Dalva Moellenberg and Samantha Catalano authored the New Mexico chapter of the 2024 Chambers USA Guide: Oil, Gas, and the Transition to Renewables. Their article quantifies New Mexico's critical role as a leading producer of fossil fuels and explains the state's recent legislation to promote renewable energy. Dal and Sam explore the complex dynamics shaping New Mexico’s energy future by examining oil and gas production, its economic impact, and its evolving energy landscape.
Read their full article below or on Chambers' website.
New Mexico’s Oil and Gas Production
New Mexico is the USA’s second-largest producer of crude oil, following Texas. In 2023, New Mexico produced approximately 1.8 million barrels of oil per day ‒ a tenfold increase in what it was able to produce in 2010, owing to advances in technology such as fracking. As of March 2024, New Mexico produced approximately 2.014 million barrels of oil daily (or 15.3% of the USA’s total production).
If New Mexico’s oil production were compared with oil-producing countries, its production would be on par with that of Mexico, Kazakhstan, and Norway, with slightly more production than Nigeria and Qatar. Indeed, if New Mexico were a country, it would rank as the 14th-largest oil producer in the world.
In addition to being a leader in oil production, New Mexico is one of the top ten natural gas-producing states and extracts 7% of the USA’s natural gas gross withdrawals. New Mexico is home to approximately 7% of the USA’s proven natural gas reserves. New Mexico is also a leader in generating electricity from wind power, ranking eighth in the USA, with approximately 38% of New Mexico’s electricity generated by wind in 2023.
Impact on New Mexico’s economy
New Mexico’s economy relies heavily on the state’s oil and gas production. It receives more than $4 billion dollars in revenue annually from severance and property taxes, as well as from royalty and rental income from state-owned producing lands.
Direct and indirect revenues from oil and gas production generally make up approximately 25‒30% of New Mexico’s general fund revenue. This revenue supports New Mexico’s two permanent funds ‒ namely, early childhood care, and the state’s education fund.
Basin locations
The two major oil- and gas-producing basins in New Mexico are the Permian Basin and the San Juan Basin.
Permian Basin
The Permian Basin is located in south-eastern New Mexico and western Texas and is the largest oil-producing basin in the USA. The Permian Basin accounts for nearly 40% of the oil production and 15% of the natural gas production in the USA. It spans approximately 250 miles wide and 300 miles long, making it larger than the state of Florida.
The Permian’s unique geological features enable oil and gas producers to extract minerals from multiple layers of the basin, all from one well. In the first quarter of 2023, two New Mexico counties (Lea County and Eddy County) were responsible for 29% of the Permian Basin’s oil and gas production ‒ averaging 1.7 million barrels per day.
Natural gas production from the Permian Basin totaled 21 billion cubic feet per day in 2022, with production in Lea County and Eddy County almost doubling since 2021. These counties produced 28% of all the natural gas from the Permian Basin in the first quarter of 2023.
San Juan Basin
The San Juan Basin is located in north-western New Mexico and south-western Colorado and is the second-largest gas basin in the USA.
The San Juan Basin is second to the Hugoton field, in Texas, Oklahoma, and Kansas in total estimated gas reserves. Natural gas was first discovered in the San Juan Basin near Aztec, New Mexico in 1921. The first well, drilled by Aztec Oil Syndicate, had an initial production rate of 3‒4 million cubic feet of gas per day from Farmington sandstone, at a depth of 1,000 feet. Throughout the 1920s, natural gas was piped into Aztec and used domestically, which was the first use of commercial natural gas in New Mexico.
Most of the natural gas produced from the San Juan Basin comes from the Cretaceous strata, including the Fruitland coal, Pictured Cliffs, Chacra/Lewis, Mesa Verde, Mancos/Gallup, and Dakota gas zones. Most oil is produced from the Farmington Sandstone, Mancos/Gallup, and Dakota zones.
Recently, increasing natural gas prices led to the Rosa Unit (a well in north-western Rio Arriba County) producing more gas than any other gas well in the San Juan Basin. The Rosa Unit well produced 24.9 million equivalent cubic feet per day during a thirty-day production period.
