Energy policy expert says oil slump is a 'bust'

FARMINGTON — It's officially a "bust."

That's the verdict from Daniel Fine, one of Gov. Susana Martinez's senior advisers on energy policy. The U.S. oil and gas industry — and the San Juan Basin — is in a "bust" period, Fine said Tuesday at an inter-tribal energy conference at San Juan College's School of Energy.

"This is what a bust is. You lose the workforce," said Fine, who is associate director at New Mexico Center for Energy Policy at New Mexico Tech. "Loss to the country and to the Southwest will be the workforce. It will be decimated at levels of less than $30 a barrel (of crude oil)."

And 2015 was a year of layoffs and cutbacks.

Since the collapse of oil prices on the commodities market in fall of 2014, the number of  workers laid off from local oil and gas companies — from the large corporations to the smaller independents — has been in the thousands.

"We're in a 'bust.'  So be ahead of the curve, and think ahead in this business by at least six months," Fine told the Native American and non-tribal energy leaders and business people in the Merrion conference room at the new $15.8 million school.

He said looming federal regulations such as the the U.S. Bureau of Land Management's proposed Onshore Oil and Gas Orders Nos. 3, 4 and 5 along with proposed updates to its rule aimed at reducing "fugitive" atmospheric methane from oil and gas operations were doubling the pain already caused by low crude oil prices. He said that a third of all U.S. oil and gas producers — especially those burdened with debt — will inevitably go bankrupt.

But Fine's sobering analysis wasn't without one ray of hope for the industry.

He said that if the Organization of the Petroleum Exporting Countries, or OPEC, decides to reduce the supply of crude oil at its June 2 meeting in Vienna, crude oil prices could climb back up to the $50 a barrel. Commodities prices, he said, were now solely driven by foreign markets and out of the hands of U.S. operators.

And to help ease the impending pain to tribal energy companies — and establish a precedent for others — Fine suggested tribal energy leaders request exemptions from the federal government over the proposed new rules.

With just two rigs drilling in the San Juan Basin, Fine said that people might find a modicum of comfort by taking the long view.

He recommended everyone in the room read the 2002 book, "Gas: The Adventures into the History of one of the World's Largest Gas Fields — The San Juan Basin of New Mexico."

Written by local independent oilman Tom Dugan and geologist Emery Arnold, the book takes readers on a journey forward from the basin's first commercial oil and gas wells in the early 1920s and through major boom-and-bust cycles in the 20th Century.

Dugan, president of the Dugan Production Corp. in Farmington, said he agrees with Fine on the current state of the industry.

"Definitely it's a bust," Dugan said. "What I'm saying is that it's the worst of them all. It's the hardest bust I've been through and I have been in this business for 57 years."

Never before have multiple agencies of the federal government proposed new oil and gas rules during a "bust" period, he said. Complying, he added, would be a lot more feasible if those rules had come along when natural gas was around $5 per million BTU and a barrel of crude oil was selling near $100.

Dugan said the dovetailing of low commodities prices and the new federal rules — along with the advent of horizontal drilling — have spurred him to consider picking up his pen to write a new edition of "Gas."

He said he still stands by a prediction he first made in his book that the San Juan Basin will deliver salable natural gas for another 100 years.

And that, eventually, a "boom" is bound to happen.

"It will come back," he said. "I just wish I knew when."

James Fenton is the business editor of The Daily Times. He can be reached at 505-564-4621.