March 26, 2015

As crude oil price drops, NM loses jobs

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Margaret Wright

Oil rig in southeast New Mexico.

The nosedive in prices for crude oil will result in lower employment in the oil and gas extraction industry in New Mexico.

Oil rig in southeast New Mexico. Photo by Margaret Wright

Margaret Wright

Oil rig in southeast New Mexico.
Photo by Margaret Wright

The Albuquerque Journal reported on Wednesday that the state Energy, Minerals and Natural Resources Department predicted a drop of at least 2,000 jobs in the industry because of the lower cost of crude oil.

Wally Drangmeister, a spokesman for the New Mexico Oil and Gas Association, told New Mexico Political Report said that with crude oil prices dropping, companies need to adjust.

“Companies are looking for every efficiency they have,” Drangmeister said in a short phone interview.

One efficiency is fewer explorations, less “wildcat wells” in “unproven areas.”

Also, wells that are not performing as highly will be shut down, taking dozens of jobs with them.

From the Journal:

“So far we haven’t seen a decrease in oil production in New Mexico, but we expect it to begin leveling off, and that means lost revenue and jobs in the coming months,” Martin said.

Jason Sandel, executive vice president at Aztec Well Servicing in Farmington, said it usually takes about six months for the full impact of drilling rig shutdowns to kick in. Direct employees are affected first, followed by layoffs in support positions.

Boom helped oil patch

The bulk of the jobs are in southeastern New Mexico, known as the oil patch, an area of the state that has seen rapid economic and population growth in recent years even as the rest of the state has lagged.

An indication of the oil boom’s effect on the area is this report by the Associated Press that Hobbs, in the heart of the oil patch, was among the fastest growing areas in terms of population in the entire nation.

Hobbs was the fourth-fastest growing “micro area” in the nation from July 2013 until July 2014 with a 2.4 percent growth in population.

Hobbs is the largest municipality in Lea County and the population growth in Hobbs drove the county to near the top as well. Lea County was the 74th-fastest growing county from July 2013 until July 2014 according to U.S. Census Bureau estimates, with 2.4 percent growth.

“An incremental impact”

NASDAQ Chart of Crude Oil Brent prices for ten years, accessed 03-26-15.

NASDAQ Chart of Crude Oil Brent prices for ten years, accessed 03-26-15.

Drangmeister also pointed to concerns about a new rule from the federal government looking at hydraulic fracturing, commonly known as fracking. Those regulations are designed to protect water in areas with drilling.

“A well is not a well is not a well,” Drangmeister said. He added that horizontal wells used in fracking are more efficient and produce more oil so less people are needed. They are also more expensive.

He said that the Bureau of Land Management rule duplicates work done by the state Oil Conservation Division. He said the increased costs from the new regulation is “an incremental impact” but that those incremental impacts add up to make it more expensive to drill for oil and natural gas.

The total cost of the new regulation can be anywhere from $30 million to $2.7 billion depending on which estimate you read.

Environmental groups have said that the new rule does not go far enough.

“While there have been a few improvements, these rules largely bow to industry demands, putting drinking water at risk, thwarting transparency, and failing to modernize key standards,” Matthew McFeeley and Briana Mordick of the Natural Resources Defense Council wrote in a blog post.

While the price of Brent crude oil is far from the $100 level where it sat for most of three years until the latest price drop, prices on barrels of oil have rallied in recent days because of air strikes in Yemen.

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