44TH LEGISLATURE - STATE OF NEW MEXICO - FIRST SESSION, 1999

RELATING TO LAND; ESTABLISHING REQUIREMENTS FOR AN OIL OR GAS OPERATOR TO FOLLOW BEFORE ENTERING A SITE FOR DRILLING; REQUIRING THE OPERATOR AND THE SURFACE OWNER TO ENTER INTO GOOD FAITH NEGOTIATIONS TO DETERMINE THE ANTICIPATED AMOUNT OF SURFACE DAMAGES; PROVIDING FOR A BOND.

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

Section 1. SHORT TITLE.--This act may be cited as the "Surface Rights Act".

Section 2. DEFINITIONS.--As used in the Surface Rights Act:

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

B. "maintenance" means substantial activity to maintain a well that involves the use of equipment that may reasonably be expected to cause some damage to the surface of the well site;

C. "operator" means a mineral owner or lessee who is engaged in drilling or preparing to drill for oil or gas; and

D. "surface owner" means the owner or owners of record of the surface of the property on which the drilling operation is to occur.

Section 3. REQUIREMENTS TO BE MET BY OPERATOR BEFORE ENTERING A SITE TO DRILL FOR OIL AND GAS OR PERFORM MAINTENANCE ON AN EXISTING WELL.--

A. Before entering upon a site for oil or gas drilling, or the maintenance of an existing oil or gas well, except in instances where there are non-state resident surface owners, non-state resident surface tenants, unknown heirs, imperfect titles, or surface owners or surface tenants whose whereabouts cannot be ascertained with reasonable diligence, the operator shall give to the surface owner a written notice of his intent to drill or commence maintenance containing a designation of the proposed location and the approximate date that the operator proposes to commence drilling or maintenance.

B. The notice required to be given pursuant to Subsection A of this section shall be given in writing, mailed by certified mail, return receipt requested, to the surface owner. If the operator makes an affidavit that he has conducted a search with reasonable diligence and has been unable to ascertain the whereabouts of the surface owner or that notice cannot be delivered, then constructive notice of the intent to drill or perform maintenance may be given in the same manner as provided for the notice to unknown heirs in a quiet title suit.

C. Within five days of the date of delivery or personal service of the notice of intent to drill or perform maintenance it shall be the duty of the operator and the surface owner to enter into good faith negotiations to determine the surface damages anticipated from the drilling or maintenance.

Section 4. BOND REQUIREMENT--CONDITIONS--INCREASE.--

A. Every operator doing business in this state shall file a corporate surety bond, letter of credit from a banking institution, cash or a certificate of deposit with the division in the sum of twenty-five thousand dollars ($25,000) conditioned upon compliance with the Surface Rights Act for payment of any location damages due that the operator cannot otherwise pay. The division shall hold the corporate surety bond, letter of credit from a banking institution, cash or certificate of deposit for the benefit of the surface owners of this state and shall ensure that the security is in a form readily payable to a surface owner awarded damages in an action brought pursuant to the Surface Rights Act. Each corporate surety bond, letter of credit, cash, or certificate of deposit filed with the division shall be accompanied by a filing fee of fifty dollars ($50.00).

B. The bonding company or banking institution shall file a certificate that the bond or letter of credit is in effect or has been canceled, or that a claim has been made against it in the office of the court clerk in each county in which the operator is drilling or performing well maintenance or planning to drill or perform maintenance. The bond or letter of credit must remain in full force and effect as long as the operator continues drilling operations in this state. Each filing shall be accompanied by a filing fee of ten dollars ($10.00).

C. Upon deposit of the bond, letter of credit, cash or certificate of deposit, the operator shall be permitted entry upon the property and shall be permitted to commence drilling of a well or performing maintenance in accordance with the terms and conditions of any lease or other existing contractual or lawful right.

D. If the damages agreed to by the parties or awarded by the court are greater than the bond, letter of credit, cash or certificate of deposit posted, the operator shall pay the damages immediately or post an additional bond, letter of credit, cash or certificate of deposit sufficient to cover the damages. The requirement for an increase in bond, letter of credit, cash or certificate of deposit shall comply with the filing requirements of this section.

