Lessons from boom and bust in New Mexico

What we can learn from the oil and gas roller coaster ride in Farmington and beyond.

Wet snow splatters on my windshield as I drive from Durango, Colorado, toward Aztec, New Mexico, on a January morning. As the highway crosses the state line, the cultural landscape changes. Humanity’s detritus is jumbled together in an oddly organic, entropic way: A rusty gas well tank nudges a rotting wood shack next to a trailer, with tires on its roof; seven cars overgrown with weeds huddle together out front like old friends having coffee.

Then there’s New Mexico’s penchant for signs — from big billboards to quirky little placards — which makes for a more interesting, if less aesthetically pleasing, drive. No fewer than four mark the edge of town. “Welcome to Aztec, Home to 6,800 Friendly People and 6 OLD SOREHEADS.” “Winner All America City 1963.” Then, a bit farther in, “Jesus Saves,” and “Bubba Does Income Taxes.”

 
  • The natural gas plant in Bloomfield, New Mexico, whose stacks tower over a Catholic cemetery, pays the state more than $200,000 a month in taxes.

    Brian Leddy
  • Aztec Well rig workers brave a winter storm to set up a natural gas- powered drilling rig near Lybrook, New Mexico.

    Brian Leddy
  • Aztec Well’s innovative Hyduke 1000 is powered entirely by natural gas, a cleaner option than diesel. It is currently drilling for oil for WPX Energy, and is one of only a few rigs currently operating in the San Juan Basin.

    Brian Leddy
  • Aztec Well’s innovative Hyduke 1000 is powered entirely by natural gas, a cleaner option than diesel. It is currently drilling for oil for WPX Energy, and is one of only a few rigs currently operating in the San Juan Basin.

    Brian Leddy
  • Aztec Well’s innovative Hyduke 1000 is powered entirely by natural gas, a cleaner option than diesel. It is currently drilling for oil for WPX Energy, and is one of only a few rigs currently operating in the San Juan Basin.

    Brian Leddy
  • Aztec Well’s innovative Hyduke 1000 is powered entirely by natural gas, a cleaner option than diesel. It is currently drilling for oil for WPX Energy, and is one of only a few rigs currently operating in the San Juan Basin.

    Brian Leddy
  • The natural gas plant in Bloomfield, New Mexico, whose stacks tower over a Catholic cemetery, pays the state more than $200,000 a month in taxes.

    Brian Leddy
  • San Juan County Chief Executive Officer Kim Carpenter has watched the general fund go up and down with oil prices.

    Brian Leddy
  • Greg Merrion of Merrion Oil, has pushed Farmington to diversify its economy, with only limited success.

    Brian Leddy
  • In 2013, Aztec Well’s Jason Sandel stands on the platform of a rig designed to drill a horizontal well used to extract oil from the Mancos shale formation. Because the San Juan Basin was late to the shale oil game, Sandel had to send many of his rigs elsewhere.

    Chris Roberts/The Farmington Daily Times

Today, however, the most important signs loom over gas station parking lots, announcing that gasoline is selling for just over two bucks, cheaper than it’s been for a half decade. Here, where folks tend to drive long distances, mostly in large pickup trucks and SUVs, the prices elicit joy: U.S. motorists will save more than $2 billion per week thanks to low gas prices, and the locals here are happy to get their share.

And yet, those falling numbers also make people anxious. Aztec is the smallest of a triad of towns that include Farmington, population 45,000, and Bloomfield, population 8,000, in the heart of the San Juan Basin, 10,000 square miles of mesas and canyons and scrub-covered high-desert plains that sprawl across much of northwestern New Mexico and into Colorado. The region’s shale, sandstone and coal beds, souvenirs of an ancient inland sea and its swampy shoreline, store vast quantities of coal, oil and, especially, natural gas, which is so abundant it seeps out of the earth unbidden in places.

