A House bill that would offer a tax break to what one lawmaker calls the “little guys” of the oil and gas industry cleared its first hurdle Wednesday when the House Energy, Environment and Natural Resources Committee voted 6-5 in favor of it, with Republicans saying the measure could help save small wells and environmentalists decrying it as a bailout.
House Bill 107 proposes cuts to some state taxes for aging wells that generate under 10 barrels of oil per day.
Rep. James R.J. Strickler, R-Farmington, an a oil and gas producer and chairman of the energy committee, said the oil and gas industry is experiencing the longest slump in market prices since 1980.
“We are going out of business,” Strickler told the committee Wednesday, referring to small producers as the industry’s “little guys.” “This bill saves the wells.”
Tom Owens, a petroleum engineer in the San Juan Basin, told the committee his company has experienced layoffs and has been plugging more wells than it is drilling due to the low oil prices and high taxes.
“We need this type of relief,” he said.
House Democrats objected to the tax break, which lacks both a financial cap and an expiration date, and environmental advocates called it a “huge bailout” for the industry.
In 1999, the state adopted a 4 percent severance tax for the oil industry, which was set to drop to 2.8 percent when oil prices fall below $18 per barrel, and 1.8 percent when barrel prices fall below $15. HB 107 would give small producers the 2.8 rate when barrel market prices fall below $65, and 1.8 percent when prices drop below $60. Similar reductions are proposed for natural gas wells.
The tax cuts for the state’s more than 17,000 aging oil and gas wells are estimated to cost more than $4 million for fiscal year 2016 and rise to $38 million in 2017 and up to $58.6 million by 2020.
Oil prices in New Mexico have hovered around $30 per barrel since July. If the House bill is passed, most companies with aging wells, or stripper wells, will be able to benefit from the high emergency caps almost immediately.
“The impact to the budget from this proposal is enormous,” said Rep. Brian Egolf, D-Santa Fe, a member of the committee. He said the bill “props up an industry” that “is not economically viable right now.”
Egolf also said several voting members of the House committee would directly benefit from the tax credit.
Ben Shelton, the political and legislative director for Conservation Voters of New Mexico, said the proposed tax credits are like “trying to stop a hurricane with a hair dryer.”
He said the credits would not address the bigger issue: that oil and gas companies are keeping production high despite a low market price and declining demand.