Is there a war on oil?
As one Capitol news crew writes, recent days in the state Senate briefly resemble “Groundhog Day,” the movie about a befuddled weatherman who relives the same day in the same small town.
Sen. Bill Sharer, R-Farmington, stands in the N.M. Senate and praises some aspect of the oil and gas industry, typically discussing how many products and jobs exist because of the industry.
Sen. Bill Soules, D-Las Cruces, has taken to countering Sharer’s comments by making his own brief speeches about renewable energy diversifying and strengthening the economy.
The Santa Fe New Mexican’s Capitol news team says the repetitive routine has become as predictable as the 1993 comedy fantasy film starring Bill Murray, in which his character, Phil Connors, is caught in a time loop, repeatedly reliving the same day while covering the annual Groundhog Day event.
The political tug of war going on in the Roundhouse between those who embrace the oil and gas industry and recognize its contributions to dinner tables and government coffers, and those who view oil and gas as one that needs to be replaced has never been more stark.
Oil and gas day
For a brief respite Wednesday, there was a rhetorical truce when Democrats joined Republicans in praising the industry during Oil and Gas Industry Day at the Capitol.
With New Mexico now the third-largest producer in the United States and Lea County the third largest oil-producing county in the nation, everyone voted for the memorial lauding the industry for its contributions to the state’s economy, including Democratic Lt.Gov. Howie Morales.
Senate Memorial 20, co-sponsored by Sens. Gay Kernan, R-Hobbs, and Senate Minority Leader Stuart Ingle, R-Portales, noted the Permian Basin is at the center of an energy resurgence that is attracting interest from around the world.
The number of rigs operating in New Mexico in 2018 was more than double the number from the previous year, and about 80 percent of year-over-year growth in estimated tax revenue collection has been attributed to increased oil and natural gas production and higher severance tax collections, improved oil and natural gas industry-related rents and royalties and additional gross receipts taxes from Eddy and Lea counties in the Permian Basin.
The Senate memorial also notes the oil and natural gas industry is the largest private-sector employer in the state with more than 100,000 direct and indirect jobs, and the industry contributed about $2.2 billion, or roughly 32 percent, to the state’s general fund last fiscal year.
The oil boom has also resulted in an estimated $1.2 billion surplus for state lawmakers to work with as they craft the state’s annual budget.
The memorial also notes the oil and natural gas industry last fiscal year generated about $822 million in funding for public schools and about $240 million for universities in the state, and that 96.8 percent of the land grant permanent fund and 87 percent of the severance tax permanent fund come from the state’s oil and natural gas industry through the payment of royalties and severance taxes.
The industry in New Mexico also provides over 90 percent of all school capital investment through the land grant permanent fund. New Mexico also earned $634.9 million from energy and mineral production on federal and tribal lands during fiscal year 2018 — making it the No. 1 state for earnings last year.
For one day in Santa Fe, in one of the Legislature’s two chambers, the oil and natural gas industry wasn’t the pariah industry American tobacco companies found themselves in the 1990s when targeted by state attorneys general across the country for tobacco-related health costs.
Green transition
On Thursday, things were back to normal when Democrats introduced Senate Bill 489, the Energy Transition Act.
Democratic Gov. Michelle Lujan Grisham said the proposed legislation is a bold, comprehensive clean energy plan that would establish the state as a national leader in addressing climate change while significantly accelerating New Mexico’s transition to renewable and zero-carbon resources.
“This robust package puts us in the driver’s seat, and I’m thrilled that so many New Mexico stakeholders are on board,” Lujan Grisham said in a statement. “The renewable and zero-carbon standards outlined in this bill are among the strongest in the country. The training provided for in this bill will deliver sustainable construction and development jobs across the state. And the economic relief envisioned in this bill will help hardworking San Juan County residents.”
Co-sponsored by Sens. Jacob Candelaria and Mimi Stewart, both Albuquerque Democrats, and Rep. Nathan Small, D-Las Cruces, the proposed legislation would set a statewide renewable energy standard of 50 percent by 2030 for New Mexico investor-owned utilities and rural electric cooperatives, and a goal of 80 percent by 2040 that investor-owned utilities must meet.
In addition, the bill sets zero-carbon resources standards for investor-owned utilities by 2045 and rural electric cooperatives by 2050.
