New Mexico gets millions more in revenue from oil and gas than predicted

New Mexico’s General Fund revenue could be millions of dollars higher than initial predictions, largely fueled by revenue from the oil and gas industry.

Revenue from gross receipts taxes (GRTs), rents and royalties from oil and gas operations drove Fiscal Year 2019’s General Fund revenue about $290 million above the forecast, read a report from the New Mexico Legislative Finance Committee (LFC).

In March 2019, the latest date included in the June 24 report, General Fund recurring revenue was $729 million, $153 million higher than March 2018 – a 26 percent increase.

Revenues from the emergency oil and gas school tax, in excess of the five-year average, drove the tracked revenue up to about $370 more than the forecast, read the report.

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“Due to strong revenues from gross receipts taxes and rents and royalties fueled by the oil and gas production boom, FY19 general fund revenues are currently tracking nearly $290 million above the forecast,” the report read.

Energy revenue was reported at $164.7 million above the forecast, with sales taxes at $125.7 million more, read the report.

New Mexico’s oil price for March was at $55 per barrel, about $2.84 less than West Texas Intermediate – a grade of crude oil used as a benchmark for domestic pricing – as production in the Permian Basin in the southeast corner of the state crowded pipelines.

But infrastructure did not fall, as expected, with the price decline.

New Mexico maintained at least 100 drilling rigs throughout the year, as production rose by 46 percent in FY 2019, compared with the State’s prediction of a 22 percent increase.

More:Could Eddy County committee act as bridge between citizens and oil and gas?

Natural gas production grew by 20 percent, the report read, despite a prediction that it would increase by only 8 percent.

That meant that GRTs, also known as sales tax, also increased by about 46 percent between July 2018 and April 2019.

New Mexico received about $5.5 billion in GRTs from extraction activities, up by about $1.7 billion during the last year.

In total, GRTs were tracking at about $141 million more than the forecast driven by “elevated rig counts and strong growth in the mining industry,” read the report.

Eddy and Lea counties in the southeast region of the state, and out-of-state GRTs tied to the oil and gas industry, accounted for 86 percent of all the GRT growth, records show.

More:More oil and gas disposal wells to address growing waste from Permian Basin boom

Oil prices hold off on drop

The price per barrel of WTI maintained the highest rate since spring, resting at $59 per barrel, after a mid-June climb from about $52 per barrel, per Monday data from NASDAQ.

Despite growing global trade tensions, the price stayed steady and did not climb further as President Donald Trump pulled back on a military strike on Iran.

The warning of such an attack last week was credited with the sudden jump in pricing, but without any further escalation, prices remained stagnant.

Trump instead vowed to increase economic sanctions on Iran to retaliate.

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“The downing of the U.S. drone by Iran and the attacks on tankers in the Strait of Hormuz spooked traders with the possibility of restricted access to this critical shipping lane,” read a report from Drillinginfo. “Trump’s decision not to retaliate militarily has brought a leveling to the recent run, as the administration decided to increase the restrictions on Iran in the financial markets as retaliation. 

“The recent run in prices has primarily been caused by the geopolitical instability in the Middle East and has ignored the challenges of global economic growth and demand.”

More:Waste to water: Oil and gas industry looks to mitigate water waste during boom time

Further challenging the growth of WTI’s value, the U.S. and China stalled on tariff negotiations, but Trump and Chinese President Xi Jinping recently agreed to restart the talks.

“Both countries seem in no rush to have an agreement, as each continues to publicly convey strength and patience against the other,” the report read. “These positions may be successful in structuring a deal, but it is not providing a recipe for global economic success or growth.

“For WTI’s long-term price ascension, these countries need to come to an agreement that provides both countries an avenue for growth.”

Meanwhile, energy consumption was at a record-high in 2018, at 101 quadrillion British thermal units (BTUs), read a June report from the U.S. Energy Information Administration.

Of that total, more than 81 quadrillion BTUs were from fossil fuels, the report read.

That number was driven by growth in petroleum and natural gas consumption, records show, with coal consumption falling by 4.3 percent in 2018.

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Natural gas consumption reached a record-high of 82.1 billion cubic feet per day in 2018, the report read, marking a 37 percent increase since 2005.

And petroleum consumption increase in 2018, as product supplied domestically reached the equivalent of 20.5 million barrels per day, the report read, the largest energy source in the U.S. since overtaking coal in 1950.

Read the LFC report:

More oil and gas news:

• How much does oil and gas give to your schools? Data shows boom towns get less than metros
• XTO Energy gives tour of 'mock' oil and gas facility at NM Junior College
• More man camps coming to Carlsbad as oil prices climb during conflict with Iran
• New Mexico Governor Michelle Lujan Grisham vows to collaborate with oil and gas during boom
• Devon Energy bringing office to Hobbs, New Mexico second in oil and gas rig count

Adrian Hedden can be reached at 575-628-5516, achedden@currentargus.com or @AdrianHedden on Twitter.