Officials in the state of New Mexico professed to be shocked last week by President Joe Biden’s day-one choice to enforce a 60- day moratorium on all oil and gas-related leasing and allowing actions on federal lands. It is a decision that will have significant implications on the state budget plans of New Mexico and other Western states, particularly if it is extended beyond its initial term and backed up by Biden’s assured ban on hydraulic fracturing on federal lands.
A little more than 2 years earlier, in September, 2018, I discussed the half-billion dollar windfall the State of New Mexico had actually simply gotten during the course of a single sale of oil and gas leases on federal lands in the state. Those federal leases depend on the sector of the Permian Basin that overflows from Texas into the southeastern portion of New Mexico, part of the Delaware Basin play area that has become the most popular oil play in The United States and Canada since 2016.
Like other oil and gas-producing western states, large swaths of lands in New Mexico are owned by the federal government, including heavy concentrations of the lands in the southeastern part of the state, and in the northwestern corner that is home to a terrific deal of natural gas production. New Mexico’s collections of that share of federal royalties and proceeds from lease sales yearly outmatches that of all the other Western states.
Some New Mexico officials are now trying to protect themselves by saying they didn’t anticipate the new President would issue such a restriction, however such demonstrations sound rather hollow considered that they most surely did understand that Biden prepares to move ahead with his fracking ban, which would for all intents and functions have the same result. After all, practically 100%of the drilling activity in southeast New Mexico targets the various shale developments in the Delaware Basin, and all shale wells require a frac task in order to be productive. Thus, a ban on fracking is the exact same thing as a ban on leasing and drilling.
New Mexico’s Democratic Guv, Michelle Lujan Grisham, said through a spokeswoman that “Definitely we all understand the vital significance of this market to New Mexico’s bottom line and of the imperative to diversify our state economy and energy portfolio.” and that’s all fine. But the reality is that she and her administration can aim to “diversify” the state’s energy portfolio all they desire, but the state will still lose hundreds of millions of dollars every year need to the Biden administration succeed in shutting down her state’s oil and gas business.
There is no severance tax to be gathered from those alternative kinds of energy with which to fund the state’s schools or health centers, or to sustain the free in-state college tuition program Lujan herself developed in 2019 thanks to New Mexico’s brand-new Permian/Delaware Basin windfall. Diversifying the portfolio is a worthy objective, however Gov. Grisham and the New Mexico legislature will still have to find other ways to attempt to balance the state’s budget.
These are simply some of the actual potential costs of the Biden assault on the New Mexico oil industry. They are the things that happen in the real life, as opposed to the dreams pushed by numerous politicians.
Steve Pearce, the former New Mexico congressman who now serves as Chairman of the state’s Republican politician Party, pointed to another specific cost of this Biden policy action late last week. “I think we’re going to see companies selecting not to invest in New Mexico and take their jobs and drilling to Texas simply 3 miles away,” Pearce stated.
Pearce is absolutely proper. Huge Permian drillers like Diamondback Energy
With his state facing a spending plan crunch of its own thanks to the effects of the COVID-19 pandemic, Texas Guv Gregg Abbott will no doubt be just too pleased to welcome the increased oil and gas activity to his state and the greater profits it will produce. Meanwhile, the people of New Mexico, who offered President Biden a 55%margin in the 2020 election, are no doubt confused about what it was they actually chose.
Elections have repercussions. For New Mexico, the consequences of the 2020 election are only now starting to be understood.