Blog Post

Drilling and Government Revenues Slow in New Mexico's San Juan Basin

Feb 23, 2015 | Daniel Raimi

New Mexico’s San Juan basin, which sits in the far northwest corner of the state, has seen substantial increases and decreases in oil and gas development over the past 15 years. During the first part of the 2000s, thousands of coalbed methane wells were drilled in the region, producing large quantities of natural gas and relatively little oil.

Oil and gas well completions in New Mexico’s San Juan basin

But as new technologies for extracting natural gas from shale formations became more economical, companies began moving away from the San Juan basin’s coalbed methane in favor of shale and other tight gas plays in Colorado, Wyoming, Texas and beyond. As a result, the number of new wells drilled in the region fell dramatically.

From 2000 through 2006, government revenues rose rapidly alongside increased drilling activity and associated population growth. But as drilling has declined, government revenues have slid dramatically, and the U.S. Census Bureau estimates that the population of San Juan County has decreased by roughly 3 percent since 2010. During our visit, only four drilling rigs were active in the region, down from dozens in the mid-2000s.

A drilling rig in southern San Juan County

Recent declines in oil and natural gas prices, along with a continued preference for shale plays over the San Juan basin’s coalbed methane resources, have led local officials to plan for a continued decline in revenues. In San Juan County, for example, revenue from property taxes on oil and gas production and equipment has declined from more than $17 million in 2008 to less than $7 million in 2013.

Despite the decrease in activity and falling revenues, local officials generally see the oil and gas industry as the lifeblood of the regional economy. For local leaders tasked with managing government resources, dealing with fiscal volatility is a challenge to be expected, and most have worked to store cash in reserves for years when oil and gas activity slows.

As one local official put it, dealing with volatility in the oil and gas industry creates substantial planning challenges. But without the industry, the San Juan basin’s economy would “simply dry up.”

This research was carried out at the Duke University Energy Initiative with support from the Alfred P. Sloan Foundation.