New Mexico’s State Land Office shattered revenue records for the second consecutive month, earning $256 million in bonus payments from an oil and gas lease auction held this week, officials announced Tuesday.
The August sale surpassed last month’s then-record $56 million, marking another milestone since the state implemented a new 25% royalty rate for premium oil and gas leases in June.
“We are now two-for-two in shattering revenue records on behalf of our school kids since the 25% royalty rate took effect,” said Commissioner of Public Lands Stephanie Garcia Richard in a statement.
The State Land Office holds public auctions where oil and gas companies bid for the right to develop specific parcels of state-owned land. Companies submit bids for these leases, and the highest bidder wins the right to extract oil and gas from that area. The winning bid amount is called a “bonus payment” – essentially an upfront payment for the lease rights.
Once a company wins a lease and begins producing oil or gas, they also pay ongoing royalties – a percentage of the value of the resources extracted – back to the state.
Revenue generated from oil and gas auctions and royalties on state lands is channeled into the Land Grant Permanent Fund. This fund is managed and invested by the State Investment Council, with its primary distributions benefiting public schools and other public institutions.
The State Land Office offered 10 leases located in Lea and Eddy counties, with nine parcels subject to the higher royalty rate. All leases received bids, according to the announcement.
One parcel in Eddy County set a new State Land Office record of more than $84 million, while another parcel established a New Mexico record of $132,552 per acre, surpassing previous Land Office and Bureau of Land Management records, officials said.
The increased royalty rate, which took effect June 20, allows the State Land Office to offer its most valuable Permian Basin parcels at market rates. Garcia Richard had championed the legislation for years before its passage.
State lawmakers approved Senate Bill 23 during this year’s legislative session, raising the top oil and gas royalty rate for new state land leases from 20% to 25%. The bill was sponsored by Sen. George Muñoz and co-sponsored by Speaker of the House Javier Martinez, Sen. Liz Stefanics and Rep. Matthew McQueen.
The new rate applies only to new leases on state lands in the most productive oil-producing areas of southeast New Mexico. The royalty rate had not been updated since the 1970s, according to the State Land Office.
Garcia Richard dismissed critics who argued oil companies would leave the state if royalty rates increased.
“Oil companies are going to go where the resource is, and the oil resource in the Permian Basin is among the best in the world,” she said.
The Legislative Finance Committee estimates the market-rate royalty structure will generate an additional $50 million to $75 million annually for the Land Grant Permanent Fund. State Land Office royalties are transferred to the fund and invested by the State Investment Council before distribution to schools and other public institutions.
The State Investment Council projects the additional royalty income could increase the fund’s value by $1.5 billion to $2 billion by 2050, resulting in $750 million to $1.3 billion more in cumulative distributions over that period.
Garcia Richard said the revenue helps save the average New Mexico taxpayer approximately $3,000 annually by reducing the need for other funding sources for public institutions.