With less than a week to go until the 2019 Legislative
But Garcia Richard made another announcement this week that we’re excited about as well: A planned bill to increase the cap on royalties paid from oil and gas companies from wells on state lands from 20 percent to 25 percent.
What does that mean?
Simply put, it means that we as New Mexicans are putting a higher value on the resources that belong to all of us; now and in the future. The State Land Commissioner is the trustee of the state lands and has the same fiduciary duty as any other trustee to generate revenue for the trust beneficiaries, while at the same time preserving the corpus of the trust for future beneficiaries. The prime recipient of revenue generated in this way is public education so in this instance, the beneficiaries are New Mexico’s school kids.
This also brings New Mexico’s royalty rate closer in line with our neighbor Texas, which shares the underground minerals located in what’s known as the Permian Basin.
Sounds good right?
Well you wouldn’t know it from the predictable response from the New Mexico Oil and Gas Association this week. Spokesperson for NMOGA Robert McEntyre gave this less-than-enthusiastic response to the news of the planned bill.
“We have a $1 billion surplus with the current taxes and royalties,” he said, referring to overall state government income forecasts for the fiscal year starting June 30. “It doesn’t appear that there is a significant need” to increase royalties.
Mr. McEntyre and NMOGA are missing the point. Well, a few points really.
First, simply because the state has collected a certain amount of revenue from the leasing of state trust lands does not mean the Commissioner should not be making reasonable decisions that can increase the return for the beneficiaries.
Second, McEntyre also is quoted as stating, “that Texas oil comes primarily from private holdings that don’t involve royalties.” Based on his comment it sounds like he is unaware that the 25 percent royalty rate in Texas is specific to oil and gas taken from its state lands. Additionally, Texas’ royalty rate of 25 percent is based on gross proceeds from the sale of oil and gas. In New Mexico, the royalty rate is based on net proceeds from the sale of oil and gas — meaning that the royalty does not cover all of the oil and gas extracted from trust lands. Thus, oil and gas companies in New Mexico pay royalties on a much smaller portion of revenue than companies in neighboring Texas.
So long story short, New Mexico is still going to be more competitive than Texas when it comes to wells located on State land but we as citizens will be seeing a higher return for our resources and greater revenue for our children’s education. NMOGA is fond of tweets like the one below where they say “The industry is investing in our children and in the future of New Mexico,” but apparently there’s a limit to their that investment…
We’ll be tracking the progress of the royalties bill as it moves through the legislature this year. Stay tuned and follow ProgressNowNM on Twitter and Facebook for the latest on other oil and gas related news.