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As the New Mexico Legislature鈥檚 one-month session begins this week, legislators will see a half-dozen bills that could spell big changes for the oil and gas industry through new well placement restrictions, increased fines and higher royalty payments, among other possible shifts. These proposed changes are some of a slate of transformative oil and gas bills peppering the docket, following last year鈥檚 general of bills aimed at reforming the fossil fuel business.
The state is the country鈥檚 second-largest oil producer and a top-10 natural gas producer as well. So despite New Mexico鈥檚 small population, state policy changes have an outsized effect on the nation鈥檚 fossil fuel industry. And since Gov. Michelle Lujan Grisham came to office in 2019 with a drive to reduce the state鈥檚 carbon emissions, New Mexico has enacted some of the toughest oil and gas production regulations in the country, but those have curbed neither nor greenhouse gas emissions related to that production.
This year鈥檚 legislation comes at the industry from all angles. A trio of bills sponsored by Rep. Debra Sari帽ana would dramatically in oil and gas operations and require detailed reports on how water is used; for spills of chemicals, oil and so-called produced water that comes up alongside oil and gas; and create that bar new oil and gas operations of any kind within a mile of any school facility, and require that all existing operations within those zones end by 2028. That last issue in particular gets Sari帽ana fired up. 鈥淜ids shouldn鈥檛 go to school and get sick,鈥� she says.
In recent years, have that living near oil and gas wells increases a person鈥檚 exposure to air pollution and thereby increases the likelihood of illness. Across the state, towns in the middle of oilfields have schools next to fossil fuel sites. Jefferson Elementary School in Hobbs sits on the western edge of town and in the middle of the country鈥檚 most productive oilfield, the Permian Basin. The school is surrounded by 124 active oil and injection wells within a one-mile radius.
鈥淏y now [industry] should 鈥� know better than to put gas and oil wells right by schools because of the effect they鈥檙e going to have,鈥� Sari帽ana says. 鈥淭hey know about this 鈥� they鈥檝e known about it for years.鈥�
The New Mexico Oil and Gas Association, the state鈥檚 largest industry organization, says it鈥檚 keeping an eye on Sari帽ana鈥檚 trio of bills. 鈥淭he safety and well-being of our communities and schools in New Mexico is paramount, particularly in the areas where the oil and gas industry operates,鈥� Frederick Bermudez, the new vice president of communications, writes in an email. 鈥淣MOGA and its industry members support legislation that is grounded in science,鈥� he writes, then notes that oil and gas funds much of the state鈥檚 budget.
Two of Sari帽ana鈥檚 three bills, in different forms and to different extents, are mirrored in the spearheaded by Gov. Lujan Grisham鈥檚 office and shepherded by the Oil Conservation Division, the state鈥檚 primary industry regulator. The division brought together dozens of representatives from industry and conservation groups to hammer out a bill that updates a law that hasn鈥檛 received a full review in decades. The division鈥檚 press officer has called the current law 鈥�.鈥�
The bill鈥檚 sponsor, Rep. Kristina Ortez, says it reflects compromises from both sides. 鈥淚t doesn鈥檛 make anybody very happy, to be quite honest 鈥� But I think it makes sense for where we are right now,鈥� she says. 鈥淚t鈥檚 targeted. And it鈥檚 reasonable. And it鈥檚 common sense.鈥�
Tannis Fox, a senior attorney with the Western Environmental Law Center, helped craft a previous attempt at Oil and Gas Act reform that was shot down in last year鈥檚 legislative session. She was part of the working group on this year鈥檚 bill and says it has 鈥渟ignificant and important reforms to the Oil and Gas Act that we like,鈥� but that her group has not yet gone through all of the wording in the final bill and can鈥檛 yet say if it will support the proposed legislation.
The includes measures to:
- Lock the state鈥檚 98% gas capture target into law, thereby reducing climate-damaging methane leaks.
- Implement varying setbacks for new wells from homes, schools, hospitals and parks.
- Increase blanket bonding fees to $10 million to protect the state from getting stuck with the clean-up costs of abandoned wells.
- Triple permitting fees and create automatic annual increases tied to the Consumer Price Index.
- Increase civil penalty limits for rules violations from $2,500 to $10,000 per day and penalty limits for major violations from $10,000 to $25,000 per day.
