By Scott Wyland, The Santa Fe New Mexican

A bill that would make the most significant changes in decades to a nearly 90-year-old state fossil fuel law stirred a lengthy and heated discussion among lawmakers about increasing regulation on an industry that generates roughly 40% of New Mexico’s tax revenue. 

The House Energy, Environment and Natural Resources Committee voted 6-5 Thursday, mostly along party lines, to advance a bill that has drawn staunch opposition from the industry and its advocates, who say it’s a regulatory attack that will drive smaller operators from the state or out of business. 

It would eliminate the cap on penalties imposed on rule breakers and increase the maximum bonding amounts that drillers pay upfront as insurance to $10 million from the current $250,000. 

It also would codify the state’s waste rule requiring companies to capture 98% of their methane by 2026. 

Many conservationists also were unhappy about this version of the bill passing. An earlier version would have required oil wells to be set back at least 2,250 feet from homes, schools, businesses and institutions. It also called for wells to be distanced up to 660 feet from water bodies. 

“I think it’s fair to say no one is happy,” committee Chairman Rep. Matthew McQueen, D-Galisteo, said at the start of the hearing. 

The bill will head to the House Judiciary Committee. If it passes there, it will go to the House floor, where a majority vote will be required to move it to the Senate. 

A key part of the bill is to increase coverage of wells that could end up abandoned and eventually become “orphaned” — a term used to describe defunct wells a company can’t afford to plug and clean up because it’s gone bankrupt or out of business.

The state is responsible for plugging orphaned wells on state and private lands and partners with the federal Bureau of Land Management to clean up wells on federal lands. 

At last count, New Mexico had just shy of 2,000 orphaned wells, and is guaranteed to have hundreds, or even thousands more in the future, which is why bonding must be beefed up so industry pays the cleanup costs instead of the state, Dylan Fuge, the state Oil Conservation Division’s acting director, told the committee.  

Blanket bonding is especially low, with operators paying $250,000 to cover 100-plus wells, a fraction of potential cleanup costs, Fuge said. That’s why his agency proposes raising the ceiling to $10 million.

The bill also would give the division more authority to intervene on oilfield transfers, particularly sites that large companies sell to smaller operators, Fuge said.

A small outfit often acquires the sites when the production has waned, making them less profitable and cheaper, but these operations also are the most likely to become insolvent and leave behind orphaned wells, Fuge said, so it’s important to ensure the buyer is financially solid. 

Another change that’s vital is removing the cap on penalties imposed on bad actors, Fuge said, noting no other state regulatory agencies have limits on their fines. 

Environmentalists who testified said the bill was a good step in modernizing an antiquated fossil fuel law that is too lax, but nearly all complained it was stripped of any protections for front-line communities and the state’s waters, which a warming climate is already depleting. 

Oil wells should be set back at least a mile from schools to protect the estimated 32,000 New Mexico children who now are exposed to toxic air pollution while in the classroom, said Ennedith López, campaign manager for Youth United for Climate Crisis Action or YUCCA. 

There should be mandatory fines for toxic spills, López said. And a provision should be added to ban the use of freshwater for hydraulic fracturing, or fracking, in New Mexico, she said. 

“Since New Mexico is on the front line of the climate crisis, we must protect our sparse water resources,” López said. “The industry is responsible for using 11 to 14 million gallons of water daily for its operations.” 

Industry advocates argued the bill would disproportionately impact smaller operators, who can’t absorb the added costs it would bring. Several business owners said they would either go under or would have to move to a neighboring state. 

“Oil and Gas Act under consideration would decimate my company,” said Jerry McHugh Jr., owner of San Juan Resources, which operates 40 wells. “I could not afford to stay in business. It’s a matter of too little capital to meet these stratospheric requirements.” 

A few large companies, including Occidental Petroleum and EOG Resources, expressed support for the bill. 

Patrick Padilla, director of EOG’s regulatory affairs, said making it a law for operators to capture 98% of their methane would allow the industry to show the strides it has made in using more efficient technology. 

“I realize I am an outlier representing a big oil company that is here to support the bill,” Padilla said. 

Rep. Jared Hembree, R-Roswell, who voted against the bill, said he’s not surprised some large oil companies back it. 

Jacking up bonding rates and removing limits on how much the state can fine a company will throw many small operators into financial distress, enabling big companies to prey on them and buy their wells for “pennies on the dollar,” Hembree said. 

It also gives the state too much authority to make arbitrary decisions on fees and penalties, Hembree said, adding “the unintended consequences concern me.”

But McQueen said now is the time to put safeguards in place when the state is enjoying record oil production, because when a downturn happens, the number or orphaned wells will sharply rise. 

“We appreciate the contributions of the oil and gas industry, but it doesn’t mean they should have carte blanche to do what they want,” McQueen said.