For nearly a century, the economic fortunes of these three communities have hinged on fossil fuel extraction. While environmental regulations, national policy and subsidies for energy companies can affect the situation, nothing does so more than the price of the commodities. When oil or natural gas prices rise, so do the fortunes of Aztec, Farmington and Bloomfield. When they drop, the effects ripple through the economy, from the dozens of oil- and gas-related businesses, to local and state governments.

Jason Sandel is the executive vice president of Aztec Well, a conglomerate of drilling and oilfield service companies run by his family. Back in 2008, Aztec Well and the rest of the region were battered by a crash in the price of natural gas, the Basin’s cash crop. So Sandel and his troops turned to crude, riding the record-breaking wave of high oil prices that ignited booms in North Dakota, southeastern New Mexico, Wyoming and Colorado. By mid-2014, Aztec Well and its subsidiaries had 825 employees and 14 rigs drilling, some as close as the south side of the Basin and others as far away as Utah and Pennsylvania.

But late last summer, global demand for petroleum faltered. The U.S. was extracting more oil than it had in decades, and the Saudis, rather than curtailing production to stabilize prices, decided to just keep pumping away in order to retain their market share. “We are living in the confirmed world of a price war,” says Daniel Fine, associate director of the New Mexico Center for Energy Policy at New Mexico Tech. And the Saudis seem to be winning. The global oil price slumped from nearly $115 per barrel in June of last year, to less than $50 in January. And even as other Westerners dusted off their Hummers and SUVs and happily hit the road, town, county and state governments in the oil patch, from Alaska to Texas, braced for the aftershocks.

When I meet Sandel in his office, I’m a little surprised: He resembles a Brooklyn hipster, albeit a burly one, with a long, well-mannered beard, tortoiseshell Ray Ban prescription glasses and a stylish button-up shirt. If a lumbersexual is a fashion-conscious urbanite who looks theoretically ready to do some clear-cutting, then Sandel could serve as the standard-bearer for stylishly casual “roughnecksexual” oil-and-gas dudes. I refrain from sharing this thought.

Sandel is coping with once again having to scale back his enterprise, laying off workers and stacking rigs in the yard, but he is happy to talk, as long as I don’t intend to “spin the article negatively, (to push the community) away from energy development due to its volatility.” Yet no matter how I spin the story, there’s no hiding from the facts: To hitch one’s fate to fossil fuels is to take a wild roller-coaster ride that can overrun other economic sectors and fray the social fabric. And the carny driving this ride is not the local community, but the global marketplace.

I’m not here, however, to build an economic or even environmental argument for eschewing oil and gas development — we’ve heard all of those before. I’m here to learn how the roller coaster works, and to glean from Sandel any lessons, or warnings, he’s gained from experiencing two busts in less than 10 years –– lessons he can share with the neo-boomtowns, now busting, of the shale revolution.

 

From Aztec Well’s headquarters, you can see the company’s fenced-in yards, filled with trucks and drilling apparatus; the Aztec Speedway, also run by the Sandel family, which on warm Saturday nights becomes a chest-rattling shrine to the internal combustion engine; and the regional office for Oklahoma-based WPX Energy, one of the biggest oil and gas producers around. And just over there is the site where, in 1921, the Aztec Oil Syndicate drilled the first producing well in the basin, triggering the first boom and putting the region, and the state, on the path to its fossil fuel destiny.

In the decades that followed, the industry sprang forth mostly untethered, acquiring lucrative oil leases in sketchy deals with a newly formed Navajo government, “fracking” wells by exploding nitroglycerin in them. But in the 1930s, the state also began to insist that industry return a little in exchange for all it was taking, by implementing a severance tax, a school tax and a conservation tax, all on hydrocarbon production.

As a result, when El Paso Natural Gas built a pipeline in 1951 from the San Juan Basin to California, opening up vast new markets and sparking a transformative boom, the state was able to reap some of the bounty. At the time, Farmington was a quiet ag town of a few thousand people, surrounded by so many orchards that the train up to Durango was known as the Red Apple Flyer. In just a few years, it ballooned to nearly 20,000 people.