Section 5. DAMAGES--FAILURE TO AGREE--APPRAISAL--COURT DETERMINATION.--

A. Prior to entering the site with heavy equipment, the operator shall negotiate with the surface owner for the payment of any damages that may be caused by the drilling or maintenance operations. If the parties agree, and a written contract is signed, the operator may enter the site to drill or perform maintenance. If agreement is not reached, or if the operator is not able to contact all parties, the operator shall petition the district court in the county in which the drilling site is located for appointment of appraisers to make recommendations to the parties and to the court concerning the amount of damages, if any. Once the

operator has petitioned for appointment of appraisers, he may enter the site to drill or to perform maintenance.

B. Ten days' notice of the petition to appoint appraisers shall be given to the opposite party. The notice shall be served in the same manner as is required for service of a summons in a civil action.

C. The operator shall select one appraiser, the surface owner shall select one appraiser and the two selected appraisers shall select a third appraiser for appointment by the court. Unless additional time is allowed by the district court for good cause shown, the three appraisers shall be selected within twenty days of service of the notice of the petition to appoint appraisers or within twenty days of the first date of publication of the notice if service is made by publication. If either of the parties fails to appoint an appraiser or if the two appraisers cannot agree on the selection of the third appraiser within the required time period, the remaining required appraisers shall be selected by the district court upon application of either party. Before entering upon their duties, the appraisers shall take and subscribe an oath, before a notary public or some other person authorized to administer oaths, that they will perform their duties faithfully and impartially to the best of their ability. They shall inspect the real property and consider the surface damages that the owner has sustained or will sustain by reason of entry upon the land and by reason of drilling or maintenance of oil or gas production on the tract of land. The appraisers shall then file a written report within thirty days of the date of their appointment with the clerk of the court. The report shall set forth the quantity, boundaries and value of the property entered on or to be utilized in the oil or gas drilling or maintenance and the amount of surface damages done or to be done to the property. The appraisers shall make a valuation and determine the amount of compensation to be paid by the operator to the surface owner and the manner in which the amount shall be paid. The appraisers shall make a report of their proceedings

to the court. The compensation of the appraisers shall be fixed and determined by the court. The operator and the surface owner shall share equally in the payment of the appraisers' fees and court costs.

D. Within ten days after the report of the appraisers is filed, the clerk of the court shall forward to each attorney of record and each party a copy of the report of the appraisers and a notice stating the time limits for filing an objection or a demand for jury trial as provided for in this section.

E. If a party has been served by publication, the clerk shall forward a copy of the report of the appraisers and the notice of time limits for filing either an objection or a demand for jury trial to the last-known mailing address of each party, if any, and shall have a copy of the notice of time limits published in one issue of a newspaper qualified to publish legal notices.

F. The time for filing an objection to the report or a demand for jury trial shall be calculated as commencing from the date the report of the appraisers is filed with the court. Upon failure of the clerk to give notice within the time prescribed, the court, upon application by any interested party, may extend the time for filing an exception to the report or filing a demand for trial by jury for a reasonable period of time not less than twenty days from the date the application is heard by the court. Appraisers' fees and court costs may be the subject of an exception, may be included in an action by the petitioner and may be set and allowed by the court.

G. The report of the appraisers may be reviewed by the court upon written objections filed with the court by either party within thirty days after the filing of the report. After the hearing the court shall enter the appropriate order either by confirmation, rejection, modification or order of a new appraisal for good cause shown. If a new appraisal is ordered, the operator shall have continuing right of entry subject to the continuance of the required bond. Either party may file a written demand for a trial by jury within sixty days after the filing of the report, in which case the amount of damages shall be assessed by a jury. The trial shall be conducted and judgment entered in the same manner as in a highway condemnation action tried in the court. If the party demanding the jury trial does not recover a verdict more favorable to him than the assessment award of the appraisers, all court costs, including reasonable attorney fees, shall be assessed against him.

Section 6. DAMAGES AWARDED AGAINST OPERATORS FOR ENTRY WITHOUT FOLLOWING PROCEDURES OF ACT.--If an operator willfully and knowingly enters land for the purpose of commencing and drilling or maintaining a well before giving notice or reaching agreement pursuant to the provisions of the Surface Rights Act, the surface owner may bring an action in the district court and upon finding of liability based on clear and convincing evidence the court shall award the surface owner treble damages, court costs and reasonable attorney fees. Recovery of treble damages pursuant to this section is not a bar to any other action for damages due to an operator's subsequent act.