In a significant move, the New Mexico Legislature has passed a bill proposing an increase in royalty rates for new petroleum developments on selected state lands. The bill, approved with a 37-31 vote, has been forwarded to Democratic Governor Michelle Lujan Grisham for her consideration.
The legislation aims to raise the maximum royalty rate for oil and gas extraction from the current 20% to 25%. This adjustment will apply to New Mexico’s state trust lands and is set to impact the energy sector in the Permian Basin—a major oil-producing region that spans southeastern New Mexico and western Texas. According to data from the Federal Reserve Bank of Dallas, this area was responsible for nearly 46% of U.S. oil production in 2023.
The revenues generated from these royalties are deposited into a significant investment trust utilized to support public institutions, including schools, universities, and hospitals. Democratic State Representative Matthew McQueen of Galisteo, who co-sponsored the bill, emphasized the legal obligation to optimize returns from these resources.
The legislative approval marks the end of a prolonged effort, pursuant to Public Lands Commissioner Stephanie Garcia Richard’s push for higher royalty rates. In her advocacy, Garcia Richard halted lease sales for prime land over a year ago to promote this increase.
Supporters of the bill argue that Texas, New Mexico’s neighbor, already obtains royalties up to 25% from its state trust lands within the intensely competitive Permian Basin. They assert that New Mexico’s adjustments would align its practices with those of Texas, though the changes would only apply to New Mexico.
Critics, however, warn that this change could disproportionately burden petroleum producers and beneficiaries of the royalties. They point out that oil production is subject to multiple taxes and is influenced by fluctuating commodity prices.
In a recent statement, Garcia Richard highlighted the state’s aim to maximize revenue for educational and public benefit. “Raising the oil and gas royalty rate on premium state lands was always the right thing to do,” she stated.
With her term as land commissioner ending in 2026, Garcia Richard has announced her candidacy for lieutenant governor.
New Mexico currently stands as the second-largest oil producer in the United States, trailing only behind Texas. The state’s initiative to manage and invest its oil revenue windfall is proving fruitful, with anticipated state investment incomes projected to surpass personal income tax revenues.
The land grant permanent fund distributes approximately $1.2 billion annually to various beneficiaries, including educational institutions and the state’s general fund. As a result, New Mexico’s state government remains heavily dependent on oil production revenue despite growing concerns over climate change and the frequency of natural disasters like wildfires.
A group of environmental organizations has applauded recent legislative efforts endorsing local clean energy and sustainability projects along with related job training initiatives. However, Gail Evans from the Center for Biological Diversity criticized the legislature for not passing stricter regulations on oil and gas operations near schools.
Evans promised to continue pursuing legal actions against the state, aiming to enforce adherence to the “pollution control clause” of the New Mexico Constitution, representing Native American communities affected by nearby oil wells. “Our legislators didn’t even take the tiny step of ensuring our kids are protected from dangerous oil and gas pollution when they’re at school,” Evans commented, reflecting on a stalled proposal meant to limit oil and gas activities within a mile of school properties.