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SHORT TITLE Surface Owners Protection Act
SB 631
APPROPRIATION (dollars in thousands)
or Non-Rec
(Parenthesis ( ) Indicate Expenditure Decreases)
Duplicate of HB437
LFC Files
Responses Received From
Energy, Minerals and Natural Resources Department (EMNRD)
Office of the Attorney General (OAG)
New Mexico State Land Office (SLO)
New Mexico Department of Agriculture (NMDA)
New Mexico Oil and Gas Association (NMOGA)
Synopsis of Bill
Senate Bill 631, Relating to the Production of Oil and Gas; Enacting the Surface Owners Protec-
tion Act; Stating Certain Duties Owed by Oil and Gas Operators to Surface Owners; Requiring
Notice to the Surface Owners of Oil and Gas Operations; Requiring a Bond or Other Surety in
Certain Circumstances; Providing a Cause of Action, seeks to enact the Surface Owners Protec-
tion Act (the Act), which addresses the following general factors:
The Act requires oil and gas operators to compensate surface owners of real
property for the use of the surface owner’s property and to pay for any damages
to the land resulting from oil and gas operations. In addition, the Bill requires oil
and gas operators to restore the surface of lands disturbed by their operations to
original condition, except to the extent otherwise agreed between an operator and
the surface owner. Oil and gas operators are required to give notice to the surface
Senate Bill 631 – Page
owner five business days prior to initially entering the property for non-surface-
disturbing activities. At least forty days prior to commencement of surface-
disturbing operations, the operator would be required to give notice to the surface
owner and to propose a detailed surface use and damage agreement.
If the parties do not reach a mutually acceptable surface damage agreement
within forty days after the surface owner's receipt of the operator's notice and ini-
tial proposal, the operator may commence operations upon filing of a bond or
other security with the Oil Conservation Division (OCD) in the amount of the
greater of $25,000 or the operator's good faith estimate of probable surface dam-
ages. If the operator does not exercise good faith in making the estimate, the sur-
face owner, in a subsequent suit against the operator, can be awarded attorneys
fees and punitive damages.
If an operator commences operations without a surface use agreement, the sur-
face owner may recover the damages in a civil action in district court, brought, at
the election of the surface owner, in Santa Fe County, the county where opera-
tions occur, or the county where the surface owner resides. If the operator com-
mences operations without giving the notice or without filing security, or if the
operator fails to exercise good faith in estimating probable damages, the court
may award the surface owner attorneys' fees and punitive damages.
There is no appropriation attached to this legislation.
There are a number of differing legal opinions, interpretations, and observations associated with
this legislation. Accordingly, they will be presented without prejudice:
The Energy, Minerals and Natural Resources Department (EMNRD) perspective:
Under common law (accustomed practice), an owner or lessee of oil and gas has
a right to use as much of the surface of the land as is necessary to explore for and
produce minerals. The surface owner, absent a contrary agreement, is not enti-
tled to compensation for loss of use of the portion of the surface reasonably nec-
essary for mineral operations, nor for any diminution in the value of the surface
due to such operations. The oil and gas producer is liable only for damages to the
surface caused by its negligence, or by unreasonable or excessive use of the sur-
State law does not presently require prior notice of operations to the surface
owner, or require security from the operator for damages that may accrue to the
surface owner. Where, however, the mineral estate is owned by the federal gov-
ernment, the United States Bureau of Land Management requires oil and gas
producers give notice to the surface owner and either obtain a surface use agree-
ment or post security prior to commencement of operations. BLM requires that
an oil and gas operator file a statement that it has an agreement with the surface
owner, or a bond, with BLM at the time the operator files its application for per-
mit to drill. The bond amount is determined by BLM on a case by base basis and
Senate Bill 631 – Page
is usually from $1,000 to $5,000 per well location. Oil and gas producers in New
Mexico typically pay surface damage settlements to surface owners prior to op-
erations. There is, however, no legal requirement to do so.
