New Mexico’s economy could get a significant boost if oil and gas producers were to promptly remediate the unplugged oil and gas wells on state trust and private lands, according to economic research firm O’Donnell Economics.

new mexico production

A cleanup effort would pump $8.2 billion into the New Mexico economy and support 65,337 job years, or the equivalent of three years of employment for 21,779 New Mexicans, a new report found. This would translate into $4.1 billion in wages, salaries and benefits to employees and sole proprietors.

“A concerted effort to clean up unplugged oil and gas wells, tanks and pipelines on state and private land in New Mexico offers the state tremendous job and economic benefits, in addition to addressing an environmental and public health problem,” said Kelly O’Donnell, principal of O’Donnell Economics. “But the benefits accrue only if oil and gas companies fund the clean-up of their sites.”

Conversely, “remediation funded by state or local governments would have minimal net impact on the New Mexico economy because these entities are required to balance their budgets and therefore any revenue devoted to remediation would have to be diverted from other public programs and beneficial uses.”

Although state and federal laws require oil and gas producers to plug wells and restore sites to their original form and function after production ceases, more than 28,000 oil and gas wells, tanks, pipelines and other infrastructure on state trust and private fee lands in New Mexico have not undergone this process, according to the report.

New Mexico, which shares a prolific slice of the Permian Basin with Texas, in March produced the most natural gas and oil production on record, according to the Energy Information Administration.

Oil output averaged 1.16 million b/d in March, while gas production climbed to 6.19 Bcf/d, the agency said.

According to Baker Hughes Co., New Mexico’s rig count stood at 75 last Friday (June 25), up from 51 in the year-ago week. The state also had a 13% increase in oil and gas permitting activity for May, Evercore ISI reported.

The economic benefits of remediation would accrue statewide but would be concentrated in Lea, Eddy and San Juan counties, where most of the work would occur, according to O’Donnell Economics.

Similarly, “a wide variety of industries throughout the state would benefit from intensified remediation, but oil and gas field services and non-residential construction would receive the biggest boost.”

Prior to the coronavirus pandemic, oil and gas production employed over 23,000 New Mexicans. The industry still accounts for roughly one-third of the state’s general operating revenue.

Clean-up on state trust and private lands in New Mexico “would forestall or reverse job losses arising from factors such as the Covid-19 pandemic and the global transition away from fossil fuels, as well as those resulting from routine price volatility in oil and gas markets,” the report found.

Meanwhile, oil and natural gas executives working in northern Louisiana, southern New Mexico and across the state of Texas are optimistic that commodity prices will continue to climb this year, along with activity, according to a recent survey by the Federal Reserve Bank of Dallas.

A revival in global capital expenditures is also underway following the downturn of 2020, but producers are remaining disciplined in their financial outlays, Evercore analysts noted. 

However, a continued “supportive commodity price backdrop” should result in a boost in spending for 2022.