As you know a long sought update to the Oil and Gas Act to protect New Mexico children from the health impacts of oil and gas drilling with just half mile setbacks from schools was sabotaged by NMOGA, and then it died without any progress in the recent legislative session, but most people don't know that our Democratic majority legislature did manage to add one major oil and gas change into the long sought Adjust Income Tax Bracket bill - HB 252. In a last minute amendment to the bill the Senate Finance Committee managed to include a 100% tax exemption for so called "stripper wells," and that amendment sailed through. Is this really the best a Democratic majority can do?
WHY IS THIS AN OUTRAGE?
It will cost New Mexico tax revenue. The State Land Office manages over 6,300 active oil and gas leases spread across some 13 million acres of mineral estate. Almost 60 percent of those are stripper wells - marginally producing wells - and production from these wells totaled about 1.1 million barrels of oil and about 9.7 billion cubic feet of natural gas in 2021. Assuming the oil and natural gas prices estimated in the December 2022 consensus revenue are accurate, this would equate to about $4 million per year in severance taxes lost as a result of this last minute giveaway to oil and gas.
By reducing operator costs it will incentivize continued operation of these highly polluting wells. Because stripper wells produce more climate warming emissions than higher producing wells (particularly methane), the climate impacts of this measure are considerable. Stripper wells collectively produce 5.6% of total domestic oil and gas output, but generate roughly half of the industry's methane emissions.
It will lead to increased costs for plugging, remediation and reclamation that will be borne by taxpayers. Small oil and gas producers without significant financial resources often purchase these low production wells and continue to operate them until filing for bankruptcy, leaving the State Land Office and taxpayers responsible for plugging and remediation of these wells. Plugging, remediation, and reclamation costs already often exceed the minimal additional royalty revenue received by the agency from these low production wells under current law, and this provision in HB 252 would exacerbate that issue. According to the financial analysis issued by the State Land Office, this provision “might increase the extent to which such wells ultimately are orphaned without being properly plugged, leaving the state and taxpayers with a legacy issue that properly belongs to operators.”
The Severance Tax Act and the Incentives Act already gives favorable tax treatment to production from stripper wells. Taxpayers should not be forced to further subsidize the profits of oil and gas producers, especially when the legislature was unable to pass long sought reforms to the Oil and Gas Act or changes to Oil and Gas Royalty rates.
WHAT CAN YOU DO?
Click the below button to email the Governor and your state representatives and request a line item veto to remove this dangerous and unjust provision from HB 252. The Governor could sign this bill into law any day, so time is of the essence. Our children deserve better from the representatives who were elected to protect their interests!