By Megan Gleason | Albuquerque Journal
February 7, 2025
SANTA FE — A committee vote of 5-3 on oil and gas legislation came down to what legislators thought was the right thing for New Mexicans as well as the industry that funds more than a third of the state’s budget.
The sentiment came up multiple times during Thursday morning’s Senate Conservation Committee, which passed Senate Bill 23, a move to increase the maximum amount the New Mexico State Land Office can charge those leasing land for oil and gas extraction. The bill has failed to pass every year since 2019.
Known as royalty rates, the State Land Office can assess a net proceeds fee of up to 20% on prime oil and gas land tracts. But, for the past five years, the state agency has been pushing for the Legislature to raise that cap to 25%, which is what Texas and the private market often charge.
Revenue from royalty rates goes to the state’s Land Grant Permanent Fund, nearly all of which goes to public schools. The fund had $32.9 billion as of late November, according to the latest figures from the State Investment Council. In comparison, a year prior, the fund held $28.6 billion.
What’s different about the bill this year is that it limits the 25% royalty rate maximum only to the Permian Basin, not raising the cap statewide. That’s why bill sponsor Sen. George Muñoz, D-Gallup, said he’s on board this year. It’s a significant sign of support, as moderate Democrats are largely the reason the bill has failed in the past.
“What’s fair is fair, and what’s right is right,” Muñoz said during the committee.
The committee Republicans voted against it in fear of driving oil and gas companies out of the state or even out of business, particularly smaller, independent operators.
Republicans also took issue with the way the State Land Office reacted last year to the Legislature not increasing the cap: by halting lease sales on the best tracts of oil and gas land in the state.
Public Lands Commissioner Stephanie Garcia Richard told the Journal after the committee hearing that she stands by the decision to halt lease sales. She noted that once tracts are leased, lessees can hold onto them for decades; the increased cap would only affect new leases.
“The statute says we have to hold a lease sale every month, and we are continuing to do so,” Garcia Richard said. “But we are being a little bit more judicious about which tracts we are letting go for that lower rate, knowing that once they’re bid, they’re bid. They’re out.”
There are about 8,000 acres of land the State Land Office is holding off on leasing, according to agency spokesperson Joey Keefe.
Sen. Candy Spence Ezzell, R-Roswell, said the State Land Office is “gambling” money that could’ve gone to beneficiaries. Her husband is a prominent oil and gas lawyer in the state, bill expert Greg Bloom, with the State Land Office, mentioned in committee.
Garcia Richard said the state is subsidizing the oil and gas industry by letting lessees pay anything less than the fair market value.
“It is interesting to me to see members essentially want to subsidize the industry,” she said.
All three committee Republicans represent areas in or near the Permian Basin, and Sen. Larry Scott, R-Hobbs, is an oil and gas engineer.
Sen. James Townsend, R-Artesia, said the state will never make up the revenue it’s forgoing while the State Land Office doesn’t lease out the best tracts of land for less than a 25% royalty rate.
He said with a federal administration pushing for more drilling, which typically drives prices down, the state is missing out on the high oil prices it could currently reap.
“This is just an anti-oil and gas bill,” Townsend said.
It’s a short-term loss of millions of dollars compared to generating billions of dollars in the long term, said Bloom, who’s the assistant commissioner for mineral resources at the State Land Office. It’s the duty of the commissioner to get the most money for state beneficiaries possible, he added.
The State Land Office estimates a 25% maximum royalty rate would add upward of $50 million annually to the Land Grant Permanent Fund, allowing beneficiaries like public schools to receive up to $1.3 million more in cumulative distributions through 2050, according to a legislative analysis of SB23.
“We’ve all heard that the definition of insanity being to do the same thing over and again, expecting different results,” Bloom said. “We had to change something.”
Townsend called it pushing “a political agenda and do(ing) it in a way that one industry gets off … pretty easy.” He found issue with how renewable energy lessees are charged differently than oil and gas lessees.
“I don’t believe it’s right,” he said. “I don’t believe it’s right for the state of New Mexico.”
Sen. Harold Pope Jr., D-Albuquerque, said this isn’t an attack on the oil and gas industry, and those resources are the people’s resources anyway.
“We’ve got to do the right thing,” he said.
The bill goes to the Senate Finance Committee next before arriving on the floor, where the Senate Conservation Republicans said they look forward to discussing it more.
Gov. Michelle Lujan Grisham, who would need to sign the bill into law, has signaled her support to the State Land Office, Garcia Richard said.
This article originally appeared in the Albuquerque Journal.