Published 10/30/08
A Rio Arriba County company has started selling equipment and laying off workers in the wake of new state and County limits that oil and gas industry representatives claim are hurting the industry.
Industry representatives’ main complaint is against a new “pit rule” adopted in May by the state Oil Conservation Commission. The rule’s purpose is to protect groundwater from being contaminated by wastes created during drilling and production by instituting more stringent rules for pits and tanks where such materials are stored before being disposed of. In their applications to the state, companies now must outline their disposal plans for well sites.
Because of delays he attributes mainly to the pit rule, Craig Schmitz, of Lindrith, said his business is also slowing.
“That’s what’s really come to a screech,” he said.
Schmitz owns TNT Environmental, which builds roads used by drillers and well sites, and does reclamation work on existing sites, for operators mostly in the western part of the County. He said he has had to sell two bulldozers and several trucks. He also said he had to lay off four employees in the last month, with a few more layoffs to come if things don’t pick up. Earlier in the year, he employed 18 people. If things remain slow, that number may be cut in half.
Schmitz said the County’s temporary moratorium on new drilling on privately held lands is also partially responsible for his business’s decline. Texas-based Approach Resources wanted to start drilling test wells near Tierra Amarilla beginning in June, which led to the County instituting a temporary drilling ban in April. It was later extended until February 2009. County officials said they wanted to institute rules to protect the environment in places where drilling isn’t currently taking place, and Governor Bill Richardson directed the Division to create County-specific rules along the same lines.
Schmitz’s company created a road and well pad on one of the sites Approach planned to drill. He said if Approach had been allowed to go forward with the nine other permits it applied for, he would have had enough business to carry his company through the year.
“That would’ve kept us through,” he said.
The New Mexico Oil and Gas Association Director Bob Gallagher said companies are frustrated they have to reapply for permits that were granted before the pit rule was adopted, and the Division is taking longer to approve permits. He said he has seen a big backlog of permits that have slowed drilling in the state.
“(The Bureau of Land Management) for instance, on federal land, was seeing between 40 and 50 applications a week, and now they’re seeing around 10,” Gallagher said.
Bureau Minerals Manager Dave Mankiewicz said those numbers are about right, and he did see the decrease immediately follow the pit rule’s adoption. Nearly 70 percent of drilling in the County takes place on Bureau lands.
Division Director Mark Fesmire said the state is “bending over backwards” to help companies get their permits approved, and it is also working with companies that have to retrofit their underground tanks to comply with the pit rule to make sure they can get the work done and not be cited for violations. He blamed other factors, such as natural gas prices that have fallen almost $5 a unit from July to September, for the slowdown.
ConocoPhillips Project Manager John Zent said his company’s application submissions in New Mexico have dropped from close to 30 a month to fewer than 10.
“We had to go back and resubmit and repermit nearly 100 wells,” he said. “That detracted from our ability to initiate new work.”
Zent said the County’s moratorium is also affecting ConocoPhillips. He said 22 wells the company plans to drill on private lands in 2009 could be halted, as five have been this year.
“We should be permitting those wells right now,” he said. “We’ve got no assurance the moratorium’s gonna be lifted.”
County records following the institution of the pit rule and moratorium show County revenues haven’t suffered because of it. Taxes on oil and gas production and equipment accounted for about 60 percent of County revenues last year.
During the three months following the enactment of the moratorium in April, the County actually saw an increase of more than $700,000 in oil and gas revenues compared with the same time period in 2007, and the County collected nearly $500,000 more in July of this year in oil and gas revenue than it did in the same month in 2007.
Nevertheless, Gallagher said drilling rigs are leaving New Mexico for surrounding states, and he has seen support businesses like Schmitz’s suffering.
“They’re seeing equipment in the yard for the first time in a couple of years,” he said.
Fesmire said some of the decline in the number of permits is because of a $4,000 permitting fee that the Bureau instituted last year, and he said a lot can be attributed to low gas prices.
“That has not impacted our capital decisions at this point,” Zent said of the price of gas. “We still wanna drill what we’ve got.”
Gallagher also pointed to drilling rigs leaving New Mexico to do work in other states as evidence the drop in gas prices is not responsible for the drilling slowdown. Fesmire said he has heard other company representatives say gas prices have not affected their drilling activities, but he said they are being disingenuous.
“They wanna try to blame it on us,” Fesmire said.
He said the positive effects of the pit rule aren’t yet measurable, but companies in the state’s southeastern oil fields have been using more and more closed-loop systems, which comprise steel tanks that collect waste from well sites, while the mostly gas drilling companies in areas in or near Rio Arriba have been more reluctant to install the more expensive systems, saying that gas drilling and production is cleaner than that of oil.
