New Mexico legislators have so far proposed 19 bills this session that could directly—and at times dramatically—change how the oil and gas industry operates in the state. If passed, most would be carried out by one of two state agencies, both facing tight funding exacerbated by years of explosive growth in the oil and gas sector. And the head of the state’s Legislative Finance Committee has threatened to cut funding to one of the agencies and threatened its secretary with legal action.
If it were a country, New Mexico today would be the 11th largest oil producer in the world, just behind Kuwait. But as oil production has leapt—more than 560% in the past decade—funding has fallen behind at the New Mexico Environment Department and the Oil Conservation Division.
The result shows up as air pollution and other environmental problems in the state’s two oil producing regions, particularly the Permian Basin. It’s the larger of the two and the epicenter of the United States’ ongoing oil and gas boom. Both the New Mexico Environment Department and an outside research group have documented extreme air pollution there. The researchers also found a radioactive plume blowing into the small town of Loving, N.M., a possible result of nearby industry operations. All the while, the region is shaken by small quakes triggered by millions of barrels of toxic oilfield wastewater that are injected daily beneath the oilfields.
Gov. Michelle Lujan Grisham’s third executive order upon taking office in 2019 set dramatic greenhouse gas reduction goals, and in response, state agencies established rules to limit the release of methane and so-called ozone precursors, which are also climate-damaging gases. Methane is roughly 80 times more powerful than carbon dioxide at trapping heat during its first years in the atmosphere. And the precursors are dangerous pollutants that combine in sunlight on hot days to create ozone, a serious health threat. The results of these state actions have been mixed.
Melanie Kenderdine, secretary designate for the Energy, Minerals and Natural Resources Department—the mothership to the Oil Conservation Division — told legislators in November that New Mexico ranks second among oil-producing states and fourth in marketed natural gas. “New Mexico ranks ninth in regulatory staffing in managing the environmental impacts of this production. So we’re second, we’re fourth, and we’re ninth in staffing,” she noted.
“Because production has increased so, so dramatically … it is hugely important that our staffing keep up with that production,” Kenderdine said. “We could use additional staff.”
Sen. Jeff Steinborn (D-Las Cruces) responded, “I think you would find a very friendly Legislature” if she asked for more staff.
Before taking the job in May, Kenderdine spent four decades working for former New Mexico Gov. Bill Richardson when he was in Congress, in the Clinton and Obama administrations and at think tanks such as the Atlantic Council.
In her presentation to state legislators, she asked for a 14.6% funding increase for the Oil Conservation Division, which would lift its budget for the next fiscal year to $67 million, much of that for pay increases to retain staff who are regularly poached by the oil and gas industry. Sidney Hill, the public information officer for the Energy, Minerals and Natural Resources Department, said 4% of the increase would pay for the state’s ongoing application to take over regulation and licensing of carbon injection wells from the federal government—though not enforcement.
Carbon dioxide is the primary gas driving climate change, and these so-called Class VI wells can permanently store gas captured from (among other things) the air, from fossil-fuel power plants or as a waste stream of hydrogen produced from methane, a long-running project for Lujan Grisham.
In December, Lujan Grisham’s executive budget proposal offered a 14.3% budget bump — slightly lower than Kenderdine’s request. The Legislative Finance Committee recommended a smaller 13.7% raise.
In a budget hearing before the House Appropriations and Finance Committee last month, Kenderdine again noted the “huge, huge” increase in oil and gas production over the past decade in New Mexico.
Rep. Meredith Dixon (D-Bernalillo), the committee’s vice chair, tried to put a positive spin on the production growth, asking, “New Mexico has some of the lowest emissions and cleanest produced oil and gas in the world, right?” Kenderdine seemed to hedge, answering that methane emissions are “dramatically lower than Texas, for example.” Texas has the highest methane emissions in the nation.
