By Not Hiring Enough Staff, New Mexico Leaves Private Contract Money on the Table

It started as a simple question by Adrienne Sandoval, director of New Mexico’s Oil Conservation Division (OCD): How much money would be generated if her division had enough people to clear its backlog of oil and gas well spill remediation plans?

Last fall she contacted the University of New Mexico’s Bureau of Business and Economic Research (BBER) to figure this out, and last week, her office and BBER announced the answer.

Nearly half a billion dollars.

According to the report, if the state of New Mexico footed the salaries for nine more people at OCD, in addition to the five currently working on cleanup applications in the agency’s Environmental Bureau, her office could sign off on remediation works around the state that BBER has roughly valued at $456 million.

That’s $426 million in direct economic impacts — things like hiring people and buying things to do cleanup work — and another $30 million in gross receipts taxes.
 

Although crude oil production has more than doubled in the past seven years, growth in the Oil Conservation Division’s budget has expanded at an annual rate of 4%.

 
As part of the New Mexico Energy, Minerals and Natural Resources Department, OCD gets its money from the state’s general fund. Right now, a proposed state budget from Gov. Michelle Lujan Grisham’s office includes 25 new positions across OCD, five of which are for the Environmental Bureau. (The governor’s proposal was written before the BBER report came out). But the proposed state budget from the Legislative Finance Committee (LCF) offers 5 to 5.5 new positions across all of OCD. A version of the budget passed the House last week, but it offers only a nominal increase over the LFC proposal — and not enough for the new positions. More debate in both the House and Senate is on tap before OCD’s budget is finalized at the close of the Legislative session on February 17th.

The BBER report notes that although crude oil production has more than doubled in the past seven years, “growth in the OCD budget has been muted, expanding at an annual rate of 4%.”

Staff aren’t just grappling with 3,939 backlogged oil and gas spills, though.

OCD has another 16,000 backlogged remediation cases running from the 2000s up to 2018, when reporting rules changed. Sandoval says that the rule change makes clearing these a one-time job, and substantially different from the ongoing remediation work that is the subject of the BBER report.

OCD has also requested a one-time $400,000 expense to clear these 16,000 cases. That money is also pending approval in the ongoing budget battles in the legislature.

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The situation is an example of the old business chestnut: Sometimes you have to spend money to make money. In this case, hiring more state officials would lead to a lot of private-sector work.

BBER’s figures are based on statewide estimates of cleanup costs that average $108,314 per incident, according to the report.

The report also noted that the remediation work would, in turn, directly employ 1,800 people.

The 3,939 backlogged incidents are mostly spills — OCD calls them “releases” — running the gamut from oil to chemicals to produced water, the highly toxic, chemical-laden brine that comes up with oil and gas from wells. They are caused by things like equipment failures, fires, human errors, “lots of different things,” Sandoval says.
 

The BBER report says that the backlog of unchecked cleanup plans will increase by 1,300 cases a year if the state doesn’t hire more people.

 
Operators themselves report these releases to OCD and then file a remediation plan. This is the first part of the bottleneck: OCD needs to review and approve the plans before the company can begin cleanup, and there aren’t enough people to review and approve all of the reports coming in. There are 3,939 of those cases now, but “we also get new ones in each and every day,” Sandoval says. “We are kind of behind in those reviews.”

After the company has completed the work, OCD has to approve what’s been done before the case can be closed — that’s the second bottleneck.

The BBER report says that the backlog of unchecked cleanup plans will increase by 1,300 cases a year if the state doesn’t hire more people.

There is a lot to consider in a cleanup plan. “What is the extent of the spill, both area-wise but also depth-wise? How do they propose to clean it up? What technologies?” Sandoval says. “Is the plan adequate? And if the plan is not adequate, we will either make modifications or suggestions, or we will deny the plan, depending on how it comes through.”

Oil and gas operators then hire or contract a remediation team that cleans up the mess and tries to clean up the affected environment as well. The money those operators spend on cleanup operations is where the $426 million comes from. OCD then has to check the remediation work done to close the case.

“We are aware how much our work contributes to the overall economy of New Mexico,” Sandoval says, “but putting a specific amount on additional revenue provided a helpful perspective.”

BBER director Dr. Michael O’Donnell says that the jobs will be local, where the wells are. That includes the Permian Basin in southeastern New Mexico and the San Juan Basin in the northwest corner of the state. “They’re going to be stimulating growth in these places.”

That’s not to mention the environmental benefits from remediating these thousands of spills that taint public lands, pollute groundwater and affect the health of those living nearby. “That’s not quantified in the report, but is certainly there,” he says.

 
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This article has been updated to reflect the total number of new positions at the Oil Conservation Division included in the proposed state budget from Gov. Michelle Lujan Grisham’s office.