HB 22

Page 1

AN ACT

RELATING TO OIL AND GAS; PROVIDING FOR FINANCIAL ASSURANCE TO

PLUG OIL, GAS OR SERVICE WELLS.

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 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 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

HB 22

Page 2

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

HB 22

Page 3

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 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." HB 22

Page 4