New Mexico’s Land Commissioner Stephanie Garcia Richard announced earlier this month the “indefinite withholding” of lease sales for oil and natural gas exploration on “premium tracks” of State Trust land located in the Permian Basin. Numerous of these tracks are located in Lea and Eddy counties.
The primary reason for the halt in leasing is a desire for the state to earn more revenue to fund public schools, hospitals and other institutions. The Land Office wants the exploding oil and gas industry to contribute even more than it already does to state coffers by increasing royalty rates on leases granted on State Trust lands. The increase would be from 20% to 25% and would align New Mexico with the royalty rate levied in Texas.
Legislature Must Approve Royalty Rate Increase
The New Mexico State Legislature must approve such an increase, and although Com. Garcia Richard has lobbied for the higher rate since 2019, to date, the New Mexico Legislature has not granted her wishes. Still, Com. Garcia Richard stands firm in her pursuit to attain the higher royalty rate. At the Land Office’s website the commissioner states, “Our job [the Land Office’s job] is to earn as much revenue as we can for New Mexico’s public institutions. It makes no sense to charge a below market rate for developing our most valuable natural resources. As a former public school teacher myself, I understand how tight the budgets can get for our school districts. We need to pass an increased royalty rate now and set up our schools for long-term success.”
A March 8 Associated Press article states, “Up to six leases will be left out of monthly lease bidding in March, a small portion of overall sales.” Com. Garcia Richard acknowledges that the state will miss out on some “smaller, one-time bonus payments while some lease payments are suspended”. However, she is focused on the bigger picture – the absence of a 5% royalty payment increase. She argues that New Mexico will “…miss out on billions of dollars in income and investment returns over the lifetime of future leases if royalties stay capped at 20%.” The AP article continues, “The accountability and budget office of the[New Mexico] Legislature says a 25% royalty rate cap would increase annual revenues by $50 million to $75 million.”
Operators pay royalty rates based upon the value of the oil and natural gas they extract from State Trust land. The state uses this income to fund public schools and facilities, and Com. Garcia Richard wants to insure that New Mexico’s taxpayers receive a “fair return” for allowing the private sector to develop state owned land. About halting lease sales on these lands the Commissioner says, “I am no longer willing to let these tracts [be] subsidized by school kids. When we get the right value for them, they will be leased.”
Republicans Send Letter to Garcia Richard
Republican legislators representing the state’s rich oil and gas areas have responded strongly to the Land Office’s actions. Rep. Larry Scott of Hobbs, joined by Reps. Jared Hembree of Roswell, Rod Montoya of Farmington and Jim Townsend of Artesia, sent a letter to Com. Garcia Richard with a demand for her to rescind her decision and reopen the tracks for leasing. These lawmakers wrote, “Such a lease moratorium, in our opinion, is unacceptable as it is clear you are placing your personal public policy goals over and above the proper decisions made by the Legislature in deciding whether the state royalty rate should be increased or not.” The Republicans also pointed out that the halt in leasing could create regulatory uncertainty and cause “companies to shift operations to Texas, costing New Mexico jobs and revenue from declining production,” states an article posted at Current Argus.com.
Speculation remains that in the future New Mexico Legislatures will not pass a rate raise initiative. Following this reasoning the GOP estimates that the halt in leasing will “…cost New Mexico $10 million in revenue by Fiscal Year 2026 and $30 million by FY 2028,” states the letter.
The Republicans stand firm in their argument that all Com. Garcia Richard is doing by her decision to halt leasing is to punish the oil and gas industry. In their letter they conclude, “We urge you to reverse this ill-advised decision so that no oil and natural gas development area is punished because of your failure to convince the Legislature that increasing the state royalty rate is appropriate.”
