American Oil and Gas Reporter - September 2016 - 96

ConventionSection: New Mexico Oil & Gas Association

Potential Budget Deﬁcit Gets Attention
SANTA FE, N.M.-In addition to a
national election contributing to doubts
about policy direction in federal-landladen New Mexico, all members of the
state legislature are up for re-election,
contributing additional doubts about energy
policy in the Land of Enchantment.
"We certainly are facing a difficult situation here with the legislature split between Republican control of the House
and Democratic control of the Senate, as
well as having a Republican governor,"
says Cliff Brunson, chairman of the New
Mexico Oil & Gas Association. "It's difficult to assess how things are going to
turn out. Obviously, Republicans are fighting to get control of the Senate and Democrats want to regain control of the
House, so who knows what will happen."
Larger voter turnout traditionally favors
Democrats in New Mexico, says Michael
D'Antonio, NMOGA government affairs
director. But whatever the outcome of
state races, elected officials will continue
to look to the oil and gas industry to provide substantial revenue support to sustain
state government operations, he says.
Whatever happens to the complexion
of the legislature, the body will face a
growing budget deficit, and NMOGA
members are well aware that eventually
lawmakers may look their way in search
of new revenue, confirms Brunson. About
35 percent of the state budget is funded
from taxes and royalties on oil and gas
development, he notes.
In late summer, Governor Susana Martinez ordered an additional 5 percent in
state general fund spending cuts because
of the negative impact on tax revenue
from low oil and gas prices and a slower
economy, and Senate Finance Chairman
John Arthur Smith, D-Deming, called for
a special session to deal with a deficit
that could approach $500 million for
fiscal 2017, D'Antonio says. The next
legislative "long session" to deal with
the budget convenes Jan. 17.
"New Mexico is required to have a
balanced budget, so (lawmakers) are
going to be looking at our reserves relative
to the state's revenue projections," he reflects. "Economic activity has been lower
overall-not only oil and gas-so that adds
to the negative impact on revenues.
"The oil and gas industry has lost several thousand jobs in New Mexico since
the end of 2014," D'Antonio adds. "Not
only are all state House and Senate seats
96 THE AMERICAN OIL & GAS REPORTER

up for re-election, but county commissioners are out campaigning as well. I
don't expect a whole lot to be accomplished during this interim."
The state has spending needs of just
over $6 billion, he says, but reserve funds
are falling. New Mexico ended FY 2015
with a general fund balance of $713 million, or 11.6 percent of spending, but at
the end of fiscal 2016 on June 30, that
balance had fallen to $350 million, or
5.6 percent of reserves.
"They still are crunching numbers,
with the only certainty basically being
that reserves are declining," D'Antonio
says. "Folks look for about a 5 percent
(of general fund) balance in reserves.
We are getting close to that, so it's either
cut spending or raise taxes. That is the
overriding focus for the legislature. The
good news for the oil and gas industry
is oil production this year is expected to
be about level with last year-around
140 million barrels. Part of the problem
is the sharp decline in (oil and gas) activity."
About 20 rigs were drilling in New
Mexico in early August, compared with
100 a year earlier, D'Antonio notes.
At one point in mid-August, there
were no rigs drilling in the San Juan
Basin, Brunson observes.
"There is a lot less economic activity
with that steep drop in the rig count,"
D'Antonio says. "Fewer income taxes
are being paid by corporations and individuals, and it has filtered through to the
overall state budget picture."
2016 Successes
Despite the uncertainties ahead, NMOGA saw successes during the short 2016
legislative session that adjourned in midFebruary, D'Antonio recalls. Wins included SB 19, the Disaster Response Tax
and Licensure Exemptions, which was
amended to include natural gas liquids
gathering, processing, storage and transmission facilities, and crude oil and refined
product pipelines in the definition of critical infrastructure.
As a result, New Mexico is now the
only state that includes oil infrastructure
in its definition of critical infrastructure,
D'Antonio says, which will allow temporary tax and license exemptions for
certain out-of-state businesses and individuals whose disaster response efforts
focus on critical infrastructure.

"The upshot is this bill allows New
Mexico companies to get electric, gas or
telecommunications back in service more
quickly because it does not require temporary out-of-state workers to be licensed
in New Mexico or to pay New Mexico
state income taxes," he says.
Passage of SB 47 will help NMOGA
members avoid paying higher utility bills,
D'Antonio continues his review. "Without
that legislation, utility rates would have
increased for some of our operators because counties would have been able to
assess a value for infrastructure investment,
which would have been passed along in
utility bills," he explains.
HB 176 broadens the definition of a
natural gas vehicle and increases the recognized weight limit of the vehicle, implementing a similar weight limit consideration applied to diesel engines, D'Antonio says.
HB 283 reduces the state unemployment fund contribution rate of certain
employers, based on the employer's experience history, and caps the percentage
increase in an employer's year-to-year
contribution and excess claim rates, he
says.
"It's trying to keep a cap on those unemployment compensation rates all New
Mexicans pay, which provides a cost benefit for our members," D'Antonio says.
NMOGA also successfully supported
joint memorials, including SJM 18, which
requires a study guided by the New
Mexico Legislative Council into the state
Public Regulation Commission, and HJM
5, which requests a study on how to
expand the NGV market, he concludes.
❒

Coming In October
AOGR examines some of the critical lessons the industry has learned
to date in drilling and completing
wells in the play. Special sections include the latest insights on recoverable in-place reserves assessments in
the Eagle Ford, and how the ongoing
evolution of longer-lateral horizontal
drilling and higher-proppant concentration multistage hydraulic fracturing designs are impacting long-term
recovery factors.

American Oil and Gas Reporter - September 2016

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