In 1963, Sandel’s grandparents, Wayne and Stella, started Aztec Well. The industry was in a lull at the time, but the roller coaster rocketed back up a decade later, when a series of energy crises sent oil prices into the stratosphere. In 1980, a mind-boggling 62,000 wells were drilled in the U.S., about three times the number drilled during the recent shale boom. New Mexico officials again had fiscal foresight, creating a permanent fund fed by severance tax revenue, something that could provide help when the oil and gas ran out.

In an uncanny foreshadowing of the future, however, global oil prices ebbed, and OPEC’s market share shrank. In response, the cartel flooded the market with petroleum, causing the price to crash at roughly the same time that the feds deregulated the natural gas market, causing that commodity to lose value, as well. The West’s energy fields were abruptly abandoned.

Jason Sandel was just heading into middle school at the time. His grandfather had passed away, and his father, Jerry, was at the company’s helm. He kept it afloat by holding on to only “the best-of-the-best employees, (making sure) they were receiving an honest day’s wage for an honest day’s work,” says Jason Sandel. Their one rig was entirely staffed by salaried toolpushers, or rig managers, and welders were constructing cattle guards for public use. As often as not, payroll checks came right out of the family’s savings account. 

A “ghost town” feel settled into Farmington, broken only by an early ’90s surge, when companies, hoping to take advantage of federal tax credits before they expired, started drilling for coalbed methane. And while the situation inspired some talk about diversifying the economy, folks mostly felt angry at their impotence. Jason Sandel recalls “a rise of conservative attitudes and nationalism as a result of feeling out of control.”

Sandel, by then a young man, wasn’t having any of it. “All of my life, (my father) told me to stay out of the oil and gas industry. It’s dangerous, it’s cyclical,” he says. So instead, he pursued politics, his father’s “hobby” — the elder Sandel served in the New Mexico Legislature for 30 years, finally retiring in 2001 after he lost his bid to become lieutenant governor. Jason Sandel got a degree in political science from the University of New Mexico, going on to become an analyst and then chief of staff for the New Mexico Senate majority leader. Like his father, he’s a Democrat, an anomaly in this very conservative district, dominated by an industry that tends to side with the GOP. He worked for Bill Richardson, back when he was in Congress, and continues to donate to Democratic causes and politicians, including New Mexico Sens. Martin Heinrich and Tom Udall. “I love politics,” says Sandel. “It’s something I really geek out on.”

But after his mother died, Sandel decided to come home to raise his own family in Farmington and help with the business, signing on full-time at Aztec Well in 2001. At the time, the region was more than a decade into the coalbed methane push, and there was little reason to think it would ever let up. Sandel learned the business but kept his political skills polished. He got elected to Farmington’s city council in 2006 and served for eight years, pushing for quality-of-life improvements, such as bicycle-friendly streets and better infrastructure to deal with summertime flash floods. He supported economic development and tried to steer the city, which runs its own electric utility, away from purchasing more coal power.

Sandel also advocated for the oil and gas industry, pushing back against regulations and, especially, talking up the industry’s positive economic impact. He endorsed a move by state legislators from the San Juan Basin to punish communities that regulate the oil and gas industry by withholding severance tax funds, and he relaxed regulations on drilling within Farmington, which already has more than 300 wells within the city limits.

 

“Should we show him the scare map?” asks Maureen Joe, assistant field manager for the Farmington Office of the Bureau of Land Management. Joe, a small woman with shiny black hair, seems to delight in the prospect of frightening a reporter. Dave Mankiewicz, another assistant field manager — the curmudgeonly TV-style cop to Joe’s cheerful one — hands me the map, showing every well ever drilled in the San Juan Basin, with little red dots for gas, black ones for oil.

