With the oil and gas industry still struggling to dig itself out of a devastating slump, the Legislative Finance Committee convened Wednesday in the Southeast New Mexico oil patch in an effort to better understand how the downturn has affected the area economy.
A range of area officials and leaders had harsh words for the legislators as the meeting began and spoke on behalf of entities and communities throughout the area that feel as if their concerns and needs have long been overlooked by the committee.
“This department is the single most disliked, disrespected, distrusted department in the state government,” Artesia Mayor Phil Burch said. “It appears that no one oversees, manages or holds this department accountable for anything. This department, from the lowest employee to the secretary, is impolite, uncooperative, dismissive, and they show little respect and little interest in solving problems with the communities.”
Burch told the legislators Artesia pays more than $400,000 each year to the Tax and Revenue Department to collect and distribute the Gross Receipts Tax, despite being a small city.
“Within the last 24 months, we have seen some gross receipts checks which have concerned us,” he said. “This is a time where our gross receipts check is usually $2.3 million a month; we received a check for $1.1 million. When you call to get answers, they always say, ‘We can’t tell you that.’
“County managers, city managers, finance managers all universally agree that this is the most undeserving, pain-in-the-butt department. If you as a committee and you and individuals and legislators can change the demeanor and attitude of this, you can be instant heroes to every municipality and town in the state.
“Now that I’ve confirmed that giving the mayor the podium was an obvious error in judgment, I will once again welcome you. Enjoy the time in our community and come back often.”
Eddy County Commissioner Stella Davis and Artesia Public Schools Superintendent Dr. Crit Caton also called the committee on the carpet regarding lack of communication and action regarding the southeastern portion of the state.
“Today, you’re going to hear a lot of discussion based on the oil and gas industry,” said Davis. “Many of the regulations have a huge financial impact on the industry. We have seen a downturn after a three-year boom, and Eddy County has seen a huge drop in revenue because of that.”
Caton spoke to the shortchanging of area schools when it comes to “below the line” funding, or, as the New Mexico Public Education Department terms it, dollars invested in targeted strategies for improved student achievement.
“From what I can tell, in ‘14-‘15 there was approximately $95 million placed below the line,” Caton said. “If that money was not placed below the line, it would raise the unit value $150. Our district in ‘14-‘15 received $602,000 below the line. If we would have received the full amount in the SEG (State Equalization Guarantee), we would have received $1 million. There’s a difference of $400,000 there.
“Originally, there was about $4.5 million below the line. A month ago, we met with the secretary of education, and she informed us that we’re going back to a competitive grant system. In my mind, I don’t think that’s fair. I think our kids in Artesia are worth the same as those in Albuquerque, Farmington, Chama, Taos, you name it.
“Yesterday, we received a letter stating that we were denied; we did not qualify for that money.”
The committee also viewed a variety of presentations by oil and gas industry representatives over the course of the meeting regarding such issues as the cost of drilling and decreases in productivity.
Nick Agopian, government affairs director for Devon Energy Corporation, presented the legislators with a drilling productivity report that showed oil production for the tight oil and shale gas regions of Bakken, Eagle Ford and Niobrara has decreased since this time last year. Haynesville, Marcellus and Utica have all maintained their very limited production levels. The only region discussed in the presentation that increased was the Permian region.
However, when looking at graphs depicting the new-well oil production per rig, all regions have improved since this time last year.
“Here, we are in the Permian Basin; it is a world class oil plate,” Agopian said. “We know the oil is here. Now we’re finding more and more, with technology, that what we have here is a stacked oil plate. The potential is here.”
Gabrielle Gerholt of Concho Resources Inc. spoke on the ways regulations enforced by the federal government are restricting production and anticipated costs associated with the new rules.
According to Gerholt, 18 new rule-making initiatives have been implemented over the last three years specifically targeting the oil and gas industry. The agencies’ projected cost due to these regulations is $800 million.
“It’s getting more difficult to drill on federal lands, and things are only going to get harder and harder if we elect the first woman president,” said Sen. Ron Griggs, R-Alamogordo. “This legislature needs to keep this in mind.”
Blake Barfield, director of government affairs of HollyFrontier/Navajo Refining Corp., gave a basic presentation on the two companies and how New Mexico crude production has increased 230 percent since 2005. However, Barfield said, like most companies in the industry, federal mandates like the Renewable Fuel Standard and Tier 3 Gasoline have caused the company to spend more money than usual.
“We had our first quarterly loss in March of this year, the first as a merged company,” he Barfield.
Rep. Larry Scott, R-Lea, also voiced his opinion on the regulations.
“I believe that these regulations will have a severe negative impact on the state’s revenue streams,” said Scott. “It’s said that we could lose a fourth of the well count in New Mexico if we continue.”
David Catanach, director of the Oil Conservation Division, and Allison Marks, deputy director, added the issue of bankruptcies in the State of New Mexico.
“While New Mexico has fewer bankruptcies compared to other states, the increase in federal regulations could bring us more bankruptcies,” said Marks.
Aubrey Dunn, commissioner of Public Lands, spoke to the legislators on the State Land Office’s revenue overview, land maintenance rental income, beneficiary distribution, and proposed legislation for 2017.
He introduced a draft bill concerning a state trust lands restoration and remediation fund, which would capture existing revenue stream, divert 1 percent of incoming Land Maintenance Fund revenue to a new Land Office fund for State Trust Lands Restoration and Remediation, and provide the Land Office with a fund for resolving issues such as fire and flood damage mitigation, clean-up of illegal dump sites, and watershed health projects.
Peyton Yates, board of directors member and past president of Yates Petroleum Corp., was the final presenter of the day and discussed the impact the oil and gas industry has had on Artesia and New Mexico as a whole.
“Up until about the mid-life crisis or whatever you call the 2008 crisis, we ran about 60 million barrels a year out of these counties,” Yates said. “That’s a significant number in the United States. You’ll see that those people who were prudent are okay and those who were not learned a very expensive lesson.
“The oil patch is full of optimistic entrepreneurs; it doesn’t take a long time for people to see the price of oil going up and for them to get excited about it.”