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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 FOR THE

AWARD OF TREBLE DAMAGES IN CERTAIN CIRCUMSTANCES.

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. APPLICABILITY.--The Surface Owners

Protection Act applies to:

A. private fee surface land; and

B. leasehold interests in any land on which oil

and gas operations are conducted when the tenant incurs

damages to leasehold improvements as a result of oil and gas

operations.

Section 3. DEFINITIONS.--As used in the Surface Owners

Protection Act:

A. "oil and gas operations" means all activities

affecting the surface owner's land that are associated with

exploration, drilling or production of oil or gas, through

final reclamation of the affected surface;

B. "operator" means a person with the legal right

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to conduct oil and gas operations and includes the agents,

employees and contractors of that person;

C. "reclaim" means to substantially restore the

surface affected by oil and gas operations 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 real property on which the

operator has the legal right to conduct oil and gas

operations;

E. "surface use and compensation agreement" means

an agreement between an operator and a surface owner

specifying the rights and obligations of the surface owner and

the operator concerning oil and gas operations; and

F. "tenant" means a person who occupies land or

premises belonging to another in subordination to the owner's

title and with the owner's assent, express or implied.

Section 4. COMPENSATION FOR OIL AND GAS OPERATIONS.--

A. An operator shall compensate the surface owner

for damages sustained by the surface owner, as applicable, for

loss of agricultural production and income, lost land value,

lost use of and lost access to the surface owner's land and

lost value of improvements caused by oil and gas operations.

The payments contemplated by this section only cover land

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affected by oil and gas operations.

B. An operator shall not be responsible for

allocating compensation between the surface owner and any

tenant, except that an operator shall compensate a tenant of

the surface owner for any leasehold improvements damaged as a

result of the operator's oil and gas operations if the

improvements are approved and authorized by the surface owner.

The compensation shall equal the cost of repairing or

replacing the improvements.

C. An operator shall reclaim all the surface

affected by the operator's oil and gas operations.

Section 5. NOTICE OF OPERATIONS--PROPOSED SURFACE USE

AND COMPENSATION AGREEMENT.--

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 thirty 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:

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(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

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s authorized representative; and

(4) a proposed surface use and compensation

agreement addressing, at a minimum and to the extent known,

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) terms of ingress and egress upon

the surface of the land for oil and gas operations;

(c) construction, maintenance and

placement of all pits and equipment used or planned for oil

and gas operations;

(d) use and impoundment of water on the

surface of the land;

(e) removal and restoration of plant

life;

(f) surface water drainage changes;

(g) actions to limit and effectively

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control precipitation runoff and erosion;

(h) control and management of noise,

weeds, dust, traffic, trespass, litter and interference with

the surface owner's use;

(i) interim and final reclamation;

(j) actions to minimize surface damages

to the property;

(k) operator indemnification for injury

to persons caused by the operator; and

(l) an offer of compensation for

damages to the surface affected by oil and gas operations.

C. The notices required by this section shall be

given to the surface owner at the address shown by the records

of the county clerk at the time 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 the notice is given.

D. Upon receipt of the notice required by

Subsection B of this section, the surface owner may:

(1) accept the proposed surface use and

compensation agreement within twenty days; or

(2) reject the proposed surface use and

compensation agreement; provided that, failure to accept the

proposed agreement within twenty days shall be deemed to be a

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rejection by the surface owner. If the proposed agreement is

rejected, the surface owner may enter into negotiations with

the operator, including, if the parties agree, binding

arbitration or mediation.

E. Notices required by the Surface Owners

Protection Act shall be deemed to have been received five days

after mailing by certified mail or immediately upon hand

delivery.

F. The operator and the surface owner may enter

into a mutually acceptable agreement that sets forth the

rights and obligations of the parties with respect to the

surface activities conducted by the operator.

