The prospect of liquified natural gas (LNG) exports to Japan is yet another potential benefits of natural gas production in the United States and New Mexico. While short term prices are extremely low, the longer term prospects for natural gas appear to be strong. Natural gas is likely to become a larger source of electricity, transportation fuel and now LNG. Prospects of LNG Exports From the United States to Japan, an article by D.K. Das in the Energy Tribune offers a great economic analysis of the rapidly growing natural gas production capabilities in the major shale formations in the United States.
The recent press releases by the Wild Earth Guardians and the Center for Biological Diversity criticizing the claim that an Endangered Species Act listing for the Dunes Sagebrush Lizard will cost jobs and decrease economic activity in southeastern New Mexico is yet another orchestrated attempt by these groups to mislead the public while hiding their real agenda. To suggest that placing the Dunes Sagebrush Lizard on the Endangered Species List will not affect jobs or the economy is wrong, and these groups know better.
Wild Earth Guardians and the Center for Biological Diversity cite recent lease data from the Bureau of Land Management as justification for their arguments. Such a position is disingenuous, at best. The Bureau of Land Management, through their planning process, has permanently withdrawn thousands of acres from future leasing. This decision, in and by itself, removes the resource developmental opportunities, jobs, taxes, royalties and economic activity associated with new drilling on these off-limits lands.
In addition, the lease offerings by the Bureau of Land Management cited will require extensive analysis and mitigation, if located in lizard habitat. The required mitigation, whether it be directional drilling, avoidance, timing limitations, or some other restrictions, may make these new leases less attractive and less likely to be developed, adversely impacting jobs and the economy of southeastern New Mexico.
The most troubling aspects of endangered species listing for the Dunes Sagebrush Lizard is the reality that over 95% of the species’ known habitat in New Mexico and Texas is currently leased for oil and gas development. There are thousands of existing leases with over 30,000 producing wells within Dunes Sagebrush Lizard habitat.
The Wild Earth Guardians and the Center for Biological Diversity don’t like to talk about their plans if they are successful in having the lizard listed as an endangered species. However, the track record and tactics used by these groups is well established. If the lizard is listed as endangered, any action proposed on these existing leases will have to be evaluated for potential impacts under Section 7 of the Endangered Species Act.
Impact evaluations are reasonable when taken at face value. The problem is that the Wild Earth Guardians and the Center for Biological Diversity routinely challenge reasonable and well evaluated impact determinations, and aggressively challenge government agencies over actions involving existing and proposed projects.
An endangered species listing for the Dunes Sagebrush Lizard combined with the established practices of the Wild Earth Guardians and the Center for Biological Diversity will likely result some reduction in future development on existing leases, and quite possibly, forced curtailment and even suspension of current oil and gas production.
Under an endangered species listing, the Wild Earth Guardians and Center for Biological Diversity will be one step closer to their goal of slowly strangling the oil and gas industry with continuous lawsuits against Federal agencies. When these cases are settled, legal fees are awarded to these groups and paid with taxpayer dollars. The funds received are then used to fund another round of lawsuits. This scenario plays itself out repeatedly – until more companies finally abandon projects because of the time and expense of compliance with ever-tighter restrictions, and the burdensome cost of environmental analysis, mitigation, and litigation. The loss of jobs and tax revenue for the State of New Mexico will be the ultimate result of an endangered species listing.
The impacts of listing are difficult to quantify, but the pattern and progression are easily recognizable. Is a 10% reduction to a $20 billion a year industry in the Permian Basin possible? I would say not only possible, but probable, given the track record of litigation and restrictions imposed under the application of the Endangered Species Act in other areas of the country.
There is a more balanced path forward, short of listing the Dunes Sagebrush Lizard under the Endangered Species Act. That is continuation of the Cooperative Conservation Agreement program, whereby ranchers and oil and gas operators have voluntarily agreed to proactive conservation measures to protect the Dunes Sagebrush Lizard and the Lesser Prairie Chicken. Under existing Cooperative Conservation Agreements, over 800,000 acres have been enrolled in the program where landowners and lessors agree to conduct their operations in a manner that benefits both species.
