Charge fair market value on public lands
As I understand it, New Mexico leaders went to Congress in 1928 to change specific formalities of the Land Office Enabling Act pertaining to mineral sales on state trust land.
These changes related to strict appraisal and advertising requirements. These changes received congressional approval, and the Legislature was given the authority, generally, to create statutory oil and gas lease terms.
However, the basic premise of the enabling act that the commissioner of public lands is charged with getting true value from the use of state trust land remained intact.
The idea was that the appropriate value of these public resources would be reflected in the royalty rate charged. And this may have been the case for some time, but considering the current value of the Permian Basin (one of the world’s most productive oil plays), this is no longer the case.
It is interesting that when companies sell their oil and gas leases in the Permian Basin to other companies, they charge (and get) a 25% royalty rate. The private market in the Delaware Basin in New Mexico uniformly charges a 25% royalty, just as Texas does. It’s hard to say that raising royalty rates on trust land would be an incredibly anti-industry, completely unreasonable approach when it is exactly what companies are doing too.
During the last legislative session, the New Mexico Oil & Gas Association didn’t even oppose legislation to increase the royalty rate to 25% on prime mineral-rich state trust lands. In fact, major companies, including Oxy and EOG, supported it. They recognized this is a partnership — they bring the resources to market in exchange for getting to take 80% or 75% (depending on if the royalty rate was 20% or 25%) of its value.
Industry makes billions, and the school kids get to come along for the ride.
Charging less than the fair market value for State Land Office prime mineral lands has a serious financial impact. It is estimated the value garnered from royalties from state trust lands, which are invested in the New Mexico State Investment Council Land Grant Permanent Fund on behalf of the 21 Land Office beneficiaries, would be $1.5 billion to $2 billion more by 2050 if the royalty rate was 25%.