This growth followed an about $1.9 billion, or 20.3 percent, growth between FY 2022 and 2023, the report showed.
The increases, specifically those tied to oil and gas, were buoyed by recent energy supply constraints driving up oil and gas prices and encouraging more production, the report read.
New Mexico is the second-highest producer of crude oil in the U.S., following only Texas with which New Mexico shares the Permian Basin – the U.S.’ most active shale region generating about 5.8 billion barrels of oil a day.
“Consumer spending remained strong despite resilient inflation, wage growth was robust, and high oil and gas revenues were supported by supply-side constraints that raised prices and encouraged production expansion,” read the report.
Oil and gas was also credited with pushing severance taxes and federal royalties to “record-breaking levels,” the report read, meaning more money could be sent to the Early Childhood Trust Fund than previously anticipated.
New Mexico cautioned on volatility of fossil fuels
But the state’s increasing reliance on its nation-leading oil and gas industry drew concerns from some lawmakers and other officials fearing the instability of the commodity-based market.
The report noted recent legislative efforts were intended to diversify New Mexico’s economy, and to shift oil and gas revenue into permanent funds.
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“However, legislative changes have improved the stability of the general fund by insulating against swings in oil and gas revenues by distributing windfalls in FY25 and beyond to the severance tax permanent fund,” read the report.
But for now, oil and gas was expected to be on the upswing following the world’s recovery from the COVID-19 pandemic, when energy demands surged as travel and business restrictions were lifted.
Further pressuring demand for U.S. energy last year was Russia’s invasion of Ukraine and the aggressor nation – a global oil and gas leader – being removed from most international markets.
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Prices recently dipped as the post-COVID surge cooled, the report read, and Russian energy imports resumed, but oil and gas producers in New Mexico appeared to continue ramping up their operations.
Oil prices were expected to remain at more than $70 a barrel for the foreseeable future, the report read, pushing New Mexico’s production to growth from 1.8 million barrels per day (bpd) in 2023 to about 2 million bpd in 2025.
That meant annual production would grow from 659 million barrels in 2023 to 725 million barrels in 2025, the report read.
Resulting federal royalty and severance tax payments accounted for about 62 percent of New Mexico’s financial growth, read the report.
“Notably, the record production levels are counterbalancing the downward price trend, resulting in elevated severance tax and federal royalty payments,” the report read. “However, due to this robust revenue growth, the mechanisms designed to stabilize excess oil and gas-related collections for the tax stabilization reserve or early childhood trust fund are losing effectiveness.”
The mining, quarrying and oil and gas extraction sector also saw the greatest increase in New Mexico in gross receipts tax activity, increasing about 44 percent between FY 2022 and 2023, for the latest estimate at about $11.3 billion in matched taxable gross receipts (MTGR), records show.
MTGR is used to calculate overall economic activity, combining taxable gross receipts, also known as sales tax, with tax payments.
The increases were mostly attributed to Eddy and Lea counties, the report read, the two counties southeast corner of the state contained in the Permian Basin.
By FY 2025, the report estimated those two counties combined would represent 29 percent of New Mexico’s total MTGR.
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“Surging collections are driven mostly from activity in Eddy and Lea counties and, more specifically, activity in the mining industry,” read the report. “As GRT revenue grows from the industry, the risk of losses that would result from an oil and gas industry bust grows as well.”
The Potential for future oil busts, driven by a variety of economic and geopolitical factors out of the state’s control, was one of the chief risks to New Mexico’s economic stability looking ahead, the report read.
“New Mexico’s dependence on the energy sector makes oil market volatility the largest, most significant downside risk to the general fund forecast,” the report read.
State looks to balance oil and gas industry with environment
During an Aug. 23 Legislative Finance Committee meeting in Las Vegas, Vice Chair Rep. Nathan Small (D-36) pointed to New Mexico’s oil and gas rig count, which appeared steady or growing while the rest of U.S. rigs declined.
New Mexico rig count held steady at 107 rigs over the previous week as of Sept. 1, per the latest report from Baker Hughes, just one rig behind the count on the same date in 2022.
Meanwhile, the U.S. dropped 84 rigs in the last year for a total the latest total of 512, and Texas declined by 56 since 2022, Baker Hughes reported.
Small said New Mexico should work to “strike a balance” as its oil and gas industry held strong between economic needs and environmental efforts, alluding to recently increased efforts to enforce pollution restrictions and invest in new forms of energy like wind and solar.
“It’s just another window into this extraordinary time,” Small said. “This comes as we are in the crosshairs of and at the cusp of both really challenging things from a changing climate and also poised to lead in ways that are inclusive of our entire energy industry and oil and gas moving forward.”
Cabinet Secretary of the Taxation and Revenue Department Stephanie Schardin Clarke said both energy development and environmental protection can continue together in New Mexico.
“We need to make sure that we protect our environment for future generations and take care of our oil and natural gas industry,” she said. “This dichotomy between the two of them is a little bit of a fiction.”