HOUSE JUDICIARY COMMITTEE SUBSTITUTE FOR

HOUSE ENERGY AND NATURAL RESOURCES COMMITTEE SUBSTITUTE FOR

HOUSE BILL 286

51st legislature - STATE OF NEW MEXICO - first session, 2013

AN ACT

RELATING TO OIL AND GAS; AMENDING SECTIONS OF THE OIL AND GAS ACT CONCERNING FINANCIAL ASSURANCE, POWERS OF THE OIL CONSERVATION COMMISSION AND THE OIL CONSERVATION DIVISION OF THE ENERGY, MINERALS AND NATURAL RESOURCES DEPARTMENT, CIVIL AND CRIMINAL PENALTIES, PERMITS FOR THE DISPOSITION OF WASTE AND APPEALS.

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

     SECTION 1. 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] that operates any 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 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 well be plugged and abandoned in compliance with the rules of the [oil conservation] division. The [oil conservation] division shall establish categories of financial assurance after notice and hearing. [Such] The categories shall include a blanket plugging financial assurance in an amount not to exceed 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. In establishing categories of financial assurance, the [oil conservation] division shall consider the depth of the well involved, the length of time since the well was produced, the cost of plugging similar wells and such other factors as the [oil conservation] division deems relevant. In addition to the blanket plugging financial assurance, the [oil conservation] division may require a one-well financial assurance on any well that has been held in a temporarily abandoned status for more than two years. All financial assurance shall remain in force until released by the [oil conservation] division. The [oil conservation] division shall release financial assurance when it is satisfied the conditions of the financial assurance have been fully performed.

          B. If any of the requirements of the Oil and Gas Act or the rules promulgated pursuant to that act have not been complied with, the [oil conservation] division, after notice and hearing, may order any well plugged and abandoned by the operator or surety or both in accordance with division rules. If the order is not complied with in the time period set out in the order, the financial assurance shall be forfeited.

          C. When any financial assurance is forfeited pursuant to the provisions of the Oil and Gas Act or rules promulgated pursuant to that act, the director of the [oil conservation] division shall give notice to the attorney general, who shall collect the forfeiture without delay.

          D. All forfeitures shall be deposited in the state treasury in the oil and gas reclamation fund.

          E. When the financial assurance proves insufficient to cover the cost of plugging oil and gas wells on land other than federal land and funds must be expended from the oil and gas reclamation fund to meet the additional expenses, the [oil conservation] division is authorized to bring suit against the operator, in the district court of the county in which the well is located or in the first judicial district for indemnification for all costs incurred by the [oil conservation] division in plugging the well. All funds collected pursuant to a judgment in a suit for indemnification brought under the provisions of this section shall be deposited in the oil and gas reclamation fund.

          F. An operator required to file financial assurance for a well pursuant to this section is considered to have met that requirement if the operator obtains a plugging insurance policy that includes the specific well and that:

                (1) is approved by the insurance division of the public regulation commission;

                (2) names the state of New Mexico as owner of the policy and contingent beneficiary;

                (3) names a primary beneficiary who agrees to plug the specified wellbore;

                (4) is fully prepaid and cannot be canceled or surrendered;

                (5) provides that the policy continues in effect until the specified wellbore has been plugged;

                (6) provides that benefits will be paid when, but not before, the specified wellbore has been plugged in accordance with rules of the [oil conservation] division in effect at the time of plugging; and

                (7) provides benefits that are not less than an amount equal to the one-well financial assurance required by [oil conservation] division rules.

          G. If, subsequent to an operator obtaining an insurance policy as provided in this section, the one-well financial assurance requirement applicable to the operator's well is increased, either because the well is deepened or the rules of the [oil conservation] division are amended, the operator is considered to have met the revised requirement if:

                (1) the existing policy benefit equals or exceeds the revised requirement;

                (2) the operator obtains an amendment increasing the policy benefit by the amount of the increase in the applicable financial assurance requirement; or

                (3) the operator obtains financial assurance equal to the amount, if any, by which the revised requirement exceeds the policy benefit."

