SANTA FE, N.M. (AP) — The state Legislature has endorsed a bill that would raise royalty rates for new petroleum development on prime pieces of land in New Mexico, on one of the world’s most prolific oil production areas.
A 37-31 vote on Thursday sent the bill from the Statehouse to Democratic Gov. Michelle Lujan Grisham for consideration.
The proposal would increase the top royalty rate for oil and gas development from 20% to 25% on New Mexico’s state trust lands with implications for the energy industry in the Permian Basin, which overlaps southeastern New Mexico and western Texas. The area accounted for 46% of U.S. oil production in 2023, according to the Federal Reserve Bank of Dallas.
New Mexico deposits royalty payments from oil and gas development in a multibillion-dollar investment trust that benefits public schools, universities and hospitals.
“We have a legal duty to maximize the return on these assets,” said Democratic state Rep. Matthew McQueen of Galisteo, a co-sponsor of the bill.
Legislative approval was the culmination of a yearslong effort backed by Public Lands Commissioner Stephanie Garcia Richard to increase top-tier royalty rates. A year ago, Garcia Richard put a hold on lease sales indefinitely for coveted tracts while advocating for the rate increase.
Proponents say neighboring Texas already charges up to 25% on state trust land amid intense competition to drill in the Permian Basin. The royalty changes in neighboring New Mexico would not go into effect in Texas.
Opponents say the rate change threatens to penalize petroleum producers and public beneficiaries, noting that oil production is significantly taxed in other ways and hinges on volatile commodity prices.
In a news release, Garcia Richard said the goal is “to make as much money as possible for school kids and our public institutions.”
“Raising the oil and gas royalty rate on premium state lands was always the right thing to do,” she said.
Garcia Richard, a Democrat, terms out of office as land commissioner in 2026 and this week announced her candidacy for lieutenant governor.
New Mexico is the No. 2 state for oil production behind Texas.
Efforts by New Mexico to save and invest portions of a financial windfall from local oil production are paying dividends as state government income on investments is forecast to surpass personal income tax collections.
The state’s land grant permanent fund currently distributes about $1.2 billion a year to beneficiary schools, universities and hospitals as well as the state general fund.
