Unprecedented oil and gas revenue can make budgeting and spending complicated
New Mexico reaped more than $1.7 billion dollars in oil and gas revenue in the first third of 2022 – that’s more than double the income from the same period last year according to Jerry Redfern, oil and gas reporter from Capital & Main. He told KUNM that all the extra money comes with complications when it comes to budgeting for the future.
REDFERN: It's particularly significant because oil and gas revenue plays such an incredibly large role and such a large percentage of the state budget. This is a windfall of money that the state wasn't exactly expecting when they were planning their budgets, say, last year, earlier this year.
KUNM: How closely is this related to that pain we're feeling when we fill our cars' gas tanks?
REDFERN: It is somewhat related because the the main driver in general prices rising in the petroleum industry is the war in Ukraine. So, Russia is one of the largest oil and gas producers on the planet. And once they invaded Ukraine, Western countries all wanted to implement all sorts of economic restrictions, including making it much more difficult and expensive for Russia to export their oil and gas, right? So that then raises prices across the planet. So it's not just here that we're feeling it. I mean, they feel it in Europe, they feel it in Africa, they feel it in Asia. It's happening everywhere. There are some other things that are going on as well in the background with the oil and gas industry here in the United States. During the pandemic most producers, essentially all producers, dramatically ramped back the amount of oil and gas they were producing to somewhat match the decrease in oil and gas that people were burning here in the United States. And they were slow to bring that back up. Main reason being for that is that for years previously, they'd sort of overextended themselves debt wise to pay for all of the exploration they were doing and they were slow to bring it back up so they could keep the profits a bit higher and pay off old debts.
KUNM: You wrote about one-time versus recurring funding and how this big influx into the state coffers can only be spent in certain ways.
REDFERN: You can do things like build buildings with one-time money, you can pave roads you can put in new infrastructure, but what they don't like to do is to stand up new positions based on that one-time money because you don't know it's coming again down the road. So you can build the building, but they're reluctant to then hire the people to sit in the building.
KUNM: One of the issues we're having in New Mexico is a personnel problem in part because of wages that just quite don't compete very well on our region.
REDFERN: Right. Exactly. Just to be clear, if the legislature wanted to it could put it toward wages. And what you're talking about there is exactly the case. And it's something that absolutely everybody brought up. And it was a large bit of debate that happened in the last legislative session back in January. Senator George Muñoz was telling me, when I was talking to him for the story, he was saying that they've just been losing people left and right to the national labs from all of these state jobs in Santa Fe and they just don't have the money to anywhere near compete with that and they're trying to figure out "How do we juggle money and funds to bring more people in?"
KUNM: Well, you pointed to the uncertainty when it comes to the oil and gas markets. Isn't this uncertainty built into our budgeting somehow?
REDFERN: There are these funds that are built to soak up excess money. But even so the amount of up and down that can happen with it, the funds won't necessarily cover the difference. We don't even know yet how many more billions of dollars we're going to get this year from oil and gas production than we did last year. And if that stops again, we're talking again, billions of dollars in drop in the overall revenue. It's extremely difficult to set up the processes to take that in and then dole that back out again.
KUNM: With the transition to greener energy it's kind of inevitable, right, that at some point in some way or another these prices are going to crash again?
REDFERN: I think many of the largest oil and gas producers are feeling it and are doing generally very minimal things to mitigate that. Many of the largest producers on the world stage are taking up renewable energy portfolios. They're trying to, as they say, green up their production status, you know, the way that they actually get the oil and gas out of the ground. I keep thinking of oil and gas prices or green energy production is sort of like Slinkys and when you stretch it out on one end and let it go it sort of catches up with itself and then hits itself and then pushes itself forward and then catches up with itself and then pushes itself forward. I think we're going to be feeling that for quite a while as green energy production rises, and as oil and gas production theoretically plateaus at some point in the near future.
This report is part of our Your New Mexico Government project, a collaboration between KUNM radio and New Mexico PBS. Support for public media provided by the Thornburg Foundation.