American Oil and Gas Reporter - April 2019 - 26

State Legislative Reports

New Mexico Oil And Gas Emerges OK
By Dan Larson
Special Correspondent
SANTA FE, N.M.-After the first legislative session under new Democrat governor Michelle Lujan Grisham, New Mexico oil and gas industry leaders are expressing relief that potential damage was
contained and confidence that the revenue
associated with industry growth will help
shield it going forward.
The legislature passed 310 bills in this
year's 24-day regular session, a 12 percent
increase over last year, press accounts indicate. Although several bills affecting
oil and gas passed without support from
the New Mexico Oil & Gas Association,
Independent Petroleum Association of
New Mexico or the Permian Basin Petroleum Association, all three groups acknowledge the importance of working
with the governor and elected officials.
Pondering a bill his group opposed
that revised the application of penalties,
IPANM Executive Director Jim Winchester
turns his focus to the days ahead. "We
will work with administration to move
forward on the regulatory parameters,"
he assures.
Backing Off
Some Capitol watchers credited industry representatives' persistence as a
big reason State Lands Commissioner
Stephanie Garcia Richard throttled back
on a campaign pledge to ban hydraulic
fracturing on state lands, PBPA notes.
After a February meeting in which
Garcia Richards agreed to modify her
position, PBPA worked with senators to
amend the budget bill and fund three additional field inspectors at the state land
office's Permian region office, the association recounts.
Early in the session, a bill that would
have set a four-year moratorium on new
permits for hydraulic fracturing surprised
many in the industry, NMOGA characterizes, noting it surfaced "in a year when
most of the legislature was giddy over
the extra billions of dollars from the oil
and gas industry."
The bill, SB 459, would have cost the
state more than $3.5 billion in lost tax
revenues, according to a fiscal analysis
by the legislative finance committee. Filed
by a newly appointed state senator, SB
459 failed to earn support from legislators
or the administration.
PBPA also reports working with Energy, Minerals and Natural Resources
26 THE AMERICAN OIL & GAS REPORTER

Secretary Sarah Cottrell Probst on an acceptable revision of the state's permit fee
structure. The permit fee bill, SB 553,
raises to $500 the standard fee for applications for permits to drill; the administrative fee for comingling and operator
change applications to $150; injection
well permit applications to $500; surface
waste management and land farms to
$10,000; and administrative hearing requests to $500.
The estimated $1.9 million in projected
new funds will allow the Oil Conservation
Division to upgrade its information technology and business systems to keep pace
with industry during a period of robust
oil and gas activity, a legislative finance
committee report states.
According to NMOGA Director of
Communications Robert McEntyre, his
group worked with the bill's sponsor,
Senator Joseph Cervantes, D-Las Cruces,
who has cited regulatory agencies' need
to grow alongside the industry. "Proposals
such as this are a commonsense approach
to what is happening in New Mexico,"
McEntyre characterizes.
Royalty Intrigue
Early in the session, HB 398 was filed
to increase mineral royalties on state
leases. During last fall's election campaign
in which she expressed support for the
state lands fracturing ban, Garcia Richard
also backed a 25 percent royalty rate on
premium state-owned tracts, for which
the current rate is 20 percent. After
winning election, she made the case with
a declaration that New Mexico's rates
should compare with those of Texas.
Opposition to the royalty increase was
unanimous among industry groups. "There
is no comparison between the two states
because so much of New Mexico's lands
are owned by the state, while state acreage
in Texas is miniscule," Winchester contrasts. "We engaged the commissioner
and the land office to express our disagreement."
Because HB 398 applied only to new
leases, the earliest returns would not be
realized until 2022. Therefore, the legislative finance committee deemed it difficult to obtain a reliable revenue estimate.
The bill was referred to the House Commerce and Economic Development Committee, where it died.
New Mexico already earns a greater
share of the total value of production
on state lands than any of its peer states,
McEntyre observes. The land commis-

sioner's argument in favor of the royalty
increase on state lands is "an oversimplification" of royalty rates that fails to
consider total production. McEntyre
points to the New Mexico Tax Research
Institute's analysis of state oil and gas
tax rates to note that, of nine producing
states from North Dakota to Texas,
eight have tax rates between 9 and 12.8
percent, but the royalty earned from
production on state lands sets New
Mexico apart.
The ratio of tax revenue to total value
of production shows New Mexico, at
11.1 percent, ranking third among the
nine states, below Montana and Texas.
However, New Mexico earns 9.3 percent
of the total value of production from
state lands royalties, considerably more
than second place Wyoming's 5.4 percent.
The remaining seven states register below
4 percent in the category, TRI shows.
"The royalty bill did not get a second
hearing in the senate," McEntyre reports.
"Legislative logistics aside, it showed
that legislators had no appetite for a revenue fight with this tremendous budget
surplus."
New Mexico legislators approved a
$7 billion budget bill in the waning
minutes of the 2019 session that included
a $700 million increase in the state's
general fund supported by oil tax revenue,
tax increases on high-income families,
new car purchases and a smaller capital
gains deduction.
According to published reports, consecutive years of a $1 billion budget surplus driven by oil production growth provided a key backdrop, and next year's
surplus is projected at $1.1 billion.
State NEPA
Oil and gas representatives opposed a
bill that sought to add an onerous environmental review to the state's processing
of applications for permits to drill. Modeled after the type of environmental review
described in the National Environmental
Policy Act, HB 206 aimed to require operators to include extensive environmental
assessments of their projects, the bill's
backers say.
If a state review of that assessment
indicated development could have a significant effect on the environment, the
operator would be required to file an environmental impact statement, the bill
says. The additional time and money "to
achieve an end result that is already part
of an existing APD review would hurt all

American Oil and Gas Reporter - April 2019

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