HOUSE JUDICIARY COMMITTEE SUBSTITUTE FOR HOUSE ENERGY, ENVIRONMENT AND NATURAL RESOURCES COMMITTEE SUBSTITUTE FOR

HOUSE BILL 133

56th legislature - STATE OF NEW MEXICO - second session, 2024

 

 

 

 

 

 

 

AN ACT

RELATING TO THE ENVIRONMENT; AMENDING THE OIL AND GAS ACT; ALLOWING THE OIL CONSERVATION DIVISION OF THE ENERGY, MINERALS AND NATURAL RESOURCES DEPARTMENT TO REGULATE CERTAIN TRANSFERS OF OIL AND GAS WELLS AND AUTHORIZE THE CONVERSION OF OIL AND GAS WELLS FOR ENERGY STORAGE AND GEOTHERMAL DEVELOPMENT; INCREASING THE AMOUNT OF FEES AND FINANCIAL ASSURANCE ASSOCIATED WITH OPERATING OIL AND GAS WELLS; INCREASING CIVIL PENALTIES; ALLOWING FEES TO BE ADJUSTED TO ACCOUNT FOR INFLATION; REQUIRING THE CAPTURE OF NINETY-EIGHT PERCENT OF NATURAL GAS PRODUCED BEGINNING IN 2027.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

     SECTION 1. Section 70-2-12 NMSA 1978 (being Laws 1978, Chapter 71, Section 1, as amended) is amended to read:

     "70-2-12. ENUMERATION OF POWERS.--

          A. The [oil conservation] division [of the energy, minerals and natural resources department] may:

                (1) collect data;

                (2) make investigations and inspections;

                (3) examine properties, leases, papers, books and records;

                (4) examine, check, test and gauge oil and gas wells, tanks, plants, refineries and all means and modes of transportation and equipment;

                (5) hold hearings;

                (6) provide for the keeping of records and the making of reports and for the checking of the accuracy of the records and reports;

                (7) limit and prorate production of crude petroleum oil or natural gas or both as provided in the Oil and Gas Act; and

                (8) require either generally or in particular areas certificates of clearance or tenders in connection with the transportation of crude petroleum oil or natural gas or any products of either or both oil and products or both natural gas and products.

          B. The [oil conservation] division may make rules and orders [for the purposes and with respect to the subject matter stated in this subsection]:

                (1) to require dry or abandoned wells to be plugged in a way so as to confine the crude petroleum oil, natural gas or water in the strata in which it is found and to prevent it from escaping into other strata; pursuant to Section 70-2-14 NMSA 1978, the division shall require financial assurance conditioned for the performance of the rules;

                (2) to prevent crude petroleum oil, natural gas or water from escaping from strata in which it is found into other strata;

                (3) to require reports showing locations of all oil or gas wells and for the filing of logs and drilling records or reports;

                (4) to prevent the drowning by water of any stratum or part thereof capable of producing oil or gas or both oil and gas in paying quantities and to prevent the premature and irregular encroachment of water or any other kind of water encroachment that reduces or tends to reduce the total ultimate recovery of crude petroleum oil or gas or both oil and gas from any pool;

                (5) to prevent fires;

                (6) to prevent "blow-ups" and "caving" in the sense that the conditions indicated by such terms are generally understood in the oil and gas business;

                (7) to require wells to be drilled, operated and produced in such manner as to prevent injury to neighboring leases or properties;

                (8) to identify the ownership of oil or gas producing leases, properties, wells, tanks, refineries, pipelines, plants, structures and all transportation equipment and facilities;

                (9) to require the operation of wells with efficient gas-oil ratios and to fix such ratios;

                (10) to fix the spacing of wells;

                (11) to determine whether a particular well or pool is a gas or oil well or a gas or oil pool, as the case may be, and from time to time to classify and reclassify wells and pools accordingly;

                (12) to determine the limits of any pool producing crude petroleum oil or natural gas or both and from time to time redetermine the limits;

                (13) to regulate the methods and devices employed for storage in this state of oil or natural gas or any product of either, including subsurface storage;

                (14) to permit the injection of natural gas or of any other substance into any pool in this state for the purpose of repressuring, cycling, pressure maintenance, secondary or any other enhanced recovery operations;

                (15) to regulate the disposition, handling, transport, storage, recycling, treatment and disposal of produced water during, or for reuse in, the exploration, drilling, production, treatment or refinement of oil or gas, including disposal by injection pursuant to authority delegated under the federal Safe Drinking Water Act, in a manner that protects public health, the environment and fresh water resources;

                (16) to determine the limits of any area containing commercial potash deposits and from time to time redetermine the limits;

                (17) to regulate and, where necessary, prohibit drilling or producing operations for oil or gas within any area containing commercial deposits of potash where the operations would have the effect unduly to reduce the total quantity of the commercial deposits of potash that may reasonably be recovered in commercial quantities or where the operations would interfere unduly with the orderly commercial development of the potash deposits;