It is scary. The northern and central sections of the Basin are almost solid red; in the south and west, dense swarms of black dots string out along the oil-bearing formations. Dark pinpricks surround Chaco Culture National Historical Park. Huerfano Mountain, or Dzil Na’oodilii, where First Woman and First Man and then Changing Woman lived — a sort of Garden of Eden in Navajo cosmology — is embroidered with red and black. The BLM office we sit in, on a fine piece of real estate in the upper-class part of town, has three wells within a quarter mile, and a pumpjack grinds away right next to a golf course green down the road.

To find a stretch of land anywhere in the core of the Basin that hasn’t been drilled or isn’t covered by roads, tanks, pipes or some other hydrocarbon-related infrastructure is nearly impossible — the infrastructure is the landscape. “We’ve got so much pipeline in the ground, it’s like rebar,” says Mankiewicz. “If you had an earthquake, the ground wouldn’t even shake.”

The industry is similarly entangled with the community’s streetscapes, culture and economy. A drive around the Aztec-Farmington-Bloomfield triangle is a bit like a cruise through a giant open-air oil-and-gas mall, with roadside businesses peddling goods and services for every link of the hydrocarbon production chain: Elite Swabbing Service, Compressco, Weatherford Fishing Tools and Permian Power Tong. It’s not entirely monolithic: Toolpusher’s Supply, for example, is just across from the Adult Video store, which is watched over sternly by a billboard showing Jesus. And Halliburton’s yard, brimming with giant trucks and byzantine equipment, is sandwiched between a Great Harvest Bread place and a Walgreens on Farmington’s main drag. Some residents of a trailer park just behind it got sick and were evacuated in 2006 after an acidic fracking fluid spill.

When any of these businesses make a sale, they pay a gross receipts tax to the state, city and county. The businesses pay property taxes, on their land, equipment and oil and gas production. Producers pay severance and emergency school taxes on the gross value of oil or gas that they sell to the state, in addition to royalties to the feds, the state, tribes or private landowners. And the operators of the natural gas plant north of Bloomfield, where the sci-fi-skyscraper-like distillation columns tower directly over the shrines and graves of a Catholic cemetery, pay state natural gas processor’s taxes.

These funds, in turn, pay for everything from firefighters’ salaries to roads to day-to-day governmental operations. Earnings from the state’s $14 billion Land Grant Permanent Fund, which is fed almost entirely by oil and gas royalties on state lands, support New Mexico’s public schools. The Severance Tax Permanent Fund’s earnings are allocated to capital projects across the state, for everything from sewage systems to school playgrounds to a jaguar exhibit at the Albuquerque zoo. A 2014 New Mexico Tax Research Institute analysis found that at least one-third of the state’s general fund comes from the mélange of taxes and royalties paid by the industry.

Layered on top of that are philanthropic donations from industry, for everything from the public library, to the United Way, to the regional symphony and Farmington’s museum, which will soon feature a pretty spectacular “Energy Wing.” Just down the road from the aforementioned BLM offices, San Juan College’s new $16 million School of Energy facility is nearing completion. More than $8 million of the cash came from BP, Merrion Oil & Gas and other industry donors, with $5 million coming from the severance tax permanent fund.

This progressive effort to make industry pay its way has effectively put the governments of New Mexico — and Farmington and San Juan County — into the oil and gas business. The upside is that those communities get to share in the profits. The downside is that everyone, from the toolpusher to the symphony-goer, is dependent on an extremely volatile global market. And while the state can tolerate busts with help from its flush permanent funds, local governments have no such cushion. Any efforts to rein in or regulate industry, or even try to whittle a new leg or two for the one-legged economic stool, are readily interpreted as attacks on schools, local governments and, really, the people who live here.

 

“The drilling rig is the crystal ball,” says Sandel. “As go drilling rigs, so goes the rest of the economy. I can say, by name, 50 people who have a job for each drilling rig going to work.” Multiply that by an average salary of about $75,000 and add in the gross receipt taxes on a $1 million to $10 million drilling job, and then multiply that by the number of drill rigs in operation — the rig count — and you’ve got a mighty big impact.