By Matt van Buren
SUN Staff Writer
A Rio Arriba County company has started selling equipment and laying off workers in the wake of new state and County limits that oil and gas industry representatives claim are hurting the industry.
Industry representatives’ main complaint is against a new “pit rule” adopted in May by the state Oil Conservation Commission. The rule’s purpose is to protect groundwater from being contaminated by wastes created during drilling and production by instituting more stringent rules for pits and tanks where such materials are stored before being disposed of. In their applications to the state, companies now must outline their disposal plans for well sites.
Because of delays he attributes mainly to the pit rule, Craig Schmitz, of Lindrith, said his business is also slowing.
“That’s what’s really come to a screech,” he said.
Schmitz owns TNT Environmental, which builds roads used by drillers and well sites, and does reclamation work on existing sites, for operators mostly in the western part of the County. He said he has had to sell two bulldozers and several trucks. He also said he had to lay off four employees in the last month, with a few more layoffs to come if things don’t pick up. Earlier in the year, he employed 18 people. If things remain slow, that number may be cut in half.
Schmitz said the County’s temporary moratorium on new drilling on privately held lands is also partially responsible for his business’s decline. Texas-based Approach Resources wanted to start drilling test wells near Tierra Amarilla beginning in June, which led to the County instituting a temporary drilling ban in April. It was later extended until February 2009. County officials said they wanted to institute rules to protect the environment in places where drilling isn’t currently taking place, and Governor Bill Richardson directed the Division to create County-specific rules along the same lines.
Schmitz’s company created a road and well pad on one of the sites Approach planned to drill. He said if Approach had been allowed to go forward with the nine other permits it applied for, he would have had enough business to carry his company through the year.
“That would’ve kept us through,” he said.
The New Mexico Oil and Gas Association Director Bob Gallagher said companies are frustrated they have to reapply for permits that were granted before the pit rule was adopted, and the Division is taking longer to approve permits. He said he has seen a big backlog of permits that have slowed drilling in the state.
“(The Bureau of Land Management) for instance, on federal land, was seeing between 40 and 50 applications a week, and now they’re seeing around 10,” Gallagher said.
Bureau Minerals Manager Dave Mankiewicz said those numbers are about right, and he did see the decrease immediately follow the pit rule’s adoption. Nearly 70 percent of drilling in the County takes place on Bureau lands.
Division Director Mark Fesmire said the state is “bending over backwards” to help companies get their permits approved, and it is also working with companies that have to retrofit their underground tanks to comply with the pit rule to make sure they can get the work done and not be cited for violations. He blamed other factors, such as natural gas prices that have fallen almost $5 a unit from July to September, for the slowdown.
ConocoPhillips Project Manager John Zent said his company’s application submissions in New Mexico have dropped from close to 30 a month to fewer than 10.
“We had to go back and resubmit and repermit nearly 100 wells,” he said. “That detracted from our ability to initiate new work.”
Zent said the County’s moratorium is also affecting ConocoPhillips. He said 22 wells the company plans to drill on private lands in 2009 could be halted, as five have been this year.
“We should be permitting those wells right now,” he said. “We’ve got no assurance the moratorium’s gonna be lifted.”
County records following the institution of the pit rule and moratorium show County revenues haven’t suffered because of it. Taxes on oil and gas production and equipment accounted for about 60 percent of County revenues last year.
During the three months following the enactment of the moratorium in April, the County actually saw an increase of more than $700,000 in oil and gas revenues compared with the same time period in 2007, and the County collected nearly $500,000 more in July of this year in oil and gas revenue than it did in the same month in 2007.
Nevertheless, Gallagher said drilling rigs are leaving New Mexico for surrounding states, and he has seen support businesses like Schmitz’s suffering.
“They’re seeing equipment in the yard for the first time in a couple of years,” he said.
Fesmire said some of the decline in the number of permits is because of a $4,000 permitting fee that the Bureau instituted last year, and he said a lot can be attributed to low gas prices.
“That has not impacted our capital decisions at this point,” Zent said of the price of gas. “We still wanna drill what we’ve got.”
Gallagher also pointed to drilling rigs leaving New Mexico to do work in other states as evidence the drop in gas prices is not responsible for the drilling slowdown. Fesmire said he has heard other company representatives say gas prices have not affected their drilling activities, but he said they are being disingenuous.
“They wanna try to blame it on us,” Fesmire said.
He said the positive effects of the pit rule aren’t yet measurable, but companies in the state’s southeastern oil fields have been using more and more closed-loop systems, which comprise steel tanks that collect waste from well sites, while the mostly gas drilling companies in areas in or near Rio Arriba have been more reluctant to install the more expensive systems, saying that gas drilling and production is cleaner than that of oil.