New Mexico Rules Could Lead To Big Changes In Oil Industry

HOBBS, N.M. (AP) — So how does New Mexico’s new regulations on methane emission reduction affect Lea County?

Energy experts and elected officials tell the Hobbs News-Sun the damage could be drastic.

The state Oil Conservation Division issued new rules in May to limit most venting and flaring in the oilfield. They are considered some of the strongest gas capture requirements in the nation.

“We look forward to continuing to work with our stakeholders as we implement these rules that will help New Mexico meet our ambitious climate goals and foster innovation in the oil and gas industry,” division director Adrienne Sandoval said last month.

The rules will work in two phases. The first is data collection and reporting of any natural gas loss at every stage of the production process. That information would be used in phase two, requiring upstream and midstream operators, including pipelines, to attain a higher level of natural gas capture each year, culminating in 98% natural gas capture by the end of 2026.

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It’s an attack

Rep. Larry Scott, R-Hobbs, believes the rules are an attack on independent, small oil producers.

“For low volume wells, which are produced at 3 to 5 barrels a day, even up to 10 barrels a day, it is in most cases uneconomic to try to capture gas vapors off of stock tanks because there’s just not enough there to justify the expenditures,” Scott said. “My fear and the fear of many in the Independent Petroleum Association of New Mexico — and that organization represents mostly lower volume producers — it’s going to cause the premature abandonment of many of these properties. That is of great concern to me.”

One of these low-volume producers is Hobbs-based Me-Tex Oil & Gas, Inc.. Owner Mark Veteto said the new emissions rules will force many wells to be shut in because production output doesn’t justify the added costs to update older wells with the necessary technology to monitor and capture emissions.

But at 10 barrels a day, are the emissions not captured that worrisome?

“It’s like a drop of water in the ocean if you think of it in terms of water,” Veteto said, who has 47 years in the oil and gas business, the last 35 as Me-Tex’s owner. “You have a company producing 500 barrels of water a day and a company like mine producing two gallons of water a day. So what does my two gallons have to do with your swimming pool full of water?”

“The amount of oil produced by these low-volume oil wells is nothing compared to what the ‘big boys’ are producing every day," he said. "When you are producing 130,000 barrels of oil and gas a day, at $60 a barrel, you can overcome the costs to have a well updated with automated systems used to better monitor and capture those emissions.”

Within Lea, Chaves and Eddy counties, Veteto believes there are about 65,000 oil wells. These wells are what make up the central basin platform within the Permian Basin.

An independent, small oil producing company is considered to produce as much as 1,000 barrels of oil a day. In Lea County, there are about 1,000 producers and around 50 of those are considered small producers like Me-Tex, which produces about 500 barrels a day of both oil and gas.

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Do the math

Small producers hoped the new emissions rules would not apply to them because the amount they produce is nothing compared to the likes of Oxy, Marathon Oil, Chevron, Mewbourne Oil and ConocoPhillips. Now that the rules have been established, it’s shown that not only are they included, but they are going to monitored at the same pace and rate as the large oil producers.

The data collection is based on how the monitoring system of emissions is calculated. Everything from hydrogen sulfide and carbon dioxide to methane and other contaminants are all monitored. These emissions come off a number of well components from the well tanks to the valves.

The formula used is done in percentages, which is how the new state rule is got its 98% mark, not in total volume. The percentage of oil and gas emissions from a 10-barrel, or even 500-barrel-a-day well is nothing compared to that of a 130,000-barrel-a-day well.

“If you have a well that’s making a million cubic feet of gas a day or 5,000 barrels a day, that 5,000 barrels will have a gas residue that comes off the oil, at some percentage,” Veteto said. “So the larger volumes, when you are talking about a 2,000-barrel-a-day well or a million cubic feet of gas, on percentages then what we (small oil producers) had hoped is that anything below, say, 100,000 cubic feet is exempted. It’s a legacy lease that has been producing for years. They are usually stripper wells, which are wells that produce 10 barrels a day or less.”

Veteto said the argument from the environmentalists is if there are 10,000 legacy wells and 10,000 stripper wells, if added all together, that would be 100 tons a month of emissions.

“And that is just not true,” Veteto said. “It’s all about ratios not percentages. And we had assumed we would be exempted because of what we are contributing is so small compared to Oxy, Chevron and Exxon.”

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It’s all about cost

Legacy wells are wells that have been working for decades and are considered “grandfathered” by the oil and gas industry. Some of these wells have been producing low volumes of oil since the early years of the industry in Lea County and their ownership has been transferred over time.

