Even if President-elect Donald Trump makes good on his promise to increase domestic oil production by slashing regulations and boosting new leases on federal land, a New Mexico state economist says that won’t necessarily mean a huge increase in production here.
To understand why, the chief economist at the Legislative Finance Committee said you have to look at the way big oil companies, which have consolidated in recent years through mergers and acquisitions, have approached new production in recent years.
Shareholders at publicly traded oil companies are increasingly focused on profits from steady, regimented oil production from existing wells, not spending capital in search of new, potentially unproductive wells, said economist Ismael Torres.
“It’s like this change in attitude that, rather than take the money to do more drilling – to get more market share, to get more production – they’re going to not be so big of risk-takers,” Torres told Source New Mexico. “They’re going to drill where they know that they can earn a profit.”
First Trump term gives hints for second
Torres and the Legislative Finance Committee, which makes budget recommendations to lawmakers. included that prediction in a new revenue estimate for lawmakers ahead of the 60-day legislative session, which will begin in January just as Trump is sworn in for his second term. The state is heavily reliant on revenue from oil and gas production: It contributed an estimated 35% of the state’s general fund balance last year.
In addition to predicting another big budget surplus for lawmakers, the 31-page revenue estimate tried to predict what Trump’s promised policies, including new tariffs and oil deregulation, could mean for the revenues in the nation’s second-biggest oil and gas producing state.
When it comes to tariffs, it’s anyone’s guess, Torres said. The incoming Trump administration has released so little detail that determining the impact of tariffs on consumers or industry is difficult, he said. But the behavior of oil companies in the Permian Basin during the first Trump term, and the LFC’s observations of the industry in recent years, allows the analysts to make an educated guess.
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According to federal Bureau of Land Management Statistics, New Mexico had about 7,570 active oil leases on federal lands as of 2023, the most-recent year for which data is available. That’s the second-highest in the country, behind Wyoming. There are also about 5,700 active leases on state lands, according to State Land Office data.
During the first Trump term, Torres said, oil companies took advantage of relaxed leasing requirements to secure more leases and permits on federal land, but that doesn’t mean they ever broke ground, he said.
Torres provided an industry analysis from Rystad Energy in January 2021, right after President Joe Biden took office, showing that two major producers, EOG and Devon, held onto about 1,100 horizontal drilling permits they obtained for the Delaware Basin in New Mexico between 2018 and 2020 without turning them into actual wells.
Torres’ interpretation of that is companies stockpiled permits while they could, anticipating that a new presidential administration would crack down on new permits, but never intended to immediately drill new wells.
Given the way the oil industry behaved the last time around, and shareholders’ new preference for steady profits over speculation, Torres said, he expects “business as usual” come January.
“The devil’s in the details,” he said. “But I am struggling to see what form it could take that would present a significant change in the current trajectory of production as it stands.”
State budget insulated from oil volatility
The current trajectory of oil production in New Mexico is a slowdown in growth and falling prices, following huge increases in production since 2017, according to the LFC report.
The state now produces a little more than 2 million barrels of oil a day, up from about 500,000 in 2017. But that huge year-over-year increase has already dropped, and it is expected to decrease even more in the next few years, from a 5% increase this year to 1.5% increases each fiscal year between 2027 and 2029.
Oil prices in New Mexico are also falling, from $78 a barrel, on average, last fiscal year to about $70 a barrel this fiscal year. They’re projected to reach $68 a barrel in fiscal year 2026, which begins in July. The LFC attributes that decline to reduced demand, growing supply and other economic conditions.
Between the reduced prices and reduced growth in production, the state expects overall collections to decrease over the next couple years. Analysts estimated the state generated $1.9 billion in oil and gas-related severance taxes this year, a decline of $64 million the previous year.
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That would normally be very bad news, given the state’s reliance on oil and gas revenue. But lawmakers at a Monday meeting lauded the state’s approach to protect the general fund from volatility in the oil and gas industry, at least when it comes to creating a new budget early next year.
Revenue estimates show the state will receive $13.26 billion in revenue this fiscal year, which ends in late June. That estimate was revised upward since the last projections in August, when analysts estimated the state would get slightly over $13 billion. The new estimates mean the state will have about $900 million in “new” money to spend in next year’s budget, which is the total expected revenues minus last year’s spending.
Beginning in 2023, the state began capping the amount of oil and gas severance tax revenues that would end up in the general fund, an effort to invest a boon of oil revenue and insulate state operations from future price slumps.
As a result, the reduction in revenue only hits two reserve funds, like the Early Childhood Trust Fund and the Tax Stabilization Reserve, rather than reducing the general fund balance. Reducing the general fund balance could mean cutting the recurring funding departments use to pay staff or fund operations, along with nixing one-time appropriations.
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Source New Mexico is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Source New Mexico maintains editorial independence. Contact Editor Shaun Griswold for questions: info@sourcenm.com.
