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. 13, July 16, 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.