HOUSE ENERGY AND NATURAL RESOURCES COMMITTEE SUBSTITUTE FOR
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 AN OPPORTUNITY FOR WELLS WITH FINANCIAL ASSURANCE TO BE PLACED IN INACTIVE STATUS OR TEMPORARY ABANDONMENT STATUS.
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. 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 the operator of a well has financial assurance for that well as set forth in Subsection A of this section, the operator of a well shall have an opportunity to place the well in inactive status or temporary abandonment status. By December 31, 2011, the oil conservation division shall promulgate and adopt new rules dealing with the inactive status and temporary abandonment status of a well and new rules dealing with enforcement and compliance. The new rules shall be developed and adopted in accordance with a schedule approved by the secretary of energy, minerals and natural resources, and the schedule shall incorporate an opportunity for public input and stakeholder negotiations. In adopting the new rules, the oil conservation division shall consider whether the new rules:
(1) adequately address the time period for which a well is granted approved temporary abandonment status so as to provide an operator with a sufficient amount of time to manage its portfolio of wells;
(2) prevent a well with future beneficial use from being prematurely plugged and abandoned;
(3) require that a well is mechanically and physically sound so as to provide a satisfactory level of environmental protection that considers the individual characteristics of the well, including location, age, well design, current condition and repair history;
(4) allow for variations based on the size of the operator; and
(5) are based on the best available scientific information.
[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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