Oil & Gas News

Permian and Delaware Drilling Halted Over Royalty Dispute

Royalty, Dispute, Permian

In response to conflicts with legislators over fossil fuel drilling fees, the New Mexico State Land Office has halted oil and gas operations on select lands in southeast New Mexico, part of the Permian Basin. The suspension targets specific high-value plots in Eddy and Lea counties within the Delaware sub-basin, near the state’s boundary with West Texas.

Stephanie Garcia Richard, the New Mexico State Land Commissioner, announced this temporary halt, intending to remain until the royalty rate paid by operators on the value of the extracted oil and gas is raised from 20% to 25%. This decision impacts a limited number of tracts, with the State Land Office offering fewer tracts for lease at its monthly auctions as a direct consequence of this stance.

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The change aims to align the leasing rates with the market standard, as Garcia Richard pointed out that operators are already paying higher rates for drilling lands owned by other entities in the vicinity and across the border in Texas. The initiative seeks to ensure that state lands are not leased below market value, particularly for what are considered “premium” tracts, which the State Land Office believes should command a 25% royalty rate.

Mineral Rights, Sell Mineral RightsEfforts to increase the royalty rate have been ongoing, with Garcia Richard advocating for legislative changes since her tenure began in 2019. However, proposed bills to adjust the rate have consistently stalled in the Senate Finance Committee. The State Land Office plans to continue its efforts to enact such a bill in the 2025 Legislative Session.

The current royalty rate of 20%, established in the 1970s, is higher than most other states but lower than Texas. The State Land Office argues that even with an increased rate, New Mexico’s terms would remain more favorable to the industry due to longer lease terms and available deductions. Additionally, unlike Texas and some other states, New Mexico does not impose royalties on wasted oil and gas.

The move has drawn criticism from the oil and gas industry, with representatives arguing that it unfairly penalizes stakeholders and hampers a vital segment of New Mexico’s economy. Industry leaders highlight the significant contributions of oil and gas operations to the state’s revenue and caution against decisions that might adversely affect the state’s financial health and its beneficiaries, including public schools and healthcare institutions.

The debate underscores the broader tension between environmental stewardship, fiscal responsibility, and economic growth, reflecting the complex dynamics at play in managing state resources and regulating energy production.

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