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The Economic Impact of Oil Field Remediation in New Mexico

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  Commentary: Plugging abandoned oil and gas wells and cleaning up sites and related infrastructure on State Trust and private fee lands in New Mexico could generate $4 billion in wages, 65,337 jobs and $541 million in revenue for the state, according to a new report from O’Donnell Economics, a New Mexico-based firm specializing in economic impact analyses.

“A concerted effort to clean up unplugged oil and gas wells, tanks and pipelines on state and private land in New Mexico offers the state tremendous job and economic benefits in addition to addressing an environmental and public health problem,” said Dr. Kelly O’Donnell, Principal of O’Donnell Economics and research professor at the University of New Mexico School of Public Administration. “But the benefits accrue only if oil and gas companies fund the clean-up of their sites.”Although state and federal laws require oil and gas producers to plug wells and restore sites to their original form and function after production ceases, more than 28,000 oil and gas wells, tanks, pipelines and other infrastructure on State Trust and private fee lands in New Mexico remain un-remediated.

Key findings of The Economic Impact of Oil Field Remediation in New Mexico include:

 

  • Ensuring timely and proper clean-up of over 28,000 wells, 9,000 miles of pipelines and miscellaneous oil and gas infrastructure located on New Mexico State Trust and private fee lands, if funded by the major oil companies and/or other entities external to New Mexico, would inject roughly $8.2 billion into the state economy.
  • Remediation and reclamation of oil and gas wells and infrastructure on New Mexico state and private lands would support 65,337 direct, indirect and induced jobs and $4.1 billion in wages and has the potential to re-employ large numbers of workers displaced by COVID-19, the energy transition, and routine swings in fossil fuel production. 
  • Eddy and Lea Counties alone could see more than 26,000 jobs from wellsite cleanup, decommissioning and surface reclamation.
  • The economic benefits of remediation would accrue statewide but would be concentrated in Lea, Eddy, and San Juan counties where most of the remediation work would occur. Similarly, a wide variety of industries throughout the state would benefit from intensified remediation, but oil and gas field services and non-residential construction would receive the biggest boost.
  • Reclamation funded by major oil companies would have significant positive impact on the state economy because the financing would derive primarily from out-of-state sources (e.g. shareholders).
  • Conversely, reclamation funded by the state would have minimal impact on the New Mexico economy because the state is required to balance its budget and therefore revenue devoted to reclamation is revenue that would otherwise be expended on other state services. Remediation costs would be left to the state in the case of a company walking away from its clean-up obligations entirely or having insufficient financial assurances to cover full clean-up; currently financial assurances exist for just over 2% of oil and gas wells on state and private lands. 
  • Federal funding for reclamation could also constitute a net injection of capital to the state and thus produce a positive regional economic impact, but current proposals for federally funded remediation of “orphan” wells would not produce major economic benefits because orphan wells represent only about 1 percent of the existing oil and gas infrastructure in New Mexico.
  • Gross receipts and personal income taxes levied on the value of reclamation services would generate $541 million in additional revenue for the State of New Mexico and the local jurisdictions, primarily counties, where the remediation work occurs. 

The environmental and fiscal impacts associated with abandoned oil and gas wells are receiving national attention and a recent report found oil and gas infrastructure closure costs in New Mexico far exceed bonding requirements, creating a liability for state taxpayers and limiting regulators’ ability to ensure the proper cleanup of wells and other oil and gas infrastructure.

Kelly O’Donnell, PhD is an economist and public finance expert specializing in the critical intersection between economic development and social policy.