The Senate approved the Senate Finance Committee substitute for Senate Bill 23 after extended floor debate over who bears the cost and risk of raising royalty rates on the state’s most productive oil-and-gas tracts.

"Since 1970, we haven't increased our oil and gas royalty rates in New Mexico," said Senator George Munoz as he introduced the bill. Munoz said the measure raises the state’s royalty rate to as much as 25 percent on the ‘‘best of the best’’ leases (as identified in the bill) — principally targeted at portions of Lea and Eddy counties — while leaving most of the state at the existing rates.

Supporters argued the measure would capture greater revenue from exceptionally productive tracts and grow state funds; opponents warned higher rates could deter investment and harm jobs and local economic activity. Senators pressed sponsors about administrative details, monitoring and lease-cancellation authority, the size of proration units for horizontal wells, and what offsets are allowed in New Mexico’s “net proceeds” royalty regime.

Senator Larry R. Scott offered floor amendment number 1 to make the State Land Office subject to the same compulsory-pooling rules as private landowners and lessees so that the state could be compelled into pooling to prevent waste and protect correlative rights. "The prime directive of New Mexico oil and gas development law is to prevent waste and protect correlative rights," Scott said. The amendment will make the State Land Office subject to the Oil Conservation Division's pooling authority, supporters said, noting compulsory pooling can reduce unnecessary wellbores and protect small interest owners.

The amendment drew lengthy debate. Senator Scott described compulsory pooling as a mechanism that "puts the opportunity to put a deal together and make it happen even in the circumstance when the mineral owner or lessee may be unwilling to lease or participate." Supporters argued it levels the playing field between private mineral owners and the state. Opponents said they were disappointed the body would not subject the state land office to identical requirements; the amendment was ultimately not adopted (detailed vote totals for the amendment were not specified on the floor record).

On final passage of Senate Bill 23 the presiding officer announced a roll-call-style count of 21 in the affirmative and 15 in the negative; the bill passed the Senate.

Floor discussion included technical points from an expert witness called to the floor, who explained aspects of New Mexico’s valuation method (net proceeds) and noted that differences in the tax and royalty mix across states complicate direct comparisons. Senators also discussed lease sale dynamics, acreage sizes (state leases often set 40-acre minimums but horizontal wells allocate acreage differently), and concerns that long-held leases and notification procedures had sometimes left leaseowners surprised when leases were canceled or resold.

The bill instructs the state land office to use statutory factors to identify premium acreage and restricts lease cancellations to failures or defaults under lease terms. The sponsor and supporters said revenue estimates for the premium-area change ranged from roughly $750 million to $1.3 billion over the life of the program, according to information presented on the floor; opponents said loss of investment and jobs could offset projected revenue gains.

Senate Bill 23 now moves to the next stage of the legislative process following the Senate’s passage.