By James Jimenez, Carlsbad Current-Argus
Jan. 28, 2021
While the extraction of oil and natural gas in New Mexico is mostly done on public lands, the state has less authority over the process than you might think. And while the industry puts a lot of money into our public schools, it could put a lot more money in if the state made the rules. Unfortunately, because much of the public land where drilling takes place here is actually federal land, we must rely on the federal government to set the rules.
New Mexico produces more oil from federal public lands than any other state, which is why the outdated federal oil and gas leasing program is so harmful to us. It has been roundly criticized by the U.S. Government Accountability Office (GAO), the Interior Department’s Inspector General, and countless external watchdogs for decades for its loopholes, failure to generate a fair return for taxpayers, and for contributing to climate change.
Oil and gas leasing rules on public lands have remained largely unchanged for over a century, including the royalty rate, which was set at 12.5% in the 1920 Mineral Leasing Act. That low rate has received bipartisan criticism, including from former New Mexico Senator Tom Udall, who introduced legislation with Republican Iowa Senator Chuck Grassley to raise the royalty rate to 18.75%, which is what the U.S. collects from offshore oil and gas development.
That change would mean hundreds of millions of dollars more for New Mexico’s schools every year. According to the Interior Department, New Mexico received about $650 million from oil and gas royalties in 2020. But had the royalty rate been 18.75%, that could have been closer to $975 million. And if the government aligned its rate with the 25% charged by Texas – where many companies that drill in New Mexico also operate – New Mexico could have received an additional $650 million. That would be enough to fully expand our early childhood care and education programs and have a couple hundred million left over.
Another area where a complete overhaul is even more urgently needed is the money companies put aside – called bonding – to clean up their oil and gas wells when finished. Oil and gas companies set aside a little over $2,100 per well for clean up on public land, according to a recent GAO report. But the real cost to clean up a well ranges from at least $20,000 to upwards of $250,000 each. Wells that aren’t properly cleaned up can contaminate groundwater and leak pollution into the air, threatening nearby communities.
So, when a company goes bankrupt or abandons a well, the taxpayers are left covering the cost of cleanup.
New Mexico alone has identified more than 700 abandoned oil and gas wells, a number that will likely increase given the economic downturn. The cost to plug these wells is estimated to be $24 million, although that number could be significantly higher given that there are many more wells that are unplugged with virtually no financial assurance that they will be cleaned up.
For these reasons alone, continuing the federal oil and gas program without a complete overhaul would be unfair to New Mexico’s taxpayers, our state’s schools, health, and future well-being.
I am hopeful that President Joe Biden and his nominee for Secretary of the Interior – Representative Deb Haaland – will take decisive action to fix the many problems with oil and gas leasing and development on public lands. It’s long past time to fix this broken program to protect and support New Mexico’s economic future.
James Jimenez is executive director of New Mexico Voices for Children