New Mexico could make $84 million more a year from oil and gas. Here's what to know about SB 164
Oil and gas extraction provides large portions of the state’s budget every year, largely credited with a $3.5 billion in surplus funds in 2023, and some lawmakers are hoping to maximize the returns to taxpayers for drilling on public land.
Targeting the State Land Office, Senate Bill 164 would raise the maximum royalty rate, a percentage paid by operators to the state on the value of oil and gas produced on State Trust land.
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What would the bill do if passed?
Present rules require producers pay a 20 percent royalty fee to the State Land Office on the value of the fossil fuel produced on State land, and SB 164 would raise that to 25 percent.
That would mean a fee equal to a quarter of the value would be paid to the government, compared to the present rate of one-fifth.
The bill would also add a section to a new lease form to require royalty payments on natural gas that is released via venting, flaring or spills.
These rules would go into effect July 1 if the bill is passed.
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What actions have lawmakers taken on the bill?
SB 164 was introduced by Sen. Bill Tallman (D-18) and cosponsored by Rep. Debra Sarinana (D-21) and Sen. Harold Pope (D-23).
It was granted a “do pass” recommendation Feb. 7 by the Senate Conservation Committee on a 6-2 vote and advanced to the Senate Tax, Business and Transportation Committee where it was awaiting a hearing.
How much money would New Mexico make?
The higher rates would mean higher revenue for the State Land Office which provides funding to New Mexico public schools, hospitals and universities.
That would mean up to $84 million a year in added revenue to the Office's beneficiaries in Fiscal Years 2025 and 2026, according to an analysis by the Legislative Finance Committee, based on the number of wells completed in the last 10 years and the average price of oil and gas.
Because of recent state regulations looking to increase gas capture, the report said it was difficult to estimate how much revenue gas releases would generate if the bill was passed.
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Would a higher rate stymie oil production?
Oil and gas industry groups argued an increased rate would increase costs of doing business in New Mexico, meaning operators could leave the state and production would slow.
But Tallman and the State Land Office argued Texas, which shares the Permian Basin with New Mexico, also charges a 25 percent rate, although most of that state’s production occurs on private land where less government fees are charged.
“It just doesn’t make sense to prohibit the state from charging a market rate for what is essentially a sale of a public resource,” Tallman said before the Conservation Committee.
Jim Winchester, executive director of the Independent Petroleum Association of New Mexico “little oil” would be unduly impeded if the bill was passed, and that while Texas' royalty rate was higher, the "overall tax burden" in New Mexico was higher and warranted a lower rate.
“They do operate on thin budgets and this increase will make it more difficult for them to maintain solvency,” he said.
When was the rate last raised?
New Mexico’s 20 percent royalty rate was last updated in the 1970s, the Land Office said, lower than Texas’ 25 percent rate but “generally in line” with other states, the report noted.
Adrian Hedden can be reached at 575-628-5516, achedden@currentargus.com or @AdrianHedden on Twitter.
This article originally appeared on Carlsbad Current-Argus: $84 million more a year from oil and gas? Learn more about SB 164
