Adrian Hedden
El Rito Media
achedden@currentargus.com

A bill that would raise royalty rates paid by New Mexico oil and gas operators to drill for fossil fuels on state land was approved by the state’s Senate Finance Committee on Tuesday, Feb. 18, and will next to go the Senate floor for a vote by the full chamber.

That will be the third stop for Senate Bill 23, and approval would send the legislation to the New Mexico House, where it will need to gain approval by the full chamber before it can be signed into law by New Mexico Gov. Michelle Lujan Grisham.

SB 23, sponsored by Senate Finance Chair Sen. George Munoz (D-4), seeks to raise from 20% to 25% the cap on oil and gas royalty rates paid by operators on the value of oil and gas extracted on State Trust land.

The increased rate would only apply to new leases on the most high-valued tracts of State Trust land in the southeast Permian Basin region – Eddy and Lea counties – according to the State Land Office, which oversees state land uses including oil and gas production.

The Land Office holds monthly auctions for leases of parcels of state land to oil and gas companies for drilling and other operations. New Mexico State Land Commissioner Stephanie Garcia Richard, who leads the office, has pushed for the increased fees since she took office in 2019.

The higher rate should become law to ensure New Mexico taxpayers get a “fair share” of oil and gas revenue generated by the state’s booming oilfields,” Garcia Richard said in a statement issued after the Senate Finance Committee voted 6-3 to approve SB 23.

Last year, Garcia Richard announced the parcels that would be subject to the increase would not be leased until the cap was raised.

The bill would increase revenue to Garcia Richard’s office by up to $50 million more by Fiscal Year 2028 and $75 million by FY 2029, according to an analysis from the Legislative Finance Committee. That money is largely used to support New Mexico public schools and hospitals, defined in state statute as beneficiaries of land office revenue.

New Mexico’s fiscal years, which run from June 1 to July 30 of the following year, are named for the year they end.

“New Mexico’s public schools depend on money earned from development on our state lands,” Garcia Richard said. “That’s why lawmakers have a duty to make sure we can get as much money as possible for resources like oil and gas that belong to all New Mexicans.”

Garcia Richard and other supporters of the measure argued the 25% rate would bring New Mexico in line with royalty rates charged just over the border in West Texas’ portion of the Permian Basin.

But opponents said New Mexico’s oil and gas operators already struggle under stricter regulations, and any further increase in the cost of doing business could send companies across the state line.

Jim Winchester, president of the Independent Petroleum Association of New Mexico, a trade group, argued before the finance committee that the bill “missed the mark” and was a “bad deal for New Mexico.”

He said the increase could cause large operators to avoid paying the higher rates by moving out to the edges of the Permian Basin’s most active area known as the Delaware Basin, potentially pushing the smaller independent operators Winchester’s group represents further away from the most lucrative oil deposits.

“Our concern lies in the periphery areas around the geologic border of the New Mexico Delaware Basin, as close as one mile from the basin’s edge where our independent members take risks (and) spend a lot of capital on infrastructure with the hope that reserves there will pay back the investments,” Winchester said.

He said blocking Eddy and Lea counties from development by independent operators will cause New Mexico to lose out on “millions of dollars” in potential investments, and that leases in the area should be less than 20%, not more, to allow such plans.

Sen. Pat Woods (R-7) of Curry County worried that smaller operators could struggle to stay afloat if the bill passed and it became more expensive to extract fossil fuels in New Mexico.

“It’s thought that there are a lot of big oil companies out there, but there’s also some small ones,” Woods said. “I’d hate to drive them out of business.”