Committee approves higher royalty cap for new, high‑producing state leases after hours of debate

A House Appropriations & Finance Committee substitute for Senate Bill 23 was approved after extended testimony and floor‑style questioning, moving a proposal that would allow the State Land Office to set a higher maximum royalty rate — up to 25% — on new development leases in defined "premium" parts of the Permian Basin.

The measure applies only to new leases on state trust lands that rank as the highest producing under the Land Office’s existing scoring system. Sunilay Stewart, deputy commissioner of operations at the State Land Office, told the committee the proposal would change the split on the most lucrative parcels from 20% to 25% to the state and 80% to 75% to the operator, respectively. "This is money we receive for selling something we own," Stewart said, noting the proceeds are held in trust for the Land Grant Permanent Fund and its beneficiaries, including public schools, universities and hospitals.

Industry and business groups urged the committee to reject the bill or proceed cautiously. Jim Winchester of the Independent Petroleum Association of New Mexico said energy prices had declined during the session and warned that higher royalties would “disincentivize bidding” at a time of falling oil prices, citing a recent drop that he said reduced state revenues by about $650 million. Karla Sontag, president and CEO of the New Mexico Business Coalition, said the measure "will increase production costs, reduce operator profit margins, and discourage further investment."

Conservation and civic groups backed the increase as fair compensation for public resources. Melissa Bernardin of the Sierra Club Rio Grande chapter and Atza Chavez of NM Native Vote urged higher rates on the highest producing parcels and said revenues should benefit trust beneficiaries and frontline communities. Richard Mason of the League of Women Voters of New Mexico told the committee the League supports ensuring the Land Commissioner is backed to maximize returns while protecting the environment.

Committee members pressed witnesses on fiscal and market impacts. Stewart and analysts cited a fiscal‑impact projection that estimated roughly $74 million per year could be added to the Land Grant Permanent Fund under certain assumptions, producing additional distributions over the long term in the hundreds of millions to more than a billion dollars by mid‑century if market conditions hold. Stewart emphasized leases subject to the new cap would be limited geographically to premium tracts and would apply only to new leases; existing leases remain in force at their current terms.

Lawmakers raised questions about the effect on smaller independents versus major operators, competition with federal land leasing rates (which were discussed as lower), and whether companies would instead bid on federal acres or Texas parcels. Stewart and others said bidding is competitive and the Land Office would reoffer parcels at lower rates if no bids come in.

After committee debate the motion to advance the committee substitute passed on a roll call. The committee recorded nine votes in favor and eight opposed. Those recorded voting yes included Representatives Garrett, Hernandez, Herndon, Herrera, Little, Luhan, Silva, Vice Chair Dixon and Chair Small. Those recorded voting no included Representatives Vaca, Brown, Chatfield, Dowd, Duncan, Pettigrew, Sanchez and Vincent.

The committee action allows the measure to move forward to the next stage; it does not by itself change current leases or levy new assessments. If enacted, the change would apply only to newly issued development leases in specified high‑producing sections of the Permian Basin and not to federal leases or existing contracts.