Oil and Gas Leasing on Federal Public Land in New Mexico: An Outdated System

The Problem

Oil and gas leases currently lock up 17.7 million acres of public lands across the west [1]. In New Mexico alone, there are more than 3 million acres currently leased to oil and gas companies for exploration and drilling [1]. These are 3 million acres of our public land that we are trusting the Department of the Interior to manage responsibly. Instead, the Trump administration issued a new policy for oil and gas leasing on public lands in 2018 that calls for “energy dominance.” This means that despite the economic viability of other uses, such as outdoor recreation and wildlife management, current policy incentivizes and even subsidizes oil and gas companies to drill on our public land. It’s not “energy dominance,” it’s a massive energy give away at fire-sale prices.

The policies governing how these lands are managed and leased haven’t been updated for a century, and companies are getting a sweetheart deal to develop. New Mexico is the largest producer of oil from federal lands, and as such we have the most to lose from outdated rates [2]. Right now, special interests are benefitting from an outdated system that is contributing to and benefiting from the current administration’s policy of complete energy dominance on our public lands.

These special interests have cheated New Mexicans out of $250 million a year because they are still able to pay royalty rates that haven’t been updated in a century [2].

The Process

When federal land is completely locked up by oil and gas companies, they pay in three different ways: (1) they place a bid to lease the land in the first place, (2) they pay rent to continue to lease the land each year, and (3) once drilling starts, companies pay a percentage of profit, or royalties, on the resources they extract.

Because of outdated rates, oil and gas corporations get to cut corners on all three, paying amounts that are nowhere close to where they should be.

Companies are required to pay for the oil and gas resources they take out of public land. Currently, the royalty rate (a percentage of profit that must be paid back to the government) is 12.5% and has not been changed for almost 100 years [3]. On state land in New Mexico, this rate can be up to 20%, and even for federal oil and gas drilling offshore, the rate is 18.75% [4].

In New Mexico, alone we have lost out on up to $5.5 billion in revenue in the last decade because the federal government’s 12.5% royalty rate is so low [3].

In addition, companies must also pay yearly rent for each acre of public land they are leasing. These rates also haven’t been updated since 1987 and range from $1.50/acre to $2/acre [5].

Because these rental rates have never been adjusted for inflation, companies have avoided paying $19 million in rent on lands in New Mexico over the past three decades [3].

When a company puts in a bid for federal public land, they start at $2 per acre, a number that hasn’t been updated since 1987 [5].  For comparison, a recent lease sale on state-owned land in New Mexico had minimum bids that, for many leases, ranged from roughly $200 to $300/acre.

How can federal land in New Mexico only be worth $2/acre when state land is worth up to $300/acre?

At every step of this process, the administration is giving massive handouts to oil and gas companies and enthusiastically encouraging oil and gas exploration on all of our public lands, regardless of potential other uses. This policy has been better than Christmas morning for executives looking for huge payoffs at the public’s expense.

The Solution

When it comes to our public lands, federal fiscal policy is letting oil and gas companies get away with highway robbery. They’re propping up a broken system to take advantage of our public lands and using massive loopholes that allow them to make immense profits. That’s why we’re asking folks to join us in advocating for updated, better policy to begin to fix these problems as soon as possible. It’s not just changing the overarching policy of energy dominance, it’s focusing on the specific ways that corporations take advantage of old rates to take resources for pennies on the dollar.

Small but important changes to modernize these laws could have a meaningful impact and make sure companies are paying their fair share for the use of our public assets.

References

[1] https://westrnpriorities.maps.arcgis.com/apps/Cascade/index.html?appid=d2fa61b5690d4d0a8c1670b6bbc123b9
[2] https://www.taxpayer.net/wp-content/uploads/2019/06/TCS-New-Mexico-Federal-Lands-report-June-2019.pdf
[3] https://www.washingtonpost.com/posteverything/wp/2015/06/16/oil-companies-are-drilling-on-public-land-for-the-price-of-a-cup-of-coffee-heres-why-that-should-change/
[4] http://164.64.110.134/parts/title19/19.002.0100.pdf
[5] http://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51421-oil_and_gas_options.pdf

Oil and Gas Leasing on Federal Public Land in New Mexico: An Outdated System
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