Bill to hike top oil and gas royalty rates on future leases introduced | Local News
The upcoming 60-day legislative session will likely see renewed debate over raising the top royalty rate for oil and gas development on state land.
Sen. George Munoz (D-Gallup) pre-filed a bill Friday to increase the cap on royalty rates from 20%, up to 25%, of market value for oil and gas leases on some of the most lucrative tracts managed by the state. The law would apply to leases issued after July 1. It would not impact current leaseholders.
In a press release on Friday, New Mexico Public Land Commissioner Stephanie Garcia Richard endorsed the legislation.
Garcia Richard and other proponents say revising the top rate would be a windfall for public schools and other beneficiaries who receive funding each year from the state Land Grant Permanent Fund, which, as a result of the change, would see an estimated $50-$70 million more in annual contributions.
“Remember that money from oil and gas royalty rates goes directly to benefit our public schools. Raising the state’s top oil and gas royalty rate puts millions more into the state’s savings for some of our most important institutions every year to ensure we continue funding them into the future,” Munoz said.
As land commissioner, Garcia Richard oversees nine million surface acres and 13 million mineral acres in New Mexico, including land within the oil-rich Permian Basin.
Royalty rates are the fees companies must pay to extract resources, such as oil and gas, from that land.
Backers of efforts note that the 20% rate was set in the 1970s before New Mexico knew the full value of many of those tracts, including those within the oil-rich Permian Basin, and that Texas already has a 25% rate.
“It should be a no-brainer to pass this legislation. Our friends next door in Texas have recognized that the Permian Basin is the top play for oil and gas in the world and the state’s top royalty rate should reflect that,” Garcia Richard said.
Opponents claim that increasing the top rate would disincentivize development on state lands, leading companies to shift towards drilling on federal lands and lead to less revenue coming into state coffers.
Last year, a report from the Legislative Finance Committee found that while the maximum rate in Texas is higher, the 20% rate in New Mexico is still larger than many other states that levy rates of between 12.5% and 18.75%.
Critics also noted that New Mexico levies more overall taxes on operators than some other states, including Texas.
For several years, Garcia Richard and some Democrats have tried to increase the 20% rate. Last year, House Bill 48, which would have done that, passed out of the New Mexico House of Representatives on a 39 to 28 vote, but was not taken up in the Senate.
In March, Garcia Richard drew the ire of some lawmakers when her office announced that they would withhold the sale of oil and gas leases for some of the most promising tracts of land until the Legislature upped the 20% top rate.
Republicans, including then state Reps. Jim Townsend of Artesia, Larry Scott of Hobbs and Jared Hembree of Roswell responded by sending Garcia Richard a letter in which they called her refusal to move forward with lease sales on those parcels unacceptable. They also warned that her refusal to issue those leases could lead operators to leave New Mexico and pursue drilling opportunities elsewhere.
At the time, Garcia Richard contended she was within her authority to withhold the lease sales on those premium tracts to get better compensation for the state.
The 60-day legislative session begins on Tuesday at noon.