Rep. Debra Sariñana (D-Albuquerque) then peppered Kenderdine and Ben Shelton, the department’s general counsel and acting deputy cabinet secretary, with questions about enforcement and funding. Shelton described thousands of likely abandoned oil and gas wells that could saddle the state with a cleanup bill totalling “hundreds of millions of dollars,” a burgeoning produced water problem and continued seismic activity. “The produced water issue literally spills over onto the ground,” he said.
Sariñana said, “So this budget has to grow … so you can do your job.”
Rep. Nathan Small, D-Doña Ana, the committee chair, wrapped up the hearing. “Great hearing, members,” he said, and then asked the committee to adopt the Legislative Finance Committee’s smaller proposed budget, which it did.
The Oil Conservation Division hasn’t had a fully confirmed director since November 2023. That person, Dylan Fuge, was a man of many hats in state government before leaving for a job with Earthjustice last summer. Between 2021 and July 2024, he was director or acting director at the Oil Conservation Division, and/or legal counsel, acting legal counsel, deputy director and/or acting deputy director at the Energy, Minerals and Natural Resources Department. His various positions usually overlapped two at a time to cover recurring high-level vacancies. His photo still floats, unlabeled, on Shelton’s biography page at the Energy, Minerals and Natural Resources website. The current acting director at the Oil Conservation Division, Gerasimos Razatos, was previously the deputy director for two years. Before that he worked at the state’s Motor Vehicle Division and the Department of Public Safety.
Tom Singer has monitored and critiqued the state’s fossil fuel regulatory environment for years as a senior policy adviser at the Western Environmental Law Center. He takes a dim view of the division’s funding and management shuffles: “The agency remains rudderless, understaffed and utterly unable to effectively regulate the industry.”
The Environment Department’s budget is another beast entirely. Its monitoring programs sprawl across everything from water quality to dry cleaning chemicals to PFAS contamination to marijuana sales to air pollution at oil and gas facilities.
In addition, the department will undergo two major institutional shifts this year. One will reorganize how it pays its bills by removing an antiquated and confusing double-entry accounting system. The second will create a stand-alone Enforcement Bureau, removing prosecutorial duties from divisions that issue and monitor permits—ending a source of possible conflicts of interest within the agency. And that has led to a dust-up between the department and the Legislative Finance Committee.
Drew Goretzka, director of communications at the Environment Department, said the department has a “critical need” of more staff and resources to run the Air Quality Bureau, “in a way that holds all oil and gas facilities in New Mexico accountable.”
To do that, the Environment Department petitioned its governing Environmental Improvement Board last year to give it the ability to charge fees to cover the costs of enforcing state air pollution standards.
“Everybody who needs a permit from [the Environment Department] pays a fee,” said James Kenney, the department secretary. “If we can charge the cost of our permit engineers to issue a permit, why can’t I charge the cost of my enforcement engineer to work on that enforcement case?” he asked. “I’m just recouping the cost of my expenses like I would on issuing a permit.”
However, the Environmental Improvement Board didn’t approve the plan at its June meeting. “EIB said there was insufficient evidence and said to come back” and pitch the plan again, Goretzka said. That set off a complicated chain of events.
In early September, Kenney submitted the New Mexico Environment Department’s budget proposal for the upcoming year. That included the hoped-for but unapproved money from compliance fees. But the Environmental Improvement Board didn’t discuss the department’s administrative cost proposal at its meeting in mid-September, creating a hole in the already-submitted budget. So in mid-January Kenney made a budget adjustment request to transfer $4.9 million from the department’s Air Quality Permit Fund to cover the unrealized income from fees. Budget adjustment requests are a state mechanism to pay for unexpected expenses at departments and usually entail a grilling by legislators.
That request exploded at the Legislature’s finance committee.
Charles Sallee, director of the Legislative Finance Committee (the overarching budget-building agency for the House and Senate), fired off a complaint to the Department of Finance and Administration (which helps develop budgets and administer state affairs). He said the budget adjustment request was bigger than allowed by law; used a nonrecurring funding source—the Air Quality Permit Fund—for recurring costs; and that the New Mexico Environment Department had requested the budget adjustment right before the start of the annual legislative session. That timing limits the committee’s ability to hold public hearings on it, “meaning it would go into effect in the middle of the legislative session without an opportunity for a public hearing as called for in law,” Sallee said.
