Reducing methane emissions from the state’s oil and gas industry was among the promises Governor Michelle Lujan Grisham made in her campaign, reiterated in her state-of-the-state speech in January and then acted on in an executive order. The order cites leaked, vented, and flared natural gas, the primary component of methane, as costing the state $244 million a year, and directs state agencies to develop a regulatory framework for those reductions from both new and existing sources. Methane, often released from oil and gas development, ranks among the most potent greenhouse gases, with a short-term warming potential that far exceeds that of carbon dioxide.
But while Lujan Grisham tackles methane reduction through regulation, legislators are taking their own run at rules around methane, with bills promoted by State Land Commissioner Stephanie Garcia Richard. House Bill 398 was tabled in February, but today, Senate Conservation Committee members will get to take another look at the idea in SB 500, which duplicates that failed measure.
Sponsored by Sen. Bill O’Neill, D-Albuquerque, SB 500 would increase royalties on new leases for the state’s highest-producing wells to 25 percent, require companies who lease state trust land to use “all reasonable” measures to prevent waste of oil and gas, and add royalties for such waste when it does happen, which includes vented, flared or spilled natural gas.
Garcia Richard said the higher royalty rate would level New Mexico’s share with that of Texas, which splits the Permian Basin, and increase annual revenue to the land grant permanent fund, which supports New Mexico’s schools, by $50 million to $84 million. The state land office also estimates that by not collecting royalties on the vented or flared natural gas, it loses about $1 million each month. An estimated 11.6 billion cubic feet of natural gas was lost in the last year, according to her office. It’s her job to make sure the public is getting the most financial benefit from its state lands, she said, and right now, it’s not.
“Companies making lease decisions make them on many more factors than royalty rates,” Garcia Richard said during the February Committee meeting. “Mostly the size of the reserve, and we have the best. … If there’s a willing buyer, why should the state be prohibited from charging the highest rate the market can bear?”
Proponents during the House committee debate on HB 398 largely zeroed in on the methane rules and reducing natural gas losses, which they cast as a wasted resource that could be making money for New Mexico’s schools.
But lawmakers weren’t buying it.
While the bill called for using “all reasonable means to prevent the underground or above-ground waste of oil or gas” it’s primary aim was to see companies pay a royalty on that natural gas, no matter its destination.
Opponents cited concerns that increasing the royalty rate would drive people to Texas, where much of the oil and gas development occurs on private land and at a royalty rate that’s not released publicly, or deter development by adding to the cost of doing business.
“I feel like this bill is sort of an attack on that industry, saying, ‘Hey, we know you give us all these billions, but we want more,’” said Rep. Alonzo Baldonado (R-Los Lunas). “Why are we going after the one industry that’s really coming through for us?”
The bill’s fiscal impact report points out the state’s balancing act. Increasing royalties could reduce short-term bonus revenue, but provide more stable long-term revenue through royalties that pay into the permanent fund. But, it cautioned, “overly burdensome rates could shift production activity to other areas.”
In response to inquiries about the governor’s plan for drafting methane regulations or how this legislation might fit with or assist that effort, Energy, Minerals and Natural Resources Department Secretary Sarah Cottrell Propst’s press staff referred only to the statements that department submitted for the fiscal impact report.
They advise considering the impacts of higher royalty rates when production declines, and that the higher rate lasts even when the number of barrels of oil from a well drops off. In other words — those comments spoke only to the royalty rate, and did not weigh in on the provision that called for using all reasonable measures to reduce methane.
Rep. Rebecca Dow (R-Truth or Consequences) described a holiday dinner in which a relative who owns a small petroleum business told her he’d sold all his leases in New Mexico, saying, as she recalled, “It’s too volatile. I don’t know what’s going on. … We can do business elsewhere.”
“It’s an option,” she added. “People don’t have to stay here.”
And while proponents have said early childhood education could get a boost from those added funds through raised or added royalties, she said, there’s also a bonus passed on to young children when their families hold on to high-paying jobs.
“I’m not convinced it would be harmful to production in the state … but also, given complexities of tax structure, multiple owners of land, I’m not convinced that it wouldn’t be at this time,” said committee chair Rep. Antonio Maestas, D-Albuquerque.
“Instead of debating proposals that would push business on state lands away from New Mexico, we should focus on the policies that truly help our kids by attracting investments and growing our economy,” Ryan Flynn, executive director, of the New Mexico Oil and Gas Association, said in a statement emailed after HB 398 was tabled. “When New Mexico is a magnet for investment, we can provide our schools with more revenue while also supporting local communities, providing high-paying jobs, and giving our kids career opportunities after they graduate.”
Now, lawmakers get another chance to embrace Garcia Richard’s efforts to raise more royalties and enshrine waste reduction measures in law. SB 500 heads for Senate Conservation today.
Policy experts say history shows certain advantages to ingraining provisions through legislation rather than relying entirely on executive actions and rule making. Oil and gas lease terms are set by statute, so legislators have to weigh in on any changes to those rates.
But setting rules around waste this way could prevent some of the regulatory whiplash that flows from changes in leadership.
“When you do things administratively, then a new governor can just rewind that administrative process and repeal rules,” said Tom Singer, senior policy advisor with Western Environmental Law Center. “So legislation is frankly more durable, but as always … the devil’s in the details in the actual implementation and enforcement.”
Singer has worked on methane regulations for years, notably U.S. Bureau of Land Management rules limiting those emissions, which were finalized under President Barack Obama and among the first rules repealed when President Donald Trump took office. The shift from Governor Bill Richardson to Governor Susana Martinez likewise saw programs to address climate change rolled back.
The Energy Transition Act, which moves the state toward more renewable electricity, is the key piece of legislation addressing the governor’s climate change agenda this session. That bill also helps PNM with the cost of shutting down the coal-fired San Juan Generating Station, along with funds for worker training programs and economic development in the Four Corners.
But Singer pointed to a bigger picture.
“It’s important for all the parties to remain cognizant of the magnitude of the stakes of methane emissions in New Mexico, and the current estimates—including data from the state itself, the OCD [Oil Conservation Division]—indicate that the amount of methane that’s been vented, leaked, and flared is the equivalent to roughly 15 to 20 medium-sized coal plants, so let’s say 10 San Juans,” he said. “It’s important, as people engage with this issue, to maintain that appreciation for the scope of the problem and for it to be addressed.”