N.M. clashes with Trump’s ‘energy dominance’ agenda

Source: By Heather Richards, E&E News reporter • Posted: Tuesday, October 8, 2019

When a federal oil and gas lease sale in New Mexico netted $1 billion last year, it was touted by administration officials as a win in President Trump’s “energy dominance” agenda. But on the ground, the oil boom is slamming local resources and changing the nature of a rural community, critics say.

The boom means money that pours into the state, more jobs and better education funding. But according to Allen Davis, manager for Eddy County, “it’s a real challenge.”

New Mexico is a longtime producer of oil and gas, and it’s experiencing a sudden rush of development in its southeast corner. The shale boom that has transformed the United States into a powerhouse of global oil and gas production has advanced across the Texas border onto state, federal and private land in New Mexico.

Last year, the Interior Department recorded all-time high revenue from leasing to the oil and gas industry, mostly due to the $1 billion New Mexico auction (E&E News PM, Nov. 2, 2018).

The Interior Department tied its policies to the oil successes in New Mexico.

“With a bold, new approach to energy development, and a President who recognizes that conventional wisdom is meant to be challenged, we are starting to see what a great America looks like,” Interior Secretary David Bernhardt said in a February statement on the record oil and gas revenues.

The boom brought in $2.2 billion in oil and gas taxes and revenue in 2018 for the state, according to the New Mexico Tax Research Institute. This last fiscal year, the state anticipated record revenues near $8 billion, largely thanks to oil and gas, according to the Albuquerque Journal.

That money is in no small part pouring out of the oil fields of Carlsbad; the surrounding county, Eddy; and neighboring Lea County.

They are the heart of the hydraulic fracturing boom on federal lands that has attracted the attention of Democratic presidential candidates like Massachusetts Sen. Elizabeth Warren and Vermont Sen. Bernie Sanders (Energywire, Aug. 6). If the federal fracking ban they’ve proposed had been in place in New Mexico’s Eddy and Lea counties last year, 40% of wells drilled would have been denied, according to an investor note Friday from Tudor, Pickering, Holt & Co.

The oil industry has said that the rapid growth is critical for bolstering the state’s economy and that, ultimately, the industry revenue will help it weather challenges.

The New Mexico Oil and Gas Association released a report last month anticipating sustained growth from the Permian oil boom. Ryan Flynn, executive director of NMOGA, said at the time that the industry’s success would be critical in supporting New Mexico. “The revenue alone doesn’t solve some of those really difficult problems that the state is facing — whether it be public education or child well-being — but certainly having revenue and a roaring [economy] really gives you a lot more tools that you can deploy to tackle those kinds of problems,” he told the Albuquerque Journal.

‘Really straining’

The dusty, flat plains of southeastern New Mexico have produced oil and gas for years, but the industry was always secondary to mineral development like potash and longtime ranching interests.

The area’s oil and gas industry shot up with the high price of oil in 2014 and fell when the price busted a year later. But industry began to climb back rapidly.

“This is rapid growth,” said Carlsbad Deputy City Administrator John Lowe, one of multiple local officials who described a sudden change to the local economy about a year ago.

Thousands of workers have arrived, bringing children to the school district, traffic to the roads and an insatiable demand for housing that right now doesn’t exist.

Gerry Washburn, superintendent of Carlsbad Municipal Schools, said more children arrive every year. From the roughly 6,000 kids in the system now, he expects the number to hit 7,000 to 8,000 within a few years, he said.

“It’s really straining our existing facilities,” he said.

The oil market is also upsetting traditional jobs in the region, analysts say. The oil fields pay well. And its employees can afford the sudden run-up of rent and home prices created by high demand in a tight market.

Teachers can’t afford that, Washburn said.

To make a decent living and own a home, the school district estimates, income needs to be about $72,000 in the current housing market. Starting teachers in the district receive about $40,000 per year.

The city and county are working on housing for teachers that could relieve some of that pressure in the coming years, but right now, the strain is significant, said Washburn.

Other sectors report similar human resources problems. Lowe said the city is having trouble keeping workers. Water haulers and truck drivers with a commercial driver’s license, for example, get more out of the oil fields than driving a city truck, he said.

Oil field workers also are struggling to find housing. Across the region, more than 1,000 campers are hooked up to various sites and another 1,000 beds exist in man camps — the temporary housing hauled in by industry when oil development takes place in remote areas, said Davis, the county manager.

Will this boom bust?

Carlsbad’s challenges with the sudden oil boom are not unique. Oil and gas towns across the United States have experienced similar booms — and subsequent busts.

But officials say this time around is different: They don’t expect a bust.

Davis said some have advised a wait-and-see approach ahead of public spending on improving roads and increasing manpower to meet the new population. They wonder if the influx of people will evaporate if prices fall. But Davis said services are needed to respond now, and to expect long-term changes.

“The horses are out of the barn. The train has left the station. The services you are asking for are strained,” he said he responds. “We’ve got to do something.”

Despite the boom-and-bust nature of the oil business, many have expressed doubt that southeastern New Mexico would follow that old story.

For one thing, the price of oil the last year hasn’t been high. West Texas Intermediate, the national benchmark for light sweet crude, has hovered around $50 per barrel. Yet investment is pouring into the area. Companies like XTO Energy — a subsidiary of Exxon Mobil — and Occidental Petroleum — the largest producer in the Permian Basin — have a strong local presence in eastern New Mexico, said Lowe.

This is not a fly-by-night, company-led boom, but one that appears to have some sustained commitments, he said.

The city is trying to market stability to help attract long-term investors like apartment developers who may worry about the market drying up in a few years.

“We’ve been making the case that that is not what is going to happen,” said Kyle Marksteiner, spokesman for the city of Carlsbad.

The oil and gas industry is making that case, as well. The oil and gas boom in the Carlsbad area was born in the 2016 downturn, when developers were looking for a place that was profitable in low price environments, said Robert McEntyre, spokesman for the New Mexico Oil and Gas Association.

“The industry sees what’s happening in southeast New Mexico as long-term, sustainable and prolific,” he said yesterday from the association’s annual meeting in Santa Fe, noting, too, that the industry is not unaware of the “growing pains” of sudden economic growth hitting the Carlsbad area.

Energy firms have banded together in the Permian Strategic Partnership to work with local government in West Texas and New Mexico to ease boom pressures. The group has promised to invest in precisely the stress areas that local officials have identified because those are priorities for industry, too, McEntyre said, noting the need for good roads, housing, health care services and schools.

“In order to continue the growth and continue to enjoy the success we’ve been able to in southeastern New Mexico, we recognize that we are going to have to address some of these challenge associated with accelerated growth,” he said.

Davis said the stress that Carlsbad faces is “reasonable,” given how much good can come from the industry boom. But it will take time and effort before resources coming out of eastern New Mexico will be returned to fund needed services, he said.

New Mexico’s new governor has made reform of energy policies a priority, winning on a platform that promoted a move away from fossil fuel dependence. The administration is working on new regulations to curb emissions from the oil and gas sector and has set a goal for 100% carbon-free electricity by 2045 (Climatewire, Nov. 26, 2018).

But the state continues to rely heavily on oil and gas development to pay its bills.

Washburn, of the Carlsbad schools, came to the area after the boom. But he echoed the resounding sentiment that this energy boom is a new normal for eastern New Mexico.

“There are people that want their town back, but the reality is that even when these folks leave, with the production jobs that remain after exploration and putting things into production, it’s not going to be the town that they had,” he said.