The bill specifically states electric energy in the renewable standard does not include energy generated from fossil fuels or nuclear energy. Many electric plants in the state are fueled by natural gas.
Senate Bill 489 also mirrors the renewable energy standards outlined in House Bill 283.
Fracking ban
Senate Bill 489 is just one of a slew of bills that would dissuade fossil fuel production in the state.
The bill that has most ignited House Republicans, and the oil and gas industry as a whole, is Senate Bill 459, which would halt the issuance of new permits allowing hydraulic fracturing for extracting oil or natural gas through June 1, 2023.
House Republicans say the bill would devastate the state’s economy, and the proposed fracking ban ignores scientific and economic reality. Energy industry officials have called the proposed moratorium devastating and offensive.
“Fracking has been used safely and successfully in New Mexico for more than six decades,” said Rep. Cathrynn Brown, R-Carlsbad. “We’re proud of the oil and gas industry and the tremendous work it does in New Mexico. Perhaps the supporters of this disastrous bill would be willing to return the money the industry generates for their districts.”
Republicans say SB 459 targets the technology that has created thousands of jobs and delivered a surplus of over $1 billion to the state in just the last year.
“There are thousands of hard-working New Mexicans all over the state who deliver affordable and reliable energy to the world,” said Rep. Jim Townsend, R-Artesia, the Republican leader in the New Mexico House of Representatives. “This bill sends the message that Santa Fe doesn’t care. Our neighbors, our communities and our state deserve better.”
Sen. Gregg Fulfer, R-Jal, said the bills introduced that would harm the oil and gas industry are being offered by lawmakers with no oil and gas activity in their districts and who don’t understand the industry.
“They’re just throwing things out there I think. I really don’t think they’ll get out of committee,” said Fulfer, an oilfield supply company owner. “The other one is that crazy bill that Antoinette Sedilla Lopez (an Albuquerque Democrat) dropped trying to put a four-year moratorium on fracking which would just kill the whole State of New Mexico. I think that even scared all their counterparts over there because they sure are enjoying spending all that money.
“For the most part, the Democrats I have spoken to are not in favor of that at all. I think that might have been launched because Sedilla Lopez is a new senator up here looking for a little publicity more than anything. I don’t see that moving in the Senate anywhere. It seems like everything is moving through the House. It just flies through.”
Rep. Larry Scott, R-Hobbs, said there have been several bills introduced this session that would be harmful to the oil and gas industry.
“I don’t think there is an appetite to move forward with the most egregious, the biggest one that comes to mind, the ban on hydraulic fracturing for four years that would effectively shut down all completion operations in southeast New Mexico. I can’t imagine that that would move forward,” Scott said. “But just the fact that it was introduced, I believe, sends a very poor message to the industry about whether or not we want them here.”
And there are more bills
Scott, co-owner of an oilfield services company, said he’s also concerned about House Bill 206, which would require a state agency to conduct an environmental assessment for oilfield projects if a preliminary evaluation shows the project could have a significant impact on the environment.
“That bill is very broadly worded and also very ambiguous and could result in substantial time lags for approvals on virtually every application and project over $2 million, which in our business is most of them,” Scott said. “That’s (applications for permits to drill), plant construction, pipeline construction, everything would be potentially subject to that environmental review act. I think that has a possibility of getting out of the House. I’m hoping the Senate can put the brakes on it.”
Requiring an environmental impact study to put a drilling pad on a location could add $50,000 or more and six months more to each drilling project, according to Fulfer. Adding money and time to projects could stall or kill the industry from making those investments, he said.
“I think there is a little war warming up,” Fulfer said. “The more this stuff comes across, it looks like they are attacking our industry.”
House Bill 398 would increase royalty rates on State Land production. House Bill 220 would impact water discharge and the Water Quality Act regulations. And House Bill 186 would increase fines by 1,400 percent for violations of oil conservation rules and potentially make violations a third-degree felony.
“I think what we’ve found here is a solution in search of a problem,” Scott said of House Bill 186 and the increase in fines and penalties.
“Anytime they run legislation on oil and gas, it sends a wrong message especially to the money people, the investors and who’s going to invest in our counties and our state,” Fulfer added. “It sends shivers to the investment community. I’m afraid, just by them running those bills, it created a sense of wait a minute and look at this, see what’s going on. It does hold up investment in our state.”