                (18) to spend the oil and gas reclamation fund and do all acts necessary and proper to plug dry and abandoned oil and gas wells and to restore and remediate abandoned well sites and associated production facilities in accordance with the provisions of the Oil and Gas Act, the rules adopted under that act and the Procurement Code, including disposing of salvageable equipment and material removed from oil and gas wells being plugged by the state;

                (19) to make well price category determinations pursuant to the provisions of the federal Natural Gas Policy Act of 1978 or any successor act and, by regulation, to adopt fees for such determinations, which fees shall not exceed twenty-five dollars ($25.00) per filing. Such fees shall be credited to the account of the [oil conservation] division by the state treasurer and may be expended as authorized by the legislature;

                (20) to regulate the construction and operation of oil treating plants and to require the posting of bonds for the reclamation of treating plant sites after cessation of operations;

                (21) to regulate the disposition of nondomestic wastes resulting from the exploration, development, production or storage of crude oil or natural gas to protect public health and the environment; [and]

                (22) to regulate the disposition of nondomestic wastes resulting from the oil field service industry, the transportation of crude oil or natural gas, the treatment of natural gas or the refinement of crude oil to protect public health and the environment, including administering the Water Quality Act as provided in Subsection E of Section 74-6-4 NMSA 1978;

                (23) to regulate the transfer of oil and gas wells, including limitations on transfers when:

                     (a) the transferor, the transferee or an entity that owns more than a twenty-five percent interest in a transferor or transferee has a significant history of noncompliance with the Oil and Gas Act or rules adopted pursuant to that act, including multiple notices of violations or spills or releases that are not in the process of being corrected or addressed;

                     (b) the transferee fails to provide adequate financial assurance as required by the division;

                     (c) the transferee lacks sufficient financial capacity based on known or projected production to manage liabilities associated with the oil and gas wells; or

                     (d) the division issues a written finding that the limitations on transfer are necessary for the purposes of mitigating risk to the state from potential inactive or abandoned oil and gas wells; and

                (24) to authorize the conversion of an oil and gas well to a facility that supports energy storage or geothermal development, including establishing fees and financial assurance requirements specific to an energy storage or geothermal use."

     SECTION 2. Section 70-2-14 NMSA 1978 (being Laws 1977, Chapter 237, Section 3, as amended) is amended to read:

     "70-2-14. REQUIREMENT FOR FINANCIAL ASSURANCE.--

          A. Each person, firm, corporation or association who operates [any] an oil, gas or service well within the state shall, as a condition precedent to drilling or producing the well, furnish financial assurance in the form of an irrevocable letter of credit, [or] a cash or surety bond, a well plugging risk pool fee or a [well-specific] plugging insurance policy pursuant to the provisions of this section to the [oil conservation] division [of the energy, minerals and natural resources department] running to the benefit of the state and conditioned that the covered well be plugged and abandoned in [compliance with the rules of the oil conservation] accordance with division rules. The [oil conservation] division shall establish categories of financial assurance by rule after notice and hearing. Such categories shall include: [a blanket plugging financial assurance, which shall be set by rule in an amount not to exceed two hundred fifty thousand dollars ($250,000), a blanket plugging financial assurance for temporarily abandoned status wells, which shall be set by rule at amounts greater than fifty thousand dollars ($50,000), and one-well plugging financial assurance in amounts determined sufficient to reasonably pay the cost of plugging the wells covered by the financial assurance]

                (1) blanket plugging financial assurance for an operator's active wells in an amount not to exceed:

                     (a) two hundred fifty thousand dollars ($250,000) for an operator with fewer than fifty wells and total oil and gas production of fewer than one hundred thousand barrels of oil equivalent per year;

                     (b) three hundred fifty thousand dollars ($350,000) for an operator not covered by Subparagraph (a) of this paragraph with fewer than one hundred wells and total oil and gas production of fewer than two hundred thousand barrels of oil equivalent per year;

                     (c) five hundred thousand dollars ($500,000) for an operator not covered by Subparagraph (a) or (b) of this paragraph with fewer than one hundred fifty wells and total oil and gas production of fewer than five hundred thousand barrels of oil equivalent per year;

                     (d) seven hundred fifty thousand dollars ($750,000) for an operator not covered by Subparagraph (a), (b) or (c) of this paragraph with fewer than three hundred wells or total oil and gas production of fewer than seven hundred fifty thousand barrels of oil equivalent per year;

                     (e) five million dollars ($5,000,000) for an operator with between three hundred and five hundred wells or total oil and gas production of fewer than one million two hundred fifty thousand barrels of oil equivalent per year; or

                     (f) ten million dollars ($10,000,000) for an operator with greater than five hundred wells and total oil and gas production of greater than one million two hundred fifty thousand barrels of oil equivalent per year;

                (2) a well plugging risk pool fee; or

                (3) a one-well plugging financial assurance in an amount determined sufficient to reasonably pay the cost of plugging the well or wells covered by the financial assurance.

          B. The division may determine blanket plugging financial assurance requirements for an operator based on well count and oil and gas production from wholly owned subsidiaries of the same corporate parent.<