New Mexico oil and gas production reached an all-time high last year, more than doubling from approximately 5 million barrels per month in 2009 to over 13 million barrels per month by the middle of 2015. Record high production has contributed to healthy tax revenue collections in recent years and has been a boon for economic activity in New Mexico’s oil producing regions, while also making an important contribution to statewide growth.
Last month the global oil over-supply condition and growth concerns in China and other important economies pushed prices to the lowest level seen in twelve years. The decline was so steep, oil fell more than $75 in an eighteen month period. Since global demand growth is not sufficient to work off excess supply, the World’s oil producing nations have sought to cooperate on easing the oil glut in order to stabilize prices; negotiations have helped to somewhat counter pessimism in the spot and futures markets, however, divergent interests have hindered the materialization of production cuts.
State and local governments have begun to see the impact of declining oil and gas prices in the form of declining tax revenues as evidenced by recent NMTRD data (RP80, RP500, and DFA Gen Fund). Gross receipts started to rollover in the quarter ending June 2015 and unemployment began rising as early as January in Lea, Eddy, and San Juan counties. Nevertheless, given the low cost of production in the Permian early indications suggest the region is attracting new capital investment. Several other states, and oil-rich countries for that matter, have been grappling with some of the same challenges facing New Mexico. The situation of these states has been documented in recent national and local news stories:
Thus far the declining oil and natural gas prices has been the main culprit in tax revenue trends. Although resilient as of late, production plays a factor as well. Rig count activity in New Mexico, which has followed the national trend (below), could influence changes in production, however, recent research and experience suggests variable outcomes depending on the basin, technology, and the age of the wells. Watchers of the New Mexico economy will certainly be tracking changes in production, tax revenues, and employment data very closely in the next several months to assess continued impacts on state and local government finances as well as the broader state economy.
The interactive price, production, and rig count charts above are available via the Energy Information Administration (EIA) website, which offers a wealth of data on the energy markets.