Under these Cooperative Conservation Agreements almost $1 million has been raised from the private sector to restore habitat and further study the best methods of protecting these species. In addition to providing real dollars for conservation, the Cooperative Conservation Agreement program requires operating practices in the oil and gas industry that reduce or eliminate adverse effects on the Dunes Sagebrush Lizard and Lesser Prairie Chicken while promoting the economy of the Permian Basin.
Cooperative Conservation Agreements are the win-win path forward. These agreements should not only be allowed, but promoted, as the best hope for the Dunes Sagebrush Lizard and the people of New Mexico.
Steve Henke, President
New Mexico Oil & Gas Association
Originally run as an Op Ed in the Las Cruces Sun-News May 17, 2011
Rick Homan’s recently proposed a plan to increase New Mexico’s severance taxes on oil and gas production in a special legislative session this coming September and then to make the increase retroactive to July 1st. A maneuver such as this may be appropriate in a third-world “banana republic”, but is not worthy of a great state like New Mexico. Mr. Homans’ plan, if implemented, would likely provide some short-term relief to the state’s budgetary woes. However, the cost of conducting business in such a manner could be disastrous for New Mexico’s long term fiscal health.
Raising taxes on the oil and gas industry may indeed bring a short-term windfall to the State of New Mexico’s revenues, possibly even postponing the difficult cost-cutting decisions that must be made to a state budget that is out of line with long-term revenue projections. However, the long term financial health of New Mexico is not best served by solving the current crisis by retroactively extracting more dollars from the oil and gas industry which already financed 30% of the state general fund budget in the 2010 fiscal year.
Despite the recent increases in revenues and profits by the oil and gas industry, the long-term revenues New Mexico will receive from the industry will be determined by how our state’s oil and gas resources compare with those in other states and even world wide. When deciding where to drill new wells, oil and gas companies take into account all potential risks and rewards, and it is here that New Mexico faces considerable challenges.
One such risk is the potential listing of the Dunes Sagebrush Lizard in southeast New Mexico as an endangered species. Such a development could dramatically increase the cost of existing production and serve as a open deterrent, if not an outright ban, for further wells in many parts of the Permian Basin.
An additional risk is large new domestic reserves of natural gas brought about by improved exploration, drilling and production technologies These additional gas reserves have had the effect of reducing the price of natural gas relative to oil. This means that when seeking to drill additional wells, companies currently have a huge preference for oil wells over gas wells.
The San Juan Basin’s reserves in northwest New Mexico contain relatively small amounts of oil and other liquid hydrocarbons compared to the Permian Basin. The compounding effect of lower relative gas prices, increased operating risk from environmental extremists, and the prospect of rising taxes, places New Mexico at considerable risk of reduced production in the future.
The two political factors that companies look for when deciding where to invest the huge dollars required to drill new wells are stable taxes and predictable regulations. How New Mexico addresses these factors will have much to do with whether the oil and gas industry grows or shrinks in coming years.
Passing a knee jerk, retro-active tax increase will not improve New Mexico’s already shaky reputation as a questionable place to make new oil and gas investments. In the past several years, New Mexico has placed expensive and in many cases unwarranted rules for drilling by the passage of the so called “pit rule.” The State also has unilaterally implemented severe green house gas regulations ahead of such regulations federally and even beyond those enacted in California.
In these trying economic times, New Mexico will need to improve, not damage, its reputation as a stable environment to make oil and gas investments. A reputation as a stable and predictable place to do business will ensure that large amounts of tax and royalty revenues that the industry provides to the State of New Mexico and local municipalities ($1.7 billion in in fiscal year 2010) will be both sustainable and robust.
The oil and gas industry, like Mr. Homans, wants adequate funding for the education of our children. We would like such funding to be based on well thought out and predictable taxation along with efficient and effective spending, not on a hastily contrived scheme. Because oil and gas is one of the worlds most capital intensive industries, New Mexico will benefit most in the long-term by heeding the words of Walter B. Wriston, “Capital goes where it’s welcome and stays where it’s well treated.”