OPINION: New Mexico sets an example with effective oil and gas royalty reform

At a time of such polarization and national focus on politics, New Mexico has done something that the entire country should take notice of. It demonstrated that sometimes, a state government can tackle a problem and solve it creatively, entirely outside of partisanship.

I know this firsthand.

As a specialist in oil and gas royalties, I work with states across the country and the federal government. In recent years, a problem in the industry has created a mess that leaves private businesses struggling and public projects underfunded.

When energy companies extract natural resources from state lands, they pay severance taxes and royalties, which can be crucial sources of income. As the New Mexico Legislative Finance Committee explains, “The oil and gas industry is by far the largest contributor to state trust land income, accounting for about 95% of all revenue, with public schools being the biggest beneficiaries, receiving about 85% of the income.”

After large corporations have spent years leading these projects, they often sell the remaining projects to smaller companies. But determining and calculating royalties owed can be very complicated. While large companies often have teams of experts who can handle this, small- and medium-sized businesses generally don’t. At times, only one person may be tasked with this responsibility.

With limited manpower and frequent legislative changes that introduce new requirements, confusion ensues. Well-meaning people may be doing their best to determine how much the company owes the government. But inevitably, some mistakes occur. Meanwhile, state offices are often missing the kinds of teams necessary to identify these problems and work with companies to fix them quickly.

This hurts everyone involved. The state may get less money than it’s owed. When these mistakes are eventually discovered, the small company has to pay penalties and interest. Sometimes, the state government collects too much and has to pay the business back.

New Mexico saw this problem and took action. The State Land Office held a summit last year, inviting people from across the industry, as well as representatives from other state agencies that work with energy companies in different ways.

The event was free and filled with educational sessions, allowing attendees to learn how to handle these issues, what tools are available, how to make the work simpler, and much more. As a private consultant in this field, I was invited as well — something very rare. People were also given the opportunity to hold one-on-one sessions with staff from the State Land Office to discuss specific challenges and ask questions.

Additionally, members of the office have been attending industry meetings and conventions. These officials have been doing what they can to increase interactions, be approachable and solve this problem.

I’ve seen concrete results. Among energy companies working across New Mexico, there is now less confusion. More people at these companies have developed personal relationships with individuals at the state, so when they encounter questions, they feel comfortable reaching out quickly to get clear, simple answers.

It seems so simple, and in a way it is. But we need much more of this across the country. “Government” too often becomes associated with politics. But inside states and local communities, government is often really about individuals who are tasked with making a system work for the benefit of the people.

Kudos to New Mexico. I hope other states will follow suit.

Steve Bailey is vice president and chief operating officer of Savvy Oil & Gas Consulting, based in Houston.