Oil Patch Prediction

Economic analysts say lost oil and gas industry jobs won’t rebound in New Mexico

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This story is republished from Capital & Main, a nonprofit that reports on the most pressing economic, environmental and social issues of our time.

New Mexico’s oil and gas industry has rebounded to pre-pandemic levels in key categories, delivering record amounts of petroleum to markets, money to state coffers and helping add record amounts of carbon dioxide to the atmosphere. But what haven’t rebounded are the state’s oilfield jobs, which are expected to remain 25% or more below pre-pandemic levels for at least the next five years.

According to recent projections from the Bureau of Business and Economic Research (BBER) at the University of New Mexico, oil and gas jobs in New Mexico will return to only 74% of their pre-pandemic levels in the near future.

For years, state officials and industry boosters have pointed to oilfield revenues and jobs as the two main reasons for supporting an industry that also fuels the state’s climate emergency. Now, one of those key reasons is likely dissipating.

“Basically, the production of oil is becoming more efficient,” says BBER Acting Director Michael O’Donnell. The state is hitting “maximum levels of production” he says, “and yet employment is low.”

The BBER employment calculations rely upon a close reading of past employment, industry news and interviews with industry leaders, O’Donnell says. And there’s no question that the industry is pumping oil and gas from the ground at record rates, with fewer people.

Democratic state Sen. Carrie Hamblen of Las Cruces is worried about what happens to workers displaced by the shifting industry. “We have to put an infrastructure in place where the folks who are working in those jobs can get job training and make either equal to or more than what they’re making today so that they can support their families.”

One of Gov. Michelle Lujan Grisham’s primary goals upon entering office was to dramatically reduce the state’s greenhouse gas emissions, more than half of which come from oil and gas production. That goal led to two sets of state rules (one not yet implemented) designed to clean up waste and leaks in the industry. But both rules depend heavily on self-reporting by operators. It’s not clear how those operators can monitor more than 53,000 active oil and gas wells in the state (and growing) with 26% fewer people in the field.

Hamblen says, “We now know how damaging this extractive industry is to the environment.” That’s a prime reason she’s working to diversify the state economy away from oil and gas.

“What are the logical and environmentally conscious ways that we can move forward?” she asks.

In the first quarter of 2020, there were about 25,000 people in New Mexico working in the mining sector, which mostly entails oil and gas jobs. A year and a global pandemic later, there are about 17,000 jobs in that sector—a 32% drop.

Dawn Iglesias, chief economist at the Legislative Finance Committee (LFC), which uses BBER reports in its forecasts for state legislators and other branches of government, says that total employment in the sector is forecast to rise to just under 19,000 jobs by the end of 2026, about 25% lower than pre-pandemic levels.

The BBER produces proprietary economic forecasts and reports for government agencies; it doesn’t share them publicly. The LFC’s Iglesias described what’s in the report, and Acting Director O’Donnell confirmed the details.

In particular, employment is down in the Permian Basin, the state’s largest, most productive oil and gas field.

Iglesias says the long-term drop-off in oil and gas employment isn’t too surprising in light of losses following previous petroleum boom-bust cycles. Carlsbad, for example, has see-sawed between boom-bust cycles for decades. The previous boom cycle busted in 2015 with the crash of natural gas prices, caused by overproduction across the country.

“To put this into context,” Iglesias says, “the state had about 28,000 mining jobs prior to [the] oil price crash of 2014-2015 and never recovered to those employment levels.”

That represents 3,000 fewer jobs at the peak of the 2020 boom than in the 2015 boom. Yet 50% more gas and over 160% more oil was produced at the 2020 peak than during the 2015 peak.

This bust period is different as well.

Jobs aren’t gone because there isn’t demand for oil and gas, or because there are better jobs elsewhere. Quite the opposite: Oil production has rebounded to pre-pandemic levels in New Mexico, something that has not happened in other major oil producing states.

Rather, the jobs are gone because the companies haven’t hired people back.

In other words, it’s a boom for industry and—so far—a bust for workers.

Economists aren’t oracles, and their predictions aren’t set in stone. But they are useful to state legislators planning future budgets and state agencies estimating future projects.

Kelly O’Donnell (no relation to BBER’s O’Donnell) is a research economist at the University of New Mexico who also prepares economic analyses for institutions across the state. She also worked in state government during Gov. Bill Richardson’s administration and recently published a study on oilfield remediation possibilities in the state.

“One thing I know,” says O’Donnell, “is that anything related to the oil industry is devilishly difficult to predict….The margins of error are huge.”

However, there is concurrence with the BBER outlook for oilfield jobs in the Permian Basin.

“A forecast of oil patch employment? That’s a tough one,” she says. “But that [BBER] forecast sounds very realistic to me.”

That’s in part because many of the world’s economies are transitioning ever more quickly away from fossil fuels. And many of those transitions are driven by climate change, which is driven by burning fossil fuels.

Notwithstanding recent rains, New Mexico is sweltering through one of its driest periods in modern recorded history, just the latest reflection of the changing climate in the region.

New Mexico’s Leading Industries for Employment

According to the most recent Labor Market Review by the state Department of Workforce Solutions, New Mexico’s nonagricultural employment rose by 39,900 jobs year to date as of May 2021. Here’s how the state divides the major industry sectors.