The San Juan Basin is also the leading region in the USA for production of coalbed methane, boasting the largest field of a proven natural gas reserve in the USA. In total, New Mexico produces approximately a quarter of all the coalbed methane in the USA.
State- and federally-owned lands
Differing from other states with significant oil and gas production (eg, Texas), New Mexico’s oil- and gas-producing land is largely owned by the state government and the federal government.
Ranked tenth in the USA for the state with the most land owned by the federal government, 31.7% of New Mexico (or 24.7 million acres of the 77.8 million total acres) is government-owned. Of that land, 54.7% is owned by the Bureau of Land Management (BLM), 37.4% is owned by the Forest Service, 4.6% is owned by the Department of Defense, 1.9% is owned by the National Park Service, and 1.3% is owned by the Fish and Wildlife Service.
Oil and gas production on government-owned lands
As of 2023, approximately 54% of New Mexico’s oil production and 60% of its natural gas production occurred on federal land, while 35% of New Mexico’s oil production and approximately 25% of its natural gas production occurred on state lands. The remaining smaller percentages of production occur on private or tribal lands.
The state owns nine million acres of surface and mineral rights in New Mexico, and 13 million acres of subsurface or mineral estate rights.
Impact of state and federal ownership of land
State and federal ownership of land impacts New Mexico’s oil and gas industry through federal and state rules and regulations and, financially, by increases to royalty rates through mineral leases.
The BLM’s new rule increases royalty rates for BLM leases to 16.67% ‒ an increase from 12.5%. In addition to issuing leases, the BLM regulates onshore oil and gas production through regulation of operations such as exploration, permitting, development, and the production of federal leases, pursuant to Title 43, Part 3160 of the Code of Federal Regulations.
Oil and gas regulatory agencies
New Mexico’s oil and gas industry is regulated by the Energy, Minerals and Natural Resources Department (EMNRD) through the Oil Conservation Division (OCD) and the Oil Conservation Commission (OCC).
The New Mexico Oil and Gas Act (Sections 70-2-1 to 70-2-39 of New Mexico Statutory Authority (NMSA) 1978), grant concurrent jurisdiction to both the OCD and the OCC to regulate the oil and gas industry. The OCC and the OCD are empowered by statute to prevent waste and protect correlative rights.
The OCC is a three-member commission, comprising the director of the OCD, a designee of the Commissioner of Public Lands, and a designee of the Secretary of EMNRD. The OCC’s activities focus on rule adoption and review of directors entered by the director of the OCD. The OCC also establishes monthly meetings where hearings occur.
The OCD is further empowered by the New Mexico Oil and Gas Act to make and enforce rules, regulations, and orders, as well as “to do whatever may be reasonably necessary to carry out the purpose of [the Act].” OCD regulations for oil and gas operations are in rule 19.15.2 of the New Mexico Administrative Code (NMAC).
Beyond oil and gas regulations
In addition to regulating oil and gas activities, the OCD regulates other geothermal activities, issues permits, regulates the plugging and abandonment of wells, restoration of land, and enforcement.
The OCC issues drilling permits to operators pursuant to the New Mexico Oil and Gas Act, under the OCD (Section 19.15.14 of the NMAC). The OCD also regulates compulsory pooling, pursuant to the New Mexico Oil and Gas Act, which involves the pooling for working interests by order of the division or commission and not by voluntary agreement, except for unleased mineral interests on federal, state or tribal lands (Section 19.15.13.7.C of the NMAC). The OCD regulates nearly all aspects of oil and gas production, as well as plugging of wells, injection, venting and flaring, and remediation (see Section 19.15 et seq of the NMAC).