Back in the summer of 2008, 40 rigs were running in the San Juan Basin and 2,000 nationwide, the result of a long run of high natural gas prices. Aztec had 14 rigs operating in the region, and it and its subsidiaries — trucking, equipment rental, oilfield services companies — employed more than 700 people. Gross annual revenues were in the $100 million range, marking 400 percent growth since 2000 and easily making the company Aztec’s biggest single source of gross revenue taxes. “They were good years,” Sandel says wistfully. “It’s what built this building.”

The BLM’s Farmington Field Office handed out drilling permits — 3,500 over a five-year period — like a bank hands out lollipops, and the distinction between public employee and private industry blurred. The district manager at the time, Steve Henke, received a few favors from the industry, like trips to golf tournaments and an $8,000 donation to Henke’s son’s baseball team. When he retired from the BLM in 2010, he became president of the New Mexico Oil and Gas Association, an industry lobbying group.

Federal royalties from wells in the San Juan Basin topped $700 million one year, and state severance tax revenues were close to $1 billion. Schools got a per-pupil funding increase, allowing the Farmington district to hire more teachers and up their salaries. The local construction industry was going gangbusters to accommodate new businesses and residents.

Industry leaders cringed when, in mid-2008, New Mexico implemented the “pit rule,” one of the strongest regulations regarding the disposal of drilling wastewater. Yet it did nothing to slow drilling. Meanwhile, industry cheered as both political parties, and even the Sierra Club, touted natural gas, which emits about half the carbon dioxide and far fewer other pollutants than coal when it’s burned, as a “bridge fuel” to cleaner renewables. It seemed as if the boom was just beginning.

But as T. Greg Merrion, president of Merrion Oil and Gas, a local company, told me, there’s an old saying in the industry: “Nothing helps low prices like low prices, and nothing hurts high prices like high prices.” Soaring natural gas prices, with help from government subsidies and a fortuitous pairing of horizontal drilling and hydraulic fracturing, had spurred a frenzy of drilling in shale formations nationwide, most notably the Marcellus shale in the East. Suddenly, the market was glutted, and prices plummeted.

Between October of 2008 and January of 2009, Aztec Well idled 75 percent of its equipment, and almost as many workers. The company’s annual revenues were cut in half. The San Juan Basin alone lost an estimated 5,000 jobs, and the Farmington metro area went from having one of the lowest jobless rates in the country to having one of its highest in just a few years.

The pain spread to the city and county and then up to the state level. Since almost all of the industry-related taxes and royalties are based on the gross value of oil and natural gas, the price drop resulted in a proportional hit to state coffers. That rippled down to the schools. In Farmington, they were saved from mass layoffs by relying on attrition, such as teachers leaving to follow their spouses to other oilfields.

“It was ominous,” says Farmington City Manager Rob Mayes, who was faced with a sudden loss of nearly 20 percent of gross receipt tax revenues, the city’s main source of funding. “It just fell off a cliff.”

“Every time we have a decline in price,” says County Chief Executive Officer Kim Carpenter, “that equates to several million in less input to the general fund.” Carpenter’s annual county budget introductory letters serve as a sort of chronicle of the deepening bust, and are filled with woe and the sound of gnashing teeth. Between 2009 and 2012, Carpenter could offer only one piece of good news: Farmington got itself an Olive Garden.

Meanwhile, the local industry had to sit and watch drilling go nuts in other parts of the nation. Even as natural gas prices crashed, oil prices shot upward thanks to high global demand, sparking shale-drilling rushes from North Dakota to Texas. Initially, the San Juan Basin was left out — it had been too tied up in coalbed methane drilling to make much effort to drill shale, particularly for oil. But you couldn’t argue with the price signals.

