A new piece of legislation that could significantly impact New Mexico’s oil and gas industry is heading to the House after passing the Senate with a 21-15 vote. Senate Bill 23 proposes a 25% cap on royalty rates for prime oil and gas land in New Mexico, with a particular focus on the Permian Basin—one of the most prolific oil-producing areas in the country.
Last year, a similar effort to raise the royalty rate cap made its way through the House but didn’t pass in the Senate. This year’s version takes a more targeted approach by limiting the proposed 25% royalty rate increase to premium land used for oil and gas exploration in the Permian Basin, an area dominated by major oil companies like ExxonMobil and Chevron.
Bill sponsor Sen. George Muñoz, D-Gallup, believes this is a smart business move. “When you have the best of the best, you want the best rate that you can get,” Muñoz said. “It’s a business model.” Under current law, the State Land Office is allowed to charge up to a 20% royalty rate, with the revenue funneling into the state’s Land Grant Permanent Fund, which supports public education.
Muñoz argues that the Permian Basin is an ideal area for increasing royalty rates because of its high oil production. “99% of activity in the Permian Basin is driven by major oil companies,” Muñoz added. “Every major oil company—ExxonMobil, Chevron—has hit oil in this area, and hit it at a high volume.”
Despite the support from lawmakers like Muñoz, the bill has faced strong opposition from Senate Republicans. Critics argue that raising royalty rates could have detrimental effects on New Mexico’s oil and gas industry, which is a major source of revenue for the state. Sen. Larry Scott, R-Hobbs, proposed an amendment to the bill to impose the same development guidelines on the State Land Office as those required for lessees and private landowners—rules designed to prevent waste and protect correlative rights. The amendment was rejected.
Sen. Ant Thornton, R-Sandia Park, echoed the sentiment of many Republicans, saying, “If you want less of something, you tax it. If you want more of something, you incentivize it. And it seems to me we are doing our best to kill the industry that keeps the state running.”
The debate on the bill lasted about an hour and a half before it passed the Senate floor. Last year, the State Land Office halted the leasing of the best oil and gas land until the Legislature raised the royalty rate cap. If Senate Bill 23 passes the House, the increased royalty rates could be a major step toward incentivizing even more production in the Permian Basin, but not without some controversy along the way.
As this bill moves forward, it will be interesting to see how it plays out and what impact it will have on both the state’s education funding and the oil and gas industry that funds much of the state’s economy.