This Loophole in New Mexico's Methane Rules Is a Gift to Big Oil and Gas

Analysis
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In October, New Mexicoย announcedย new rules that propose slashing the massive volumes of methane whichย the oil and gas industry is releasingย into the atmosphere. However, the proposed regulations contain a majorย loophole thatย will directly benefit large oil and gas producers, as well as some of the worldโ€™s largest investment groups.ย In addition, anย Environmental Defense Fund (EDF) analysis shows the rules wouldn’t make a meaningful dent in emissions of this potent greenhouseย gas.ย 

New Mexico, along with West Texas,ย is home to the nation’s most prolific, and polluting,ย oil and gas field, the Permian Basin.ย Even industry leaders have acknowledged that the Permian needs to address its wasteful practices of flaring (burning) and venting (directly releasing) natural gas, which is primarilyย methane.ย 

According to New Mexico’s new methane rules, the goal is to push oil and gas producers to capture 98 percent of gas production by 2026.ย But an analysis of the proposed regulations by EDF concludesย that theย rules, as written, would exempt 95 percent of the oil and gas wells in the state, and thusย reduce overall methane emissions by only 21ย percent.ย 

As proposed, these regulations would give a pass to both low-producing oil and gas wells, known as stripper wells,ย and any wells producing less than 15 tons a year of emissions of volatile organic compounds (VOCs), a class of pollutants thatย the American Lung Associationย says can cause irritation to the eyes, nose, and throat; breathingย difficulties; central nervousย system damage;ย andย cancer.ย 

While drillers don’t pump large amounts ofย oil and gas fromย individual stripper wells, due to the sheer numberย of these wells in the U.S.,ย altogether they produce approximately 19 percent of the oil and 12 percent of the gasย drilled inย America.ย 

Without existing comprehensive state regulations for methane emissions, New Mexicoโ€™s oil and gas operations in the Permian Basin are leaking approximately 60 percent more methane than the national average, according to research published in April in the peer-reviewed journalย Science Advances. This study also found that actual emissions are likely doubleย the estimates from the federal government. The new estimates are based on satellite data,ย which is believed to be far more accurate than previous methods of estimating methane emissions โ€” including relying on industryย self-reporting.

The lead authors of the study, Harvard atmospheric scientist Yuzhong Zhang and EDF scientist Ritesh Gautam, explained the magnitude of the problem via email to Bloomberg:ย โ€œOur study found that the quantity of methane emitted in the Permian Basin are [sic] the highest ever measured from any U.S. oil and gas basin. This is a really big deal from a climateย standpoint.โ€

As DeSmog recently reported, a new report fromย the World Meteorological Organizationย notes that methane levels grew rapidly in 2019. Cornell University biogeochemistย Robert Howarth estimatesย that the Permian’s oil and gas fields in Texas and New Mexicoย have contributed approximately 10 percent of the global increase in methane emissions sinceย 2010.

Instead of helping the climate, the loophole in New Mexico’s proposed regulations will benefit a fossil fuel industry billionaire andย top private investmentย funds.

Loophole Is Good for Hilcorpโ€™s ‘Acquire and Exploit’ย Strategy

Billionaireย Jeffrey Hildebrand has made it as high as number 73 on the list of richest people in America. He amassed his billions by building Hilcorp โ€” the largest privately owned oil and gas company in theย country.

When Hildebrand started the company inย 1990, its business strategy was to โ€œacquire and exploitโ€ oil and gas assets โ€” and while not a unique approach in the industry, it’s one that performs best while unburdened by regulatory limits. One proven way to maximize the exploitation of oil and gas assetsย is to avoid regulations that limit aย company’sย ability to pollute the environment. The oil and gas industry is known for opposing regulations, and the last four years of the Trump adminstration has benefited the industry greatly in its efforts to remove environmental and energy rules.ย 

