April

11, 2016

The Honorable U.S. Senator Tom Udall
531 Hart Senate Office Building
Washington, D.C. 20510

The Honorable U.S. Senator Martin Heinrich
531 Hart Senate Office Building
Washington, D.C. 20510

The Honorable U.S. Congressman Ben Ray Lujan
2446 Rayburn HOB
Washington, D.C. 20515

Gentlemen:

We, the undersigned organizations, employees and citizens of San Juan County, are
asking for your help with several matters of vital concern for the collective economic
wellbeing of our communities and respective organizations and their thousands of
employees and families.

As you know, oil and gas production is a major driver of San Juan Countys economy.
The oil and gas industry, along with its associated direct and indirect jobs and tax
revenue streams fund major portions of the budgets of our local governments,
community college and public schools.

Although San Juan Countys economic development leadership team is laboring mightily
to lessen our regions dependence on carbon energy, there simply are no other
economic base activities available in the interim to replace the jobs and tax
revenues that come from oil and gas activity.

As you also know, the oil and natural gas industry in New Mexico has fallen on very
tough times due to record low prices. Oil prices have declined from over $100 per
barrel in July 2014 to the mid $30s or less today. Natural gas prices have been
extremely low for years and recent prices approaching $1.50 per MCF are downright
frightening.

Compounding the industrys and communitys pain associated with low commodity
prices is San Juan Countys geographic isolation from major commodity market centers.
Oil and natural gas produced in the San Juan Basin face far higher transportation costs
to market. This effectively reduces a producers realized prices by 10 to 30 percent
below published spot prices.

The oil and gas industry in northwest New Mexico is literally fighting for its life.

San Juan County Community Impact Letter 20160311

First came a substantial reduction in drilling activity.

On August 20, 2007 there were 43 drilling rigs active in the basin with each rig
directly and indirectly employing 100. These drill rigs were dedicated to
expanding the productive capacity of the San Juan Basins abundant supply of
natural gas. Today there are just one or two rigs operating both of which are
working to develop the nascent Mancos oil shale play. Aztec Well Service alone
has 10 rigs parked in its yard each one (when operating) employing directly or
indirectly 100 people. Additionally, on August 20, 2007 there were 126
completion and workover rigs operating in the basin. Today there just 20 such
rigs working.

The next shoe to drop has been substantial capital spending cutbacks and
thousands of layoffs.

These cuts, in turn, have substantially contributed to Farmington acquiring the

dubious distinction of having the nations highest unemployment growth in
2015 of all U.S. Metropolitan Statistical Areas. In spite of these painful cuts by
area oil and gas producers and service companies, our community is now
experiencing the additional sting of corporate and personal bankruptcies.

In the current low price environment, 25% of San Juan Basins 20,000 gas
wells are cash flow negative at $2.00 per MCF prices. (Natural gas closed at
$1.67 on March 4, 2016.)

Another 12.5% of the 20,000 total wells would become cash flow negative with
the addition of just a modest $5,000 per year in operating cost increases.
Frankly, large numbers of operating wells in the San Juan Basin are at risk of
premature closure. Fewer wells mean even fewer jobs, less production and
lower tax and royalty revenues to Federal, State of New Mexico and local
governments and agencies including all of the undersigned below.

Potential implementation of an abundant and onerous array of new rules

and regulations proposed by the Bureau of Land Management (BLM) are
quite likely to be the industrys tipping point.

Capital spending associated with drilling is practically zero compared with 2007
and producers, service and equipment companies have laid off thousands of
workers with great paying jobs simply to keep existing wells operating in such
an incredibly lowprice environment.

When taken together, the plethora of new rules and regulations would add a
profound and significant risk to the financial viability of a substantial portion of

San Juan County Community Impact Letter 20160311


San Juan Countys oil and gas industry. In their current form, these rules would
add significant capital and operating costs to an already struggling industry. The
result will be accelerated closure of wells beyond what is already occurring
naturally due to the stresses of low prices.

The bottom line to San Juan County and Your Constituents . . .

Once a well is closed, plugged and abandoned, future employment and tax benefits of
production (once prices recover) are lost forever. Illadvised regulatory actions which
add just $5,000 of annualized operating costs threaten to permanently and substantially
shrink our regional economy even at the very time we labor to diversify our economic
base. This is a onetwo gut punch to our local economy you can help prevent from
happening!

New Mexicos overall economy, as you know and are concerned about, continues to
struggle with one of the nations highest unemployment rates and a shrinking
population. We are one of only a few states still reeling from the impacts of the massive
economic downturn of a few years ago.

The additional damage to the oil and gas industry that will occur from implementation
of the BLMs proposed regulations (in their current form) threatens to not only put the
northwest region of New Mexico into a state of longterm and potentially permanent
economic decline, it also threatens to hamstring the State of New Mexicos budget for
years to come.

The BLMs proposed regulations (Onshore Orders 3, 4, 5 and 9) are of particular
importance and potential negative impact to all of New Mexico and its economic vitality!
Some 63% of New Mexicos natural gas production and 54% of oil production originates
from federal mineral leases.

