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New Mexico Agency to Study Bond Requirements for Oil, Gas and Mining Operations

New Mexico State Land Commissioner Stephanie Garcia Richard has announced her office will begin researching possible updates to bond requirements for oil, gas and mining operations on state trust lands.

State officials are concerned that bonding requirements, which have not been increased since the 1970s, are inadequate if a spill occurs, and taxpayers would have to pay restoration costs. With the production increase in the Permian Basin, officials believe there could be a corresponding increase in the number of abandoned wells.

According to the New Mexico Oil Conservation Division, the state currently has approximately 700 orphaned or abandoned wells, of which only 6% have been plugged. The current restoration program funded by a tax on oil and gas operators has a $5 million budget, which officials believe would be drained quickly given the number of wells needing attention. This fund could be depleted if a contamination event occurred. According to the State Land Office, the average cost of plugging a well is more than $28,000, and remediation costs depend on the extent of the spill.

In 2018, the state legislature passed SB 189, which authorizes the Oil Conservation Division to spend the oil and gas reclamation fund to plug dry and abandoned well sites and to restore and remediate associated production facilities. The legislation requires any group drilling or producing a well to provide an irrevocable letter of credit, a bond or a well-specific insurance policy. Blanket plugging financial assurance covering more than one well cannot exceed $250,000 and tiers have been set by the New Mexico Oil Conservation Commission.

Currently, a surety bond must be in place from initial permit to the plugging of the well, and it cannot be cancelled. The premium on the bond renews annually, and a new bond is required if the well transfers to new ownership. The bond is intended to cover the cost of plugging and remediation of the well, and the well must pass state inspection to insure proper plugging.

The State Lands’ study would also include a review of more than 10,000 miles of oil and natural gas pipelines because officials are worried about decommissioned pipelines in the state. Once the study is finalized, changes to increase bonding requirements would require a rule-making process, including public meetings and a comment period.

The New Mexico State Land Office manages millions of acres of land and mineral rights throughout the state. The agency monitors more than 30,000 active oil and gas leases, as well as rights of way for agriculture, mining, renewable energy projects, and oil and gas drilling.

Updates are available on the State Land Office website.

For more information on state government affairs, contact PESA Senior Director Government Affairs Kristin Hincke.