OPINION: Smart leasing in New Mexico, sweatheart deals in Washington

Taxpayers just got stuck with another bad deal.

The Bureau of Land Management just auctioned off thousands of acres of federal land in New Mexico for oil and gas drilling, bringing in $58 million in upfront bids. But the leases were issued at a 12.5% royalty rate — locking in decades of production at outdated terms that could ultimately cost federal and New Mexico state taxpayers $52 million in lost revenue.

This didn’t happen by accident. Congress made it happen.

Buried in the “One Big Beautiful Bill Act” (OBBBA), signed into law on July 4, were provisions that wiped out commonsense leasing reforms that had long enjoyed bipartisan support and were finally enacted in 2022 as part of the Inflation Reduction Act. The updates modernized the federal leasing system for the first time in a century by raising royalty rates to 16.67%, instituting a modest fee meant to offset the administrative costs of auction nominations, and eliminating the practice of handing out leases for pennies on the dollar through noncompetitive sales. These updates were supported by a majority of Democrats, Republicans and independents in New Mexico. OBBBA rolled it all back.

The result? Companies are once again locking in leases at bargain-basement rates — while taxpayers get the bill.

The federal oil and gas program has operated under outdated terms for decades. Until 2022, the royalty rate hadn’t been updated since 1920, just eight years after New Mexico became a state. That means taxpayers were receiving just 12.5 cents for every dollar of revenue that oil and gas companies generated from selling publicly owned oil and gas.

The recent updates raised that rate to 16.67% — not a radical leap, just a step toward matching state and private rates. Opponents warned higher rates would scare off bidders. They didn’t. In fact, lease sales became more competitive. From 2023 to 2024, competitive bids at New Mexico lease sales under the new rules averaged $25,504 per acre. This week’s OBBBA-era sale brought in less than a third of that — just $7,757 per acre.

Those numbers matter. The parcels sold on July 24 are projected to yield 12.8 million barrels of oil and 44 billion cubic feet of gas — resources worth an estimated $1.2 billion. Under the outdated 12.5% royalty rate, taxpayers will see just $156 million in return. Under the 16.67% rate, they would have received $208 million.

That’s a $52 million subsidy to the industry from just one sale and half of that that would have gone to New Mexico. The state receives 50% of federal onshore oil and gas royalties generated within its borders. So when Washington locks in a lower royalty rate, it’s not just the federal treasury that loses — New Mexico does too. That lost $26 million that could have supported public schools, infrastructure and other state priorities. Instead, it stays in industry pockets.

While the federal government is giving away public assets, New Mexico is doing the opposite. Earlier this month, the New Mexico State Land Office held its first oil and gas lease auction using a new 25% royalty rate for high-value state land in the Permian Basin — in line with what is offered in Texas and on private land in New Mexico. The results? Over $56 million in bonus bids, breaking all previous records.

Some parcels of land fetched more than $80,000 per acre. All 14 offered leases — nine of which at the new 25% rate — were sold, including three that went for over $12 million each. Competition was fierce, because companies know the real value lies in the resource — not in the royalty rate. In fact, the parcels offered and sold at the 25% royalty rate raised more revenue than those at the lower 20% rate — an average of $44,700 per acre compared to $670 per acre.

The new policy aligns New Mexico’s royalty rates with those charged on private and state lands in Texas — typically around 25%. The revenue boost is projected to add $50 million to $75 million annually to the state’s Land Grant Permanent Fund. That means more funding for public schools — and less reliance on general taxpayer dollars.

This is what a fair deal looks like.

Federal lands — in New Mexico and across the country — belong to all of us. But under OBBBA, Washington is handing out sweetheart deals to oil and gas companies — deals that will remain in place for decades. These below-market leases undermine basic fiscal responsibility at a time when the national debt exceeds the size of the entire U.S. economy and interest payments alone outpace what we spend on national defense each year.

New Mexico has shown that smart leasing can raise more revenue without scaring off investment. It’s time for Congress to follow New Mexico’s lead — by restoring the 2022 leasing updates and making sure all federal leases reflect the full value of taxpayer-owned resources. We need a federal oil and gas policy that works for the public — not just the petroleum industry.