Oil and gas delivered $15.2B for NM in FY23

It’s no surprise that the oil and gas industry is providing billions of dollars for the state of New Mexico and will likely keep doing so in coming years.

A new presentation from the Legislative Finance Committee reported a revenue of $15.2 billion from the extractive industry to New Mexico in fiscal year 2023.

A flow chart from the LFC breaks down exactly where the money is coming from — land income and taxes — and where it’s going — to state funds and local and federal governments. Oil and gas revenue to New Mexico has more than quadrupled over the past five years, according to the LFC.

And that income only seems to be growing as the oil boom continues and oil prices increase to near-record levels. The LFC predicts peak oil production in the 2030s, meaning New Mexico could still reap gains from high oil production for nearly a decade.

While all of that means record-breaking dollars coming to New Mexico, it also makes it difficult to grow more independent from the volatile oil and gas industry, as experts keep recommending.

The breakdown

Legislative economist Jennifer Faubion presented to the Legislative Finance Committee on Tuesday in Carlsbad, near the heart of the highest-producing active oil field in the nation.

She broke down the flow of the $15.2 billion in fiscal year 2023 for lawmakers between two major areas: land income, which generated $8.6 billion, and taxes, which generated $6.6 billion.

She specified further that of the $8.6 billion in land income, $2.6 billion came from state royalties, rents and bonuses and nearly $6 billion came through federal royalties, rents and bonuses. All of that revenue eventually makes its way to the state’s major funds, like the General Fund and the Early Childhood Trust Fund.

The breakdown of the $6.6 billion in taxes, she said, comes from a few more areas. She said $4.67 billion is from a production tax extractors pay, and the other $2 billion comes from a property tax, a gross receipts and compensating tax, a personal and corporate income tax and a natural gas processors tax.

Faubion said New Mexico’s effective tax rate sits in about the middle, at 8.5%, compared to other oil-producing states.

Taking into account the indirect tax revenue, the oil and gas industry generated close to 35% of General Fund revenue in fiscal year 2023, she said.

Sen. Antonio “Moe” Maestas, D-Albuquerque, said the state should consider simplifying how it taxes the oil and gas industry.

“It just seems like it would be easier for the industry, easier for the state, if it was just crystal clear what percentage the state receives from every dollar produced by oil,” he said.

Faubio said the other major form of revenue generation from the industry — royalty rates — for prime Permian Basin tracts is lower than Texas’ rate. The New Mexico rate is capped at 20%, which the State Land Office wants changed.

Federal royalty rates recently increased, she said, so there will be a revenue impact on New Mexico that will primarily benefit the Severance Tax Permanent Fund and the Early Childhood Trust Fund. With the share of federal land growing in New Mexico, she said, “this should be a little bit of a revenue boom to the state.”

Growing independence

Faubion said all of the revenue growth is increasing New Mexico’s dependence on oil and gas. The LFC anticipates the General Fund’s dependence on the industry to be greater in 2024 than it ever has been.

However, Faubion said, lawmakers have done good work in how they save and spend the industry money, which has put the General Fund in a good place.

LFC expectations are for the General Fund to gradually become less dependent over the next four years on the oil and gas industry — because of oil and gas money going to other accounts that will spin off future revenue, Faubion said.

“That really speaks to the foresight and thought you all put into what to do with all this revenue,” she said.

Even in the worst-case scenario of a bust and recession, she said, New Mexico has enough money in its reserves to get through it. She said reserve levels for FY24 are at $2.8 billion, and that a worst-case scenario would result in a $1.9 billion hit to the General Fund.

“So, we do have enough. We would never see 100% revenue decline,” she said. “We have enough money in reserves, which is a great place to be, because oil and gas will always be a volatile industry.”

However, she said, other areas, like property taxes, need to become more independent from the oil and gas industry. The LFC reported that oil and gas properties made up 37% of taxable property values in 2023, money that primarily goes to local governments.

Sen. George Muñoz, D-Gallup, agreed that the state needs to continue figuring out how to save enough money for the future.

“We’re reliant on one source of income, and we can’t do that anymore,” he said, “because if that goes away, we know what happens.”

He reiterated that New Mexico is not a poor state, something he’s said in the past.

“New Mexico needs to change that mindset,” he said. “We’re not poor. We’re pretty rich.”

Current oil production

Faubion said a $1 increase in the annual average price of a barrel of oil in New Mexico equates to nearly $60 million more in revenue over the course of a year.

Over the past week, crude oil prices jumped by about $5, so that means $300 million more for New Mexico.

The money coming in, of course, depends on how many barrels of oil are being produced, a number that has only grown over the past five years.

Compared to an average production of about 817,000 barrels of oil per day in fiscal year 2019, the LFC reported an estimated daily production of 1,876,000 barrels of oil per day in fiscal year 2024.

The LFC’s most recent revenue tracking report shows that oil and gas revenue was 16.9% more in January than it was in January 2023, leading the state to collect $537 million more in one month than expected.

The state collected $945.8 million in January alone, according to the revenue report, an increase primarily connected to oil production being 13 times greater than this time last year.

Muñoz described the production as “incredibly fantastic.”

Editor's note 6/12 7 a.m.: Figures have been updated to reflected barrels of oil in the thousands.