By Hannah Grover, City Desk ABQ
Despite volatile oil and gas prices over the past five years, production in New Mexico remained strong. However, experts say this trend is unlikely to last and the industry is already showing signs of slowing down.
According to information presented to the New Mexico Legislative Finance Committee (LFC) on Monday, global oil supply in 2025 is expected to outpace demand. This will likely lead to a decrease in the price of oil.
Oil and gas production is a key contributor to the state’s revenue, which means the amount of money New Mexico has to spend on infrastructure, public safety, schools and other projects depends largely on how the oil and gas industry is doing.
“We did see the (Organization of Petroleum Exporting Countries) meet on Thursday and choose to delay production increases, which was good news for prices, but prices didn’t budge much despite that action,” said Ismael Torres, the chief economist for the LFC.
Torres said there’s still concern about growing supplies that is causing prices to drop.
According to the presentation, oil prices in fiscal year 2024 averaged $78.50 per barrel and experts estimate it will average $70.50 per barrel in fiscal year 2025.
Torres said there are 99 rigs operating in New Mexico, which is a decrease from 100 to 110 earlier this year. These rigs represent areas where drilling is occurring.
“We are seeing that pace of drilling slow down in the Permian, across the Permian, including on the Texas side, but also in the New Mexico side,” Torres said. “Eddy and Lea [counties] now represent almost a third of our gross receipts taxes. Any weakness in that industry, we can also expect to weigh on our gross receipts tax collections at the state level.”
Oil production in New Mexico reached a record high of 710 million barrels in fiscal year 2024.
While the state has benefited from strong revenues, those are now plateauing.
This is particularly pronounced in counties where oil and gas production is most prevalent.
The tax base in Eddy and Lea counties — which are in the Permian Basin — is “very much tied to oil activity and natural gas extraction,” said Stephanie Schardin Clarke, the secretary of the New Mexico Taxation and Revenue Department.
The natural gas industry in New Mexico is also beginning to slow, however foreign demand for U.S. natural gas is expected to lead to a gradual increase in natural gas prices.