Is there a war on oil?
Asked if there a war on oil going on in Santa Fe, Ker-nan said there is, to some extent, regarding the direction the new state land commissioner, Stephanie Garcia Richard, is going.
“She’s coming after additional royalty, and the anti-fracking bill that was filed,” Kernan said.
Kernan said, in her opinion, the anti-fracking bill won’t pass the Senate, but nonetheless it has been harmful.
“(It) sends a terrible message to the industry that we really don’t want you here,” she said. “I don’t think the new senator that filed that really understands the impact of introducing legislation like that. She’s determined, but it just sends a terrible message.”
Kernan said most state senators, including Democrats, understand the value of oil and gas.
“On the administrative, executive side, I wouldn’t call it a war, but I think their view is different than the previous administration, but I think they certainly have an understanding of revenue,” Kernan said. “I think they understand we need oil and gas to fund everything.
“I wouldn’t call it a war, necessarily, but we’re just playing defense. There are certainly people that do not like the industry and do not like fossil fuel, so we are definitely on the defense.
I think we have enough support, certainly in the
Senate, to stop some of the things that have been proposed.”
Kernan said maintaining support from Democrats is crucial to preventing anti-oil legislation from becoming law.
“When you look at southeastern New Mexico and we have the lowest voter turnout in the state, if we don’t become involved and engaged, in two years when the Senate comes up for election, I don’t think we’ll lose our people, but if we lose Albuquerque, we are going to be in big, big trouble,” she said. “If we lose the conservative Democrats we have in the Senate, we won’t have anyone to stop it.”
Fulfer said the industry is under attack. He said although some of the anti-oil House bills will likely never make it to the Senate, their introductions alone have hurt the state.
“To me, it’s very irresponsible what they’ve done,” Fulfer said. “A majority of that money is going right there into the Albuquerque and Santa Fe area. They don’t know just by running that, it’s holding up investment in our state. To me, that’s a very irresponsible thing to do. It’s sent the wrong message to the people holding the pen to write the check. …
“I think there is a little war warming up. The more this stuff comes across, it looks like they are attacking our industry.”
Rep. David Gallegos, R-Eunice, said hostility toward the oil and natural gas industry was to be expected in the Democrat-controlled legislative and executive branches.
“I don’t think there’s anything we didn’t expect from the governor and/or the lady running the land office,” said Gallegos. “They’re standing true to their beliefs and their campaign promises. I know people up here are shocked.”
Gallegos noted a bipartisan group of state lawmakers, that included House Speaker Brian Egolf, toured southeastern New Mexico in September, learning about economic growth in the oil and natural gas region from industry experts.
“When I got here I expected more from the speaker,” Gallegos said. “The speaker received oil and gas money from Lea County in his campaign. I was hoping we would get a return on our investment, but I haven’t seen it.”
The two-day tour of Lea County by state senators and state representatives included time at DCP Midstream’s gas processing plant and EOG Resources.
“Those organizations did a really good job, but obviously it went in one ear and out the other,” Gallegos said. “They explained fracking and flaring. They explained oil spills and why those are product lines that we sell. Why would we want to lose them? That’s money they lose when they spill or flare. In both instances, they did a really good job explaining to the legislators that were there how, vital that was to our state.”
Rep. Phelps Anderson, R-Roswell, said lawmakers are deeply divided about oil and gas production.
“It’s premature to say it’s a war, but clearly there are opposing opinions about oil and gas production in New Mexico,” said Anderson, a real estate, ranching and oil and gas businessman. “On the one hand, there is love of revenues and on the other hand, there is a desire among some to stop fracking, increase royalties and make New Mexico less attractive to oil and gas exploration and production.”
Anderson said it’s an uphill battle in the House, in which Democrats have a 46-24 advantage. Democrats also control the state Senate, with a 26-16 advantage. There are no Democrats serving in the Legislature from Lea, Eddy or Chaves counties.
“Our numbers are clearly in the minority and after the House of Representatives tilted hard in a progressive direction, we are being consistently out-voted on party lines in committee and on the floor,” Anderson said. “My hope is the Senate will bring common sense to the bad bills coming out of the House and our new governor may find herself more moderate in issues that adversely affect our industry.”
