New Mexico Get Millions More in Revenue from Oil and Gas than Predicted
New Mexico’s
General Fund revenue could be millions of dollars higher than initial
predictions, largely fueled by revenue from the oil and gas industry.
Revenue from
gross receipts taxes (GRTs), rents and royalties from oil and gas operations
drove Fiscal Year 2019’s General Fund revenue about $290 million above the
forecast, read a report from the New Mexico Legislative Finance Committee
(LFC).
In March
2019, the latest date included in the June 24 report, General Fund recurring
revenue was $729 million, $153 million higher than March 2018 – a 26 percent
increase.
Revenues from
the emergency oil and gas school tax, in excess of the five-year average, drove
the tracked revenue up to about $370 more than the forecast, read the report.
“Due to
strong revenues from gross receipts taxes and rents and royalties fueled by the
oil and gas production boom, FY19 general fund revenues are currently tracking
nearly $290 million above the forecast,” the report read.
Energy
revenue was reported at $164.7 million above the forecast, with sales taxes at
$125.7 million more, read the report.
New Mexico’s
oil price for March was at $55 per barrel, about $2.84 less than West Texas
Intermediate – a grade of crude oil used as a benchmark for domestic pricing –
as production in the Permian Basin in the southeast corner of the state crowded
pipelines.
But
infrastructure did not fall, as expected, with the price decline.
New Mexico
maintained at least 100 drilling rigs throughout the year, as production rose
by 46 percent in FY 2019, compared with the State’s prediction of a 22 percent
increase.
Natural gas
production grew by 20 percent, the report read, despite a prediction that it
would increase by only 8 percent.
That meant
that GRTs, also known as sales tax, also increased by about 46 percent between
July 2018 and April 2019.
New Mexico
received about $5.5 billion in GRTs from extraction activities, up by about
$1.7 billion during the last year.
In total,
GRTs were tracking at about $141 million more than the forecast driven by
“elevated rig counts and strong growth in the mining industry,” read the
report.
Eddy and Lea
counties in the southeast region of the state, and out-of-state GRTs tied to
the oil and gas industry, accounted for 86 percent of all the GRT growth,
records show.
Oil prices
hold off on drop
The price per
barrel of WTI maintained the highest rate since spring, resting at $59 per
barrel, after a mid-June climb from about $52 per barrel, per Monday data from
NASDAQ.
Despite
growing global trade tensions, the price stayed steady and did not climb
further as President Donald Trump pulled back on a military strike on Iran.
The warning
of such an attack last week was credited with the sudden jump in pricing, but
without any further escalation, prices remained stagnant.
Trump instead
vowed to increase economic sanctions on Iran to retaliate.
“The downing
of the U.S. drone by Iran and the attacks on tankers in the Strait of Hormuz
spooked traders with the possibility of restricted access to this critical
shipping lane,” read a report from Drillinginfo. “Trump’s decision not to
retaliate militarily has brought a leveling to the recent run, as the
administration decided to increase the restrictions on Iran in the financial
markets as retaliation.
“The recent
run in prices has primarily been caused by the geopolitical instability in the
Middle East and has ignored the challenges of global economic growth and
demand.”
Further
challenging the growth of WTI’s value, the U.S. and China stalled on tariff
negotiations, but Trump and Chinese President Xi Jinping recently agreed to
restart the talks.
“Both
countries seem in no rush to have an agreement, as each continues to publicly
convey strength and patience against the other,” the report read. “These
positions may be successful in structuring a deal, but it is not providing a
recipe for global economic success or growth.
“For WTI’s
long-term price ascension, these countries need to come to an agreement that
provides both countries an avenue for growth.”
Meanwhile,
energy consumption was at a record-high in 2018, at 101 quadrillion British
thermal units (BTUs), read a June report from the U.S. Energy Information
Administration.
Of that
total, more than 81 quadrillion BTUs were from fossil fuels, the report read.
That number
was driven by growth in petroleum and natural gas consumption, records show,
with coal consumption falling by 4.3 percent in 2018.
Natural gas
consumption reached a record-high of 82.1 billion cubic feet per day in 2018,
the report read, marking a 37 percent increase since 2005.
And petroleum consumption increase in 2018, as product supplied domestically reached the equivalent of 20.5 million barrels per day, the report read, the largest energy source in the U.S. since overtaking coal in 1950.