Industry officials: Lift the crude-oil ban

James Fenton
Oil rig

FARMINGTON — With the passage of a bill to lift a ban on crude oil exports by the U.S. House of Representatives this month, state oil and gas officials are hoping the bill will pass the Senate and survive a possible veto by President Barack Obama.

One group voicing support for the bill is the New Mexico Oil and Gas Association. In a press release, the association said that lifting the 1975 policy would lead to greater industry stability and additional revenue for the state's coffers.

NMOGA President Steve Henke said revenue would increase with every additional dollar increase of a barrel of oil. Since last fall, the value of a barrel of oil on the commodities market fell from a high of $140 to below $40. Henke said even a modest boost in crude oil prices would help prices rebound and, in turn, pay dividends to the state.

“The state of New Mexico gains approximately $10 million in general fund revenues for every $1 increase in the oil price,” Henke said in the release.

The export ban on crude oil was enacted 40 years ago this year during the Arab oil embargo as an effort to limit oil-supply disruptions like the ones caused when Arab members of the Organization of Petroleum Exporting Countries, or OPEC, retaliated against the U.S. for its support of Israel in the Arab-Israeli War.

Wally Drangmeister, vice president and NMOGA spokesman, said the bill's ultimate passage would be a much needed economic shot in the arm for the industry as well as consumers at the pump.

Last year, New Mexico oil and gas companies produced more than 123 million barrels of oil. and an increase of a dollar per barrel represents additional revenues of more than $100 million, after royalties are deducted, he said. That doesn't include operations costs, taxes and fees.

Those in the oil industry believe lifting the oil export ban will help stabilize the oil markets and allow crude prices to rise above $50 per barrel.

“Eliminating the ban will strengthen the energy security of the U.S. and allow for increased employment and tax revenues in New Mexico,” he said.

Drangmeister said that oil and gas companies nationwide and those that are members of NMOGA are virtually unanimous in agreement that the bill's passage would be "a positive."

"If it were to pass, basically what happens is there's an expectation that oil prices would go up from a dollar to a few dollars per barrel. a lessening between the gap between West Texas intermediate and Brent crude prices," Drangmeister said. "Gas prices are largely driven by Brent (which is usually higher) and there's the expectation that gas prices would have downward pressure."

The proposed legislation would also give domestic oil and gas companies stronger selling power overseas.

"From the point of view of the industry, it's a win-win for producers and consumers of gasoline, but it would also give domestic producers confidence there's a market for excess oil they are producing," Drangmeister said.

Companies that extract natural gas liquids in the natural gas-rich San Juan Basin would also benefit if the export ban were repealed, he said.

"Producers of oil in the San Juan Basin like those who are drilling oil wells in the Mancos Shale will benefit from lifting the ban,” he said. "But natural gas producers will also benefit because many gas wells also produce natural gas liquids like butane and propane. These natural gas liquids tend to track the price of oil much more closely than the price of natural gas which could bring additional revenues to gas producers if the ban is lifted."

There are more than 500 oil and gas operators in New Mexico, according to the state Energy, Minerals and Natural Resources Department. One of those is WPX Energy.

Though based in Tulsa, Okla., the company has offices in Aztec and has been actively drilling in the Lybrook area this year.

The company's greater focus on oil production has been made possible, in part, by horizontal oil drilling activities in the Gallup play. In July, WPX acquired RKI Exploration and Production LLC in the Permian Basin for $2.3 billion.

The acquisition brought WPX's oil drilling inventory up to 4,600 locations in the Permian, Williston and San Juan basins.

Also in July, WPX CEO and President Rick Muncrief testified before the U.S. Senate's Committee on Banking, Housing and Urban Affairs to urge Congress to lift the ban.

"Lifting the oil export ban would create new markets for us and unleash a new engine of growth so that our company – and other companies like ours – can continue to ramp up investment and create new jobs," Muncrief said during his testimony."During the recent economic downturn, the one bright spot in our lagging economy was the energy sector. Access to areas previously thought impossible to reach were opened and the oil and gas sector was actually hiring and paying strong wages to our employees."

Drangmeister said proposed updates of federal rules governing oil and gas production and proposed increases in fees and taxes paid by the industry for oil and gas extracted on public land, the added economic benefit from an export ban's repeal would help the industry at a critical time.

"We're seeing layoffs in the oil and gas industry and layoffs would be lessened because of (the bill's passage)," Drangmeister said. "This is definitely a very positive, possible next step."

James Fenton is the business editor of The Daily Times. He can be reached at 505-564-4621.