ABQ Journal (March 20, 2024) – Land lease sale results released Tuesday show the New Mexico State Land Office is likely losing out on millions of dollars — at least for now — while it sits on the most fruitful oil and gas land tracts, refusing to lease the land until the agency is allowed to charge higher oil and gas royalty rates.
Public Lands Commissioner Stephanie Garcia Richard told the Journal it’s worth it to temporarily forgo the dollars, in order to make billions more in the future by leasing out land for as much as it’s worth on the market.
Bidding on the office’s March land sale took place over the past week. It was the first lease sale to happen since Garcia Richard told the Journal earlier this month her agency won’t lease New Mexico’s best land tracts until the state bumps up oil and gas royalty rates to match market rates.
The March revenue numbers released on Tuesday by the State Land Office show the agency drew in $95,000 for the five land tracts the state in March listed for lease.
By comparison, the State Land Office got $13.3 million in February, when it had 19 tracts up for lease.
The agency received $4.8 million this time last year, when it had 12 tracts up for lease.
The agency intentionally took off five or six additional tracts of land that could have been leased in March, State Land Office spokesperson Joey Keefe told the Journal earlier this month, assessing that producers could be willing to pay more than the office is currently allowed to charge them.
New Mexico can charge oil and gas producers up to 20% in royalty rates. Royalty rates are a percentage of the total revenue from the sale of oil and gas.
In contrast, the market rate is 25%, as assessed by the State Land Office. Texas, the nation’s leading oil producer and the only other state sitting on extremely valuable Permian Basin land, has a 25% oil and gas royalty rate cap.
But New Mexico isn’t allowed to charge 25% royalty rates to oil and gas producers.
Garcia Richard argues rates of 20% compared to 25% over time will result in billions fewer dollars for New Mexico and its public education system. Nearly all of the money raised from New Mexico’s land lease sales goes to public education.
“Supporting public schools is much more important than subsidizing companies that are making billions of dollars each year,” she said via email. “Here at the State Land Office, we prioritize children over the private corporations making record profits off our public resources.”
She supported a bill in the 2024 Legislature that would have bumped up maximum oil and gas royalty rates to 25%. The bill died, like it did last year.
Garcia Richard said the Legislature’s artificial cap falls below market rate, “and it just doesn’t make sense to be selling our best and finite public resources at a discount.”
The state isn’t losing the money, since the oil and gas resources on the withheld land tracts will remain untapped. Garcia Richard’s reasoning is that her agency can make significantly more money by waiting to lease until the land office can charge producers higher royalty rates.
The Legislative Finance Committee estimates boosting the royalty rates to a 25% cap would generate anywhere from $50 million to $75 million in additional revenue for the land grant permanent fund, New Mexico’s largest permanent fund and educational endowment.
The market value of the land grant permanent fund with 25% max royalty rates could grow by $1.5 billion to $2.5 billion by 2050, according to the State Investment Council, which manages the state’s permanent funds.
Garcia Richard said it makes sense to her to temporarily forgo a few million dollars in exchange for billions more down the road.
“As a former teacher, I know that billions of dollars in earnings are going to be more impactful in our classrooms than a couple of million today,” she said.
SLO Lease Freeze Results: $95K in March vs. $13.3 Mil in February
