American Oil and Gas Reporter - July 2020 - 68

IssuesUpdate: Independent Petroleum Association of New Mexico

IPANM Urges Administration
To Pause New Rule Push
By Del Torkelson
ROSWELL, N.M.-When the world
changed this spring, New Mexico oil and
gas companies adjusted their plans. While
regulators provided some emergency accommodations, the state appears to be
charging full steam ahead with regulatory
initiatives that predate the oil price crash
and coronavirus pandemic.
Shortly after she assumed office in January 2019, Governor Michelle Lujan Grisham issued an executive order that,
among other things, directed the state's
Energy, Minerals and Natural Resources
Department and the New Mexico Environment Department to develop "a
statewide, enforceable regulatory framework
to secure reductions in oil and gas sector
methane emissions, and to prevent waste
from new and existing resources, and (to)
enact such rules as soon as practicable."
Independent Petroleum Association
of New Mexico President Kyle Armstrong
credits EMNRD and NMED for tackling
the assignment in a collaborative manner.
"They have been willing to sit down
with us and have good discussions," he
affirms. "We may have points of disagreement with the administration, but
IPANM has a prominent voice in discussions about methane."
Armstrong, who is president and chief
executive officer of Armstrong Energy
Corporation in Roswell, cites the example
of the methane advisory panel (MAP)
that the departments have convened,
which press accounts say is composed
of 27 members-including small and
large oil and gas producers, environmental
groups and other stakeholders-to help
educate regulators on the subject. Topics
arising during those discussions have
included venting and flaring, stimulation,
pneumatic equipment, dehydration units
and storage.
The challenge, reports IPANM Executive Director Jim Winchester, is the administration's march toward a new
methane regulation despite crude oil
prices' nosedive this spring.
"IPANM has been explaining small
producers' circumstances, especially when
68 THE AMERICAN OIL & GAS REPORTER

it comes to costly equipment upgrades,"
he describes. "When the oil price crashed
and COVID-19 came to the forefront,
we did not ask the administration to stop
the methane rule making, but we did ask
it to pause the process until some stability
returned to the marketplace."
Not only has the process continued,
Winchester reports, but the pace barely
has slackened, even as the departments
suddenly deal with extra work. "The administration has had no choice but to
shift focus and dedicate resources to addressing the challenges associated with
shut-in wells," he relates. "That naturally
has dialed back some of the steps preceding the rule-making hearing, but the
calendar has not changed very much. We
still believe we will see two methane
rule-making hearings, one from NMED
and one through the Oil Conservation
Division, before the end of 2020. Maybe
it has been pushed back a few weeks or
couple months, but that still seems to be
the timeline."
Triple Whammy
The situation is straightforward, Winchester indicates. Although many IPANM
members perceive the coronavirus pandemic, oil price slump and prospect of
costlier regulatory requirements as three
major threats to their solvency, he observes,
New Mexico policymakers exert significant control over only one of those factors.
"Even before COVID and the crash,
many of our state's independents were
concerned that an overly stringent methane
regulation would drive costs so high as
to make many wells uneconomic, which
would cause us to plug wells prematurely,"
he warns. "We have not asked for an end
to nor an indefinite suspension of this
rule-making process, but the administration
has not been receptive to our request for
even a pause.
"We share the goal of reducing methane
emissions, but it concerns us when policy
may be pushed too far by groups with
very strong agendas opposing all oil and
gas development," Winchester adds. "Now
is not the time to be overly aggressive

for political purposes, because it is a real
life or death situation for the small independents. We have gotten some appreciation of that from regulators, but certainly
we hope for more."
IPANM recognizes that the administration has not been completely deaf to
the industry's pleas, Armstrong agrees,
noting that IPANM has testified in support
of the State Land Office's emergency
policy allowing for extended shut ins for
wells on state trust lands.
"That certainly helps us and ultimately
future state revenues," he affirms. "We
also have had a number of conversations
with people from the OCD, and while
they have not given any sort of broad,
blanket relief as we have requested, they
have indicated they want to work with
operators on case-by-case bases to address
any issues."
The Coming Crunch
Fiscal worries were an impetus for
the special legislative session New Mexico
convened in early June, Armstrong notes,
especially since oil and gas slumps hit
the Land of Enchantment particularly
hard. "New Mexico may depend on the
industry more than any other state," he
reflects. "We make up more than 40% of
general fund revenues."
During the past couple years, in
which roaring Permian Basin activity
has helped fill New Mexico coffers to
overflowing, Winchester says IPANM
has urged policymakers not to take the
industry for granted. "Now, there is a
very concrete example of the industry's
importance," he emphasizes. "Overnight,
billion dollar surpluses turn into billion
dollar shortfalls."
That reality helps policymakers understand the need to protect oil and gas
jobs and revenue, he says, but it also
subjects the state to the whims of commodity market swings.
"During the last session, legislators
decided to maintain cash reserves of 25%,
which will offset some of the revenue
losses in this fiscal year. But going forward
they have to grapple with reduced revenues," Armstrong details. "One of New
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