Legislation to increase future oil and gas royalty rates heads to House floor

The House Commerce and Economic Development committee on Monday passed a bill that would raise future oil and gas royalty rates on a 6-5 vote.HB 48 increases the maximum royalty rates that the State Land Office can charge on certain leases, bringing it more in line with what neighboring states charge.

This would not impact existing leases. Rep. Matthew McQueen, D-Galisteo, sponsored the bill. He said it would lead to increased revenues in the Land Grant Permanent Fund once the future wells start producing oil or gas.Not every future well will be subject to the proposed 25 percent royalty rate should the bill pass.

“This is a premium that oil companies will pay for the best tracks,” McQueen said.Sunalei Stewart, the deputy commissioner of operations at the State Land Office, said the agency’s job is to make money for public schools, universities and hospitals and that the federal government gave the state land for that purpose.

“Government can wear a lot of hats. In this specific instance, we’re wearing the hat of basically a private market actor and under the current system, we are unable to charge what is the market rate and put up for auction, a track that we know would receive that 25 percent lease rate,” he said. But Jim Winchester with the Independent Petroleum Association of New Mexico argued that a bump from 20 to 25 percent “probably doesn’t hurt. But for smaller operators, like the ones I represent, they do operate on thin margins. This kind of raise does disproportionately hurt them.”

Winchester further argued that it is not fair to compare New Mexico’s royalty rates to what Texas charges because, he said, New Mexico levies more taxes on producers than Texas does.

HB 48 previously passed the House Energy, Environment and Natural Resources Committee on a 7-4 party-line vote. It now heads to the House floor for debate.