Oil and gas supported by NM, federal subsidies in Permian Basin

Oil and gas companies could be paid billions of dollars via federal and state subsidies to drill and produce fossil fuels in the Permian Basin, both in Texas and New Mexico.

The basin generates about 6 million barrels of oil per day, the most in the U.S., and about 24 billion cubic feet per day of natural gas, the second-most in the nation, according to the Energy Information Administration.

That led the states that share the Permian, New Mexico and Texas, to lead the U.S. in fossil fuel development with the second- and first-highest drilling rig counts among states.

More: 2023 saw $103 billion in Permian Basin oil and gas mergers, report says

But a report from the Natural Resources Defense Council contended both states pay heavily in subsidies, along with the federal government, to energy companies that choose to locate their operations in the Permian.

There were 57 such subsidies documented in the report, totaling $86.2 million in New Mexico in 2022, and $1.4 billion in Texas last year.

About 70 percent of those supported new wells pumping oil and gas, read the report, which argued the industry made a $200 billion profit in 2022 and was likely not in need of government financial support.

More: Here's the latest oil and gas drilling rig count in Permian Basin, New Mexico and Texas

Susan Casey-Lefkowitz at the NRDC said this drove increased fossil fuel production she said could endanger the environment and exacerbate climate change.

“Our report reveals the extensive subsidies totaling billions of dollars that New Mexico, Texas and the federal government give away each year to the fossil fuel industry, perversely driving up further production that fuels dangerous climate impacts and unhealthy air pollution,” she said.

Casey Leftkowitz said the money should instead go to support new industries like renewable energy and programs to support energy workers during the U.S.’ and New Mexico’s transition to less-pollutive sources.

More: Gov. Lujan Grisham wants New Mexico to spend big. Should oil and gas foot the bill?

“The money should be redirected to true public priorities such as establishing ‘just transition’ programs for industry workers, or supporting clean energy, education, healthcare or other goals benefitting people and communities,” she said.

Subsidies tracked in the report included tax expenditures, direct government spending, regulatory exemptions and actions that transfer risk from the private to public sector.

It pointed to 31 state policies the study said amounted to subsidizing the oil and gas industry, and 24 federal policies.

More: Lujan Grisham wants to use oilfield waste to solve drought. Is it an industry 'bail-out?'

That included a tax deduction for natural gas and oil processing and gas transportation in New Mexico, the study read, used to offset the cost of extraction, but costing taxpayers $278 million between 2018 and 2022.

The three deductions were from the Oil and Gas Emergency School Tax for gas processing, gas transportation and oil transportation, and annual totals grew from about $36 million in 2018 to $86.3 million in 2022.

The study also pointed to federal and state governments in New Mexico and Texas paying the costs of remediating abandoned oil and gas wells, known as “orphaned wells.”

More: Northern New Mexico Democrats propose fee increase, penalties on oil and gas companies

Wells become orphaned when a company abandons the site, usually when it becomes financially unviable and the company goes bankrupt, leaving the government to pay to plug the well and remediate the land.

Operators in New Mexico pay bonding rates to provide financial assurances that the work would be funded, but the NRDC argued those rates were presently too low.

The study estimated plugging all the abandoned wells in New Mexico and Texas would cost up to $110 billion.

More: Texas blocks oil and gas wastewater wells amid earthquakes. What is New Mexico doing?

“These public subsidies artificially distort the market and attract private investment that would otherwise flow to industries that are less of a threat to the planet and its people,” said Doug Koplow, an author of the study and director of environmental group Earth Track.

“The subsidies unfairly burden taxpayers while increasing residents’ exposure to environmental damages.”

What is New Mexico doing to get more out of oil and gas?

The report came amid the 2024 New Mexico Legislative Session where lawmakers were considering several reforms to the state’s Oil and Gas Act and bills to increase royalty rates paid by companies to drill on State Trust land and up environmental requirements.

More: Ellipsis U.S. Onshore grows Permian Basin oil and gas assets, industry addresses pollution

House Bill 133 was introduced by Reps. Matthew McQueen (D-50) of Santa Fe and Kristina Ortez (D- 42) of Taos, including language to increase the cap on the “blanket bonds” that apply to all of a company’s wells from $250,000 to $10 million, money used to clean up the sites if they are abandoned.

It would allow the Oil Conservation Division to deny well transfers, when large oil companies typically sell their older wells to smaller companies, if either has a history of violating environmental rules or is unable to put the proper financial assurances.

The bill would also increase civil penalties and require operators capture 98 percent of produced gas by 2026.

More: NGL Energy Partners subsidiary expands water disposal pipeline in Permian Basin

A report from the Legislative Finance Committee showed the bill could lead to decreases of $21.4 million from oil and gas severance taxes, $18.6 million from the Oil and Gas Emergency School Tax and $23.4 million from State Land Office Royalty payments by Fiscal Year 2028.

Those declines were likely due to potential impacts of the legislation on future oil and gas development, the report read, but it said future numbers were hard to estimate as they relied on shifting market conditions.

HB 133 was supported by the New Mexico State Land Office and was estimated to increase funding to the OCD by about $3.7 million a year by FY 2026, gaining support also from the Division’s parent agency the Energy, Minerals and Natural Resources Department (EMNRD) along with the Office of Natural Resources Trustee.

“There is a foreseeable positive impact to the State of New Mexico in the form of reduced taxpayer liability for the plugging and remediation of orphaned inactive wells,” read an EMNRD analysis. “The Division estimates that reducing unfunded clean-up liabilities could reduce future costs to the state by hundreds of millions of dollars.”

Adrian Hedden can be reached at 575-628-5516, achedden@currentargus.com or @AdrianHedden on the social media platform X.

This article originally appeared on Carlsbad Current-Argus: Subsidies helped drive oil and gas operations in Permian Basin