around the state are constantly working to ensure that the oil and natural gas produced here is cleaner, safer, and more environmentally sound than anywhere else in the world which makes our product desirable.”

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New Mexico Gov. Michelle Lujan Grisham said the growing state revenue presented an opportunity to boost the state’s public education, healthcare, housing and public safety sectors.

“Our fiscal success will enable us to double down on the investments we know are working and explore innovative new strategies that move the needle and move New Mexico up in the rankings,” she said in a statement.

Taxation and Revenue Secretary Stephanie Schardin Clarke said the December forecast showed New Mexico was financially in a “solid position.”

“The strong revenues we’ve seen over the past couple of years allowed us to deliver significant tax relief to New Mexicans and still maintain historically high reserves to protect against unforeseen shocks,” she said in a statement.

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New Mexico Sen. Ron Griggs (R-34), a designee on the Legislative Finance Committee whose district represents portions of Eddy County in southeast New Mexico, along with Otero and Dona Ana counties to the west of the oilfields, said the one-time revenues expected to grow from fossil fuel production should go to one-time expenses like road repairs and other infrastructure projects.

“We’ve got to use it in a manner that’s consistent with what it is. It’s one-time money,” he said. “There’s a lot of good use for it in the southeast to help the southeast continue to bring the benefits to the state. I see a lot of opportunity.”

Griggs said legislators, convening a 60-day lawmaking session in January, should enact policies to support oil and gas.

'We need to continue to diversify the state’s economy, but we also need to realize oil and gas is our bread and butter,” Griggs said. “We need to do things that make the industry strong.”

And as oil and gas operations grow throughout the state, Griggs said leaders should take notice of its efforts to curb pollution sources like methane emissions.

“The industry is making great headway in making it cleaner and more sustainable,” Griggs said “We have to understand that we’re a natural resource-producing state. It’s in our DNA.”

Adrian Hedden can be reached at 575-628-5516, achedden@currentargus.com or @AdrianHedden on Twitter.

This article originally appeared on Carlsbad Current-Argus: Oil and gas drives billions in funds for New Mexico in the next year