Committee backs raising maximum royalty on highest-value state trust tracts to 25%

The House Energy, Environment and Natural Resources Committee voted March 4 to recommend Senate Bill 23, a measure that would raise the maximum royalty rate for the state’s highest-value oil-and-gas tracts to 25 percent.

Supporters said the proposal brings royalty rates closer to market levels for premium tracts in the Permian Basin and would increase long-term revenue for the Land Grant Permanent Fund, which supports public schools and universities. Deputy Commissioner Sunilay Stewart of the State Land Office told the committee the last general update to royalty policy dates to the 1970s and that the office’s mission is to maximize returns for beneficiaries: “We are an enterprise agency…we are more like a business,” Stewart said.

The bill applies only to future leases and includes new language to clarify statutory causes for lease cancellation (for nonproduction or default) and to require the land office to publish rankings and the basis for those rankings for transparency. The sponsor said the proposal is geographically targeted to high-producing areas — the Permian Basin — and not intended to change existing leases.

Industry groups and business associations offered mixed testimony. Some major operators and community groups supported the change, saying it would align New Mexico with neighboring Texas and boost revenue to schools. EOG Resources said it supports the bill; the Sierra Club and other environmental groups also testified in favor on public-benefit grounds. But opponents raised concerns about the bill’s geographic scope and practical effects. The Independent Petroleum Association of New Mexico said the bill’s map “bulges out way beyond the Delaware Basin” to include tracts in Eddy and Lea counties that the association does not consider “best of the best,” and warned that setting a premium rate on lower-quality tracts could lead to no bids and zero revenue from those parcels.

Representative Murphy asked detailed questions about competitiveness, taxes and the bill’s potential effects on bonuses, lease terms and exploration for marginal areas. State Land Office witnesses acknowledged the trade-offs: higher royalties reduce some up-front bonus revenue and affect marginal projects, but the office said higher royalties on proven premium tracts should still attract bidders and generate larger long-term returns for beneficiaries.

Representative Garcia moved the do-pass recommendation; Representative Abeta seconded. The committee recorded named votes in the transcript that included Representatives Abeta, Garcia and Gorilla (recorded as present in support), Representative Small and Chair McQueen voting yes, and Representatives Henry, Murphy and Senna (Serna) Cortez registering no on the record. The motion carried; the committee’s clerk recorded the action as a do-pass recommendation.

Supporters urged passage on the grounds that public resources should return fair market value to the trust and ultimately to public schools. Opponents cautioned that an overly broad map or too-high a rate on marginal tracts could reduce bids and leave productive tracts unleased. Committee members asked the land office to continue transparent publication of tract rankings and to consider updated studies on effective tax and royalty burdens for competitiveness.

The bill was advanced from committee with a do-pass recommendation and will move to further House consideration. Committee discussion identified follow-up work on tract mapping and transparency as likely priorities for floor debate and for implementation guidance to the State Land Office.