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Policy changes, court cases mark oil & gas industry's summer
All sides in the debate over roiling oil and gas industry issues say they hope August brings less uncertainty than the previous months.
Federal regulators, environmentalists and industry leaders spent June and early July just keeping up with court rulings and government orders that cut to the heart of the New Mexico oil and gas extraction industry’s future.
“There will be clarity at some point in the near future,” said Ryan Flynn, executive director of the New Mexico Oil & Gas Association.
Among the developments:
- A series of court proceedings on the government’s suspension of methane gas release rules crafted under the Obama Administration left the EPA with a 14-day deadline to decide if it will sue again to avoid enforcing the rule.
- The Trump administration on July 6 issued strong orders to the Bureau of Land Management to clear out a backlog of drilling permit applications and promised more money for staff in the next budget.
- Environmentalists sued the BLM for its moratorium on implementing methane release rules on its federal lands.
These developments came as the EPA took public testimony on an original 90-day ban on the methane release rules. Industry leaders say the cost of compliance could lead to shut downs, with a heavier impact on oil wells than on natural gas operations.
“Unlike oil wells, gas wells have already been the subject of rules regarding gas capture and will not need all new equipment, therefore, the impact of the new rule is not as severe as it is for oil wells,” the New Mexico Oil & Gas Association stated in a report prepared for the federal government during comment on the proposed EPA rules.
“On the other hand, gas wells have operated at low prices for some time so more operators are less likely to expend any additional funds on the wells to comply with the rules, because the time needed to recover the costs would be lengthy,” the same report stated.
The month also brought one bright spot, at least for the state.
While the federal leasing program and its rules are in a state of flux, New Mexico’s latest batch of oil and gas lease sales brought in a record bounty for state programs.
No official responses
Interested parties spent late July waiting for a response from the Environmental Protection Agency, which had until July 27 to decide how or whether to proceed in court.
While not looking into any crystal balls, Sierra Club Rio Grande Chapter Director Camilla Feibelman said she suspects the result may be that industry will have to follow the methane rules, for a while.
“Industry needs to comply with the rules in the short-term,” Feibelman said.
She fully expects there will be at the EPA “a formal process to rescind or rewrite the rules.”
A federal appeals court in Washington, D.C., ruled that EPA Administrator Scott Pruitt overstepped his authority in authorizing a 90-day freeze on methane release rules that require retrofitting some wells.
Flynn said members of his association, and the state economy will be impacted if wells shut down and around $100 million in state revenue vanishes.
His association estimates that up to 10 percent of current production comes from marginal wells, and many or all might become economically unfeasible to run if retrofits are required.
Flynn said the strategy employed by activists suing over a freeze in implementing methane release rules is not new, and constitutes “creating as much disruption as possible” by hijacking public participation proceedings and other governmental processes for their own purposes.
The EPA by press time had not announced its legal plans or returned requests for comment.
BLM facing lawsuit, overhaul
Another federal agency in the legal crosshairs of environmental groups is likewise hunkering down as officials make plans to deal with a sweeping Trump Administration decree for administrative reform.
In July environmentalists filed a lawsuit against the BLM over its delay imposing a methane release rule similar to the EPA’s disputed rule on lands under BLM jurisdiction. Earthjustice is fighting that federal case on behalf of the Sierra Club, Natural Resource Defense Council, The Wilderness Society and other parties.
The Farmington BLM office on July 19, 13 days after Secretary of the Interior Ryan Zinke‘s secretarial order, referred comment to BLM headquarters about how BLM would streamline its permitting process.
The query was not answered by press time by BLM’s local, state or federal offices.
NMOGA’s Flynn testified before a state legislative committee July 19 that leasing from the state is far easier than getting a lease from the BLM.
“The state does an outstanding job,” said NMOGA’s Flynn. He credited that to “consistency and predictability.”
“The federal government on the BLM side is extremely inefficient.”
A BLM spokesperson declined comment on Flynn’s remark. BLM did not attend the legislative hearing.
Flynn said July 21 that he isn’t surprised the BLM is silent about how it will tackle its restructuring as officials develop a strategy “to achieve the secretary’s goal.”
He said leadership is in place now at the Department of the Interior and resources are committed to fix what he said in Farmington’s office is “a model of inefficiency.”
State lease sales perking along
The last round of state oil and gas lease sales was a record-breaking $30 million, marking a steep contrast between the way New Mexico goes about processing oil leases and the way the federal government handles the same process.
The State Land Office announced July 19 that the record income from leased tracts means more funding for public schools and six other colleges and institutions that benefit for lease sale revenues.
Public schools alone collected $23.8 million of that haul.
The sale attracted 58 bidders from 11 states.
“Eighteen bid on 82 tracts covering 20,814 acres of State Trust Lands in Chaves, Eddy, Lea and Roosevelt counties,” the office’s press release stated. “The monthly oil and gas lease sales are held online in sealed and open bidding formats. This month, sealed bids generated $19,392,398 and online bids brought in $10,642,850.”
The highest of the sealed bids came from Ameredev II, LLC, of Austin, Texas, $7,360,000 – $23,000 per acre – for 320 acres in Lea County.