The Rest Of The Story On New Mexico's Record Permian Basin Lease Auction

Sep 14, 2018 11:19 AM

David Blackmon | Forbes | September 10th, 2018

By now you may have already read about the fact that an oil and gas leasing auction conducted by the Bureau of Land Management (BLM) in Southeast New Mexico late last week grossed almost a billion dollars, coming in at $967 million. As the Albuquerque Journal noted, that sum more than tripled the total dollars bid on all federal onshore lease auctions held during entirety of 2017, and more than doubled the previous record year of 2008.

So, why did that happen and where does all that money go once it is collected? Those are great questions and it is important that they be put into proper context.

First, it happened because the federal lands being leased were smack in one of the richest areas of the booming Permian Basin. Most media reports associate the vast region we call the Permian Basin with West Texas, which, to be fair, is where the vast majority of it sits. But it is a lesser-known reality that a pretty sizable and extremely minerals-rich portion of it lies beneath Lea and Eddy Counties in Southeast New Mexico, a region that, like West Texas, has produced oil and natural gas from conventional formations for more than a century.

Over the last 8 years or so, oil producers who already held leases in the Southeast New Mexico region have gone about testing the same shale formations which underlie West Texas for their potential productivity.  As in West Texas, these companies have discovered they've been sitting on a vast sea of black gold. The pace of discovery in this area has escalated rapidly over the past two years, and this was the first BLM lease sale that had taken place there during the Trump Administration.

So all of these factors combined to make the timing of this lease sale incredibly fortuitous, raising the average per-acre lease bid last week to an unprecedented $95,000 per acre. Neither New Mexico nor the BLM had ever seen anything like it.

Here's another often-overlooked fact about these onshore federal lease sales: Half of the money received in these auctions goes into the coffers of the state in which the land resides. Thus, the State of New Mexico stands to collect about $463 million from this single lease sale. Those of you who might be thinking this is not that big an amount of money need to think again, given that the entire New Mexico state budget for 2018 is $6.3 billion. So, this lease bonus amount from a single federal lease sale amounts to roughly 8 percent of the state's entire budget. Think what this could mean for the school and healthcare systems in the State.