Compounding the magnitude of the regulatory impact is the States checkerboard land
ownership status and the industrys integrated nature of operations. BLM rules (both
existing and proposed), therefore, effectively impact almost all industry activity
regardless of whether that activity occurs on Federal, State or privately held land. At
stake is a significant share of the $901 million of the 2015 federal mineral royalties
collected from oil and gas production in New Mexico and the $432 million of that total
revenue shared with the State to the benefit of the employees and citizens served by the
undersigned below.

Accordingly, the balance of this letter reflects the organizational, community and
personal impacts on the undersigned . . .

San Juan County

San Juan County Community Impact Letter 20160311


The BLM regulations, as proposed, would be catastrophic to San Juan Countys already
difficult budgetary crisis. The potential loss of up to 7,500 wells represents a revenue
loss of 13% in county oil and gas taxes on top of the 47.6% decline already experienced
since 2009. Furthermore, San Juan County will also incur additional losses of Gross
Receipts Taxes indirectly effected by these regulations. These revenue losses would be
further compounded by the loss of an estimated 9,000 jobs associated with the closed
wells.

County leadership has no choice in how we would respond. Reduced revenues and the
requirement for a balanced budget mean we must embark on cuts in essential services.
These cuts include, but would not be limited to, reductions in social service programs,
law enforcement, fire and emergency response and critical reductions to our most
vulnerable populations including indigent healthcare services and senior care center
operations. Conclusively, if implemented in their present form and timing, the new BLM
regulations will trigger the need for additional federal assistance to a state that already
requires one of the nations largest federal subsidies.

City of Farmington

Passage of the proposed BLM regulations and the associated potential closure of
between 25 to 38 percent of the natural gas wells in our service territory will have
undeniable and adverse implications for the City of Farmington.

The state of our communitys economy is only beginning to be reflected in the GRT
amounts received. The February 2016 Gross Receipts Taxes received by the City were
20.79% less than the same month last year.

Although Farmington does not directly receive large amounts of GRT directly from the
production of natural gas and oil, the benefit is derived from a large population of
residents employed in the oil and gas industry. These benefits are received in the form
of other tax sectors such as: retail, construction, manufacturing, healthcare, and various
professional services. All of these sectors are negatively affected by any losses in the Oil
& Gas Sector. As a result of the FY2010 recession, city budgets were significantly cut
and remain so. If revenue continues to decline, City Council and City Administration will
only have three (3) options available: (1) to cut services to the citizens; (2) to raise
taxes; or (3) a combination of cutting services and raising taxes.

City of Aztec

City of Bloomfield

Four Corners Economic Development

San Juan County Community Impact Letter 20160311


City of Farmington Electric Utility (FEUS)

Passage of the abovereferenced BLM oil and gas regulations as proposed would be very
painful for FEUS and its customers in San Juan and Rio Arriba Counties.

About 39% of the municipally owned FEUS electricity sales are attributable to large
industrial customers. All of FEUS industrial sales are directly associated with the oil
and natural gas production industry. Industrial sales revenue for FY2015 were
approximately $42 million.

Alarmingly, FEUS industrial sales to natural gas customers has been declining over the
last 36 months given the historic low prices for natural gas. FEUS management has
conducted research into the correlation of electricity sales and natural gas prices dating
back to the year 2013. The correlation is quite strong and, as natural gas prices have
fallen, indexed electricity sales have fallen at equal or greater rates.

If a conservative 20% of our industrial kilowatt hour sales were to disappear as a result
of the implementation of the proposed BLM rules and the associated permanent closure
of natural gas wells, there would have to be a shift of the costs associated with assets
amongst fewer remaining customers including our residents and small businesses.
Reduction of 20% of the systems industrial load would mean a reduction of $8.3 million
of electric revenue.

Our low regional electricity prices are a key aspect of our communities economic
diversification plan. Raising electricity prices to customers as a result of diminished
industrial sales works counter to this shared critical community objective of economic
diversification.


Aztec Chamber of Commerce

Bloomfield Chamber of Commerce

Kirtland Chamber of Commerce

San Juan College Paragraph

Aztec Municipal School District

Bloomfield Municipal School District

Central Consolidated School District

United Way and Its Member Agencies

San Juan County Community Impact Letter 20160311




In closing, as a community we would welcome any opportunities for additional
engagement as it relates to achieving a fair and equitable balance between the economic
impacts of the proposed rules as they relate to a location like San Juan County and the
BLMs intended outcomes of the regulations.

In the interim, we respectfully ask you to carefully evaluate and consider the numerous
and highdollar adverse impacts that the proposed BLM regulations will have on our
communities, organizations and quality of life. We believe that when you thoughtfully
consider these rules (as proposed) in light of a dollars and cents, real people and real
jobs perspective, the costs of implementing the host of new BLM regulations at this
time and in their present form vastly exceeds any potential benefits.

Sincerely,



General Public Signatures

San Juan County Community Impact Letter 20160311