N.M. should raise oil and gas royalty rates

New Mexico should stop lagging behind Texas, its Permian Basin neighbor, on the royalty rates paid for oil and gas development on state trust land.

In New Mexico, producers pay a maximum of 20% in royalty rates, while Texas charges up to 25% on its state trust lands. Despite the gap, the state Legislature has refused to increase royalty rates — proceeds from which are deposited in a multibillion-dollar investment trust to benefit hospitals, universities and public schools.

Land Commissioner Stephanie Garcia Richard is taking the dispute over royalty rates public, choosing to withhold lease sales indefinitely on promising tracts for oil and natural gas development in the Permian Basin. As fiduciary on behalf of public schoolchildren across the state, Garcia Richard told The Associated Press her job is to make the most money possible: “Leasing these tracts below market rate means that school kids are subsidizing the oil and gas activity.”

Over the lifetime of the leases, New Mexico is projected to lose billions in income and investment returns. According to the accountability and budget office of the Legislature, a 25% royalty rate cap would increase revenues from between $50 million to $75 million annually. That’s a lot of money to be leaving on the table.

This year, House Bill 24 — sponsored by Rep. Matthew McQueen, D-Galisteo, and Sen. Bill Tallman, D-Albuquerque — passed the House and was referred to the Senate Finance Committee, where it stalled as it has in previous years. In 2025, we trust the Legislature will revisit the measure, and perhaps Garcia Richard’s actions now will bring greater attention to the issue.

As Rep. McQueen has said, “New Mexico is fortunate to have some of the best natural resources in the country, and we shouldn’t be content to give them away on the cheap, especially when the future of New Mexico’s kids is at stake.”

For whatever reason, that is exactly what the New Mexico Legislature has done on this issue — giving away resources cheaply. The Legislature last updated the royalty rate in the 1970s, and the new rates only would apply to new leases on the most productive oil and gas parcels on state lands. This isn’t even an across-the-board rate increase, applied equally to all leases.

To critics of the measure, who point out other oil-producing states charge lower royalty rates — except for Texas — we would point out that the Permian Basin is rich enough in resources to bear the higher royalty rate. Just like Texas, in other words.

The current plan to withhold leases is obviously being done to make a point — to spark greater conversation and, we trust, to bring public pressure on lawmakers to do the right thing. Garcia Richard has decided to leave up to six leases out of monthly lease bidding in March. That’s only a small portion of overall sales, but the leases affected are on some of the most promising sites for development. On these locations, higher royalty rates implemented now will pay millions in dividends in years to come.

Raising the rates to match the market is the right call.