House Bill text for HB0437

HOUSE BILL 437

47th legislature - STATE OF NEW MEXICO - second session, 2006

INTRODUCED BY

Andy Nuñez

AN ACT

RELATING TO THE PRODUCTION OF OIL AND GAS; ENACTING THE SURFACE OWNERS PROTECTION ACT; STATING CERTAIN DUTIES OWED BY OIL AND GAS OPERATORS TO SURFACE OWNERS; REQUIRING NOTICE TO THE SURFACE OWNER OF OIL AND GAS OPERATIONS; REQUIRING A BOND OR OTHER SURETY IN CERTAIN CIRCUMSTANCES; PROVIDING A CAUSE OF ACTION.

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

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

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

A. "oil and gas operations" means activities affecting the surface associated with exploration, drilling, production or gathering of oil or gas, and includes the transportation and disposal of produced water and other wastes associated with oil and gas exploration, drilling, production or gathering. "Oil and gas operations" includes the full range of development activity from exploration through plugging, abandonment and final reclamation of the affected surface;

B. "operator" means a person with the legal right to conduct oil and gas operations on the surface of a property and includes the agents, employees and contractors of that person;

C. "reclaim" means to restore the surface directly affected by oil and gas operations, as closely as reasonably practicable, to the condition that existed prior to oil and gas operations, or as otherwise agreed to in writing by the operator and surface owner;

D. "surface owner" means a person who holds legal or equitable title, as shown in the records of the county clerk, to the surface of the property on which oil and gas operations are to take place; and

E. "surface use and compensation agreement" means an agreement between the operator and surface owner specifying the rights and obligations of the surface owner and the operator concerning oil and gas operations.

Section 3. COMPENSATION AND LIABILITY FOR OIL AND GAS OPERATIONS.--

A. An operator shall compensate the surface owner for the use of the surface owner's property and any damages sustained by the surface owner or the tenant of the surface owner as a direct result of the operator's oil and gas operations, including:

(1) lost agricultural production and the lost income derived therefrom;

(2) diminished land value;

(3) lost use of and access to the land;

(4) lost or diminished value of improvements;

(5) harm to the watershed, aquifers or water supplies on or underneath the property; and

(6) the costs of reclamation if the operator fails to reclaim the surface properly, even though the cost of reclamation may exceed the fair market value of the damaged surface.

B. An operator has a duty to reclaim all surface directly affected by the operator‛s oil and gas operations.

C. The liability established or confirmed by this section is intended to compensate the surface owner for damages, including diminished value and loss of use. Any attempted reservation or assignment of the compensation from the surface estate, except to a tenant of the surface estate, is null and void.

D. In the absence of an agreement between the surface owner and a tenant of the surface estate regarding the division of compensation paid to satisfy the liability established or confirmed by this section, the tenant shall be entitled to recover from the surface owner only that portion of the compensation attributable to the tenant's share of the damages sustained.

Section 4. NOTICE OF OPERATIONS--PROPOSED SURFACE USE AND COMPENSATION AGREEMENT--OFFER TO NEGOTIATE.--

A. Prior to initial entry upon the land for activities that do not disturb the surface, including inspections, staking, surveys, measurements and general evaluation of proposed routes and sites for oil and gas operations, the operator shall provide at least five business days' notice by certified mail or hand delivery to the surface owner.

B. No less than forty days before first entering the surface of the land to conduct oil and gas operations, an operator shall, by certified mail or hand delivery, give the surface owner notice of the planned oil and gas operations. 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) the name, address, telephone number and, if available, facsimile number and electronic mail address of the operator and the operator‛s authorized representative;

(4) a proposed surface use and compensation agreement addressing, at a minimum, the following issues:

(a) placement, specifications, maintenance and design of well pads, gathering pipelines and roads to be constructed for oil and gas operations;

(b) points of entry upon the surface of the land for oil and gas operations and precautions to preserve the safety and security of the surface owner;

(d) use and impoundment of water on the surface of the land;

(e) removal and restoration of plant life;

(f) surface water drainage changes caused by oil and gas operations;

(g) erosion control and actions to limit and effectively control precipitation runoff and erosion;

(h) control and management of noise, weeds, dust, traffic, trespass, litter and interference with the surface owner's use and peaceful enjoyment of the surface owner's property;

(i) interim and final reclamation;

(j) best surface use practices and minimization of surface damage and impacts to the land, water, value and peaceful enjoyment of the property;

(k) operator responsibility and liability and indemnification for injury, harm and damages to the property or to the surface owner caused by the operator's contractors, agents, representatives or others acting on the operator's behalf;

(l) terms of ingress and egress; and

(m) an offer of compensation that the operator will pay to the surface owner for use of the surface and for damages to the surface resulting from the oil and gas operations conducted pursuant to the surface use and compensation agreement. The offer may be in the form of a lump-sum payment, periodic installments paid over the time that the oil and gas operations will take place or a formula that will determine the proposed method and extent of the compensation; and

(5) an offer to discuss and negotiate in good faith any changes to the proposed operations, the proposed surface use and compensation agreement or mitigation actions that the surface owner might request.

C. The notices required by this section shall be given to the surface owner of record at the address shown by the records of the county clerk at the time that the notice is given. If legal title and equitable title are not held by the same person, notice shall be given to both the holder of legal title and to the holder of equitable title at the addresses shown by the records of the county clerk at the time that the notice is given.