The Commissioner of Public Lands, through the New Mexico State Lands Office (SLO), is granted authority through the state legislature to manage state trust lands through Article 13 of the New Mexico constitution and through Section 19-1-1 of NMSA 1978 (Section 19.2.100.3 of the NMAC). The Commissioner of Public Lands’ authority to manage mineral leases, including those for exploration, development, and production of oil and gas on state trust lands, is found in Section 19-10-1 et seq of NMSA 1978. Although the SLO does not permit oil and gas wells, it regulates oil and gas leases on state lands and regulates surface operations and reclamation of state oil and gas leases (see Section 19.2.100 et seq of the NMAC).
Article 12 of the New Mexico Oil and Gas Act provides additional protection for private surface owners ‒ beyond the standard common law remedies for negligence, waste and trespass ‒ through a unique statute, the Surface Owners Protection Act (SOPA) (Sections 7-12-1 to 7-12-10 of NMSA 1978). SOPA provides the surface owners of a mineral estate remedies at law if an oil and gas operator conducts operations without providing notice to the surface owner or without complying with provisions of a surface use and compensation agreement (Section 70-12-7 of NMSA 1978).
Ground and surface water regulations
In addition to regulation of oil and gas wells and operations, New Mexico regulations include:
- protections of ground and surface water under the Water Quality Act (Section 74-6-1 et seq of NMSA 1978), administered by the Water Quality Control Commission (Section 74-6-4 of NMSA 1978) and the OCD as a constituent agency; and
- protection of air under the Air Quality Control Act (Section 74-2-1 et seq of NMSA 1978) administered by the Air Quality Bureau of the New Mexico Environment Department (NMED) (Section 74-2-5.1 of NMSA 1978).
These regulations frequently impact regulated industries.
The OCC, pursuant to the New Mexico Oil and Gas Act, administers the state’s rules and regulations for injection wells in addition to oil and gas wells.
Salt Water Disposal (SWD) wells require applications to the SLO or the Oil and Gas Division for an easement for a SWD site, under Section 19.2.100.61 of the NMAC. Normally, produced water on leased state land is permitted to be disposed of within the leased lands “if the disposal operation otherwise meets the approval of the OCD and is otherwise reasonable and acceptable practice in the industry.”
The OCC is granted authority by the federal government to regulate and enforce injection wells under the New Mexico Oil and Gas Act by the federal Safe Drinking Water Act (42 USC 300f et seq) Underground Injection Control (UIC) program for UIC Class II wells (Section 19.15.26.6 of the NMAC). The OCD’s UIC regulations apply to all persons constructing, operating, or closing an injection well under the New Mexico Oil and Gas Act (Section 19.15.26.2 of the NMAC). Permits are required under Section 19.15.26.8.A of the NMAC for:
- injection of produced water and other fluids necessary for recovery of oil and gas; and
- storage of liquid hydrocarbons.
Recycling produced water
New Mexico is exploring ways to recycle produced water for the benefit of the state. In 2021, New Mexico’s oil and gas industry produced approximately 60 billion gallons of produced water, which was equal to the state’s total daily municipal water consumption of 160 million gallons per day.
The NMED and New Mexico State University (NMSU) have entered a collaboratively produced water research consortium, in furtherance of(the Produced Water Act (House Bill 546), which requires the NMED to adopt regulations for the discharge, handling, transport, storage, recycling, or treatment for the disposition of produced water.
Produced water has the potential to “augment or substitute for fresh water in many fit-for-purpose uses,” given New Mexico’s arid climate and the scarcity of fresh water sources.
The OCD and the NMED additionally regulate the plugging of abandoned wells and subsequent reclamation of the lands, utilizing funds from the oil and gas reclamation fund (Section 70-2-38 of NMSA 1978). The OCD is required by the New Mexico Oil and Gas Act to “reclaim and properly plug all abandoned wells” and “restore and remediate abandoned well sites and associated production facilities” in accordance with the Act.
Recent New Mexico Energy Developments
Energy Transition Act
In 2019, the New Mexico legislature passed the Energy Transition Act. The Energy Transition Act sets forth renewable energy standards for New Mexico, including:
- 40% renewable energy by 2025;
- 50% renewable energy by 2030;
- 80% renewable energy for utilities by 2040; and
- 100% zero carbon resources for utilities by 2045.
