By Robert Nott, Santa Fe New Mexican
June 25, 2019

It may be boom times for the oil and gas industry in New Mexico, but state taxpayers have lost out on more than $5 billion in federal royalty revenues over the past decade, according to a new report.

That’s because the federally imposed royalty rate of 12.5 percent the state receives on oil and gas projects is antiquated and should be raised, says the the study, released this week by the national nonprofit Taxpayers for Common Sense. The report also notes emission-control policies cause New Mexico to lose some 86.6 billion cubic feet of natural gas over those 10 years — creating both an environmental challenge and an additional loss of revenue.

“There’s nothing really good about venting and flaring methane into the atmosphere,” said Ryan Alexander, president of Taxpayers for Common Sense, a government watchdog agency headquartered in Washington, D.C.

She said the federal Bureau of Land Management, which oversees those royalty rates on federal property, should “definitely” increase those fees, set in 1920. Alexander suggested a move that could mirror the 18.75 percent rate the bureau imposes on offshore drilling operations.

Based on 2018 data, about 56 percent of oil production in New Mexico was on federal lands and close to 32 percent was on state-owned lands. In terms of gas production, some 62.7 percent of all 2017 activities were on federal lands; about 20.5 percent were on state lands.

The rest of the oil and gas drilling operations are on private and tribal properties.

The Taxpayers for Common Sense report was released just a few months after efforts to raise gas and oil royalties on state trust lands died in this year’s legislative session.

State Land Commissioner Stephanie Garcia Richard, who supported that legislation, said Tuesday the federal report “adds more fuel to my argument, which is that New Mexico taxpayers are not getting their fair market value for our oil and gas resources.”

New Mexico charges at least 12.5 percent and up to 20 percent in oil and gas royalties on state land operations, depending on a number of factors, including the geographical and environmental makeup of the area in question. Garcia Richard said the average fee is 13 percent, but state law caps that fee at 20 percent. By comparison, Texas charges up to 25 percent.

She said her office estimates the state loses another $6 million in methane emissions that do not generate royalties.

“It’s almost like burning money,” she said, adding any future rate increases would not affect existing contracts the state is “locked in” to honoring.

Advocates for raising the rate say it will benefit a state with a budget largely dependent on the boom-or-bust nature of the oil and gas industry, particularly since much of the money raised goes to the state’s public schools and universities.

Noting New Mexico’s Public Education Department is under a court order to make more investments in its schools, James Jimenez, executive director of the nonprofit New Mexico Voices for Children, said in an email that increasing those rates in the future is “just plain common sense” and will help the state meet the court mandates to improve public education.

Critics, including the New Mexico Oil and Gas Association, counter that any increase in royalty fees could discourage future contracts in a business that is vital to the financial viability of the state.

“This is a misguided approach, and fundamentally a solution in search of a problem,” said Ryan Flynn, executive director of the New Mexico Oil and Gas Association. “It lacks common sense that a report would decline to include negative economic impacts resulting from a higher cost of doing business.

“Many operators wait a year or more for federal permits, significantly slowing our ability to produce natural resources and preventing a timely return on investment for taxpayers. … Instead of rubber-stamping proposals to make it harder to do business on federal land, our elected representatives should be focusing on how we make it more efficient to develop federally managed resources,” Flynn added.

The report came out just a day before Gov. Michelle Lujan Grisham said she wants the state to create guidelines to curb methane emissions from oil and gas production.

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