New BLM regulations could cost N.M. billions
A wave of new Bureau of Land Management regulations is coming that will likely reduce New Mexico’s oil and natural gas production and lead to a loss of billions of dollars to the state and federal government over the next two decades. As the mayors of Farmington, Bloomfield, Kirtland and Aztec and the chairman of the San Juan County Commission we are also extremely concerned about a loss of jobs and tax revenue at a time when we struggle to create jobs and expand our economies.
We believe that BLM must — and can — carefully balance environmental protection and royalty issues with revenue and job concerns. For the sake of budgets, economies and jobs across New Mexico, we ask that our congressional delegation work to help ensure that BLM gets these new regulations right.
One new BLM regulation expected in 2015 is the venting and flaring rule, which aims to reduce the amount of methane (natural gas) released into the environment. Part of this rule is expected to require the twice yearly inspection of all gas-producing wells with special, costly cameras. Companies that provide this service state that each inspection will take a half day and cost $600. In northwest New Mexico alone, where there are more than 20,000 active wells, the annual cost would be more than $24 million a year not including administrative costs, the cost of company representatives at inspections, and having the already resource-strapped BLM monitor the work of inspectors.
Because many natural gas wells in northwest New Mexico are older, low-volume producers these new costs would make them uneconomical. We therefore anticipate the premature closure of 3-5 percent of our gas wells, which over the decades will cost the state and federal governments a loss in royalties of approximately $300 million at today’s prices. If gas prices increase, the losses only get bigger.
As residents of northwest New Mexico we of course want to keep our environment healthy for our families and future generations. We understand there have been indications that methane levels over the Four Corners region have been higher than those in surrounding areas, and we await the federal government’s investigation into its origins and possible remedies.
However, companies in the region are already taking steps to reduce emissions. One operator with more than 10,000 gas wells in the San Juan Basin has voluntarily reduced methane leakage by 54 percent since 2013. If government officials believe they still need to create new methane regulations they should work with industry leaders to find cost-effective ways to do so.
Another issue is the proposed update of BLM’s Onshore Order 3 (“OO3”), which in part regulates the metering of production on federal leases. The proposed changes to OO3 will most likely lead to the need to install new meters on thousands of wells. While these changes may make small improvements in the accuracy of royalty payments, the increased cost of compliance will lead to the premature closing of wells that cannot be economically updated. Significant losses in revenue will be traded for very small changes to the accuracy of royalty accounting. One conservative estimate generated by the State Land Office a few years ago (when this same change was debated and then abandoned by BLM) is that New Mexico would lose $1 billion in revenue over a decade.
The U.S. is now the world’s largest producer of oil and natural gas in part because of New Mexico production. This is keeping gasoline, diesel, natural gas and electricity prices low for consumers, increasing economic activity, helping bring back manufacturing from abroad, and creating jobs across the nation. For the sake of our community, state and country we hope and trust the BLM will get its new regulations right.