“We had to chase the oil,” says Sandel. “We had built up so much equipment, and there was a likelihood it would never all work here again. So we sought out other areas and became a national company.” Aztec Well opened offices in southern New Mexico’s Permian Basin, Kansas, Utah and Pennsylvania.

Other local companies took a similar tack. Pesco, which began building gas field equipment back in the ’70s, started building oil field equipment, too. A company that had long manufactured compressors for local gas companies began shipping out of state. Only the fact that those companies kept their bases here, rather than uprooting and following the next boom, kept the community from drying up altogether. Workers who had settled into the area’s relatively affordable suburban homes also stayed, commuting to distant oilfields for two-week-on, two-week-off cycles. It was a form of economic diversification, albeit a limited one — chasing after oil and gas, wherever they might be.

Then, starting in 2012, the drill rigs returned to the ash-colored earth of the southern San Juan Basin, this time looking for oil in an old play near Chaco Canyon and the mostly Navajo communities of Lybrook and Counselor. It has hardly been a boom — at most, a dozen rigs have operated at one time — but the oilfield traffic and activity has been rough on the locals, while most of the jobs and other economic benefits go to Farmington. The exception is royalty payments to Navajo allotment holders, which, when prices are high, can provide a big bonus to impoverished families.

But late last year, oil prices started shrinking, the victim, again, of that “high prices hurt high prices” rule, and of the laws of global supply and demand. Those allotment royalty checks? They’re about half of what they were last June. When I visited Sandel in late January, his company had pulled five rigs out of operation, representing a loss of millions of dollars of potential revenue. By the end of February, just two rigs were running in the Basin; nationwide, tens of thousands of oilfield workers lost their jobs.

The full impact of the latest bust has yet to trickle down to the rest of the economy. The general public might be oblivious now. But give it a few months, says Bob Beckley, the owner of 3Rivers Brewery and Restaurant in downtown Farmington. “Everyone enjoys driving around on all that cheap gas,” he says, “but they don’t understand how important the oil and gas industry is to us.”

Back in August, New Mexico state economists expected $6.4 billion in revenue for the 2016 fiscal year; in early February, that estimate had plunged by $200 million, thanks entirely to dropping oil prices. City, county and school officials are bracing for the blow, looking for places to cut costs. Aztec Well has no place left to send its rigs besides its own yard. “It’s the uncertainty of the commodity price that’s driving how fast this is going,” says Sandel. “We don’t know what the floor is.”

 

On a Wednesday morning in February, a group of oil and gas managerial types, economic development folks and a few non-industry business owners gather for a workshop at San Juan College called “Thriving in the New Normal.” It’s both a grim and an optimistic title, one that acknowledges that it may be years before prices go back to where they were, but that it’s possible for local businesses to survive and even prosper, nevertheless. 

Perhaps someone here will have a big vision for how the community can get off this roller-coaster ride once and for all. That’s a vision I have yet to encounter during any of my visits to city hall, to county offices and to Farmington’s eerily quiet historic downtown, where each block has at least one payday loan joint and a couple of vacant storefronts. 

Most of what I hear is a version of what one man says at the workshop: “Sure, diversifying the economy is fine, but we can’t forget what we do best.” And that, of course, is fossil fuels. One government official tells me in all seriousness that newly “robust” environmentalists are a bigger threat than price volatility. Another says that the local economy isn’t really that dependent on oil and gas, after all. The prevailing sentiment, even in the workshop, is this: You just gotta hunker down, tighten your belt, and endure. It’ll come back. It always does. 

Except when it doesn’t. Prices will go up, sure, but natural gas production has been falling in the San Juan Basin since 1999, despite an almost unprecedented frenzy of drilling between 2003 and 2008. What happens when the cash crop dries up? 

I find an answer in an unexpected place: at the monolithic headquarters of Merrion Oil & Gas, which overlooks Farmington from the same complex that houses city hall.