SB 631 would put New Mexico in company with nine other states (Illinois, Ken-
tucky, Montana, North Dakota, Oklahoma, South Dakota, Tennessee, West Vir-
ginia and Wyoming) that have modified the common law concerning an oil and
gas operator's liability to surface owners by statute. Many of the bill's provisions
are similar to those of statutes in North Dakota, South Dakota and Montana and it
follows the pattern of other states by allowing oil and gas operators access on
prescribed conditions. Under the Act, this would be the posting of a bond or
other security in the amount provided, if the surface owner does not respond to
the operator's proposal, or if negotiations are not successful.
The bill requires operators submit a proposal prior to commencement of opera-
tions that includes detailed operational plans. In practice, the plans for initial op-
erations should be known forty days prior to commencement of operations, but
plans for later operations on the property, in most cases, would not be known at
commencement. This issue could be addressed by requiring the operator to give
notice of additional or revised operational plans.
SB 631 also provides that a surface owner may recover, among other elements of
damage, "harm to the watershed, aquifers or water supplies on or underneath the
property." Under New Mexico Water Law, surface ownership does not bring
with it water rights. It would be more precise for the Act to allow a right to re-
cover for diminution, as a result of oil and gas operations, in the availability of
water supply that a surface or ground water user has a right to divert by permit or
SB 631 further provides that the surface owner may recover cost of reclamation
if the operator fails to reclaim the property, even if that cost exceeds the fair
market value of property. [Page 3, Lines 14-15] No requirement exists for a sur-
face owner recovering such an award to apply it to actual reclamation. An alter-
native would be to require that any award of damages would be applied first to
remediation of the property pursuant to OCD requirements.
The Office of the Attorney General (OAG) perspective:
SB 631 requires operators of oil and gas operations to compensate surface own-
ers for the use of the surface owners’ property. It also makes oil and gas opera-
tors liable to surface owners for any damages sustained by the surface owner as a
direct result of the operator’s oil and gas operations, including the costs of recla-
mation if the operator fails to reclaim the surface properly.
SB 631 requires operators of oil and gas operations to provide notice to the sur-
face owners of the planned oil and gas operations prior to entering the surface
property. The notice shall include (1) sufficient disclosure of the planned oil and
gas operations to enable the surface owner to evaluate the effect of the operations
on the property, (2) a copy of the Surface Owners Protection Act, (3) contact in-
Senate Bill 631 – Page
formation for the operator and the operator’s representative, (4) a proposed sur-
face compensation agreement, and (5) an offer to discuss and negotiate in good
faith any changes to the proposed operations, the proposed surface use and com-
pensation agreement, or mitigation actions that the surface owner might request.
In the absence of a surface use and compensation agreement, oil and gas opera-
tors to post a bond or other surety for the benefit of the surface owner with the
Oil Conservation Division of New Mexico Energy, Minerals and Natural Re-
sources Department.
SB 631 creates a private right of action by surface owners against operators who
conduct oil and gas operations without a surface use and compensation agree-
ment or outside the scope of an existing agreement. It authorizes a court to
award to a surface owner compensation, attorney fees and punitive damages if
the court finds that (a) the operator failed to provide notice as required by Section
4.B of the act, (b) the operator conducted oil and gas operations without a surface
use and compensation agreement and without posting bond, as required by Sec-
tion 5, (c) in posting bond, the operator failed to estimate in good faith the com-
pensation that would be owed to the surface owner for damages, or (d) the opera-
tor conducted oil and gas operations outside the scope of a surface use and com-
pensation agreement
New Mexico Oil and Gas Association (NMOGA) perspective:
NM property law and other legal systems have established the rights of both par-
ties when the surface is separated from the mineral, and gives the mineral owner
the right to reasonable use of the surface. In absence of such authorization, the
mineral estate is valueless. The test should be whether the surface owner has suf-
fered damages because of unreasonable activities by the operator. Gerrity Oil &
Gas Corp. v. Magness; Amoco Production Co. v. Carter Farms Co.
Current case law requires “due regard” for/or “accommodation of” competing
surface uses so long as the technical and economic feasibility of mineral devel-
opment is not compromised. Hunt Oil Co. v Kerbaugh; Getty Oil Co v. Jones
Where actions of mineral lessee cause temporary damage to surface estate, but
such damage can be repaired, damages owed to owner of surface estate equal the
cost of repair or restoration, if such cost does not exceed property’s value.
