American Oil and Gas Reporter - September 2015 - 120

ConventionSection: New Mexico Oil & Gas Association

Federal Regulatory Efforts
Frustrate In New Mexico
By Del Torkelson

SANTA FE, N.M.-About half of New
Mexico's oil and gas production is on
the federal mineral estate, where activity
typically has lagged that on private and
state lands during even the strongest commodity price environments, points out
New Mexico Oil & Gas Association President Steve Henke. In a tougher market,
every additional federally mandated review, regulation and delay serves as another disincentive.
"For an oil and gas company looking
at prospective properties, the level of
certainty and investment enthusiasm shifts
toward state and private lands," he reflects.
Even so, as NMOGA prepares for its
2015 annual convention, Oct. 4-6 at the
Eldorado Hotel in Santa Fe, Henke says
people in the state's oil and gas business
are not giving up. Pondering the industry's
collective mood, he settles on "resolved."
"It is a difficult pricing environment,
but our membership is resolved to get
through this," Henke attests. "While we
are in a downturn, there are issues we
need to work on to lay the foundation for
the positive activity we know is ahead."
Nevertheless, he adds, "We are not
getting any breaks from the Obama administration in some of the demands and
rule makings that are placing further
stress on the industry."
NMOGA Chairman Leland Gould, director of governmental affairs at Western
Refining Inc. in Albuquerque, N.M.,
points to the same hurdles, but also detects
the same industrywide resolve. "There
is a great deal of concern about prices
and increasing regulations, particularly
at the federal level," he reports.
Even so, he continues, "The industry
is highly focused on controlling costs for
continued development."
Incoming NMOGA Chairman D. Paul
Sparks, senior vice president of resource
development and technology for Energen
Corp., suggests many New Mexico oil
and gas companies are grappling with
mixed emotions, but continue to keep
working.

"We have been going through one of
the most exciting times in our history,
when new technologies have allowed us
to open opportunities we never thought
possible. Our efforts, as an industry, are
helping our nation become energy independent, more secure, and more economically stable," he reflects. "However, increased regulations, coupled with volatile
prices, are causing uncertainty and even
fear among the industry. But we have
been through this before, and our industry
is resilient."
Such resilience is precisely the quality
that Henke says keeps him optimistic.
"Our member companies and their leadership have experience in facing difficult
challenges," he determines. "Their ability
to do that gives me hope. There is a lot
of talent and expertise to adapt, adjust
and overcome a variety of challenges."
"The industry has developed great
knowledge and expertise in developing
wells that can continue to profit at much
lower prices than was once believed,"
Gould offers. "The companies with active
drilling programs have made great progress
in reducing the number of days required
to drill a well with an associated reduction
in cost."
Sparks credits industry's progress to
the creativity of its people. "We continue
to find ways to explore, produce, transport
and refine our products during challenging
times," he marvels. "The true renaissance
of our domestic industry was finding ways
to extract hydrocarbons safely and economically (from) lower quality reservoirs."
Federal Acreage
After it peaked above 100 in 2014,
New Mexico's rig count had dropped
into the 50s, Gould noted in late summer,
but production still was setting records.
He attributes some of that to the "fraclog"
of wells waiting to be stimulated, but estimates it also is a product of higherquality wells. "Some of (rising production)
is because of completions occurring in
2015 from wells drilled in 2014," he
says, "but the rigs that continue to operate
are drilling highly productive wells."
Henke reports most new drilling is

120 THE AMERICAN OIL & GAS REPORTER

weighted heavily toward Southeast New
Mexico. "We are not seeing any new
drilling in the dry gas portion of the San
Juan Basin; I think three rigs are operating
in the oil part of the Mancos Shale," he
details. "The rest of New Mexico's drilling
is in the Permian Basin."
Many New Mexico companies are
very dependent on access to federal
acreage, where the Bureau of Land Management administers drilling, production
and inspection rules, Henke notes. That
means NMOGA's membership is especially affected by regulatory initiatives
such as the BLM's hydraulic fracturing
regulation, Onshore Oil and Gas Order
No. 3 revisions, and listings of new endangered species.
Litigation has slowed implementation
of BLM's frac rule (AOGR, July 2015,
pg. 45), but Henke says NMOGA has
been part of an effort to help operators
be ready for any regulation. "We have
been working collaboratively with the
BLM on a common-sense implementation
framework that meets the needs of both
the regulators and our members," he says
(See "New Mexico Industry Attempts to
Accommodate Federal Rules," AOGR,
July 2015). Likewise, Henke notes, the
group was part of a successful effort to
prevent an Endangered Species Act listing
for the dunes sagebrush lizard.
Even so, the challenges from Washington keep coming, and undermine any
sense of regulatory stability. Such unpredictability means that NMOGA is
concerned about the Environmental Protection Agency's Clean Power Plan, despite the fact it targets power plants, because it contains the rationale for regulating
natural gas venting and flaring.
"All these rules amount to a multifaceted federal attack on oil and gas development," Henke assesses. "It is orchestrated, purposeful and unsettling. NMOGA
members with federal leases are wondering
when they will be able to access those
leases to drill, if the economic conditions
change to make that attractive. And what
about the compliance costs for existing
wells and facilities?"
That, says Sparks, is a major reason

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