     SECTION 2. Section 70-2-28 NMSA 1978 (being Laws 1935, Chapter 72, Section 19, as amended) is amended to read:

     "70-2-28. ACTIONS FOR VIOLATIONS.--Whenever it [shall appear] appears that any person is violating or threatening to violate any statute of this state with respect to the conservation of oil and gas or both or any provision of [this] the Oil and Gas Act or any rule, [regulation or] order [made thereunder] or permit issued pursuant to that act, the division through the attorney general shall bring suit against [such] that person in the county of the residence of the defendant or in the county of the residence of any defendant, if there [be] is more than one defendant, or in the county where the violation is alleged to have occurred for penalties, if any are applicable, or in the first judicial district, and to restrain [such] the person from continuing [such] violation or from carrying out the threat of violation. In [such] the suit, the division may obtain injunctions, prohibitory and mandatory, including temporary restraining orders and temporary injunctions, as the facts may warrant, including, when appropriate, an injunction restraining any person from moving or disposing of illegal oil or illegal oil product or illegal gas or illegal gas product, and any or all such commodities or funds derived from the sale thereof may be ordered to be impounded or placed under the control of an agent appointed by the court if, in the judgment of the court, such action is advisable. The remedies provided by this section are cumulative and do not limit any other rights or remedies of the division or the commission with respect to any violation of the Oil and Gas Act or of any rule, order or permit issued pursuant to that act."

     SECTION 3. Section 70-2-31 NMSA 1978 (being Laws 1981, Chapter 362, Section 1) is amended to read:

     "70-2-31. VIOLATIONS OF THE OIL AND GAS ACT--PENALTIES.--

          A. [Any] Except as provided in Subsection B of this section, a person who [knowingly and willfully] violates any provision of the Oil and Gas Act or any provision of any rule [or], order or permit issued pursuant to that act shall be subject to a civil penalty of not more than one thousand dollars ($1,000) for each day of violation. [For purposes of this subsection, in the case of a continuing violation, each day of violation shall constitute a separate violation. The penalties provided in this subsection]

          B. If a person violates any provision of the Oil and Gas Act or any rule, order or permit issued pursuant to that act, which violation is or causes an unauthorized discharge of any water contaminant that pollutes or threatens to pollute water in excess of any state or federal water quality standard, the civil penalty shall be not more than ten thousand dollars ($10,000) for each violation or ten thousand dollars ($10,000) for each day of a continuing violation; provided, however, that this subsection shall apply only to unauthorized discharges that are not subject to regulation and penalties under the Water Quality Act.

         C. The division or the commission may assess the civil penalties provided in this section after notice and an opportunity for a public hearing. In assessing the penalty, the division or the commission may consider the seriousness of the violation and any good-faith efforts to comply with the applicable requirement.

         D. A penalty not paid within thirty days after the order assessing the penalty becomes final shall be recoverable by a civil suit filed by the attorney general in the name and on behalf of the commission or the division in the district court of the county in which the defendant resides or in which any defendant resides if there [be] is more than one defendant or in the district court of any county in which the violation occurred, or in the first judicial district; provided that, if any final order assessing a penalty is appealed pursuant to Section 70-2-25 NMSA 1978, the commission may seek recovery of the penalty by a counterclaim in that case. The payment of [such] the penalty shall not operate to legalize any illegal oil, illegal gas or illegal product involved in the violation for which the penalty is imposed or relieve a person on whom the penalty is imposed from liability to any other person for damages arising out of [such] the violation.

          [B. It is unlawful, subject to a criminal penalty of a fine of not more than five thousand dollars ($5,000) or imprisonment for a term not exceeding three years or both such fine and imprisonment, for any person to knowingly and willfully:

                (1) violate]

          E. A person shall be guilty of a third degree felony and sentenced pursuant to Section 31-18-15 NMSA 1978 if the person knowingly violates any provision of the Oil and Gas Act or any rule, [regulation or order of the commission or the division] order or permit issued pursuant to that act [or

                (2) do any of the following for the purpose of evading or violating the Oil and Gas Act or any rule, regulation or order of the commission or the division issued pursuant to that act:

                     (a) make] or if the person knowingly:

                (1) makes or causes to be made any false entry or statement in a required form, report, [required by the Oil and Gas Act or by any rule, regulation or order of the commission or division issued pursuant to that act

