The New Mexico State Land Office has announced a historic achievement, auctioning oil and gas leases at a new 25% royalty rate for the first time, a change championed by Commissioner of Public Lands Stephanie Garcia Richard.
The new state law, which took effect on June 20, allows the State Land Office to offer its prime parcels in the Permian Basin at market rates, resulting in a record-breaking July auction that generated over $56 million for public schools.
The State Land Office conducts monthly public auctions for oil and gas development rights, with leases awarded to the highest bidder. Once production begins, developers pay a royalty, which is a payment to New Mexicans for the use of a public resource.
In this landmark auction, 14 leases located in Eddy and Lea counties were offered, with nine incorporating the new 25% royalty rate. All leases received bids, collectively totaling over $56 million in bonus payments. Three parcels alone garnered bids exceeding $12 million each. This significantly surpasses the previous sale record of over $43 million set in 2018, when 35 parcels were offered. The sale also established a new record for the highest bid per acre, reaching over $80,000 per acre.
“Critics of raising the rate said oil companies would run to Texas, but instead they ran for their checkbooks,” Garcia Richard said. “The $56 million we brought in for our schools today confirms that oil companies will go where the resource is and are willing to pay top dollar for some of the best tracts of oil and gas land in the world. State lands fund our schools and other institutions, saving the average taxpayer around $3,000 per year in taxes they would otherwise have to pay. Because of this new law, New Mexicans will reap these rewards and companies will pay their fair share. This is long overdue.”
The new legislation, Senate Bill 23, was sponsored by Sen. George Muñoz and co-sponsored by Speaker of the House Javier Martinez, Sen. Liz Stefanics, and Rep. Matthew McQueen. It increased the top oil and gas royalty rate for new state land leases from 20% to 25%, aligning it with rates in Texas and on private lands within the most productive areas of the Permian Basin.
This higher rate applies only to new leases on state lands in the most productive oil-producing regions of southeast New Mexico. The last time the royalty rate was adjusted was in the 1970s, long before the full economic potential of New Mexico’s oil and gas resources was understood. Commissioner Garcia Richard has advocated for the public to receive a fair share of oil and gas earnings since taking office in 2019.
According to the Legislative Finance Committee, offering the market rate of 25% for premium oil and gas leases is projected to contribute an additional $50 million to $75 million annually to the Land Grant Permanent Fund (LGPF). Oil and gas royalties from the State Land Office are transferred to the LGPF and invested by the State Investment Council (SIC) before distribution. The SIC estimates that this increased inflow of royalties could boost the LGPF’s value by $1.5 billion to $2 billion by 2050, and result in an additional $750 million to $1.3 billion in cumulative distributions from the LGPF by 2050.