Oil and gas-driven surplus gives New Mexico opportunity for prosperity



December 17, 2018

Note: This op-ed originally appeared in the Farmington Daily-Times.

Heading into the 2016 legislative session, our state was facing a $300 million deficit that forced Governor Susana Martinez and the legislature to make difficult decisions when crafting the state budget. Now, just three years later, we’re in a completely different situation due in large part to oil and gas development in our state. (“Oil sector boosts state government fortunes in New Mexico.” Dec. 11, 2018)

Instead of a shortfall, Governor-elect Michelle Lujan Grisham and the new legislature are in an entirely different position. According to the state’s Consensus Revenue Estimate Group, there will be a surplus of $1.1 billion for the next budget year. This means there’s an additional 17 percent of “new money” for priorities like schools, roads, and public safety.

Legislative budget analysts say 80 percent of the new revenue is linked to oil and gas activity, which has surged in New Mexico. The latest monthly numbers from the U.S. Energy Information Administration demonstrate this remarkable growth.

In September of this year, New Mexico was producing 738,000 barrels of oil per day, up from the August 2018 total of 714,000 barrels per day. But since last September, New Mexico’s oil production increased more than 48 percent year over year. Meanwhile, natural gas production in our state also increased 18 percent to 4.389 billion cubic feet per day.

Much of the increased production has taken place in southeastern New Mexico, but new opportunities are arising in the Four Corners region as well. Last month, the state Oil Conservation Commission update a rule to accommodate new technologies and allow for up to eight producing wells on every 320 acres in the Blanco-Mesaverde field, which covers large portions of the San Juan Basin.

An analysis conducted by New Mexicans for Economic Prosperity in conjunction with the Farmington Chamber of Commerce and Four Corners Economic Development found that this rule change could lead to more than $29.2 million in additional revenue for the state without drilling any new wells, but rather recompleting existing wells that were already drilled.

This new revenue gives us the opportunity to meet a wide range of needs, from improving our schools and repairing infrastructure to proactively addressing the economic impacts of the planned closure of the San Juan Generating Station.

A skilled and educated workforce begins with a strong public education system and will be critical to attracting new industries and enabling existing businesses to expand. Fortunately, the Farmington area already has some of the best schools in the state, aided by funding from oil and gas development.

This activity generated $934 million for K-12 schools, colleges, and universities across the state in fiscal year 2017. In San Juan County, this translated to $43.3 million in funding for K-12 schools and $6.9 million for San Juan College. These numbers will likely be even higher in the next budget year.

State trust lands, where about a quarter of all oil and gas production takes place, are a major and growing piece of this funding puzzle. In fiscal year 2018, $773.5 million of education funding came from state trust land funds, an increase of 14 percent from the previous year. Oil and gas activity accounted for 93 percent of the total state trust lands revenue.

We have faced economic headwinds, but whether it’s in the Permian or the new potential in the San Juan Basin, oil and gas production has given us an opportunity to turn the corner and set a course for sustained prosperity. With a $1.1 billion surplus in their hands, it’s now up to the governor-elect and legislature to seize that opportunity.

Audra Winters is the president and CEO of the Farmington Chamber of Commerce, a volunteer association of business people who coordinate efforts of commerce, industry and professions to maintain a healthy business in our community.

Devin Scott is the coordinator of non-profit Four Corners Economic Development (4CED), a non-profit organization that work to create a business-rich environment to drive our local economy in the Four Corners area.

Kyler Nerison is executive director of New Mexicans for Economic Prosperity, an economic advocacy coalition that includes chambers of commerce, economic development corporations, landowners, trade associations, and other non-profits across the state.