New Mexico Experiences Record Revenues Thanks to Oil and Gas Revenues, But Policies Threaten Growth
Once again, New Mexico has reported record revenues stemming from oil and gas production, with the state predicting it will raise nearly $3 billion in FY24 from the industry alone, up 4.6 percent from FY23 estimates:
“The state’s historic revenues have been growing at a record pace propped up by booming oil and gas…”
However, analysts with the New Mexico Legislative Committee warn that issues with federal leasing and pipeline approvals threaten the industry’s ability to continue providing a much-needed lucrative and stable source of revenue to the state.
Over the past year, New Mexico produced a whopping 657.76 million barrels of oil, growing 23.7 percent from the previous year. However, last year’s level of growth decreased slightly compared to the previous year ‘s pace of 30 percent. Looking forward, oil production is expected to grow by just 1.8 percent next year.
Natural gas production faces a similar predicament. In March 2023, the state produced a record of 9.5 billion cubic feet (bcf) of natural gas per day, and, over the course of FY23, produced 24 percent more natural gas than in FY22. Yet, natural gas production is expected to taper off to 8.97 bcf/day in FY24 and 9.1 bcf/day in FY25.
In addition to record oil-related revenues, the state as a whole will collect an unprecedented $13 billion in FY24, and is experiencing a $3.5 billion general fund surplus. Notably, the record-breaking revenues and surplus mark a stark reversal from several years ago when New Mexico State reserves were at the lowest levels since 2000 and state government was forced to drain reserve accounts to fund basic public services and salaries. A report from Pew Research painted a bleak picture of the state’s future:
“In Fiscal Year 2016, the amount of money New Mexico held back and put into savings—to pay for unexpected expenses or shore up the budget when revenues dip—was at its lowest level since 2000.”
The Associated Press reported earlier this year how rising oil production has made it possible for New Mexico to turn around its previously bleak outlook:
“Surging oil production has allowed New Mexico in recent years to bolster public salaries, expand access to no-pay child care, and offer tuition-free college to its residents — while also setting aside billions of dollars in a variety of “rainy-day” emergency accounts and investment trusts.”
Administration policies threaten production growth, economic security
An end to New Mexico’s oil-related “income bonanza” is not imminent. In fact, decreasing rates of production growth are primarily due to “limited pipeline capacity” and an administration that has become increasingly hostile to drilling on federal lands.
The reduction in lease sales has been especially stark in New Mexico, where 66 percent of oil is produced on federal lands. The data show that the Biden administration has offered significantly fewer parcels for sale in New Mexico than the past two administrations: the Biden administration has offered 90.7 percent fewer parcels for sale each year than the Obama administration and 93.7 percent fewer parcels for sale each year than the Trump administration.
Reducing the number and acreage of federal parcels available for oil and natural gas leasing is not the only strategy the Department of Interior (DOI) is using to slow down energy production on federal lands, particularly in New Mexico, which is the largest onshore producer of oil on federal lands.
In 2021, DOI announced a plan to withdraw 351,000 acres of land from oil and natural gas leasing to create a buffer zone surrounding Chaco Canyon, N.M. Since then, Interior has heard fierce pushback from stakeholders on the ground, including members of the Navajo Nation Council:
“The Chapters recognize the detrimental economic impact to the Navajo allottees should a buffer zone of any size be imposed around Chaco Canyon. If a buffer zone is adopted, the Navajo allottees who rely on the income realized from oil and gas royalties will be pushed into greater poverty.” (emphasis added)
Bottom line: Increased oil and gas production in the prolific Permian Basin has allowed the State of New Mexico and tribes that reside within it to thrive. If the Biden administration wishes to protect these constituents, it must allow for the continuation of increased production growth by offering and approving new federal leases in the state.