Carlsbad leaders demand state support as community struggles to adapt to oil and gas boom

Adrian Hedden
Carlsbad Current-Argus

Carlsbad leaders made their case for support from New Mexico policy makers as an ongoing boom in oil and gas production strained public services and depleted local resources.

A group of business leaders from Eddy County and the City of Carlsbad – in the middle of the Permian Basin where extraction operations soared in recent years – traveled to Santa Fe this week to lobby lawmakers, department heads and industry leaders to support bills introduced during the ongoing Legislative Session that could offset the struggles accompanying the historic economic development.

New Mexico recently reached a production rate of up to a million barrels of oil per day, growth local and state leaders were unanimous in crediting to southeast New Mexico.

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Known as the “Bat Brigade” the group organized by the Carlsbad Chamber of Commerce met with the New Mexico Oil and Gas Association (NMOGA) and Executive Director Ryan Flynn.

Flynn said NMOGA, a trade organization that represents hundreds of oil and gas operators throughout the state, was unwavering in its support of the state’s most prolific oil and gas region.

He said the usual boom and bust cycle of the oil and gas industry, when a fluctuating price per barrel can cause dramatic shifts in operations and economic impact to local communities, might not apply to Eddy County and neighboring Lea County, where most of New Mexico’s oil and gas is produced.

More:Oil, natural gas facilities coming to Permian Basin; coronavirus threatens oil prices

Executive Director of the New Mexico Oil and Gas Association Ryan Flynn meets with Carlsbad business leaders, Feb. 3, 2020 in Santa Fe.

Even as the price of West Texas Intermediate, a grade of crude oil used as domestic price benchmark, plummeted to less than $50 per barrel as of Monday, per data from NASDAQ, Flynn pointed to a steady rig count in New Mexico remaining above 100 rigs with most in the southeast region.    

“I’m not saying there aren’t boom and bust cycles, but southeast New Mexico has remained resilient. It’s a very different industry in southeast New Mexico and West Texas than it is in the rest of the oil patch,” Flynn said during a Monday meeting with the Bat Brigade.

“We’ve seen some pretty rapid declines in price, but production continues to remain resilient. Eddy and Lea County, southeast New Mexico is known as a premier area for production by our industry.”

More:Oil and gas industry eyeing Chaves County in upcoming oil and gas land auction

A ‘bad time’ to raise taxes on industry

Flynn did hesitate to support House Bill 117, introduced by New Mexico Rep. Cathrynn Brown (R-55), which would remove an exemption on lodgers’ tax for guests staying at a hotel or other temporary lodging for more than 30 days, effectively allowing local governments to charge lodgers’ tax to temporary oilfield workers who often stay at RV parks known as “man camps” for months at a time.

The bill was a “significant” tax increase on the industry, Flynn said.

He argued that the vast majority of visitors staying at such facilities were employed by the oil and gas industry.

More:Oil and gas developments to be sped up by New Mexico House bill

“It’s a big tax increase on the industry. I think we’re going to have a tough time with that. We’re producing at high levels, but we’re in a volume game,” Flynn said. 

“I think we’re trying to figure out how that bill will affect our service industry. Especially our services companies are going to get hit the most.”

Jerry Fanning, Eddy County public and government affairs director argued that the bill would produce much-needed revenue for communities that see their roads and other services taxed by temporary workers who often pay little taxes or provide a return to the communities that host them.

More:Study: Eddy County leads New Mexico oil and gas industry, Permian to last for decades

Eddy County Oil and Gas Liaison Jeri Strong (left) and Public and Government Affairs Director Jerry Fanning meet with officials from the New Mexico Oil and Gas Association, Feb. 3, 2020 in Santa Fe.

He also pointed to a clause in the bill that allowed local governments to opt in or out of its provisions.  

“With this legislation, we’re targeting the non-permanent workers that use our services and infrastructure but don’t contribute as much to those services,” Fanning said. “The small towns are really being strained.”

But Flynn shot back, claiming the oil and gas industry is taxed “more than any other industry,” and already makes significant contributions to the needs of oil-producing communities.

