February 8, 2023

Proposal to increase royalty rates for oil and gas production on state lands advances

Hannah Grover/NM Political Report

An abandoned pumpjack is seen in a field in Kirtland.

A bill that would increase royalty rates on future oil and gas leases on state lands in New Mexico passed the Senate Conservation Committee on a 6-2 party-line vote.

SB 164, sponsored by Sen. Bill Tallman, D-Albuquerque, proposes charging a maximum net royalty rate of 25 percent on oil and gas extraction. The current maximum rate is 20 percent. 

The proposed future rates would also apply to gas that is vented or flared. Tallman said the bill would further discourage venting and flaring while increasing revenues for the state.

While the 25 percent rate would apply to vented and flared gas, it would not apply to gas that is vented or flared out of necessity, such as to address safety concerns.

Sunalei Stewart, the deputy commissioner of operations at the State Land Office, said that the methane regulations have significantly reduced the venting and flaring. He said he does not anticipate much revenue from vented and flared gas, but that it is important to include it in the bill because administrative changes could lead to changes in the methane regulations that may allow for more venting and flaring.

Proponents say that the increase would bring the royalty rate more in line with the market rate and similar to what Texas charges. Texas has a maximum gross royalty rate of 25 percent.

But opponents say that the increased rates would disproportionately impact small oil and gas producers and that New Mexico has a larger tax burden that producers have to bear.

The bill now heads to the Senate Tax, Business and Transportation Committee.

While Sen. Joseph Cervantes, D-Las Cruces, voted in favor of the increased rates, he said he would also like to see the legislation go to the Senate Judiciary Committee before it heads to the Senate floor.