Unprecedented oil and gas revenues may complicate budgeting and spending

New Mexico raked in more than $1.7 billion in oil and gas revenue in the first third of 2022, more than double the revenue from the same period last year, according to oil and gas journalist Jerry Redfern. of Capital & Main. He told KUNM that all the extra money comes with complications when it comes to budgeting for the future.

REDFERN: This is especially important because oil and gas revenues play such an incredibly large role and make up such a large percentage of the state budget. It’s a windfall of money that the state didn’t exactly expect when it planned its budgets, say, last year, earlier this year.

KUNM: How does this relate to the pain we feel when filling the gas tanks of our cars?

REDFERN: It’s somewhat related, because the main driver of the general rise in prices in the oil industry is the war in Ukraine. Thus, Russia is one of the largest oil and gas producers on the planet. And once they invaded Ukraine, Western countries all wanted to put in place all kinds of economic restrictions, including making it much more difficult and expensive for Russia to export its oil and gas, is it not? This then pushes up prices all over the planet. So it’s not just here that we feel it. I mean, they feel it in Europe, they feel it in Africa, they feel it in Asia. It happens everywhere. There are other things going on in the background with the oil and gas industry here in the United States as well. During the pandemic, most producers, basically all producers, drastically reduced the amount of oil and gas they were producing to somewhat match the decrease in oil and gas that people were burning here in the United States. And they were slow to put that back in place. The main reason for that is that for years before they had sort of gone into over-leverage to pay for all the exploration they were doing and they took a while to bump it up so they could keep the profits a bit higher and pay on old debts.

KUNM: You’ve written about one-time funding versus recurring funding and how this large influx into state coffers can only be spent in certain ways.

REDFERN: You can do things like construct buildings with one-time money, you can pave roads you can put in new infrastructure, but what they don’t like to do is create new posts based on that one-time money because you don’t. I don’t know he’s coming back on the road. So you can construct the building, but they are hesitant to then hire people to sit in the building.

KUNM: One of the issues we have in New Mexico is a staffing issue in part because of salaries that just aren’t very competitive in our area.

REDFERN: Right. Exactly. Just to be clear, if the legislature wanted to, they could allocate it to salaries. And what you are talking about here is exactly the case. And that’s something that absolutely everyone brought up. And it was a great debate that took place during the last legislative session in January. Senator George Muñoz was telling me, when I was talking to him for the story, he was saying they just lost people left and right to the national labs from all these state jobs in Santa Fe and they don’t they just don’t have the money to compete with that and they’re trying to figure out “How can we juggle the money and the funds to bring in more people?”

KUNM: Well, you pointed out the uncertainty regarding the oil and gas markets. Isn’t this uncertainty built into our budgeting somehow?

REDFERN: There are those funds that are set up to absorb excess money. But even if the amount of ups and downs that may come with it, the funds will not necessarily cover the difference. We don’t even know yet how many billions of dollars more we will get this year from oil and gas production than last year. And if it stops again, we’re talking about billions of dollars in lower overall turnover. It’s extremely difficult to put the processes in place to integrate that and then redistribute that again.

KUNM: With the transition to greener energy, it’s sort of inevitable, isn’t it, that at some point, one way or another, these prices are going to crash again?

REDFERN: I think many of the larger oil and gas producers feel this and generally do very little to mitigate it. Many of the largest producers on the world stage are adopting renewable energy portfolios. They’re trying, as they say, to green their production status, you know, the way they get oil and gas out of the ground. I keep thinking about oil and gas prices or green power generation it’s kind of like Slinkys and when you stretch it out at one end and let it go it catches up in sort of, then punches itself, then pushes itself forward, then catches up with itself, then pushes itself forward. I think we’re going to feel that for a while as green energy production increases and oil and gas production theoretically peaks at some point in the near future.

This report is part of our Your New Mexico Government project, a collaboration between KUNM radio and New Mexico PBS. Public media support provided by the Thornburg Foundation.