Amoco Production Co. v. Carter Farms Co.
When actions of mineral lessee have rendered surface totally unusable for period
of time, damages owed to owner of surface estate are determined by land’s rental
value for that same period. Where temporary damage results to the surface es-
tate, but it can be repaired, then the damages are the cost of repair or restoration
if the cost of restoration does not exceed the value of the property. Ellison v.
SB 631 attempts to change venue when law specifies that actions concerning real
property are brought in the county in which the property is located.
Senate Bill 631 – Page
SB 631 violates the New Mexico Constitution, Article II, Section 19 by impair-
ing the obligation of contracts.
The definition of surface owner does not exclude federal, state or tribal surface
ownership or the owner of both the surface and mineral estate.
The definition of “reclaim” overrules various NM Supreme Court cases (Amoco
v. Carter Farms, etc.)
Does not establish a procedure to determine the “tenant’s share” of damages. If
the land is reclaimed would the tenant then get 100% of the compensation. Loss
of use only effects operations.
As written, the legislation does not prevent current surface owner from entering
into an agreement that will bind future surface owners.
SB 631 requires the operator to examine title to surface, when it should be the tax
SB 631 is aimed at oil and gas operators and protecting surface owners but it
does not take into consideration, nor does it protect, the rights of the mineral
owner. Surface owners purchase their property interest subject to the burden of
development of the mineral estate. Oil and gas mineral property rights owners
would have their property rights devalued for the private benefit of surface own-
ers, and the reversal of the dominance of the mineral estate could be construed as
a “taking” by the mineral owners.
The required agreement in SB 631 does not “specify rights and obligations” but
rather mandates a contract to control activities; NM property law based on NM
statutes, property conveyances, historical practices, and court decisions, specifies
and defines the rights and obligations of the parties. (See Legal Issues)
SB 631 is not in the best interest of New Mexico as it 1) Restricts and delays the
development of NM’s natural resources; 2) unnecessarily raises costs of oil and
gas operations without benefit; 3) attempts to control private negotiations and
voids NM property law.
The New Mexico Department of Agriculture (NMDA) perspective:
This act addresses the ranching industry’s potential loss of resources during oil
and gas exploration and extraction caused by the split ownership of mineral and
surface rights in which the traditional priority is given to mineral rights.
This act may affect many ranchers in New Mexico, but the effects on the economics of
on the oil and gas industry are not calculated. Variables include the growth of the oil
and gas industry, the number and intensity of surface rights affected, and the success of
restoration practiced by the oil and gas industry.
Senate Bill 631 – Page
The New Mexico State Land Office (SLO) perspective:
The Act is to be interpreted to benefit surface owners regardless of whether the
mineral estate was severed from the surface estate.
The Act would raise legal issues relating to surface use and the development of
the mineral estates.
The Act may conflict with existing SLO rules, regulations and current state oil
and gas leases regarding surface use for oil and gas operations
The Act would establish different legal requirements for state leases entered after
July 1, 2006.
EMNRD indicates that the Act requires the department’s Oil Conservation Division to approve,
maintain on file, and, when necessary, collect bonds and other security furnished for the benefit
of surface owners. This would require one additional FTE.
EMNRD notes that the provision for notice to the surface owner to be sent to the address "shown
by the records of the county clerk" [Page 7, lines 4 and 5]should be changed to the records of the
county tax assessor, since the tax office would ordinarily have more current and complete infor-
mation regarding surface owner addresses. Further that, under the bill, if the operator becomes
insolvent, the surface owner can collect the proceeds of the bond provided pursuant to the bill,
and is not obligated to apply those proceeds to reclamation. OCD would recommend that the bill
be amended to require the proceeds of the bond to be applied to reclamation of the property.
EMNRD suggests that the legislation would allow oil and gas operators to file security and pro-
ceed with operation if a surface use agreement is not concluded within forty days after the sur-
face owner's receipt of the operator's notice of intent and proposal. [Page 5, lines18, et seq.] This
might create uncertainty where a surface owner cannot be located or does not call for or accept
certified mail. This could be resolved by a provision that the notice would be deemed received a
specified time after mailing to the prescribed address.