  • Government - 177,500
  • Health Care and Social Assistance - 117,500
  • Professional and Business Services - 107,200
  • Leisure and Hospitality Services - 87,500
  • Retail Trade - 87,200
  • Construction - 47,600
  • Financial Activites - 32,700
  • Manufacturing - 27,000
  • Transportation, Warehousing and Utilities - 25,800
  • Other Services - 26,100
  • Wholesale Trade - 20,600
  • Educational Services - 18,700
  • Mining and Logging* - 17,400

* Oil and gas industry jobs fall largely in this category.

Despite a now-overturned federal pause on new oil and gas leases on federal lands, a stockpile of thousands of previously approved drilling permits has allowed production to continue. The number of well-drilling rigs is rising, too. At a recent LFC meeting, Iglesias presented data showing that part of the state’s oil and gas good fortune stems from the low cost of pumping oil here, with break-even points roughly equal to those just over the border in Texas.

That’s in part because of geography. Back in February at a state Senate committee meeting, Stephen Robertson, the executive vice president of the Permian Basin Petroleum Association, an industry trade group in Texas, said as much.

“If all things were left equal, and you’re purely deciding where to operate based off of geology, it would be in southeast New Mexico, out of the entire United States,” he said. “That’s where the rock is.”

The monetary windfall to the state comes with a risk: “The more that we rely on oil and gas activity in the budget mix, the more volatile the state budget,” Iglesias said at a June meeting of the LFC.

Therefore, economists say the best way to stem that risk is to diversify the state’s revenue streams. No single industry can replace the windfall from oil and gas, which makes up a third of the state budget. But there may be money to be made—lots of it—from cleaning up after that industry now.

Earlier this month, Kelly O’Donnell released a report on oilfield remediation in New Mexico. It’s an industry that she says could bring billions to the state.

The key to that economic performance, though, is that New Mexico doesn’t end up paying for it. Otherwise, it would be “taking money from one pocket and putting it into another pocket,” she says. The money would preferably come from the companies that drill in the state or the federal government.

“We really need to start preparing for a future in which oil and gas is not the source of jobs and revenue that it once was,” she says.

The well reclamation plan has twin benefits: It would plug thousands of wells currently leaking methane—a greenhouse gas that is up to 80 times more potent than carbon dioxide—and other toxins.

Plus, it could employ laid-off oilfield workers to essentially undo what they have done in past years as they employ their skill sets in reverse.

“Those would be oilfield jobs,” Kelly O’Donnell says. “No question about that.”

From 2018 to early 2020, Carlsbad, New Mexico, was the epicenter of an oil and gas boom that was almost more than locals could bear. Eddy County Commissioner Ernie Carlson says there were housing shortages, empty shelves at Walmart and overflowing “man camps” at the edges of town, where oilfield workers—nearly all men—lived cheek-by-jowl in RV parks and trucked in temporary housing.

“We would have whole apartment complexes that would be built,” says Kayley Shoup, the director of Citizens Caring for the Future in Carlsbad. “And then Chevron or someone would come in and they would rent every single apartment for housing for their employees.”

Driving through the oilfield today, the wells are still pumping, and there is still the constant background whiff—sometimes overpowering—of benzene, toluene and other hydrocarbons seeping from well sites.

But in town, the boom appears to have deflated. The traffic is calm, the hotels once again have affordable rooms and there are dozens of homes awaiting sale. Head north or south out of town, and there aren’t nearly the number of white full-sized pickups or tanker trucks driven by oilfield workers.

Jobs across the state are projected to recover to pre-pandemic levels in the next two years or so, says Michael O’Donnell at the BBER—except in the Permian Basin counties of Eddy and Lea. They are “projected to do kind of the worst, really,” he says. It is the only part of the state not predicted to return to pre-pandemic employment levels by 2026.

But some local and state leaders don’t believe the economic projections.

“I just don’t believe that way,” says Republican state Sen. Gregory Baca, the minority floor leader. “I follow what I see. I talked to people within the industry, and that’s who I believe. I think they’re the most reliable source of information.”

When asked if he believes “people within the industry” more than the state’s economists, Baca says, “Yes.”

Carlson has lived his entire life in Carlsbad, and he thinks that the Permian will boom again.

In fact, he wants the state to spend money on Eddy and Lea counties. “What I’m worried about is getting the infrastructure in place [so] that we don’t ever see the crisis that we had from the boom,” he says. And he saves particular scorn for the economic forecasts from BBER and the state’s Legislative Finance Committee that point to a muted rebound in jobs in the Permian.

“If you ever have spent much time in Carlsbad, you’ve got to know that’s bullshit,” Carlson says.

But the economists aren’t so sure.

“The transition away from fossil fuels is pretty inevitable. At this point, we don’t know how fast it will happen or exactly how it will proceed, but it’s going to happen,” says Kelly O’Donnell.

Her paper on oilfield remediation notes “international price wars, environmental liabilities and the accelerating transition to renewable energy are already eroding the industry’s economic dominance.”

She says, “What New Mexico needs to be thinking about is how to manage that transition in a way that is least detrimental to those communities that are really oil and gas dependent.” It’s an argument noted by economists across the state.

Doubling down on an industry with an increasingly troubled environmental and economic future is not something any of them recommend.