The producing process of these older wells is done the old-fashion way, through gas pressure. The older wells use gas actuated valves that open and close the wells whenever pumping increases or decreases during a day. The amount of oil and gas pumped is filled into a vessel and once it reaches a certain fill point, the gas actuated valves open and the gas and oil is sent into the sales line, or gas line.

“Any time there is a gas actuated valve that operates, there is a tiny amount of gas that has to pass through this diaphragm and it goes into the atmosphere,” Veteto said, “and it’s very small volumes. They are not even measurable. You can smell it but it’s not measurable. So with the new methane rules, they are calling for us not to have any odor or emissions. So that would mean my gas actuated valves have to be replaced with electric automated valves.”

Rewiring and replacing the valve components would cost around $100,000 to $300,000. That might be a simple cost for an oil well that produces 130,000 barrels a day, but what about for a 5-barrel-a-day well or even a 100-barrel-a day well?

Veteto said there are other monitoring and capturing systems that can be installed on older wells to help with emissions, but that just adds to the cost.

“It becomes about what’s economical?” Veteto said. “I have a 3-barrel a day well, and I have to spend $100,000 to recover the gas? How long would it take for me to recover that expense. The newer wells that the big companies are using have this technology and those wells are producing large enough amounts of oil and gas to justify the costs. Me and my small wells can’t make that same justification. So do the math.”

Veteto also said the new monitoring systems would require additional employees or contracting with other companies.

"More site assessments, more filing reports and that is more labor that carries a cost. Anything that takes time is a cost,” he said.

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Helping or hurting?

The loss of emissions is the loss of product. That means the loss of sales and money. No company wants to hemorrhage its product.

That is why major oil companies are spending millions in updated technology to capture more emissions. Usually if there is emissions found, it’s by accident or by breakdown.

“I think industry has done everything they can to protect us,” said Sen. David Gallegos, R-Eunice. “That flaring is not there because they want to lose gas. It’s there because a compressor is down or a pipeline is compact. They don’t have any volume in a line anymore or they have a breach or a break in the line and they have to shut the valve off.”

Gallegos hopes at some point state legislators will start to understand the damage being done to the local oil and gas industry.

“I don’t know if it will be fast enough before they hurt the industry in Eddy and Lea County and ultimately the state,” Gallegos said. “I think (the emissions rule) is going to be really bad for our state and for our county. “

U.S. Rep. Yvette Herrell, who was recently in Hobbs, believes the new rules are more governmental overreach.

“I think this is just a precursor of what we are seeing at the state level and at the federal level,” Herrell said. “In my opinion it is overregulation. It is going to end up really hurting our small producers, midstream producers."

“New Mexico has done a really good job as it relates to emissions, with high production numbers and lower emissions,” she added. "But they are on track at the state and federal level to put the squeeze on our industry that is so very vital to the state of New Mexico for a number of reasons. Not just energy independence, but budget, classrooms, infrastructure, jobs, communities, service providers. It’s across the board and it is unfortunate.”

Larry Behrens, western states director for Power The Future, a national organization promoting the national energy effort, also believes the regulation gives more control to Gov. Michelle Lujan Grisham and environmental supporters.

“Just like Joe Biden, the governor is trying to hurt our energy workers by taking executive actions,” Behrens said. “This rule isn’t about methane, it’s about attacking an industry and workers that make a difference for New Mexico."

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Wanting a clean environment

Along with the use of the modern technology, oil companies are making a push to have environmentally aware advisors working for them. Exxon Mobil shareholders recently elected three climate-focused directors to the board.

Locally, Veteto said Me-Tex does everything it can to make sure its well sites are running as efficiently and economically safe as possible. And those companies that don’t, they have been fined by the state.

Leland Gould, chairman of the New Mexico Oil and Gas Association, said members are committed to protecting the health and environment of the communities where oil and gas operates and they support “sound, science-based regulations” to reduce methane emissions and ozone levels.

“Throughout this two-year process, we have been dedicated to working with regulatory bodies to share our industry’s scientific and environmental subject matter expertise,” Gould said. “As we review the rule in detail, we will look for opportunities to engage the department with industry’s technical professionals to encourage greater innovation and cost-effective solutions."

So what’s the answer?

Scott believes the new rules will end the small-volume producers and that the ecological benefits to the planet will not be measurable.

Veteto suggested that state legislators should create regulations that are proportional to the amount of oil production.

If it’s not economically feasible to automate the wells then the answer is to shut the well in, close it and, as Veteto said, move to Texas, where state regulations are more economically friendly.

“And a lot of people are doing that,” he said. “My guess is that all of these operators out of Texas, Oklahoma and North Dakota that are down here, they are all like I am. They are going to wait and see how tough is it going to be."