“The answer is easy,” says T. Greg Merrion, president of the company since 1992. “You’ve got to diversify. But it’s complicated. It’s like turning the Titanic. You gotta change the way you think, change the way you do things.” 

Merrion’s father started the company back in the 1960s and, judging from the headquarters, it’s done all right. Paintings by prominent Southwestern artists adorn the lobby walls, and a huge sculpture — sandstone and glass panels jutting from a rust-colored steel base — dominates the space. Merrion, dressed in a North Face fleece, baggy jeans and running shoes, actually relishes the bust as an opportunity to go bargain-shopping for oil and gas properties. As a well-known philanthropist, however, he doesn’t want to see the community suffer. 

After the 2008 bust hit, Merrion got together with other community leaders and hired consultants. They suggested focusing on agriculture and tourism, and courting light manufacturers and health-care providers. Proposals include everything from converting the nearby massive coal plants to natural gas to better promoting mountain biking and OHV trails and the area’s Native American culture. They rejiggered the local economic development agency with this in mind, but getting there “is a marathon, not a sprint,” says Merrion. It takes time. It takes money. And, of course, it takes political will.

And that, says Sandel, another surprising advocate of economic diversification, is what is lacking; it’s one of the reasons he didn’t run for a third term in city government. “We do very little as a community to market this stuff,” he says. “No one can carry that vision, carry that torch to bring people together.” 

 

The carwash on Aztec’s edge is doing a brisk business on a Friday afternoon, as workers stream into town from the gas patch and line up their big white trucks to try to scrub off the mud, which is still axle-deep out on the mesas and north-facing slopes. There is enough work merely maintaining the existing wells and infrastructure in the San Juan Basin to keep business going. I’m headed the other way, back out into the patch, along a rutted road and past some byzantine equipment, to the Alien Run trailhead, one of the places Sandel would like to promote.

I lace up my shoes and hit the trail, which winds through juniper and piñon, occasionally crossing undulating sections of slickrock. It’s a meditative place to run, despite or maybe because of the inescapable background drone of gas wells and compressors. Aztec locals established the trails on BLM land several years back, naming it for a purported 1948 UFO crash in the area. Aztec once attempted to market the crash as a tourist draw, à la Roswell, even hosting its own UFO conference. It didn’t take, but the trails are popular, and the town hosts a mountain bike race here every May. 

Intrepid explorers also head out onto the county’s gas-patch roads in search of dozens of natural arches, remote Chacoan pueblos and artist Georgia O’Keeffe’s “Black Place,” which, ironically, was “discovered” thanks to nearby oil and gas development. The Bisti Badlands south of Farmington draw early spring crowds, a surprisingly high proportion of them from Switzerland, Germany, France and other parts of Europe. Shoppers from at least a 100-mile radius come to Farmington’s sprawling mall, two super Wal-Marts, a Target, Sam’s Club, and a herd of chain restaurants. And Farmington still lives up to its name: The Navajo Agricultural Products Industries farms, with the help of copious irrigation, have transformed a huge swath of high desert south of the city into a Midwestern-esque plain of potato, corn, wheat and alfalfa fields. 

This is economic diversification, sure, but it’s happened without a plan, and no one’s figured out how to monetize it. During my hour-long run, the gas wells I pass pump hundreds of tax dollars into state, county and school coffers; I, however, contribute absolutely nothing. When I buy a case of those orange peanut-butter-cracker things from Sam’s Club, I’m helping Sam back in Arkansas, but not the city or the state, since New Mexico exempts food and medicine from the gross receipts tax. If you work in Farmington’s leisure and hospitality sector, you’ll earn, on average, $12,000 per year, compared to $90,000 for local petroleum engineers. And since the NAPI farms are owned by the Navajo Nation, they’re mostly tax exempt. Economic development is as much about creating mechanisms to capture cash as it is about simply attracting it. The state has clearly demonstrated that with oil and gas.

