SANTA FE, N.M. — New Mexico’s State Land Office will indefinitely hold lease sales of its most promising areas for oil and natural gas development in the Permian Basin as it seeks approval from the state Legislature to raise the highest royalty rates, land commissioner said Stephanie Garcia Richard Thursday.
Bills have repeatedly stalled in the Democratic-led Legislature, including this year, that would increase New Mexico’s top royalty rate for oil and gas development from 20% to 25%. Supporters of the change say neighboring Texas already counts up to 25% on state trust lands, amid fierce competition for drilling in the Permian Basin that overlaps southeastern New Mexico and parts of western Texas.
In New Mexico, royalty payments from oil and gas development are deposited into a multibillion-dollar investment fund that benefits public schools, universities and hospitals.
“I am a counselor on behalf of the school children,” Garcia Richard said. “My job is to make them as much money as possible, and leasing these areas below market price means schoolchildren are subsidizing oil and gas operations.”
Missi Currier, CEO of the New Mexico Oil and Gas Association, said the disagreement between the Legislature and the State Land Office threatens to punish petroleum producers and public beneficiaries by sidelining leases.
She said in a statement that current combined royalties and other taxes in New Mexico are comparable to those in surrounding states, although the association has not taken a formal position on proposed rate increases in recent years.
Garcia Richard estimates that the state would lose billions of dollars in revenue and investment returns over the life of future leases if royalties are capped at 20%.
The Legislature’s Accountability and Budget Office says a 25% royalty cap would increase annual revenues by between $50 million and $75 million.
Up to six leases will be excluded from monthly rental bids in March, a small portion of total revenue. The next regular session of the Legislature will take place in January 2025.
Garcia Richard, a Democrat who is being elected to a second term in 2020, acknowledged that the state will miss out on smaller, one-time bonus payments while some lease sales are suspended.
She likened the decision to defer some rental sales to a homeowner delaying sales during a real estate market downturn.
“The larger amount in the long run is worth it to me,” she said.