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F I S C A L I M P A C T R E P O R T

SPONSOR

Foley

ORIGINAL DATE

LAST UPDATED

2/2/07

2/12/07 HB 569

SHORT TITLE

Oil and Gas Operator Civil Penalties

SB

ANALYST C.Sanchez

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Administrative Office of the Court (AOC)

District Courts (DC)

Energy Minerals and Natural Resources Department (EMNRD)

SUMMARY

Synopsis of Bill

House Bill 569 amends Section 7-2-31 NMSA 1978 to provide that in the case of a continuing

violation of the Oil and Gas Act, each day of violation constitutes a separate offense. The bill

provides further that a cumulative civil penalty against one person may exceed $1,000 only if the

penalty is levied by the district court for the county in which any defendant resides, in an action

brought by the Oil Conservation Commission or the Oil Conservation Division of the Energy,

Minerals and Natural Resources Department.

FISCAL IMPLICATIONS

According to Oil Conservation Division HB 569 would increase the costs of bringing

enforcement actions involving on-going violations, which are currently brought administratively

before OCD hearing examiners or the OCC (and then may be appealed to district court on the

administrative record). A civil lawsuit is more expensive because it requires travel to the district

court where the violator resides (typically in the northwestern or southeastern part of the state)

for motions and trial and formal discovery (including interrogatories and requests for production,

House Bill 569 – Page

2

and depositions). Because civil trials are more difficult and time-consuming than administrative

hearings, the bill would also increase the time spent in enforcement actions, taking time away

from other enforcement activities and the other duties of the OCD.

There will be a minimal administrative cost for statewide update, distribution and documentation

of statutory changes.

SIGNIFICANT ISSUES

Section A provides that a civil suit alleging violation of the Oil and Gas Act may be brought in

the district court of any county in which the violation occurred, in addition to in the district court

where any defendant resides.

According to OCC, HB 569 would have the most serious impact in the enforcement of

environmental statutes and rules, and the enforcement of OCD or OCC orders requiring or

prohibiting some action. For example, the OCD and OCC, rather than the Environment

Department, have jurisdiction over oil and gas operators in matters involving soil contamination

and most matters involving water contamination. OCC rules require operators to clean up

contaminated sites. Under HB 569, if an operator failed or refused to clean up a site, the OCD

and OCC would be able to impose only a $1,000 penalty administratively. To impose a larger

penalty based on the continued refusal to clean up the site would require a district court action.

Similarly, if the OCD or OCC issued an order requiring an operator to stop producing from a

well for which the operator had not obtained approval to drill, and the operator continued to

produce in violation of the order, the OCD or OCC would be able to impose only a $1,000

penalty administratively. Only the courts would have the power to assess a larger penalty based

on the continuing violation.

Replacing an administrative proceeding before OCD hearing examiners or OCC commissioners

with a civil trial in district court is time consuming, expensive, and fails to take advantage of

agency expertise and processes.

•

Increased costs and time: Lawyers and witnesses will need to travel to the district court

in which the violator resides for motion hearings and trial. Formal discovery will replace

the informal discovery used in administrative hearings, requiring interrogatories and

requests for production and depositions. Trials can take years; administrative

proceedings typically take several months from filing to order.

•

Increased procedural burden: Civil lawsuits require approval of the attorney general, so

the OCD and OCC will no longer control enforcement of the Oil and Gas Act and the

rules adopted pursuant to that act. Civil trials require strict adherence to the rules of civil

procedure and the rules of evidence, which are relaxed in administrative proceedings.

•

Loss of agency expertise: The Oil and Gas Act sets its own administrative process for

hearing cases in front of hearing examiners and commissioners, who are required by

statute and rule to have expertise in oil and gas matters. See NMSA 1978, Section 70-2-

5, and 19.15.14.1217 NMAC. HB 569 would take serious enforcement matters away

from examiners and commissioners knowledgeable in oil and gas matters and put them in

front of the district court.

House Bill 569 – Page

3

If it is impractical for the OCD and OCC to use penalties as an enforcement tool, it is more

likely that they will use easier but harsher enforcement tools. The Oil and Gas Act currently

provides,

“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."

NMSA 1978, Section 70-2-14(B). It will be easier and faster for the OCD and the OCC to order

an operator to plug its wells in an administrative action than to seek penalties in a civil lawsuit.

The OCD and the OCC need a workable enforcement tool short of requiring an operator to plug

its wells. The OCD suggests that rather than prohibit administrative assessment of cumulative

penalties, the legislature could place a reasonable cap on the administrative assessment of

cumulative penalties. See proposed amendment, below.

PERFORMANCE IMPLICATIONS

The courts are participating in performance-based budgeting. This bill may have an

impact on the measures of the district courts in the following areas:

•

Cases disposed of as a percent of cases filed

•

Percent change in case filings by case type

Actions resulting from violations of the Oil and Gas Act may be further spread

throughout the State’s district courts.

ADMINISTRATIVE IMPLICATIONS

With the Oil and Gas Act’s penalty limit of $1,000 per day (unchanged since 1935), the OCD

and OCC already labor under the most restrictive enforcement provisions of any comparable

state agency:

Act

Administrative

Assessment

Amount

Cite

Mining Act

Yes

Up to $10,000/day

§69-36-17

Water Quality Act

Yes

Up to $15,000/day

Up to $10,000/day

Up to $25,000/day

§74-6-10(C)(1)

§74-6-10(C)(2)

§74-6-10(F)(1)

Hazardous Waste Act

Yes

Up to $10,000/day

Up to $25,000/day

§74-4-10(B)

§74-4-10(C)(1))

House Bill 569 – Page

4

Oil and gas regulatory agencies in nearby states also may issue much larger administrative

assessments than OCD for continuing violations:

State

Administrative

Assessment

Amount

Cite

Texas

Yes

Up to $10,000/day

Tex.Res.Code

Ann.Tit.3 §81.0531

Wyoming

Yes

Up to $5,000/day

Wyo.Stat. §30-5119

TECHNICAL ISSUES

Under the existing statute, NMSA 1978, Section 70-2-31(D), a person who “knowingly and

willfully procures, counsels, aides and or abets the commission of any act" subject to civil or

criminal penalties will be subject to the same penalties as the person committing the act. The bill

amends the provision (now Section 70-2-31(E)) so that aiders and abettors are only subject to

penalties for single civil offenses (not on-going civil offenses), and any criminal offense.

ALTERNATIVES

Amend HB 569, new paragraph B at lines 14-23 on page 2 as follows:

B. For purposes of Subsection A of this section, in the case of a continuing violation, each day

of violation shall constitute a separate offense, except that a cumulative civil penalty against one

person may exceed one thousand dollars ($1,000)

five hundred thousand dollars ($500,000)

only

if the penalty is levied by the district court for the county in which the defendant resides, or in

which any defendant resides if there is more than one defendant, in an action brought by the

commission or the oil conservation division of the energy, minerals and natural resources

department.

Amend HB 569, new paragraph E at lines 5-9 on page 4 as follows:

E. Any person, who knowingly and willfully procures, counsels, aids or abets the commission of

any act described in Subsection A, B or C of this section shall be subject to the same penalties as

are prescribed [therein

] in those subsections

."

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

The OCD and OCC will enforce the Oil and Gas Act and rules adopted pursuant to that act under

the current penalty provisions.

POSSIBLE QUESTIONS

How will this bill benefit the citizens of New Mexico.

CS/mt