CARLSBAD — An ongoing oil boom in the Permian Basin was credited to the growing prevalence of hydraulic fracturing, which combined with horizontal drilling allowed operators to extract oil and gas from deeper and harder-to-reach shale.
The state subsequently began heavily regulating the practice, requiring producers to report when a well is fracked, completed and when it begins producing.
Adrienne Sandoval, director of the State’s Oil Conservation Division recently said that essentially every new well drilled during the recent boom, which started in the summer of 2017, was fracked.
She said operators are largely compliant with the regulations — applying for completion permits and filing monthly operation reports.
Once an application to permit drilling is approved by the conservation division, drillers have two years to complete the well before the permit expires.
At that point, the monthly reports become essential, Sandoval said, for the state to collect revenue from the operations via royalties and other fees.
“It’s critical,” she said of the reporting. “That’s where the state’s revenue comes from.”
To protect this source of funding, which was attributed to most of last year’s surplus in New Mexico’s general fund, Sandoval said her office is refocusing efforts on enforcing compliance with state law.
“It’s something we need to be mindful of,” she said. “Some companies do a better job of following the rules than others. We are putting more emphasis on compliance than there has been previously.”
But she questioned recent reports that fracking wells are going significantly underreported throughout the Permian Basin, per a recent study from energy research firm Kayrros.
Sandoval said New Mexico operators are largely complying with reporting requirements, as failure to do so could result in large fines and revocation of drilling permits.
“We need to determine if this is happening. This wasn’t a large issue that was on our radar,” she said. “It would be a big violation.”
In its July 23 report, Kayrros asaid fracking in the Permian was underreported by 20 percent in 2018 as the boom continued to grow.
For its research, Kayrros used satellite and radar imagery to identify fracking sites and crews, then cross-references its findings with state records and FracFocus, a national public registry for hydraulic fracturing operations.
Findings showed more than 1,100 wells were completed but not reported. There were a total of 6,394 wells.
“Kayrros measurements reveal that public data fail to capture the full scale of fracking,” the report said. “The macroeconomic implications of this under-reporting are far-reaching.”
The study also alleged that the underreporting meant the backlog of wells drilled but uncompleted was much smaller than public records show, and the average well is less productive and more expensive than previously reported.
It could also mean the operators do not have backup wells that could be brought into service quickly without additional drilling should the industry suffer a downturn.
“The prevalent view that shale operators sit on a large backlog of DUCs [drilled but uncompleted wells] that could be quickly brought to production in the event of an oil crisis even without further drilling is thus deeply misleading,” read the report. “There is just no such inventory.”
Kayrros advisory chairman Andrew Gould said the research proves shale producers aren’t producing as much in the Permian as reported and use more water and sand than previously believed.
A spokesman for the New Mexico Oil and Gas Association said the industry relies on regulation and oversight from government regulators.
Almost 90 percent of New Mexico’s land is managed by either the state or federal government through its Bureau of Land Management, compare with Texas which is mostly privately owned.
“In a state like New Mexico, where the land is managed by state and federal regulators who are in the area actively patrolling, it would be highly unusual for projects to go unreported to the government agencies,” said Robert McIntyre.