The Environment Department responded by issuing a public notice that there would be delays reviewing and issuing permits at the Air Quality Bureau due to an “inadequate budget.” Kenney has said that at the bureau, “The lion’s share of the work we do is oil and gas,” both monitoring and permitting. And the bureau is required by statute to either approve or deny permits within specific time frames. The notice of delayed permitting was an attempt to keep the department from getting sued for not meeting those deadlines, Kenney said.
The notice prompted a fiery return volley from Sen. George Muñoz (D-Gallup), the powerful chair of both the Senate and Legislative Finance Committees. After repeating many of Sallee’s complaints, he wrote that last year’s initial denied fee request from the Environmental Improvement Board “further undermines the necessity of this additional funding.”
He then wrote that both the delay notice and the requested budget adjustment request raise “real questions as to the department’s compliance with both its statutory and fiduciary obligations.” He vowed to “refer any conduct that appears to violate state law to the appropriate agency, including the New Mexico Department of Justice, for review and investigation.”
“This is the same monster we run into every single time during the [legislative] session,” Muñoz said later. “There’s always some emergency that [Kenney] doesn’t have enough money. Is that the Legislature’s fault that he doesn’t plan? I don’t think so.”
Muñoz said in the end the department’s budget adjustment request might not violate statutes, but it can’t declare an emergency and not issue permits.
“There is a fault of mine,” Kenney said. “I don’t have an accurate crystal ball for everything.”
***
“I love oil and gas!”
It was Jan. 28, five days after the fiery letter, and Muñoz was addressing the members of the Senate Finance Committee and several department heads who were waiting to be interrogated about their own budget adjustment requests. He riffed on what he had said earlier in the day on the Senate floor, where he thanked the oil and gas industry for what it brings to New Mexico—namely, money to feed his budgets.
“My job is to make sure the state’s making money, because that’s what a chairman of finance does,” he said during the committee hearing.
Later, as Finance Committee staff members explained how the Environment Department adjustment request may end up approved through technicalities despite its problems, Muñoz took a swipe at the department.
“I’m just kind of fed up and tired of that fight,” he said. “Either work with us or we’ll figure out how not to give you what you need or what you want in order to bring you in compliance.”
And at another Finance Committee meeting on Feb. 4, Muñoz talked about supplemental funding for the Environment Department “that they’re not gonna get.”
“We can take that off [the budget] right now,” he told Finance Committee staff.
Sen. Steinborn interjected, “I would just request that anything—before we send it to the gallows—that we have a hearing on it so we can kind of understand it.”
“We’ll be fair to everybody,” Muñoz replied. “If it’s really a need, we’ll help you.”
The mood was much more cordial at the Environment Department’s budget hearing before the House Appropriations and Finance Committee last month. After Kenney provided an overview of the various accounting changes, division changes and staffing requests, Rep. Small said, “It’s clear that we still have a ways to go” before a final budget can be voted on. Nonetheless, he asked the committee to pass the Legislative Finance Committee budget proposal with the caveat that further work needs to be done.
In an unusual move, Camilla Feibelman, the director of the Sierra Club’s local chapter, addressed the committee before it adjourned for the night. She reminded the committee of the state’s unique position as a major oil and gas producer, a major carbon emitter and a recurring casualty of climate change all simultaneously.
“Our forests are bone dry, and we need to be able to manage the climate-driven part of our forest fires,” she said. “Being the second largest emitter of oil in the country, it means that we have a special ability to step up and make sure we are creating the conditions to manage for extreme fires followed by floods, extreme heat and drought.”
Hearings on the budgets for the Environment Department and the Energy, Minerals and Natural Resources Department have not yet been scheduled before Muñoz’s Senate Finance Committee.
This story was published by journalism nonprofit Capital & Main, which reports on economic, environmental and social issues in the West. capitalandmain.com
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