With that in mind, I ask both Merrion and Sandel a final question: “If you could give the new, and future, boomtowns of the shale revolution one piece of advice, what would it be?” 

“My advice to boomtowns is to establish a community ‘boom fund’ that would be modeled after New Mexico’s severance tax permanent fund — but structured for communities as opposed to the state,” Sandel says. “I’d then dedicate a specific portion of the interest off this fund for the purpose of economic development and diversification.” It seems like an obvious approach, and Merrion answers my question almost identically. But Farmington’s been busting and booming for 95 years, and there is still no community “boom fund,” and the city has made no serious efforts to diversify the economy. 

“What I want, 20 to 30 years from now, is for someone to say, ‘Boy, I’m sure glad our community decided to diversify,’ ” says Merrion. “It’s never too late to start.” Then he looks up at a replica of a Puebloan pot sitting on the mantle. Perhaps he’s thinking of the Chacoan culture that, a millennium ago, also modified the landscape in ways that are still visible and, ultimately, went bust. Most likely driven by drought and overconsumption of local resources, the people pulled up stakes and headed east and south, to the banks of the Rio Grande, to Zuni, to Hopi. “Well,” says Merrion, “it could be too late. There are communities that have lived or died by production of natural resources.”

 

Jonathan Thompson, HCN’s senior editor, writes from Durango, Colorado.

This story was funded by a grant from the McCune Charitable Foundation and supported by contributors to the High Country News Enterprise Journalism Fund.

Robert Gates
Robert Gates
Mar 23, 2015 04:06 PM
What we see is the boom/bust cycle happens quite often in history with different industries. For example In the 40s, 50s and early 60s it was Uranium. We had various oil boom/busts from the 40s, to present. We had natural gas boom/busts, with the most recent one going from the 90s and dying around 2009. It kind of stayed alive, however once the oil price bust, many natural gas companies used that as an excuse to cut back even further.
As a whole the boom/busts are driven by prices going up or coming down. Unless the price comes back up quickly it will be a long, long drought if you work in the Energy industry. High level company people are saying they are hoping the price comes back in a matter of months, but they expect it to be down for many years which will pretty much decimate the energy industry jobs. There will be spurts of activity here and there but as a whole it's gone. You could say that the "free market" has done more to slow down/stop the energy industry drilling then all the lawsuits and billions of dollars spent by the various groups.

What hurts is all the higher paid men and women, supporting their families and after being laid off lose their homes, cars, etc and end up getting jobs that pay half or less of what they were making.

Someday down the road the energy boom will crank up again and it will be a whole new generation of men/women and their family's that will live the boom, then bust cycle again.
G M Ferguson
G M Ferguson Subscriber
Mar 30, 2015 10:19 PM
La Plata County "lives" well on the taxes from the oil/gas fields juxtaposed with the affluent real estate and tourist meccas of southwestern Co. Maybe Chapter two of this would offer a comparison between the two counties. Lots of things change at the border between these two counties.
Jonathan Thompson
Jonathan Thompson Subscriber
Apr 03, 2015 07:17 AM
GM Ferguson makes an excellent point. Here in La Plata County (where I live), also in the San Juan Basin, we are dependent on taxes on the natural gas fields which start just south of Durango; the Southern Ute Tribe is one of the county's biggest employers, and its enterprises are largely funded by natural gas and oil; we share a symphony -- with big oil and gas companies as sponsors -- with Farmington. BP has its regional headquarters in this county, and they sponsor everything from bike races, to school field trips, to a truck for the local trail building group. La Plata County and Durango are far more dependent on oil and gas than we like to admit. But aside from BP and the Southern Ute companies, the industry is far less entwined with the economy here than it is in Farmington, where most of the workers live and the gas patch companies are based. And, since the hydrocarbon producing formations end just south of Durango, the actual drilling in La Plata County is confined to the southern half, and Durango is just barely spared. Thanks for the comment, and your suggestion is a good one.
Jonathan Thompson, Senior Editor