- Tighten transfer rules so financially unstable or historically bad actors can鈥檛 buy wells.
Fox, who was previously deputy general counsel for the state Environment Department and assistant attorney general with the New Mexico Attorney General鈥檚 Office, says the setback provisions were 鈥渢he most complicated, the most controversial and the hardest to reach some kind of common ground on.鈥� In addition, she says, 鈥淭hose are provisions that I don鈥檛 think anybody鈥檚 going to be 鈥� 100% happy with.鈥� But 鈥渢hat is the nature of legislation.鈥�
鈥淭he setbacks, while probably not perfect, are several thousand percent better 鈥� than what we have now, which is nothing,鈥� Ortez says.
Asked about the legislation, Bermudez writes, 鈥淣MOGA will continue to follow the progress of bills related to the industry and stands ready to inform, partner and address concerns with state legislators.鈥�
Ortez says, 鈥淭here have been numerous efforts to reform the oil and gas industry [in the past] that have failed really, really hard.鈥�
But, she says, 鈥淗ope springs eternal.鈥�
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Not all bills that would affect the industry focus on oilfield regulations. A bill from Rep. Matthew McQueen would on oil and gas produced on state trust lands from 20% to 25%. 鈥淭hat鈥檚 all it is,鈥� McQueen says of the legislation, which consists of a few dozen word changes in the existing law. 鈥淸Twenty-five percent] is what private landowners are getting, and this is what they charge on Texas public lands. And we should just be competitive with those rates.鈥�
In addition, state land royalties generally pay for education needs, and, he says, 鈥淲e shouldn鈥檛 be leaving money on the table.鈥�
Speaking of money, the most consequential bill related to oil and gas production is, arguably, the annual state budget itself, for two reasons. First, nearly 40% of this year鈥檚 general fund budget comes from oil and gas revenues, and that doesn鈥檛 include oil and gas money added to various permanent funds. And second, the budget is where policy turns into action as the state decides how to fund enforcement of new rules that govern the industry. Much of that enforcement relies on companies self-reporting when their operations pollute.
Since 2021, oil and gas have provided record-busting revenues for New Mexico, and this year is no exception. Over the same period, the state passed nation-leading legislation to control and clean up oil and gas operations. But that has not translated into similar funding increases for either the Oil Conservation Division or the Environment Department to enforce those rules.
Each year, the New Mexico Legislature debates competing budget proposals 鈥� one from the governor鈥檚 office called the Executive Recommendation that represents what state agencies think they need, and one from the Legislative Finance Committee that represents what the committee thinks those agencies should get. They rarely match. The governor鈥檚 total budget proposal reflects a 9.9% spending increase, and the Finance Committee offers a 5.9% increase 鈥� almost all of that from oil and gas revenues. The governor鈥檚 plan offers the Oil Conservation Division a 3.6% increase over last year, while the Legislative Finance Committee proposal offers 3.9%, both just slightly above the annual inflation rate of 3.4%. At the Environment Department, an executive request for $6 million to bump employee pay to keep people from quitting 鈥� including enforcement and legal positions 鈥� was nixed in the Legislative Finance Committee proposal.
鈥淚 don鈥檛 think we鈥檙e giving enough money to either agency,鈥� Rep. Sari帽ana says. 鈥淲e don鈥檛 have enough people to do the job.鈥� And she says, 鈥淭hat鈥檚 on us, the Legislature.鈥�
At a House Appropriations and Finance Committee meeting last Friday evening where department heads defended their requests in the governor鈥檚 recommendations, Dylan Fuge, acting director of the Energy, Minerals and Natural Resources Department (the mothership to the Oil Conservation Division), and James Kenney, cabinet secretary of the Environment Department, both asked legislators to rethink their lowball offers.
In response to questions from Rep. Sari帽ana, Kenney said his division didn鈥檛 have enough people to follow up on the oilfield pollution data his agency receives from multiple sources. 鈥淭he data tells us there are more emissions happening than are being reported [by producers],鈥� he said.
鈥淚s that a hint that you need more money?鈥� Sari帽ana asked.
鈥淥ur Executive Recommendation is more than a hint, yes.鈥� Kenney said.
