HOUSE BUSINESS AND INDUSTRY COMMITTEE SUBSTITUTE FOR
HOUSE BILL 297
50th legislature - STATE OF NEW MEXICO - first session, 2011
AN ACT
RELATING TO NATURAL RESOURCES; PROVIDING REQUIREMENTS FOR APPROVED INACTIVE STATUS OF 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 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 or in inactive status for more than one year. 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. An operator of a well may place that well in approved inactive status pursuant to this subsection for a maximum period of four years; provided that the operator has financial assurance as set forth in Subsection A of this section. The operator may place the well in approved inactive status by submitting a written notice of intent within one year of the well becoming inactive. The notice of intent shall include a certification by the operator that the well has future beneficial use and a certification by a professional engineer that the wellbore has mechanical integrity sufficient to ensure environmental protection throughout the inactive period. The notice of intent shall also include an explanation of how the mechanical integrity of the wellbore was determined, the wellbore test results and all raw data. If the oil conservation division determines that the information in the notice of intent is insufficient to allow the well to remain in approved inactive status or that the well has no beneficial use or lacks mechanical integrity, then the oil conservation division shall challenge the approved inactive status of the well, set forth its findings in writing and provide the operator sixty days to cure the deficiencies in information or rebut the division's findings. If the operator fails to timely correct the deficiencies or rebut the division's findings to the division's satisfaction, then the operator shall return the well to beneficial use, temporarily abandon the well or permanently plug and abandon the well. The oil conservation division shall consider the well to be in approved inactive status and in compliance until the end of the four-year period or until such time as the division challenges the approved inactive status and issues a final order requiring the operator to return the well to beneficial use, temporarily abandon the well or permanently plug and abandon the well, whichever comes first.
[B.] C. 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.] D. 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 general, who shall collect the forfeiture without delay.
[D.] E. All forfeitures shall be deposited in the state treasury in the oil and gas reclamation fund.
[E.] F. 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.] G. 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.] H. 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."
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