Section 6. ENTRY WITHOUT AGREEMENT--BOND.--If, after

thirty 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:

A. after depositing a surety bond, letter of

credit from a banking institution, cash or a certificate of

deposit with a New Mexico surety company or financial

institution for the benefit of the surface owner in the amount

of ten thousand dollars ($10,000) per well location. The

surety bond, letter of credit, cash or certificate of deposit

shall only be released by the surety company or financial

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institution if:

(1) the surface owner provides notice that

compensation for damages has been paid;

(2) the surface owner and the operator have

executed a surface use and compensation agreement or otherwise

agreed that the security should be released;

(3) there has been a final resolution of the

judicial appeal in any action for damages and any awarded

damages have been paid; or

(4) all wells have been plugged and

abandoned and the operator has not conducted oil and gas

operations on the surface owner's property for a period of six

years; or

B. after posting a blanket surety bond, letter of

credit from a banking institution, cash or a certificate of

deposit with a New Mexico surety company or financial

institution in the sum of twenty-five thousand dollars

($25,000) subject to the following criteria:

(1) the surety company or financial

institution shall hold the corporate surety bond, letter of

credit, cash or certificate of deposit for the benefit of the

surface owners of this state and shall ensure that such

security is in a form readily payable to a surface owner

awarded damages in an action brought pursuant to the Surface

Owners Protection Act;

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(2) the bond, letter of credit, cash or

certificate of deposit shall remain in full force and effect

as long as the operator continues oil and gas operations in

New Mexico;

(3) the bond, letter of credit, cash or

certificate of deposit shall not be released until six years

after the operator has deposited with the surety company or

financial institution a certified statement from the oil

conservation division of the energy, minerals and natural

resources department that, according to the records of the

division, the operator is not the operator of record of any

well in New Mexico and does not hold any outstanding drilling

permits in New Mexico; and

(4) in the event that, pursuant to a

judgment, all or a portion of the bond, letter of credit, cash

or certificate of deposit has been used to pay a surface

owner, the operator shall immediately post additional security

so that the total amount posted equals twenty-five thousand

dollars ($25,000) and, if the operator does not post the

additional security, the surety or financial institution shall

publish notice to that effect in a paper of general

circulation in each county of the state in which oil or gas is

produced.

Section 7. DAMAGES.--In an action brought pursuant to

the Surface Owners Protection Act, if the court finds that

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compensation is owed under Section 3 of the Surface Owners

Protection Act, the court may also award the prevailing party:

A. attorney fees and costs if:

(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 before depositing a bond or other surety as required by

Section 5 of the Surface Owners Protection Act;

(3) the operator conducted oil and gas

operations outside the scope of a surface use and compensation

agreement and, when entering into the agreement, knew or

should have known that oil and gas operations would be

conducted outside the scope of the agreement; or

(4) the surface owner failed to exercise

good faith in complying with the provisions of the Surface

Owners Protection Act or the terms of a surface use and

compensation agreement; or

B. attorney fees, costs and treble damages if the

court finds, by clear and convincing evidence, that:

(1) the operator willfully and knowingly

entered upon the premises for the purpose of commencing the

drilling of a well:

(a) without giving notice of the entry

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as required by Subsection B of Section 4 of the Surface Owners

Protection Act; or

(b) without a surface use and

compensation agreement with the surface owner and before

depositing a bond or other surety pursuant to Section 5 of the

Surface Owners Protection Act; or

(2) either the surface owner or the operator

willfully and knowingly violated the surface use and

compensation agreement.

Section 8. 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 9. EMERGENCY SITUATIONS.--Notwithstanding any

provisions of the Surface Owners Protection Act to the

contrary, no notice, surface use and compensation agreement or

bond shall be required in emergency situations for activities

to protect health, safety or the environment.

Section 10. TEMPORARY PROVISION--APPLICABILITY.--The

provisions of the Surface Owners Protection Act apply to all

oil and gas operations commenced on or after July 1, 2007

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, 2007 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 or

gas operations are subject to that act if the activities

disturb additional surface; and

(2) the duty to reclaim, as stated in

Subsection C of Section 3 of that act, is applicable to such a

well that is not plugged and abandoned on July 1, 2007; and

B. oil and gas operations conducted within the

scope of an agreement, entered into prior to July 1, 2007,

between a surface owner and an operator that sets forth the

rights and obligations of the parties with respect to surface

activities conducted by the operator.

Section 11. EFFECTIVE DATE.--The effective date of the

provisions of this act is July 1, 2007.

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