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New Mexico Energy Industry On the Rebound

Shaking off the economic barnacles of the recession better than some of its neighors, New Mexico's energy industry has come back to 90% of all-time peak activity six years ago and done it mostly through ramped-up oil drilling chasing relatively high prices, according to a report by a nonprofit economic research firm.

"The Status of New Mexico's Oil and Gas Industry," by Montana-based Headwaters Economics, declares the health of New Mexico's oil and gas industry to be stable and improving, its clean energy sector to have a strong heartbeat, and the state's economy to be benefiting from both.

Headwaters said New Mexico's oil surpassed the production value of gas for the first time in April 2010 and by March 2012 it was three times the value of natural gas ($682 million vs. $204 million). Currently 86 of 90 active drilling rigs in the state are drilling for oil, all but a few in the state's portion Permian Basin.

It said the price gap between oil and gas has widened. "As the United States slowly emerges from the recent recession, oil prices have recovered but natural gas prices have continued to decline," the report said.

"Price, geology and technology are the primary drivers of energy activity," said Headwaters Policy Director Chris Mehl. "Relatively high oil prices compared to natural gas are driving a major shift in drilling activity from natural gas to oil in New Mexico and across the region."

Mehl said the independent analysis underscores that New Mexico has "successfully transitioned" to oil production, and one of the key challenges facing the state is to "lessen impacts" from energy development on local communities while strengthening and diversifying the New Mexico economy.

Citing the state's record rig count of 100 in 2006, the report said as of mid-June 90 rigs were active in New Mexico, which the authors contend has rebounded strongly from the recession, contrary to other western states. The state "regional share" of rig activity has been relatively steady, the report said, declining from 24% in the 2005-08 period compared to 19% today.

"By comparison, Colorado and Wyoming saw the largest declines in drilling rig activity based on the two state's relative strength in natural gas before the recession," Headwaters said.

The report also looked at oil/gas activity in the context of the state's overall economy and concluded that even with its uptick, oil and gas still represents only about 1% of New Mexico's employment, compared to health care services representing 11%. Clean energy is a "bright spot," the report said, noting that it accounted for 2.1% of the state's employment in 2010.

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