By Molly Callaghan | Albuquerque Business First
July 18, 2025
The New Mexico State Land Office announced a historic auction of oil and gas leases in New Mexico, after a new state law kicked in allowing the implementation of a higher royalty rate.
A total 14 leases across 2,834 acres located in Eddy and Lea counties were auctioned on July 15, and yielded a record $56 million in bonus payments, or what companies put up in order to win a bid.
Once a lease begins to produce, a developer also pays royalty — a payment back to New Mexico for development of a public resources including schools, universities and hospitals.
Of the 14 leases, nine included a new 25% royalty rate.
The rate only applies to new leases on state lands within the most productive oil-producing areas in southeast New Mexico, according to Stephanie Garcia Richard, New Mexico Commissioner of Public Lands.
The State Land Office holds a public auction every month for the right to develop specific oil and gas areas. Companies submit bids for leases, which are awarded to the highest bidder.
The new, top rate was determined to be feasible by technical experts including petroleum engineers, and geologists who routinely forecast initiatives at the Land Office, she explained.
Garcia Richard said her office made the decision to not put the tracts up without the higher royalty, because leases can be held for decades with some tracts under lease since oil was first discovered in New Mexico.
“Once they’re gone, they’re gone,” she said.
The three highest earning parcels each received bids of over $12 million, with one purchased by Paloma Permian LLC and two purchased by Dudley Land Company.
The sale set a record for the highest bid per acre at over $80,000 per acre on the three total leases bid on by Denver-based gas firm Dudley Land Company.
Other companies that bid millions or hundreds of thousands of dollars on leases included Coterra Energy Inc., Double Cabin Minerals LLC/Avant Natural Resources and Civitas Resources Inc., Coastal Desert LP and McCright & Associates LLC.
Why the rate was raised now
The royalty rate was last updated in the 1970s.
Garcia Richard explained former State Sen. Bill Lee, a longtime rancher and Lovington lawmaker elected for two terms, according to his obituary, originally championed the royalty rate increase at that time.
Commissioner Garcia Richard has fought for the increase since assuming office in 2019.
She said she understood the Legislature was concerned that New Mexico would lose to lower bidding amounts if the royalty was raised, something she believes has been proven otherwise by the leases announced this week.
The legislative push for this change, Senate Bill 23, was supported by Sen. George Muñoz (D-4) and co-sponsored by Speaker of the House Javier Martinez (D-11), Sen. Liz Stefanics (D-39) and Rep. Matthew McQueen (D-50).
The bill sought to increase the top oil and gas royalty rate for new state land leases from 20% to 25%, in line with rates offered in Texas and on private lands in the desirable Permian Basin.
According to the Legislative Finance Committee, the market rate of 25% for premium oil and gas leases is estimated to result in additional annual contributions of between $50 to $75 million to the Land Grant Permanent Fund (LGPF).
State Land Office oil and gas royalties are transferred to the LGPF and invested by the State Investment Council (SIC) prior to distribution to entities which benefit from the funding.
Additionally, the SIC estimated that the new inflow of increased royalties from the State Land Office would result in between $1.5 billion to $2 billion in increased value of the LGPF by 2050, and between $750 million and $1.3 billion more in cumulative distributions from the LGPF by 2050.
Still, the move has drawn criticism
According to previous Business First reporting, critic of the increase Jim Winchester, executive director of the Independent Petroleum Association of New Mexico, said it might disproportionately impact smaller producers in New Mexico, in part because well operators in New Mexico have the highest “tax burden” when compared to other major oil and gas producing states.
Winchester told Albuquerque Business First that while he has not analyzed the results of the sale this week, nor the specific tracts up for bid, the IPANM continues to have concerns.
Winchester said the IPANM has opposed the royalty rate increase for six consecutive legislative sessions, and contends that despite the numbers of the recent sale, the State Land Office left money on the table and will “lose out on millions in the long run.”
According to Winchester, the 25% rate has a high potential to decrease demand on tracts in the highest producing oil areas, from many other operators who would have otherwise placed a bid on that tract under a 20% rate.
Additionally, the “Big Beautiful Bill” returns federal lands back to a royalty rate of 12.5%, with federal royalties now at half the price of New Mexico’s state rates.
Winchester believes production will continue shift to federal lands, outpacing state land development, also suggested by the Federal Reserve Bank of Dallas, and IPANM members continue to ignore projects on state lands in favor of federal lands, he added.
“The State Land Office’s new 25% rate is a gift to all other states who have lower royalty rates,” Winchester said.
This article originally appeared in Albuquerque Business First.