Latest oil and gas royalty rate increase bill makes it through first committee

Sen. George Muñoz (D-Gallup) introduced the latest oil and gas royalty rate increase bill to lawmakers in the Senate Finance Committee this week.

Legislation supported by the State Land Office to increase the royalty rates on New Mexico state lands passed the Senate Conservation Committee this week, the first in its path to the senate floor.

Cosponsor Sen. George Muñoz (D-Gallup) presented Senate Bill 23 to committee members on Thursday. It received a do pass by a 5-3 party line vote and heads next to the Senate Finance Committee next, which Muñoz chairs.

The bill proposes increasing the top royalty rate from 20% to 25% for new oil and gas development on the “best state lands.” The state charges companies royalties for the right to extract oil and gas from public land.

According to the legislation’s fiscal impact report, the increase in royalty rate is expected to produce between $50 and $75 million of revenue for the land grant permanent fund, which provides funding to New Mexico’s public schools, universities and specialty schools.

Similar bills proposing increases to the royalty rates have been introduced during previous legislative sessions, but have failed to make it to the governor’s desk.

New Mexico Commissioner of Public Lands Stephanie Garcia Richard voiced her support for the rate increase ahead of the start of the Legislative Session. 

“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 Richards said in a statement. “We can’t miss this opportunity to bring in billions more for our public schools and set up future generations of New Mexicans for success.”

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Republican committee members, all of whom  voted against the bill, and attendees opposed to the bill expressed concerns that increasing royalty rates on new oil and gas developments would discourage companies from doing business in New Mexico, particularly smaller businesses.

“For smaller companies who I predominantly represent, they operate on thinner margins. 
They have less wells. So this kind of raise does disproportionately hurt them,” Jim Winchester, executive director of the Independent Petroleum Association of New Mexico, said during public comment. “The bottom line here for my membership and really for the state, is that we’re losing independence to the consolidation of the industry. The bigs are certainly getting bigger and small operators are getting squeezed out.”

The Legislature last updated royalty rates in the 1970s, which bill supporters said was before the state realized the quality of oil and gas products in New Mexico. They also said the increase would bring New Mexico’s rate up to the market rate and on par with what Texas requires.