Oil lease moratorium holding students hostage?
Levi Hill/News-Sun
State Land Commissioner Stephanie Garcia Richard is holding New Mexico’s schoolchildren hostage for more money.
That’s what some of the state’s Republican legislators say about her recently announced moratorium on oil and gas lease sales on state trust lands, which came after two bills failed to find their way to the governor’s desk this year. The bills would have increased the royalty rate on prime oil-producing acreages from a maximum of 20 to 25 percent.
“Commissioner Garcia Richard seems to think that it’s now her job to overrule a decision made by the Legislature not to increase the royalty rate, plus she has inserted unnecessarily politics into the trust land leasing process that should always be conducted in a nonpartisan manner,” said Rep. Larry Scott, R-Hobbs.
“She is using school kids as a pawn,” said Sen. Steve McCutcheon, R-Carlsbad about the moratorium. “This has been to the Legislature five or six times before. She can’t get any help from the governor on it so she’s trying to force legislators to pass something next year by doing this.”
The state land office announced the moratorium last week and Garcia Richard called it a “pause” on lease sales that would remain in effect until legislators see things her way.
“I feel very comfortable putting a pause on leasing the ‘best-of-best’ tracts in the short-term when we can earn billions of dollars for our schools and other institutions in the long-run,” Garcia Richard said in a released statement. “I’d ask legislators who have reached out to me why they continue to put oil companies ahead of our state’s school children and their families at a time when oil companies are reporting billions in profits in the Permian Basin. I look forward to working with the legislature at the next opportunity to raise New Mexico’s top royalty rate to 25 percent, the same rate charged in New Mexico on private lands and just over the border in Texas.”
The “pause” immediately garnered a response from the state’s top oil and gas associations.
“The New Mexico Oil and Gas Association is incredibly disappointed that our members and those who benefit from State Land Office revenue, like public schools, hospitals, and higher education institutions, are being penalized because of a disagreement between the State Land Office and the Legislature over statutory leases,” said Missi Currier, president of the New Mexico Oil and Gas Association.
“The State Land Office has unilaterally decided to cut off future revenues to state beneficiaries and the general fund by suspending new leasing of premium tracts,” said Jim Winchester, president of the Independent Petroleum Association of New Mexico. “(We) strongly opposes this action, especially considering the decision was abruptly announced without any consideration of the economic impact to all New Mexicans.”
Joey Keefe, assistant commissioner of communications for the land office said the land office auctions off oil and gas tracts the third Tuesday of each month.
“Our staff vets nominated tracts using a grading system to determine which are viable for auction and at which rate,” Keefe said in an email. “The difference this month, as opposed to others, is we did not include any tracts that through the vetting process would have been considered premium tracts and qualified for a 25 percent royalty rate on a fair and open market in the Permian Basin.”
Keefe could not say how many acres of land are affected by the decision to not sale lands that qualify for the 25 percent royalty.
“It’s difficult to say how many tracts this affects specifically since we evaluate each parcel individually from the running list of nominations,” he said. “We have simply decided not to include any of those best-of-the-best tracts moving forward until the legislature enables the agency to charge 25 percent.”
Oil and gas operations on state trust lands supply an estimated 91-97 percent of all state trust land revenues each year, a number that reached a record $2.57 billion in 2023.
Garcia Richard pushed bills to raise the royalty cap each year since taking office in 2019.
“Any legislation — no matter how good intentioned — is difficult to get through,” said Sen. Greg Nibert, R-Artesia. “She is doing everything she can to try and force the issue on hopes that maybe some legislation gets passed.”
House Bill 48, one of two bills filed during the most recent session to address higher royalty rates, stalled in the Senate Finance Committee. According to a report from the Legislative Finance Committee, the bill would have generated an estimated additional $1.5-$2.5 billion in revenue by 2050. That money would largely go to public schools.
The current 20 percent rate was last updated in the 1970s and was higher than most other states but lower than Texas, making New Mexico more “industry friendly,” according to the LFC.
The state land office currently manages 9 million acres of surface real estate and 13 million mineral acres of trust land. The vast majority of those trust mineral rights that supply oil and gas revenues are in Lea and Eddy counties.
By comparison, federal Bureau of Land Management lands comprise some 13 million acres in New Mexico and more than half the prime oil-producing lands in Lea and Eddy counties are BLM lands.
The royalty rate on BLM lands is currently capped at 18.75 percent, with most paying at a 12.5 percent rate, McCutcheon said.
“Now we are going to make New Mexico 6.25 percent higher than the BLM when the BLM is seemingly more responsive on rights-of-way and things like that,” he posited.
Oil and gas production was expected to rise this month by 14,000 barrels per day and 24.8 billion cubic feet per day, according to the Energy Information Administration, making the Permian the highest oil-producing shale region and second-highest natural gas producer in the country.
Garcia Richard said it’s her duty to secure those higher royalty rates, which legislators estimate account for just 1 percent of all oil-producing trust lands in Lea and Eddy counties.
Scott, a long-time independent oilman, said he believes the number of “choice” leases yet to be awarded would be less than 10 percent of the total.
“I don’t know what she considers to be that high value, but it has to be very limited,” Nibert added.
However, the moratorium could have the opposite effect of raising revenues, some suggest.
“If she is not going to lease those tracts, she’s missing out on the bonus bid and the potential on royalty for hydrocarbons being drained from those tracts,” Nibert said, adding the oil and gas from those lands could be captured by wells on neighboring lands as oil and gas flows from high to low-pressure zones where extraction is taking place.
“Frankly, in my view, it is a dereliction of her constitutional duties to raise monies for educational institutions,” Nibert said.
The increase in royalty rates would only apply to new leases sold, not those already being held and that is where many legislators are concerned by Garcia Richard’s actions.
“I have raised the concern that she has, in the past, cancelled leases for the sole purpose of trying to get a higher royalty rate and that practice needs to stop,” Nibert said. “She should not be using cancellation procedures to do that.”
Nibert, and others, say the land office has been finding the flimsiest of excuses to cancel lease contracts so they can be put back out to bid at a higher royalty rate.
“The real issue they will have a mechanism to use punitive triggers to cancel those leases,” McCutcheon said. “Operators who have their nose clean, which is hard to do, could lose their leases for simply filing paperwork late.”
The fear is such actions could deter companies from investing in New Mexico.
“She cancelled some leases in the last year or so that some of our clients had,” said Nibert, an oil and gas attorney. “That is just now going through the courts. Hopefully, the courts will say she has abused her power.
“She is risking the current value of money and may end up with nothing if the price of oil tumbles in the next year or two, or if (oil) companies decide those areas are not worth it, they may move on to other areas, and that happens,” he added.
