Local lawmakers sponsor bills that impact oil, gas revenue to state

Competing measures would tax industry at higher. lower rates

Hannah Grover
Farmington Daily Times
A flare stack at the San Juan Processing Plant is pictured Friday in Kirtland.

FARMINGTON — San Juan Basin legislators are pushing bills that would impact how much revenue the oil and gas industry provides to the state.

Rep. James Strickler, R-Farmington; and Rep. Paul Bandy, R-Aztec, are two of five sponsors of a bill to reduce certain taxes the oil and gas industry pays. The other sponsors include Rep. Larry Scott, R-Hobbs; Rep. Greg Nibert, R-Roswell; and Rep. Cathrynn Brown, R-Carlsbad.

James Strickler

Meanwhile, Rep. Derrick Lente, D-Sandia Pueblo, is sponsoring a bill to increase the amount of royalties the companies pay. The bill also would require companies to pay royalties on oil or gas that is vented or flared. Lente represents portions of San Juan, Sandoval and Rio Arriba counties. The bill only applies to future wells on state trust lands.

New Mexico Oil and Gas Association spokesman Robert McEntyre said Lente's bill likely will have little impact on the San Juan Basin because much of that land is under federal jurisdiction.

Bill proposes reduced tax rates for ‘stripper’ wells

The legislation would reduce some state taxes companies pay on marginal, or stripper, wells. Those wells are typically older wells and produce limited amounts of oil or gas.

A stripper well is defined by the amount of oil or gas it produces daily. A stripper oil well produces an average of less than 10 barrels of oil each day. A stripper natural gas well produces an average of less than 60,000 cubic feet of natural gas daily.

The bill would reduce the tax rate on oil and natural gas extracted from stripper wells from 3.75 percent to 1.875 percent if the average cost per barrel of oil is $38 or less, or if the average cost of natural gas is $2 per 1,000 cubic feet or less. The current threshold is $15 per barrel of oil and $1.15 per 1,000 cubic feet of natural gas.

Strickler said the bill is an update to a bill passed decades ago by then-Rep. Jerry Sandel, D-Aztec.

Strickler has brought the measure to the Legislature before. In 2016, the bill made it through the House Energy Environment and Natural Resources Committee before it was tabled indefinitely. Opponents criticized the bill as a bail-out for energy producers

Strickler said the bill would give companies a tax incentive to keep operating marginal wells “because they can hardly squeak out a profit.” He said the bill could prevent companies from capping marginal wells.

McEntyre said reducing taxes on marginal wells is a prudent step in the right direction and could help small oil and gas companies.

"Anything we can do to make sure our smaller producers and home-grown producers are not cast aside, are not left behind, is a good thing," he said.

McEntyre said politicians often talk about the importance of supporting small businesses.

"This is a great example about how we can do that," he said.

Land commissioner praises bill to increase royalties

State Land Commissioner Stephanie Garcia Richard praised the bill sponsored by Lente as a way to provide schools and hospitals with more money.

Stephanie Garcia Richard

“We all must come together to do everything we can to improve the lives of New Mexico’s children," Lente said in a statement to The Daily Times.

He described it as critical legislation that will allow New Mexico to level the playing field with neighboring states.

In a press release, Garcia Richard stated royalty rates in New Mexico currently range between 12.5 percent and 20 percent, but the majority of active lease holders pay the 12.5 percent rate. She said Texas has a 25 percent royalty rate.

Lente's bill would increase the royalty rate for future wells to 25 percent if the oil production reaches 20,000 barrels monthly or a gas well produces 75,000 cubic feet of gas or more each month.

The bill has been met with criticism from industry groups.

"This is not the best way for New Mexico to generate money for schools," McEntyre said.

He said Garcia Richard, who campaigned on a platform of increasing oil and gas royalties, could look at making new parcels available for leasing and making her office more business friendly.

In addition to raising royalties, the bill would require companies to pay royalties on vented or flared gas and oil, as well as spills, uncontrolled releases and stolen oil or gas.

Lente said the bill would make oil and gas companies pay their fair share for production.

"I have been working closely with the land commissioner to create this bill, and its purpose is to make strategic investments in our public schools so we can uplift a generation of New Mexico students," Lente said. "Our communities are stronger when we work together to improve our state.”

Hannah Grover covers government for The Daily Times. She can be reached at 505-564-4652 or via email at hgrover@daily-times.com.