Oil and Gas Regulatory Bills Still Alive in New Mexico Legislature

As the 2024 New Mexico Legislature sprints into the second half of its one-month session, four bills that directly affect the oil and gas industry hang in the balance. Those bills deal with royalty rates, a new fund for the state’s Oil Conservation Division, a revamp of the state’s key oil and gas law, and funding for the enforcement agencies in the coming year. 

Many more bills this session address the effects of the fossil fuel industry. They represent millions of dollars the state will spend this year and into the future to remediate the ever-increasing damage wrought by climate change. 

Legislators are debating these things after the planet baked through the warmest year in 125,000 years. New Mexico had its seventh-warmest year on record, with precipitation totals that were 30%-50% below normal across most of the state. So far this year, 91% of the state is in drought. This climate lurch comes from fossil fuels — by burning them and through leaks of climate-damaging gasses in their production chains. New Mexico produces more oil than any other state except Texas and is a top-10 natural gas producer. Oil and gas production is by far the state’s biggest industry and its taxes fund more than 40% of the state budget, complicating legislative debate.

Geothermal tax credits, water infrastructure, wildfire legal funds, clean transportation fuels, electric cars and buses, solar tax credits, cloud seeding — bills addressing these subjects and more this session are responses to the unfolding climate disaster, and some could lead to emissions reductions in the future. So far just four bills directly affect the oil and gas industry, and only two — HB133 and HB2 — would take immediate aim at reducing climate-changing emissions from those companies, the state’s largest carbon-emitting sector.

HB133

HB133, Oil & Gas Act Changes, proposes a wide-ranging set of updates to the state’s bedrock Oil & Gas Act, which regulates everything involved in getting oil and gas out of the ground to cleaning up afterward. Conservation and industry groups have hotly contested what it should cover, and the latest version is far slimmer than initially envisioned. 

Dylan Fuge, acting director of the Energy Minerals and Natural Resources Department, has led the process since September, when Gov. Michelle Lujan Grisham gathered industry and conservation groups together to collaborate on the bill. The two groups have fought ever since over what should be in it and to what extent. The earliest proposal covered four main topics: restricting freshwater use by industry; setbacks from homes, schools and other sensitive areas for new wells; increases in fines and fees; and codification of the state’s 98% methane capture rule, which targets leaks in the production process.

Only the last two topics remain, but Fuge said, “The bill nevertheless represents important progress towards updating the act.” And those two remaining areas “give OCD significant additional tools to manage the industry.”

Tannis Fox, senior attorney with the Western Environmental Law Center, also has worked on the bill since September. Despite months of negotiations and compromises, “HB 133 has gone through two rounds of changes to respond to industry concerns,” she said, “but much of industry still is not satisfied and opposes the bill.”

A main argument is over increased bond requirements for producers. Companies must buy insurance bonds that pay the state in the event that a company goes bankrupt. The bonds cover plugging and land remediation costs of the abandoned wells. HB133 would increase those bond requirements to reflect the ever-increasing cost of plugging abandoned wells — currently around $125,000 for plugging. Land remediation costs can run into the millions.

According to Fuge, there are already about 2,000 abandoned wells in New Mexico, with an estimated plugging and remediation cost approaching $500 million, and the state has just $162 million set aside for those expenses. A growing worry is that more companies will go bankrupt when the oil and gas industry goes through its inevitable next bust, and as Rep. Matthew McQueen said, “If [a company] can’t afford this assurance now, they won’t survive the downturn,” leaving the state with even more abandoned wells. 

At a painfully late hearing in the House Judiciary Committee that ran past 11 p.m. Wednesday, both industry representatives and some environmental groups attacked the bill either for constraining industry too much or not enough. 

“Our side has negotiated in good faith, made compromises,” Fox said, though, “industry has not been willing to make commensurate compromises.” Even so, she said that her group still supports what remains of the legislation because it “moves the needle in the right direction.”

HB2

That committee debate on HB133 was delayed five hours as the full House had to sit through  filibusters over another major oil and gas-related bill, HB2, the General Appropriation Act of 2024 — the state’s budget for the upcoming fiscal year. Democrats hold an overwhelming majority in the chamber, and Republicans often drag out discussion on legislation they can’t defeat. After running out the clock this way, the House can’t hear every bill on the day’s schedule and by the end of the session, the House and Senate floor schedules are filled with bills that passed committees but didn’t get a hearing in either chamber. 

