ALBUQUERQUE, N.M. — A Texas-based oil and gas company has reached a $430 million deal that will clear the way for more production in southeastern New Mexico, providing a glimmer of hope as state officials look to rebound from depressed energy prices that have crippled government spending.
Concho Resources Inc. made the announcement this week, saying it has agreed to acquire dozens of square miles in the northern Delaware Basin. Much of the acreage is located in the Red Hills area in Lea County.
The area offers opportunities for increasing the density of development on multi-well pads, said Concho president and chief executive Tim Leach.
“With a continued focus on driving capital efficiency gains and actively managing our portfolio, this acquisition further strengthens our industry-leading position in the Permian Basin and reinforces our ability to deliver differentiated long-term growth,” he said in a statement.
The Delaware Basin is part of the larger Permian Basin, which spans parts of West Texas and New Mexico and represents one of the nation’s most prolific areas of energy development. Just this month, federal scientists determined that parts of the region could still yield billions of barrels of oil.
Concho officials said the Red Hills area already is generating exceptional returns at current prices.
There’s excitement about the Permian Basin’s potential and the number of rigs exploring for oil and gas nationwide has been rising in recent weeks, but some experts have said depressed energy prices are still continuing to curtail exploration overall.
As for Concho, the company plans to increase its rig count in the Delaware Basin in 2017 and expects to grow production volumes by about 20 percent.
Wally Drangmeister, a spokesman for the New Mexico Oil and Gas Association, said Concho will not be alone.
“We have observed many companies positioning themselves for higher levels of future production though the purchase of new leases and acquisition of existing leases,” he said Friday.
Drangmeister said even with fewer than 30 drilling rigs operating in the state, production for 2016 is still on pace to be within a few percentage points of last year’s record production.
State finance officials have been watching the industry closely given that a significant portion of the budget comes from revenues generated by oil and gas developers.
The latest revenue tracking report shows production in New Mexico declined by nearly 3 percent — or 2.8 million barrels — during the first eight months of the year compared with the same period in 2015.
Any regulatory changes made by the incoming Trump administration could also affect the industry. Drangmeister said there’s a growing sense of optimism for a more favorable regulatory climate.
“This is especially important in New Mexico since 63 percent of the natural gas and 54 percent of the state’s oil production comes from federal leases that are often more heavily impacted by the regulations of the Bureau of Land Management and other federal agencies,” he said.