25% royalty rate cap on prime oil and gas land heads to the House
Feb. 22—Legislation increasing the maximum royalty rates charged for prime New Mexico oil and gas land is heading to the House after passing the Senate chamber Saturday on a 21-15 vote.
A similar effort passed the House last year but couldn't make it through the Senate. This year's bill, Senate Bill 23, takes a slightly different approach by limiting a proposed 25% royalty rate cap geographically to premium land for oil and gas exploration — the Permian Basin.
"When you have the best of the best, you want the best rate that you can get," said bill sponsor Sen. George Muñoz, D-Gallup. "It's a business model."
Currently, the State Land Office can only charge up to 20% in royalty rates. The money goes to the state's Land Grant Permanent Fund, which funds public education.
Muñoz said 99% of activity in the Permian Basin is driven by major oil companies.
"Every major oil company — ExxonMobil, Chevron — has hit oil in this area, and hit it at a high volume," he said.
However, that argument did not sway Senate Republicans, who uniformly opposed the legislation.
Sen. Larry Scott, R-Hobbs, tried but failed to amend the bill to make the State Land Office subject to the same prime oil and gas development directive that lessees and private landowners must follow, which is to prevent waste and protect correlative rights.
Republicans sang a similar tune against the bill as they have so far in the session and in past years, saying it would hurt the industry majorly funding New Mexico.
"If you want less of something, you tax it. If you want more or something, you incentivize it," said Sen. Ant Thornton, R-Sandia Park. "And it seems to me we are doing our best to kill the industry that keeps the state running."
The State Land Office last year stopped leasing out the best tracts of oil and gas land until the Legislature raises the royalty rate cap.
The bill passed the floor after about an hour and a half of debate.
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