                     (b) make or cause to be made any false entry in any record, account or memorandum required by the Oil and Gas Act or by any rule, regulation or order of the commission or division issued pursuant to that act;

                     (c) omit] record, account or memorandum;

                (2) omits or [cause] causes to be omitted from [any such] a required form, report, record, account or memorandum full, true and correct entries; [or

                     (d) remove]

                (3) removes from this state or [destroy, mutilate, alter or falsify any such] destroys, mutilates, alters or falsifies a required form, report, record, account or memorandum; or

                (4) aids or abets the commission of any act described in this subsection.

          [C.] F. For the purposes of Subsection [B] E of this section, each day of violation shall constitute a separate offense.

          [D.] G. Any person who knowingly [and willfully] procures, counsels, [aides] aids or abets the commission of any act described in Subsection A or [B] E of this section shall be subject to the same penalties as are prescribed [therein] in those subsections."

     SECTION 4. Section 70-2-33 NMSA 1978 (being Laws 1935, Chapter 72, Section 24, as amended) is amended to read:

     "70-2-33. DEFINITIONS.--As used in the Oil and Gas Act:

          A. "person" means:

                (1) any individual, estate, trust, receiver, cooperative association, club, corporation, company, firm, partnership, joint venture, syndicate or other entity; or

                (2) the United States or any agency or instrumentality thereof or the state or any political subdivision thereof;

          B. "pool" means an underground reservoir containing a common accumulation of crude petroleum oil or natural gas or both. Each zone of a general structure, which zone is completely separate from any other zone in the structure, is covered by the word "pool" as used in the Oil and Gas Act. "Pool" is synonymous with "common source of supply" and with "common reservoir";

          C. "field" means the general area that is underlaid or appears to be underlaid by at least one pool and also includes the underground reservoir or reservoirs containing the crude petroleum oil or natural gas or both. The words "field" and "pool" mean the same thing when only one underground reservoir is involved; however, "field", unlike "pool", may relate to two or more pools;

          D. "product" means any commodity or thing made or manufactured from crude petroleum oil or natural gas and all derivatives of crude petroleum oil or natural gas, including refined crude oil, crude tops, topped crude, processed crude petroleum, residue from crude petroleum, cracking stock, uncracked fuel oil, treated crude oil, fuel oil, residuum, gas oil, naphtha, distillate, gasoline, kerosene, benzine, wash oil, waste oil, lubricating oil and blends or mixtures of crude petroleum oil or natural gas or any derivative thereof;

          E. "owner" means the person who has the right to drill into and to produce from any pool and to appropriate the production either for [himself] the person or for [himself] the person and another;

          F. "producer" means the owner of a well capable of producing crude petroleum oil or natural gas or both in paying quantities;

          G. "gas transportation facility" means a pipeline in operation serving gas wells for the transportation of natural gas or some other device or equipment in like operation whereby natural gas produced from gas wells connected therewith can be transported or used for consumption;

          H. "correlative rights" means the opportunity afforded, so far as it is practicable to do so, to the owner of each property in a pool to produce without waste [his] the owner's just and equitable share of the crude petroleum oil or natural gas or both in the pool, being an amount, so far as can be practicably determined and so far as can be practicably obtained without waste, substantially in the proportion that the quantity of recoverable crude petroleum oil or natural gas or both under the property bears to the total recoverable crude petroleum oil or natural gas or both in the pool and, for such purpose, to use [his] the owner's just and equitable share of the reservoir energy;

          I. "potash" means the naturally occurring bedded deposits of the salts of the element potassium;

          J. "casinghead gas" means any gas or vapor or both indigenous to an oil stratum and produced from such stratum with oil, including any residue gas remaining after the processing of casinghead gas to remove its liquid components; [and]

          K. "produced water" means water that is an incidental byproduct from drilling for or the production of crude petroleum oil and natural gas;

          L. "commission" means the oil conservation commission; and

          M. "division" means the oil conservation division of the energy, minerals and natural resources department."

     SECTION 5. EFFECTIVE DATE.--The effective date of the provisions of this act is July 1, 2013.

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