NM State Land Office stops leasing best land tracts for less than market rate

Mar. 7—The New Mexico State Land Office wanted lawmakers to increase the cap on oil and gas royalty rates in the 2024 legislative session. They didn't, and now the State Land Office plans to withhold the best land leases until the office gets the market rates it wants.

The State Land Office for years has wanted to boost the maximum oil and gas royalty rate from 20% to 25%, which is in line with Texas' cap and private market rate charges in New Mexico. A bill to do that failed to pass the 2024 Legislature, just as it has failed in past years.

The only state in the nation with a higher oil and gas royalty than New Mexico is Texas, which is New Mexico's competitor in the Permian Basin.

Public Lands Commissioner Stephanie Garcia Richard told the Journal on Thursday the amount of money the state stands to lose while continuing to lease parcels at submarket rates is significant. She said her office now won't lease certain lands until they go at market rate.

She said she's not a fiduciary for the oil and gas industry; she's a fiduciary for the beneficiaries of state lands and other permanent funds.

"I feel comfortable making this decision," Garcia Richard said. "I feel comfortable not asking the beneficiaries any longer to subsidize a multibillion-dollar industry."

Garcia Richard said she would hope withholding these leases could help encourage a future bill increasing the royalty rates to pass. She's not sure when the next opportunity could be, though she mentioned the possibility of a special legislative session.

"But the reasoning around it is I don't think it's fair for the beneficiaries to continue to subsidize this industry," she said. "If all other land is valued at a certain amount, why should the beneficiaries not receive the top dollar for land that is a public resource?"

Missi Currier, president and CEO of the New Mexico Oil and Gas Association, told the Journal the association hasn't taken a stance on the proposed royalty rate increase legislation but she believes New Mexico's total taxes, including royalties, are comparable with surrounding states.

"The New Mexico Oil and Gas Association is incredibly disappointed that our members and those who benefit from State Land Office revenue, like public schools, hospitals and higher education institutions, are being penalized because of a disagreement between the State Land Office and the Legislature over statutory leases," Currier said via email.

Nearly all of the money — 95% — raised by state trust land leases funds public education, according to the State Land Office.

The New Mexico State Land Office has a monthly oil and gas lease sale, and royalty rates on state trust lands range from 12.5% to 20%. The agency typically makes tens of millions of dollars each month in lease sales.

Increasing the rate cap to 25% would result in an additional $50 million to $75 million of revenue for the land grant permanent fund, according to the 2024 failed bill's fiscal impact report.

There are five tracts of land that remain available to bid on in the March bidding sale, according to the State Land Office's sale notice. Land office spokesperson Joey Keefe said the office is withholding about five or six tracts in March specifically because the agency can't charge 25% royalty rates.

Garcia Richard said her office determines how valuable the tracts are based on the activity during lease sales, desirability and the comparison of what other tracts in the area are going for.

She said the office has withdrawn tracts in the past, such as in ecologically sensitive areas or near schools, so there's precedent for withholding leases.

"At this time, we've determined that the market rate is 25%," she said. "We're not getting that market rate, and so we're not going to lease them."