Committee advances bill to raise top royalty rate on high‑producing state trust lands to 25%

The House Energy, Environment & Natural Resources Committee voted 5‑4 to advance a substitute for Senate Bill 23, a measure that would raise the maximum royalty rate on the most productive state trust land tracts to 25 percent.

A sponsor described the bill as an alignment of state practice with market rates in other states and as a mechanism to increase revenue for the Land Grant Permanent Fund, which supports public schools, universities and hospitals. "These are public resources. When we sell the public resources, we're making a deal," the sponsor said, adding that an increase to a 25 percent top rate in premium tracts would shift more revenue to beneficiaries.

Sunilay Stewart, deputy commissioner of operations at the State Land Office, told the committee the agency's last royalty rate update dated to the 1970s and that a higher top rate is consistent with comparable state practice in parts of Texas. Stewart described a parcel‑by‑parcel evaluation process required by state law: petroleum engineers will score tracts on geological and market factors and recommend the appropriate rate within the statutory range.

Public testimony split along expected lines. Industry groups including the Independent Petroleum Association of New Mexico opposed the measure on competitiveness grounds and asserted the bill's tract definition "bulges out" beyond the New Mexico Delaware Basin into parts of Eddy and Lea counties where rock quality varies; the association said overly high rates have already resulted in leases receiving no bids on some tracts. The New Mexico Business Coalition and Rio Grande Foundation warned the bill could make the state less attractive to investment.

Environmental and community groups supported the bill. The Sierra Club, NM Native Vote and youth and community advocates urged higher royalties, emphasizing that resources extracted from public land should return greater benefit to schools and frontline communities. EOG Resources, a large operator in the Permian, expressed support in testimony.

Committee members probed economic and implementation questions: whether higher royalties are effectively a tax, how bonuses (upfront payments) and lease terms interact with royalty changes, the statutory lease form and the Land Office's enforcement of lease compliance and cancellations.

Sunilay Stewart said the Land Office enforces lease terms for cause, reviews thousands of leases for compliance, and re‑leases terminated leases under current rates. Stewart also said the office expects some leases will be priced at lower royalties within the 20–25% band and that the agency would publish its tract rankings and the factors used to promote transparency.

Representative Murphy raised concerns about possible effects on marginal exploration and pointed to six tracts in 2023‑24 that received no bids; the Land Office said it relisted parcels at adjusted terms. Representative Montoya expressed constitutional concerns about state intervention and the long‑term policy direction; Representative Garcia moved the do‑pass recommendation and Representative Abeyta seconded. The roll call showed a 5‑4 committee advance.

The substitute applies to future leases only and does not change existing leases, and it directs the Land Office to publish the basis of tract rankings. Supporters said the change would generate substantial revenue for beneficiaries; opponents warned of investment chilling effects and asked for tighter geographic limiting language and more explicit definitions of "best of the best."