The industry’s excitement over the potential regulatory rollbacks expected (and delivered) after Donald Trump won the presidencyย in 2016 was summed up best byย Stephen Brown, a lobbyist for oil refining companyย Tesoro.ย In early 2017, heย told The New York Times,ย โ€œItย was like the dog that caught up with the UPSย truck.โ€

One particular target of the industry once Trump took office was eliminating new federal methane emission regulations, a move supported by leading industry lobby group,ย the American Petroleum Institute. That federal rule was rolled back in August of this year.ย Now,ย New Mexico’s proposal to regulate methane emissions, whichย would exempt all oil and gas stripper wells in the state, makes a weak attempt to fill the regulatory gap left byย theย Obama-eraย rule.ย 

That’s because when it comes to stripper wells in New Mexico, there is a lot to exploit.ย These low-producingย wells actually represent the majority of oil and gas wells in New Mexico. And in the state, Hildebrand’s Hilcorpย is by far the largest operator of stripper wells,ย running 36 percent of the total gas stripperย wells.


New Mexico oil and gas stripper well data (updated 8/12/2020).ย Source: State of New Mexico Oil Conservationย Division


New Mexico gas stripper well operator dataย (updated 8/12/2020).ย Source: State of New Mexico Oil Conservationย Division

No other company comes close to Hilcorp in terms of owning gas stripper wells; BP holds second place with just 786 wells to Hilcorp’s 5,489. As a private company,ย Hilcorp doesn’t haveย public shareholders that would reap its profits,ย butย The Carlyle Group,ย one of the largest investment firms in the world, has plenty of shareholders and has partnered with Hilcorp in the state. As a result, the Carlyle Groupย wouldย also benefit should New Mexico’s new rules take effect asย proposed.

The loopholes in those rules would leave Hilcorp and The Carlyle Groupโ€™s massive holding of stripper wells free of emissions regulations in New Mexico. However, even if those regulations did apply, they still have to be followed. And Hilcorp has a track record of ignoring regulations as it exploits its fossil fuelย assets.

In 2017, InsideClimate News reported on Hilcorpโ€™s track record of environmental violations in Alaska, citing an October 2015 report by the Alaska Oil and Gas Conservation Commission (AOGCC). In a letter to Hilcorp, AOGCC commissioner Cathy Foerster writes, โ€œThe disregard for regulatory compliance is endemic to Hilcorp’s approach to its Alaska operations and virtually assured the occurrence of this violation. Hilcorp’s conduct isย inexcusable.โ€

Environmental nonprofitย Earthworks has been a leader in documenting the emissions of the oil and gas industry using specialized infraredย cameras that reveal normally invisible methaneย emissions.

Videos from Earthworks clearly show Hilcorp’s stripper wells located in the San Juan Basin in New Mexico actively leakingย โ€” and those leaks will continue unabated even if the state’sย proposed regulations becomeย law.


Earthworks’ video footage of methane leaks from a Hilcorp gas stripper well in the San Juan Basin, New Mexico. Credit: Earthworks

It’s Not Really All About Smallย Companies

A common argument for leaving stripper wells unregulated is that these wells are owned by small operators who simply can’t afford to install the costly equipment needed to reduce their methane leaks and control overallย emissions.

Elizabeth Bisbey-Kuehn, chief of the New Mexico Environment Department’s Air Quality Bureau, has made this argument herself. โ€œWhen you have very small emitting sources, you have a very small amount of pollution you can control,โ€ Bisbey-Kuehn told the publication Capital and Main. โ€œWe cannot require regulations with controls that are so costly that it would put someone out ofย business.โ€

While regulating methane pollution has the potential toย put some financially unstable, small operators out of business in New Mexico, Hilcorp and The Carlyle Group are not among those atย risk.

There’s a similar case to made for operators of oil stripper wells too.ย Fossil fuel powerhouses Chevron and Occidental Petroleum (Oxy USA Inc)ย also own some of the most oil stripper wells in New Mexico. Would regulating New Mexico stripper wellsย shutย down the likes of Chevron or Occidental? That scenarioย seems highly unlikely, even in a particularly rough year for the fossil fuelย industry.


