New Mexico Administrative Code
Title 2 - PUBLIC FINANCE
Chapter 60 - INVESTMENT AND DEPOSIT OF PUBLIC FUNDS
Part 22 - REGULATIONS GOVERNING THE INVESTMENT OF THE SEVERANCE TAX PERMANENT FUND IN OIL AND GAS PARTICIPATIONS
Section 2.60.22.8 - INVESTMENT MANAGEMENT POLICY
Current through Register Vol. 35, No. 18, September 24, 2024
The state investment officer may invest the severance tax permanent fund in participations up to but not to exceed 80 percent of the outstanding funded principal balance at the time of purchase, of loans made on the production potential of new oil and gas wells drilled in New Mexico when the proceeds of such loans are used solely to drill and complete new oil and gas wells in New Mexico. Such investments must be made in accordance with applicable statutes and the requirements outlined below.
A. All investments must be recommended by the OGPAC before the purchase of the participation can be made.
B. The term of the investment may not exceed five years and the maximum individual loan participation purchased shall not exceed five million dollars nor shall more than five million dollars be loaned to one individual except with the approval of the state investment officer and the SIC after considering the diversification of funds among borrowers.
C. The effective yield on the investment to the state excluding servicing fees shall not be more than one percent below market rate. The market rate shall be determined by taking the chase prime rate plus one percent or the lender's rate for the loan whichever is greater. Any service fees would then be added.
D. The servicing fee to the lender for servicing the loan shall not exceed one half of one percent per year of the unpaid principal balance of the loan. This does not include origination fees, legal fees or documentation costs which shall be passed on to the bank or borrower at cost.
E. The lender must complete and sign a participation agreement in the form approved by the state's attorney general and submit all information required in the application.
F. The SIC or the OGPAC may hire a consulting professional engineer and/ or oil and gas attorney to do reasonable work reviewing the loan, the cost of which will be paid for bythe borrower.
G. The loan must be secured by a first mortgage and/or a first lien against the new oil and gas wells and the potential production of the wells, assignment or control of purchaser payments for production from the new wells and any other source to the borrower sufficient to repay the loan and assignment and control of any other collateral required by the OGPAC or SIC. Evidence of title to collateral must include a title binder or attorney's title opinion. The original loan may not exceed fifty percent of the appraised or fair market value of the pledged collateral or ninety percent of the present value of the discounted cashflow of the borrowers production interest in the new and other wells securing the loan over a five year period. The cashflow shall be discounted using the discount rate required by the securities and exchange commission for similar transactions. At the lender's recommendation, if the loan is to a partnership or single individual, life insurance may be required for the value of the loan as well as personal guarantees where appropriate. The participation agreement with the lender must include a due on sale clause.
H. The purchasers of production from the well(s) will specify on their division order, or other internal payment control document, that the borrowers percentage of production from the well (identified as net recoverable income (NRI) from the well payable to the borrower, after deduction of royalties or overriding royalties, severance taxes and operators payments) be paid directly to the lender. Upon receipt of such payment, the lender will retain the amount currently due, or overdue, in monthly payments on the loan and will forward the state's participation payment as required in the servicing agreement between the lender and the SIC and the balance of the payments will be immediately forwarded to the borrower or distributed as otherwise directed by the borrower.
I. The lender and the borrower shall provide a statement of the purpose of the loan and prior to release of any funds by the state investment office provide copies of the approved application for permit to drill (APD) and the authority for expenditure (AFE).
J. The borrower must agree to provide at least annually to the SIC, a current certified financial statement and, if requested, to submit new engineering reports throughout the life of the loan.