D. Upon receipt of the notice required by Subsection B of this section, the surface owner may:

(1) within twenty days of receiving the notice, accept the proposed surface use and compensation agreement, including the offer of compensation. Upon acceptance, the surface use and compensation agreement and the offer of compensation shall be construed to be a binding contract between the operator and the surface owner; or

(2) reject the offer of settlement and enter into negotiations with the operator, including, if the parties agree, binding arbitration or mediation.

Section 5. ENTRY WITHOUT AGREEMENT--BOND.--If, after forty days from a surface owner receiving notice pursuant to Subsection B of Section 4 of the Surface Owners Protection Act, no surface use and compensation agreement has been entered into, the operator may enter the surface owner's property and conduct oil and gas operations after posting a bond or other surety with the oil conservation division of the energy, minerals and natural resources department. Pursuant to rules of the oil conservation commission, the bond or surety shall be:

A. for the benefit of the surface owner;

B. in an amount equal to the greater of:

(1) the compensation, as estimated by the operator, that will be owed to the surface owner for the estimated damages caused by the oil and gas operations; or

(2) twenty-five thousand dollars ($25,000); and

C. in the form of cash, letter of credit, or such other form that will allow foreclosure in an action brought pursuant to Section 6 of the Surface Owners Protection Act without the necessity of first alleging default by the operator followed by a separate foreclosure action on the bond or surety.

Section 6. CAUSE OF ACTION--ENTRY WITHOUT A SURFACE USE AND COMPENSATION AGREEMENT--DAMAGES.--

A. A surface owner may bring an action pursuant to the provisions of this section against an operator who conducts oil and gas operations without a surface use and compensation agreement or outside the scope of an existing surface use and compensation agreement.

B. At the option of the surface owner, venue for an action brought pursuant to this section may be in the district court for the county of Santa Fe, the district court for the county in which the oil and gas operations occurred or the district court for the county in which the surface owner resides.

C. In an action brought pursuant to this section, damages and compensation due the surface owner shall be a question of fact, based upon the duty owed to the surface owner by the operator and any other relevant factors.

D. If, in an action brought pursuant to this section, the court awards compensation to the surface owner, the court may also award the surface owner attorney fees and punitive damages if the court finds that:

(1) the operator conducted oil and gas operations without providing notice as required by Subsection B of Section 4 of the Surface Owners Protection Act;

(2) the operator conducted oil and gas operations without a surface use and compensation agreement and without posting a bond or other surety as required by Section 5 of the Surface Owners Protection Act;

(3) in posting a bond or other surety pursuant to Section 5 of the Surface Owners Protection Act, the operator failed to exercise good faith in estimating the compensation that would be owed to the surface owner for damages; or

(4) the operator conducted oil and gas operations outside the scope of a surface use and compensation agreement and, when entering into the agreement, had reason to believe that oil and gas operations would be conducted outside the scope of the agreement.

E. If necessary, an award for compensation pursuant to this section may also include a court order to the oil conservation division of the energy, minerals and natural resources department to foreclose the bond or surety and transfer the proceeds from the foreclosure to the surface owner.

F. Damages awarded pursuant to this section shall not preclude the surface owner from collecting any additional damages caused by subsequent actions of the operator.

Section 7. STATUTE OF LIMITATIONS.--A surface owner entitled to bring an action pursuant to Section 6 of the Surface Owners Protection Act shall bring the action within six years after the damage has been discovered, or should have been discovered through due diligence, by the surface owner, provided that the limitation on bringing an action shall be tolled for a period of six months if a written demand for compensation for damages is timely submitted by the surface owner to the operator.

Section 8. CAUSE OF ACTION BASED ON SURFACE USE AND COMPENSATION AGREEMENT--VENUE.--A cause of action for breach of a surface use and compensation agreement shall be in the same manner as all other actions based on contract except that venue may, at the option of the plaintiff, lie in the district court for the county of Santa Fe.

Section 9. REMEDIES NOT EXCLUSIVE.--The remedies provided by the Surface Owners Protection Act are not exclusive and do not preclude a person from seeking other remedies allowed by law.

Section 10. INTERPRETATION OF ACT.--The Surface Owners Protection Act shall be interpreted to benefit surface owners regardless of whether the mineral estate was separate from the surface estate and regardless of who executed the document that gave the operator the right to conduct oil and gas operations on the surface.

Section 11. TEMPORARY PROVISION--APPLICABILITY.--The provisions of the Surface Owners Protection Act apply to all oil and gas operations commenced on or after July 1, 2006 except:

A. maintenance and ongoing production activities related to an oil or gas well producing or capable of producing oil or gas on June 30, 2006 for which the operator has a valid permit from the oil conservation division of the energy, minerals and natural resources department, provided that: (1) reentries, workovers and other oil and gas operations requiring a drilling rig or additional waste pits conducted on such a well are subject to that act if the activities disturb additional surface; and

(2) the duty to reclaim, as stated in Subsection B of Section 3 of that act, is applicable to such a well except that, for activities related to the duty to reclaim, no notice, surface use and compensation agreement or bond or other surety is required; and

B. oil and gas operations conducted within the scope of an agreement, entered into prior to July 1, 2006, between a surface owner and an operator that sets forth the rights and obligations of the parties in respect to surface activities conducted by the operator.

Section 12. EFFECTIVE DATE.--The effective date of the provisions of this act is July 1, 2006.

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