29-09-04

With energy prices soaring and predicted to remain relatively stable, oil and gas companies across New Mexico are scrambling to buy up state and federal mineral leases at prices not seen since the energy price spike of 2001.

"I think the state Land Office is set for a record year," said Chuck Moran, president of the Independent Petroleum Association of New Mexico. But the reason for the rush, oil and gas officials say, is not just because of high energy prices, but also because of increasingly stringent environmental regulations and more frequent challenges from environmental groups that delay production of oil and gas from new leases.

"To develop a prospective lease, from inception of buying the lease to getting a well drilled, the time is increasing greatly," because of obstructionists, permitting and competition for drilling rigs, Moran said.
"You have got more and more land under lease because the pipeline (to development) is too long" due to environmental challenges, said Mark Mathis, a consultant to the oil and gas industry. "They have to continue to push leases in the pipeline so that down the road they will be ready."

Kristin Haase, a spokeswoman for the state Land Office, said the time to production for state oil and gas leases averages about 3.5 years but couldn't immediately say whether that time has been increasing or decreasing.

Sales of oil and gas leases sold by the state Land Office through September already surpass the totals for 2002 and 2003 and are likely to exceed the $ 29.4 mm raised in 2001. Average monthly sales of state oil and gas leases already top $ 2.7 mm, a higher average than any of the last five years. Yearly sales to date have topped $ 24.3 mm, more than double sales for 2002, when the state raised $ 11.8 mm.

New Mexico's federal lease sales are equally torrid. Already this year, federal sales more than double sales from 2001 through 2003 combined. About 80,000 federal acres have sold for $ 22.8 mm, an increase of 644 % increase over 2001 federal lease sales of $ 3 mm. In all, the state has generated more than $ 142 mm in state revenues from 1.6 mm acres of federal and state oil and gas leases since 2000.

"With prices high, companies have a little more discretionary income and are willing to take a little bit higher risk, because return on investment is higher because of the unusually higher prices, especially in natural gas," said Bob Gallagher, president of the New Mexico Oil and Gas Association.

"You have companies looking for more prospects, purchasing more leases and the leases are a bit more competitive, so you are seeing higher prices for those leases," he said.

High energy prices translated into state lease sales that averaged $ 137 an acre in 2001, compared to $ 191 per acre thus far in 2004, which represents nearly a 40 % increase. The rush to acquire new land has environmental groups wary and ready to wage a pitched battle over every new lease and permit to drill.

Santa Fe-based Forest Guardians, once more likely to challenge timber sales or grazing permits, is familiarizing itself with the ins and outs of the federal and state leasing process and looking to challenge what it considers "rubber stamp" approvals for drilling. The organization has challenged more than 100,000 acres of federal lease sales already this year.

And broad coalitions of environmentalists, ranchers and recreationalists have formed to challenge oil and gas leases elsewhere, most notably in the high-profile cases of Otero Mesa in the south and the Valle Vidal in the north.

"Obstructionists are delaying the process," Moran said. "And that is outside the control of industry and it is making it more expensive to pursue the development of those reserves."

Source: The Billings Gazette