More:New Mexico's oil and gas surplus could fund land conservation projects if bill passes

He said dramatic influxes of temporary workers to rural communities can actually provide an economic benefit as local businesses such as restaurants and hotels see dramatic upticks in sales.

“The fact is we pay more taxes than any other industry by far. No one looks to another industry as much as we are,” Flynn said. “We’re already plugging money into infrastructure, we’re already plugging money into roads. The reason why you’re proposing this tax is because the industry is using most of the housing. We’re the biggest users of that space.

“You want those people at your hotels and restaurants. You want those people spending money in your communities.”

More:New Mexico's oil and gas surplus could fund land conservation projects if bill passes

Fracking ban a political stunt?

Flynn also lashed out at Senate Bill 104, which would place a temporary ban on new oil and gas leases involving hydraulic fracturing and require increased reporting on the use of the process known as fracking.

A bill similar to SB 104 was introduced during the 2019 Legislative Session, also by State Sen. Antoinette Sedillo Lopez (D-16), and a report from the Legislative Finance Committee deemed it could cost New Mexico up to $3.5 billion in lost revenue.

More:New Mexico lawmaker proposed fracking ban, added reporting that could cost state billions

New Mexico Sen. Antoinette Sedillo Lopez (D-16)

Sedillo Lopez said the bill was needed to “pause” fracking while the State developed adequate oversight.

“The current boom on fracking is proceeding without sufficient state inspectors on wells, without adequate consideration of impact on air and water, without sufficient roads and other infrastructure and without sufficient  state capacity to audit records,” she said.

“I believe we have a responsibility to pause and consider these and other relevant issues by temporarily halting the issuance of new permits.”

More:Study: New Mexico would lose billions if fracking banned, oil and gas leads economic growth

The bill was just a “cheap political stunt” Flynn said. He said he doubted it would gain traction in the Legislature, regardless of party.

“We saw it, we rolled our eyes. I’ll take it seriously when she adds an amendment to it that comes up with a way to return the $3.5 billion the LFC said it would cost the state. I don’t like it. It makes me angry to think about it,” Flynn said.

"We shoot ourselves in the foot with these kinds of dopey ideas and I think that’s where this falls into. The bad thing is its going nowhere, but it’ll get reintroduced next year. It’s like a virus.”

NM oil and gas regulators look to improve compliance

As oil and gas production continues in earnest, New Mexico Environment Department Cabinet Secretary James Kenney said the best way to encourage compliance is by making non-compliance expensive.

He said NMED is working on legislation that could raise fines for violations of state laws on issues such as sewage as high as $5,000 per violation per day.

“The penalty does not necessarily get compliance, but it has to be that compliance is the cheaper option,” Kenney said. “Our biggest problem is not homeowner septic. Our biggest problem is that it is so much cheaper to ignore us and violate.”

More:New Mexico's oil and gas regulators hope funding requests will strengthen operations

A recent study by NMED in the Carlsbad area found more than a hundred “man camps” or similar facilities in violation of state sewage laws.

Director of NMED’s Environmental Protection Division Sandra Ely said NMED was able to get about 20 to 30 of the violators into compliance. She said those that continue to break the law will face stiff consequences.

“We didn’t get a good response from the violators,” she said. “Those that came into compliance, we won’t access a penalty. Those that didn’t, we will step up our penalties.”

And the agency that enforces compliance at the well pad itself continued to struggle with low staffing.

More:Oil and gas generated $3.1 billion in state revenue last year

Todd Leahy, deputy secretary at the Energy, Minerals and Natural Resources Department said on Monday that the agency was operating at 23 percent staff vacancy rate.

This can stymie EMNRD’s ability to inspect oil and gas facilities, checking for excessive gas emissions or other forms of pollution.

“There’s a huge staffing need here,” he said. “You guys are producing all this stuff, and it’s getting caught up in all this bureaucracy. Those jobs are hard to fill, especially in your region because we’re competing with oil and gas jobs.”

Adrian Hedden can be reached at 575-628-5516, or @AdrianHedden on Twitter.