New Mexico will be allowed to charge oil and gas companies more to drill on state land after Gov. Michelle Lujan Grisham signed a bill into law last week.

Senate Bill 23, sponsored by Sen. George Munoz (D-4) who chairs the powerful Senate Finance Committee that devises the state’s budget each year, raised the cap on royalty rates oil companies pay as a percentage of their proceeds from operations on State Trust land.

It was the only major oil and gas reform bill that passed the Legislature during the 2025 lawmaking session in Santa Fe, which concluded March 22. This year’s 60-day session was focused on public safety, with several bills related to the fossil fuel industry stalling and failing to make it to the governor’s desk.

Friday, April 11, was the final day for Lujan Grisham to veto or sign bills into law. After the deadline, any bills not signed would be vetoed by default in a process known as “pocket veto.”

After it was signed, SB 23 allowed for an increase of the previous oil and gas royalty rate cap from 20% to 25% for operations on tracts of State Trust land in the Permian Basin area – lands appraised by the New Mexico State Land Office as containing the most valuable mineral resources.

The increase was expected to generate up to $50 million a year in Land Office revenue, funds that are used to support the office’s statutory beneficiaries such as public schools and hospitals.

Following his bill’s signing into law Thursday, Munoz said it would allow New Mexico taxpayers to get a higher fiscal benefit from the state’s ongoing oil boom, which led New Mexico to become second in the U.S. in oil and gas after only Texas, with which New Mexico shares the Permian.

“The money earned from oil that is extracted from State Trust lands benefits institutions in New Mexico including our public education system,” Munoz said. “Those institutions will now receive millions of dollars in new money every year.”

But the oil and gas industry is a key economic driver for New Mexico, producing almost half of the state’s budget – about $13 billion in the last fiscal year – for state and local governments, according to the New Mexico Oil and Gas Association.

Throughout the 2025 legislative session, which saw SB 23 pass both the Senate and House despite staunch Republican opposition, industry leaders argued that raising the rate – even on the limited tracts of land the bill specified – could unduly burden fossil fuel producers.

Jim Winchester, president for trade group the Independent Petroleum Association of New Mexico said the higher rates would price smaller operators out of the lucrative region on the western side of the Permian Basin – a subbasin known as the Delaware that straddles the New Mexico-Texas border.

“Our concern lies in the periphery areas around the geologic border of the New Mexico Delaware Basin, as close as one mile from the basin’s edge where our independent members take risks (and) spend a lot of capital on infrastructure with the hope that reserves there will pay back the investments,” Winchester said during a Feb. 18 meeting of the Senate Finance Committee where the bill was passed.

New Mexico Public Land Commissioner Stephanie Garcia Richard, who oversees management of State Trust land, countered that the bill was only for new leases on State Trust land in that area, and that the higher rate better reflected the “market value” for New Mexico public land sought by the oil and gas industry.

Garcia Richard advocated for raising the rate since she took office in 2019, arguing it was a necessary step for New Mexicans to get their “fair share” of the state’s oil revenue. The 25% rate was comparable, she said, with rates paid to drill on private land in New Mexico and state land in Texas.

“By bringing the state’s royalty rate for premium oil and gas lands in line with what is charged in Texas and on private lands in New Mexico, we are making a smart business decision,” Garcia Richard said. “You always want to get maximum returns for the best resources, and the oil in New Mexican’s Permian Basin is some of the best in the whole world.”

Although most other bills intended to add regulations on oil and gas operations failed during the session, Lujan Grisham did sign into law multiple pieces of legislation that could impact the industry in the name of water conservation.

House Bill 137 was signed into law on Tuesday, April 8, to create the state’s “Strategic Water Supply” program, which will offer grants and loans for projects to treat brackish water, meaning water high in salinity, for uses such as agriculture.

Large amounts of naturally brackish water are generated by the oil and gas industry during well completions, as the fluid is brought to the surface from underground along with crude oil and natural gas.

The governor also signed Senate Bill 21, which gave broader authority to the state of New Mexico to permit the use of groundwater resources by industries such as oil and gas operators and agricultural producers.

This bill was a response to a 2023 Supreme Court decision that confined such federal protections to “continuous” bodies of water. Supporters of SB 21 argued that many of New Mexico’s rivers and streams see portions go dry during arid conditions, meaning they were no longer federally protected and expanded state permitting was needed.