Senate advances bill letting Land Office set 25% royalty on top Permian parcels after heated debate

Senators on the Senate Conservation Committee voted to give Senate Bill 23 a ‘‘do pass’’ recommendation after a sharply divided hearing over whether the New Mexico State Land Office should be empowered to set a 25% royalty on the state’s most productive oil and gas parcels in the Permian Basin.

The bill’s sponsor, Senator George Muñoz, told the committee the State Land Office’s ‘‘primary purpose is to make money and support public schools and other state institutions’’ and said prior royalty adjustments date to the 1970s. He told the committee the measure would limit higher rates geographically to ‘‘the best areas’’ of the Permian Basin rather than impose a uniform statewide increase.

Supporters, including local chambers of commerce, conservation groups and tribal advocates, said the state is entitled to higher returns from publicly owned minerals to fund education and other beneficiaries. Bill Lee, president and CEO of the Gallup‑McKinley County Chamber of Commerce, said, "When compared to Texas, our primary competitor in the Permian Basin, we are not capitalizing as fully as we should on the revenues that could be generated for our state." Greg Bloom, assistant commissioner for mineral resources at the New Mexico State Land Office, summarized the office’s case: "This is about the state getting 25% and oil and gas companies receiving the remaining 75%. This is not a tax increase. It's about getting something closer to a market rate for what the state already owns."

Opponents, including trade groups and smaller producers, warned the change would squeeze independents and raise the cost of developing wells. Karla Sontag, president and CEO of the New Mexico Business Coalition, said higher royalties risk driving producers to other jurisdictions: "If we want parity with the royalty rates, that's fair. But let's have parity for all the other costs that are incurred," she said. Jim Winchester of the Independent Petroleum Association of New Mexico told senators the industry is already consolidating and that a higher fixed royalty would disproportionately hurt smaller operators.

Committee questioning focused on how the Land Office scores and classifies leases. Bloom described the existing, statutory scoring process: nominations are scored on geological and market factors and categorized as exploratory (12.5%), discovery (16.67%) or development leases (currently up to 20%). He said the proposal would allow the Land Office to offer development leases at up to 25% in narrowly defined premium areas that score above the statutory threshold. Bloom said the office has paused offering some of its highest‑value tracks at 20% in recent months while seeking the statutory authority for a higher rate and estimated that the change, if it holds current price levels, could raise roughly $50–$84 million annually and produce long‑term distributions to beneficiaries in the hundreds of millions to more than a billion dollars over decades.

Members repeatedly pressed the Land Office on two practical issues: whether lease cancellations and bond requirements have been handled consistently and whether the office had run formal present‑value calculations comparing earlier lease bonuses and near‑term cash to longer‑term higher royalties. Bloom acknowledged the office had found about 800 leases with no bond when staff reviewed approximately 6,000 active oil and gas leases; he said only a small subset were terminated after outreach and that the office posts cancellation notices online and notifies lessees by certified mail. He also said the office did not bring detailed workbooks to the hearing but asserted staff have estimated long‑term gains from reserving premium tracts.

The hearing also included testimony about deductions that affect ‘‘net’’ royalty receipts in New Mexico (transportation, processing and other allowable deductions) and repeated comparisons to Texas, where royalty rules and deductions differ. Several senators warned that a higher royalty could accelerate consolidation of operators and asked what protections might be provided for New Mexico–based independents.

After public and committee debate, the committee recorded a roll‑call vote on the due‑pass motion: Senators Charlie, Hamblin, Pope, Sedillo‑Lopez and Stefanix voted yes; Senators Ezell, Scott and Townsend voted no. One senator (Cervantes) was excused. The motion carried 5–3. The bill now moves to subsequent floor or committee steps according to Senate procedure.

Senate Bill 23 would change how the Land Office can set royalty rates on premium parcels but does not itself alter other lease terms, severance taxes or the taxation regime that producers face. The Land Office and several analysts told the committee that final revenue outcomes would depend on oil prices, production decisions by operators and how the agency applies its statutory scoring rules to each nominated track.

The committee’s written fiscal and technical analyses — including the Legislative Finance Committee’s figures and the Land Office’s estimates — are expected to be used in the next stages of debate.

(Ending) The bill remains subject to floor consideration and possible amendments. The Land Office said it would provide further documentation on its long‑term revenue calculations and additional lease datasets to the committee on request.