HOUSE ENERGY, ENVIRONMENT AND NATURAL RESOURCES

COMMITTEE SUBSTITUTE FOR

HOUSE MEMORIAL 29

54th legislature - STATE OF NEW MEXICO - second session, 2020

A MEMORIAL

REQUESTING A REVIEW OF STATEWIDE REMEDIATION AND RECLAMATION BONDS AND EXPRESSING SUPPORT FOR ESTABLISHING SUFFICIENT BONDING AMOUNTS FOR ENERGY OPERATIONS.

     WHEREAS, New Mexico is one of North America's leading energy producers; and

     WHEREAS, multiple state agencies are tasked with ensuring adequate bonding protection for energy-related and oil-and-gas- extraction-related activities on public and private lands; and

     WHEREAS, the commissioner of public lands, as the chief executive of the state land office, has a constitutional and statutory duty to manage and care for approximately nine million acres of surface land and thirteen million acres of mineral estate throughout New Mexico; and

     WHEREAS, the oil conservation division of the energy, minerals and natural resources department regulates mining, oil and gas activities and produced water disposal, and the department manages clean energy programs; and

     WHEREAS, the department of environment regulates energy-related activities not exclusively regulated under the Oil and Gas Act; and

     WHEREAS, persons engaged in energy-related and oil-and-gas-extraction-related activities can be required by law and contract to reclaim lands disturbed by those activities and to remediate surface and subsurface contamination caused by those activities; and

     WHEREAS, a fidelity or surety bond is a contractual promise made by a third-party surety to pay a stipulated amount in the event that a party with the primary duty to perform an obligation fails to perform; and

     WHEREAS, requiring that persons engaged in energy-related and oil-and-gas-extraction-related activities provide regulators and land management agencies with bonds or personal financial security can be an effective way to ensure that the persons engaged in those activities perform their obligations to reclaim the land and remediate surface and subsurface contamination; and

     WHEREAS, bonds help prevent or reduce taxpayer losses; and

     WHEREAS, bonds should be set at amounts that provide sufficient financial assurance to prevent remediation and compliance costs, such as the costs of remediating sites and removing infrastructure, from falling on taxpayers or state land trust beneficiaries; and

     WHEREAS, there are approximately fifty-seven thousand four hundred one active oil and gas wells and sixty-four thousand eight hundred fifty-eight inactive wells statewide, of which seven hundred eleven wells are orphaned wells and fourteen thousand sixty active and seventeen thousand six hundred eighty-six inactive oil and gas wells are on state trust lands; and

     WHEREAS, the average cost in New Mexico to plug a well is twenty-eight thousand three hundred eighteen dollars ($28,318), and the cost to remediate a single lease can range from five thousand dollars ($5,000) to millions of dollars, depending on the extent of contamination; and

     WHEREAS, the current state land office bonding requirements require a maximum bond of twenty-five thousand dollars ($25,000), which covers an unlimited number of oil and gas and mineral leases, as well as rights of way, recycling facilities and all other types of leases issued on state land statewide to a single lessee; and

     WHEREAS, bond requirements of the oil conservation division of the energy, minerals and natural resources department are generally limited to plugging and abandonment costs, in an amount that varies depending on the number of wells per operator, with the maximum amount set at two hundred fifty thousand dollars ($250,000) for over one hundred wells; and

     WHEREAS, the existing exposure for plugging inactive well sites on state lands alone is over five million dollars ($5,000,000), and the cost of remediating these sites would cost additional unknown millions of dollars; and

     WHEREAS, there are over ten thousand miles of hydrocarbon, produced water, fresh water, carbon dioxide and nitro sulfide pipelines in rights of way throughout the state; and

     WHEREAS, the existing exposure for decommissioning pipelines and remediating rights of way on state lands alone is hundreds of millions of dollars, and the cost of remediating these rights of way if, for example, leaks and spills occur, would cost additional unknown millions of dollars; and

     WHEREAS, in a September 2019 report, the United States government accountability office reviewed whether bonding inadequacies exist and found that oil and gas bond amounts set by the bureau of land management of the United States department of the interior largely have not been updated in forty years or more and fail to serve their intended purpose and recommended that bond minimums be raised to more closely reflect actual remediation and reclamation costs; and

     WHEREAS, the bureau of land management concurred with the report's findings to routinely review oil and gas bonds and set amounts that appropriately reflect the risks and liabilities posed by lessees and operators to protect taxpayers; and

     WHEREAS, the minimum bond amounts utilized by the bureau of land management and found to be insufficient are in many cases the same rates applicable to state land office and oil conservation division bond thresholds;

     NOW, THEREFORE, BE IT RESOLVED BY THE HOUSE OF REPRESENTATIVES OF THE STATE OF NEW MEXICO that support be expressed for establishing bonding amounts that are sufficient to cover reasonably anticipated remediation and reclamation costs and lease obligations for energy-related and oil-and-gas- extraction-related activities; and

     BE IT FURTHER RESOLVED that the state land office, in consultation with the oil conservation division of the energy, minerals and natural resources department and the department of environment, be requested to conduct a bond adequacy review related to energy production and infrastructure; and

     BE IT FURTHER RESOLVED that the agencies be requested to evaluate how to collectively ensure adequate bonding, appropriate use of funds from forfeited bonds and adequate funding and appropriate use of statutorily dedicated reclamation funds to avoid having excess expenses fall on taxpayers or state land trust beneficiaries and to report findings to the appropriate legislative interim committee by December 1, 2020; and

     BE IT FURTHER RESOLVED that the commissioner of public lands, or the commissioner's designee, form and chair an advisory group to meet, share information and evaluate existing requirements for and limits on bonding and to assess the need for changes to laws, rules and policies to achieve the objectives of this memorial; and

     BE IT FURTHER RESOLVED that the advisory group be composed of representatives from the following groups:

          A. the state land office;

          B. the oil and conservation division of the energy, minerals and natural resources department;

          C. the department of environment; and

          D. affected stakeholders, including representatives of large and small oil and gas producers, midstream operators, other energy project operators, environmental and conservation advocacy organizations and interested members of the public; and

     BE IT FURTHER RESOLVED that copies of this memorial be transmitted to the commissioner of public lands, the secretary of environment, the secretary of energy, minerals and natural resources and the director of the legislative finance committee.

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