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BLM oil and gas lease sale busts records

Copyright © 2018 Albuquerque Journal

Nearly half a billion dollars in fresh money is headed to New Mexico state coffers after a record-breaking oil and gas lease sale this week by the U.S. Bureau of Land Management’s Carlsbad Field Office.

The two-day, online auction generated $972.8 million in bonus bids for 142 parcels in Eddy, Lea and Chaves counties, breaking all records for BLM lease sales across the nation, according to the agency.

The amount generated is nearly three times the $358 million the BLM earned from all sales nationwide last year, and more than two times the agency’s record year for lease-sale income in 2008, when it earned $408.6 million.

New Mexico will reap about $467 million from the Wednesday and Thursday sale, because 48 percent of the revenue from such lease auctions goes to the state where the oil and gas activity occurs. The rest goes to the U.S. Treasury.

The auction results drew praise from U.S. Interior Secretary Ryan Zinke, who said in a news release that the state’s robust oil and gas development has turned New Mexico into a “centerpiece” for the country’s “all-of-the-above energy future.”

“The people of New Mexico will see about half a billion dollars of this right back into their roads, schools and public services,” Zinke said in a prepared statement.

The lease-sale money will significantly increase the state budget for the current fiscal year.

In August, the Legislative Finance Committee and executive economists projected a $900 million revenue surplus for fiscal year 2019, which began July 1. However, that projection was based on an estimate of just $200 million from the BLM’s latest auction. The $467 million it actually earned would now push that surplus to nearly $1.17 billion.

Apart from the lease sale’s record for total income, the auction also produced the highest bid ever for a single parcel and the highest per-acre bid ever received by the BLM in all its lease sales nationwide.

That bid generated $101.5 million for a 1,240-acre parcel in Eddy County, representing $81,855 per acre. That’s up from BLM’s previous record of $76.7 million for a single parcel set during an auction in New Mexico in 2016. And it’s double the BLM’s previous $40,000 per-acre record bid, set during a 2017 New Mexico auction.

The record-breaking auction reflects an unprecedented boom in oil and gas production in the Permian Basin in West Texas and southeastern New Mexico, particularly in the Delaware Basin, an oval-shaped shale rock formation that protrudes from southwestern Texas northward into Eddy and Lea counties. Modern drilling technologies have turned that zone into one of the most productive oil and gas fields in the world, which is sharply driving up prices for land parcels there.

New Mexico oil production reached an all-time high of 171 million barrels in 2017, and output this year is on track to climb even higher. Production reached 87.5 million barrels as of May, up from 66.8 million barrels in the same period last year, according to the state Oil Conservation Division.

“New Mexico is at the forefront of the oil and gas industry,” Ryan Flynn, executive director of the New Mexico Oil and Gas Association, told the Journal. “We’ll see more records being broken going forward.”

Unlike the boom-and-bust cycles of the past, the industry expects production to continue climbing for at least a decade, Flynn said.

“This is different than anything we’ve experienced before,” he said. “We’re not only seeing record-setting production, but sustained growth that we expect to continue over the next five to 10 years.”

Before this week’s auction, environmental groups said the BLM was planning to include about two dozen parcels within 10 miles of Carlsbad Caverns National Park. But in late July, the BLM eliminated those parcels from the September auction.

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