Oil and gas royalty hike passes House, heads to Senate
Feb. 10—Fossil fuel producers seeking leases in the Permian Basin and elsewhere in New Mexico may have to give more of their profits to the state.
The House passed a bill to raise maximum fossil fuel royalty rates on state land in a 39-28 vote after three hours of debate Saturday afternoon, over intense opposition from the Republicans, many of whom represent oil- and gas-producing areas. If it gains approval from the Senate before the legislative session ends Thursday and Gov. Michelle Lujan Grisham signs it into law, it will raise maximum royalty rates — the amount oil and gas companies pay on the value of oil or gas they remove — on future leases for the first time since the 1970s.
Under existing law, the State Land Office can set royalty rates between 18.75% and 20%. House Bill 48 would increase the maximum to 25%.
The bill would not affect royalty rates on 99.2% of state trust lands in the Permian, which have already been leased, but would "only really affect" premium tracts in the Permian Basin, which encompasses some of the most productive oil fields in the world, said bill sponsor Rep. Matthew McQueen, D-Galisteo.
Royalty revenues go to the state Land Grant Permanent Fund, which primarily funds schools. HB 48 could increase distributions to the fund by an estimated $1.5 billion to $2.5 billion through 2050, according to a fiscal analysis of the bill.
Republicans criticized the proposed change as an attack on an industry that has brought New Mexico record revenues.
Raising royalty rates on the remaining 1% of available state trust lands in the Permian "is not that big a deal," but "I believe the message that we're sending to the industry that so supports New Mexico is not a good one," said Rep. Jim Townsend, R-Artesia. New Mexico unfairly favors renewable energy producers by comparison, Townsend and other Republicans said.
"We need to be as friendly as possible" to such a beneficial industry, said Rep. Alan Martinez, R-Bernalillo.
McQueen, who called into question the need for a cap at all, said the state is obligated to maximize the returns from selling state-owned resources.
"You could argue this bill is taking away a subsidy — that we're currently selling tracts below market value, and that's a subsidy to the oil and gas industry, and it's been a subsidy for a long time," he said.
Oil producers are enjoying "substantial, if not record" profit margins currently, McQueen added, saying the bill would move royalty rates closer to the "fair market price."
Texas charges royalty rates of up to 25% and charges the royalties on companies' gross proceeds, while New Mexico charges royalties on proceeds after some deductions, McQueen added.
"The reality is that, compared to Texas, not only are we charging less but we have more favorable terms" for oil and gas companies, he said, echoing the position of the State Land Office laid out in the Legislative Finance Committee's fiscal analysis of the bill.
Rep. Rod Montoya, R-Farmington, argued, due to New Mexico politicians' negative attitudes toward the industry, companies are incentivized to do business in New Mexico — as opposed to Texas — only by the difference in royalty rates. The bill would particularly push smaller oil producers out of the state, Montoya said.
