Abstract

The New Mexico State Land Office administers 9 million acres of surface and 13 million acres of subsurface estate in the State Land Trust. Land Commissioner Aubrey Dunn is charged with generating and optimizing revenue from State Trust Lands to support public education and other beneficiary institutions, while simultaneously striving to protect, conserve, and maintain the lands so they may be used by future generations.

The State Land Office generates revenues by leasing lands for grazing, agriculture, commercial use, renewable energy, oil and gas drilling, mining, and other surface and subsurface activities. In fiscal year 2017 the Land Office collected $540 million for its beneficiaries, with $435 million of those revenues coming from oil and gas activities on State Trust land.

The State Land Office holds oil and gas lease sales on the third Tuesday of every month through the online service EnergyNet. Offerings include acreage nominated by industry as well as tracts selected by the Land Commissioner. In the last fiscal year these sales totaled more than $65 million. All offered tracts were in southeastern New Mexico, within or adjacent to the hot Permian play.

State Trust land utilized for oil and gas activities is managed through individual leases, communitization agreements, and unit agreements. With the emerging proliferation of horizontal wells extending more than two miles, communitization agreements that combine smaller tracts into proration units have become common. Unit agreements are utilized for large-scale development of multiple tracts. Both types of agreements bind leases together in a contract that operates much like a single lease in terms of economics and efficiency. “Single-lease” status allows (1) longer lateral wells, (2) drilling within the agreement boundaries without consideration of interior lease boundaries, and (3) optimal placement of surface facilities. Communitization and unit agreements enable sharing of revenues based on leaseholder percentages of the total agreement area.

The State Land Office can assist in several ways with the logistics of oil and gas development on State Trust land. The Oil, Gas, and Minerals Division (OGMD) administers the State Land Office monthly oil and gas lease sale and manages all hydrocarbon and mineral leasing activity on State Trust land. The Minerals Section of OGMD manages water easements and leasing of coal, salt, industrial minerals, potash, general mining, and geothermal resources, as well as special use agreements for exploration and reclamation. The Commercial Resources Division manages State Trust Lands for surface usage, including leasing, exchanges, and rights-of-way, all of which may be necessary for oil and gas development.

Several state- or federal-listed threatened or endangered species are present in southeastern New Mexico. The State Land Office has initiated efforts such as the Candidate Conservation Agreement with Assurances that allows landowners and lessees to voluntarily implement conservation measures addressing specific threatened and endangered species. The program provides assurances that, if one of those species is listed, they can continue to manage their land as outlined in their lease agreements.

Industry sources have speculated that more than $13 billion has been invested in oil and gas assets within southeastern New Mexico over the past year. The rig count in this area has more than doubled since mid 2016. The State Land Office has become a valuable resource for oil and gas development in the New Mexico portion of the Permian Basin.