Top 10 operators of oil stripper wells in New Mexicoย (updated 8/12/2020).ย Source: State of New Mexico Oil Conservationย Division

The top 10 operators of oil stripper wells in New Mexico own 46 percent of the totalย wells. And while Spur Energy Partners LLC, a Texas-based company formed in 2019ย which owns the most oil stripper wells in the state,ย isnโ€™t as large as Chevron or ConocoPhillips, like Hilcorp, the company is financially backed by one of the largest investment firms in the world,ย KKR.

When trying to understand why New Mexico would allow these exemptions, it helps to know who stands to directly benefit the most from them โ€” and that is a group of incredibly powerful and wealthyย people.

Don Schreiber on his ranch in Blanco, New Mexico, in front of a gas well re-drilled in 2014 on Bureau of Land Management land he leases.
Don Schreiber on his ranch in Blanco, New Mexico, in front of a gas well re-drilled in 2014 on Bureau of Land Management land he leases.ย Credit: Julieย Dermanskyย ยฉ2014

Don Schreiber is a ranch owner in New Mexicoโ€™s San Juan Basin, a natural gas-rich formation,ย where Hilcorp operates.ย There are 23 gas wells owned by Hilcorp within a mile of his house. Schreiber told DeSmog that the idea that stripper wells are primarily owned by individuals and small operators is aย myth.

โ€œThey were never owned by Fred and Wilma down there going to the mailbox to see if they were going to get their oil money check, so they could go to the movie show,โ€ said Schreiber. โ€œThat was never theย case.โ€

Methane Poses Climate and Public Healthย Risks

Methane emissions from the oil and gas industry are a clear and growing problem, both for the health of people and the climate. New Mexico’s currently proposed regulations โ€”ย which would cutย these emissions 21 percent by 2026 โ€” represent aย small and incremental solution for a problem that climate scientists and activists say requires immediate and significant action to address methaneโ€™s direct impact on the climate. Approximately 40 percent of global warming is attributable to methane emissions,ย according to aย 2013ย UN climate report.

In addition, for the people of New Mexico, there areย also immediate health concerns fromย unchecked industry emissions. For example, studies have found that emissions fromย oil and gas sitesย oftenย contain the VOC benzene,ย a dangerous carcinogen cited inย studies findingย that proximity to oil and gas wells is tied toย increases in risk of cancerย and respiratory ailments. Limiting oil and gas well emissions limits the amounts of benzene released into theย environment.ย 

If New Mexico adopts the proposed exemptions in itsย final emissions rules, an estimated 115,000 New Mexicans will be living within a mileย of wellsย that escape regulation, according to reporting by Capital and Main.

โ€œThat those wells are going to be exempted is terrible,โ€ Schreiber toldย DeSmog.

โ€œItโ€™s bad enough that 23 wells that are within a mile of my house, 10 of them that I can see, are exempted by these regulations,โ€ Schreiber said.ย โ€œWhat is the worst is that they are all, each and every one, owned by aย billionaire.โ€

The New Mexico Oil Conservation Commission has announced a virtual public meetingย on January 4 to gather feedback on the proposed regulations for gas capture. Theย New Mexico Environment Department is expected to publish draft regulationsย this month for the rule exempting stripperย wells

Correction: An earlier version of this article stated the goal of New Mexico’s regulations was to reduce emissions by 98%. The stated goal of the regulations is to ensure that producers capture 98% of gas produced.ย 

Main image:ย Gas industry site on federal land in the San Juan Basin in northwestern New Mexico, where fracking was booming in 2014.ย Credit: Julieย Dermanskyย ยฉ2014

mikulka color
Justin Mikulka is a research fellow at New Consensus. Prior to joining New Consensus in October 2021, Justin reported for DeSmog, where he began in 2014. Justin has a degree in Civil and Environmental Engineering from Cornell University.

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