The Appropriation Act funds everything in the state, including the two oil and gas enforcement agencies, the Oil Conservation Division and the New Mexico Environment Department. Historically, the two agencies have not been funded to the point that they can effectively carry out the job of policing the industry that emits more than half of the state’s greenhouse gasses. 

Gov. Lujan Grisham and others in state government often tout New Mexico’s strict methane capture rules, implemented in the past three years, but they don’t tend to mention that the Legislature hasn’t commensurately increased funding to enforce those rules. 

Speaking in support of HB2 on the floor, Rep. Tara Lujan said, “We are significantly increasing funding for state agencies to better enforce existing rules and regulations and carry out their missions,” and “These investments in our state agencies and personnel will help us meet our carbon reduction goals.”

However, the bill as written doesn’t quite do that. 

HB2 offers a 4.8% increase to the Oil Conservation Division, less than the group had asked for and less than the 6.5% increase in the general budget overall — an increase derived from yet another year of highly profitable oil and gas production.

Fuge, who as head of the Energy, Minerals and Natural Resources Department is also head of Oil Conservation Division, said the bill “provides additional resources to the OCD” but it does not match what the division had asked for. Still he called it “a strong investment in OCD” and said, “Budget discussions are ongoing.”

Matt Maez, communications director at the Environment Department, said, “We are being underfunded by $4 million in the current version of HB2.” He said the department will be asking to raise fees in the next two months to address “horrendous violations” and fund the increased monitoring and enforcement that will be required if the EPA declares parts of the state — mainly its oil- and gas-producing regions — in violation of the Clean Air Act, as expected.

“The [oil and gas] industry is 65,000 wells strong,” said Environment Department Secretary James Kenney. “And we’re… around 10 positions for those technical field staff and legal counsel.”

Kenney said the unaddressed violations compromise the department’s integrity. “It is our obligation to assure that the system has integrity. And that’s what compliance and enforcement does.” He said, “It’s not the integrity of the employee or the department that’s in question. In my mind, it’s the integrity of the industry, and those who fund us to do our job.”

The House approved HB2 on Wednesday, and the legislation awaits debate in the Senate.

Additional Bills to Watch

HB48 is the simplest bill of the four directly affecting industry. It would raise royalty rates from new wells on state lands from 20% to 25%. It would not affect current wells or those not on state lands. Industry and industry-supporting politicians have railed against the bill as a tax that will drive companies out of New Mexico, despite the facts that this would apply to just a subset of new wells in the state, it mirrors the state royalty rate across the border in Texas, and New Mexico’s strict, 3-year-old methane rules have not kept fossil fuel production from skyrocketing in that time. 

As of Sunday, the bill hadn’t had a floor hearing despite being on the House schedule for days. “It’s my opinion we waste a tremendous amount of time [in Legislative sessions],” said Rep. Matthew McQueen, one of the bill’s co-sponsors. While some of that stems from having an unpaid legislature that works only 30 or 60 days a year, “some if it’s intentional — people just drawing out committee hearings and floor debates,” he said.

A late entrant announced Thursday afternoon by the New Mexico Oil and Gas Association – the state’s main industry trade group — is SB249, which creates a state reclamation fund that would receive $5 million a month from state oil and gas taxes, as well as collect federal money. It would be used by the Oil Conservation Division to enforce the Oil & Gas Act. At the end of each year, any unspent state money would revert to New Mexico’s general fund. The bipartisan bill’s two Democratic sponsors are the powerful heads of the Senate judiciary and finance committees, and its first hearing is Tuesday.

Smokey Bear

HB251 offers relief of a different sort. The bill would revamp the state’s vanity plate program and offer a new plate commemorating one of the state’s most famous sons: Smokey Bear. He was found badly burned in the ashes of a fire in New Mexico’s Lincoln National Forest in 1950 and for decades was the image of the Forest Service’s “Only You Can Prevent Forest Fires” campaign. The message still resonates in a state grappling with the aftermath of recent climate change-stoked forest fires. Funds raised by the new plates would go to Fuge’s Energy, Minerals and Natural Resources Department for forest fire prevention — making it, indirectly, another bill addressing the effects of fossil-fuel-driven climate change.

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