The Energy Transition Act “transitions New Mexico away from coal and toward clean energy, ensuring greater renewable energy production and reducing costs for consumers.” In furtherance of the Energy Transition Act, the New Mexico Public Regulation Commission (PRC) has approved multiple solar projects and wind turbine projects.
Clean Cars and Clean Trucks Rule
In November 2023, the New Mexico Environmental Improvement Board and the Albuquerque-Bernalillo County Air Quality Control Board adopted the Clean Cars and Clean Trucks rule (Section 20.2.91 of the NMAC), effective December 31, 2023.
The Clean Cars and Clean Trucks rule will require, as of 2026, 43% of all new passenger cars and light-duty trucks that are shipped to New Mexico dealers from national manufacturers to be zero-emission vehicles. The required percentages increase over time.
Clean Transportation Fuel Standard
New Mexico also passed the Clean Transportation Fuel Standard (CTFS) (House Bill 41) in March 2024. The CTFS supports reduction of greenhouse gas emissions from transportation fuels and supports investment and innovation in supporting infrastructure. According to the NMED, the program is “technology-neutral” and its purpose “is to encourage the development of fuels that have low carbon intensity.”
Atencio v. New Mexico litigation
The state of New Mexico is currently engaged in litigation in the Atencio v. New Mexico litigation, which is an action brought by environmental and indigenous advocacy groups, alleging that New Mexico is failing to comply with its constitutional duties to provide for and protect a healthy environment. The action is based on Article 20, Section 21 of the New Mexico state constitution, which states: "The protection of the state’s beautiful and healthful environment is hereby declared to be of fundamental importance to the public interest, health, safety and the general welfare. The legislature shall provide for control of pollution and control of despoilment of the air, water and other natural resources of this state, consistent with the use and development of these resources for the maximum benefit of the people."
Atencio is currently in front of the New Mexico Court of Appeals on the state’s application for interlocutory appeal, following the trial court’s denial of the state’s motion to dismiss and the court’s certification of questions of law to the New Mexico Court of Appeals.
Environmental groups are seeking a change to the New Mexico constitution to provide further protections and environmental justice for populations of the state who lack protection. Any constitutional amendment must be passed by popular vote in addition to the legislature.
Conclusion
New Mexico is one of the largest oil- and gas-producing states in the USA. State and federal ownership of most oil- and gas-producing lands leads to heavy regulatory enforcement of the industry, which both poses challenges to regulated entities and aims to improve New Mexico’s air and water quality. Energy advancements in the state seek to improve employment opportunities for New Mexicans and decrease the state’s emissions.
Click here to read Dal and Samantha's article published by Chambers USA.
about the Authors
Dalva “Dal” Moellenberg manages Gallagher & Kennedy’s Santa Fe office and concentrates his practice on water quality and water rights, superfund, hazardous waste, mining law and mined land reclamation, and oil and gas regulation. Dal’s 30 years of experience includes all types of administrative proceedings, including rule-making, permitting and licensing, defense of regulatory enforcement actions, appeals of agency actions, and settlement, ADR, and litigation concerning environmental and other regulatory matters. He is an active member of industry and professional associations, including the Environmental and Natural Resources Sections of the New Mexico and Arizona State Bar Associations. Dal is Tier 1-ranked in Chambers USA for Natural Resources and Environment.
Samantha “Sam” Catalano is an associate attorney at Gallagher & Kennedy’s Santa Fe office. Sam’s practice focuses primarily on the regulatory areas of civil litigation, environmental and natural resources, and oil and gas law, successfully handling motions practice and trial preparation, and appearing before regulatory bodies such as the Oil Conservation Division and the New Mexico Environmental Improvement Board. She is a member of the New Mexico Oil and Gas Association, the State Bar of New Mexico, and the State Bar of Arizona. Sam earned her JD from the University of New Mexico School of Law in 2022, graduating summa cum laude, and served as editor of the New Mexico Law Review during law school.