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, which shall be set by rule in an amount not to exceed two hundred fifty thousand dollars ($250,000), a blanket plugging financial assurance for temporarily abandoned status wells, which shall be set by rule at amounts greater than 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. The oil conservation division shall require a one-well financial assurance on any well that has been held in a temporarily abandoned status for more than two years or, at the election of the operator, may allow an operator to increase its blanket plugging financial assurance to cover wells held in temporarily abandoned status. 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 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. 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. All forfeitures shall be deposited in the state treasury in the oil and gas reclamation fund.
E. 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. 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 office of superintendent of insurance;
(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. 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.
History: 1953 Comp., § 65-3-11.2, enacted by Laws 1977, ch. 237, § 3; 1978, ch. 117, § 1; 1986, ch. 76, § 2; 2000, ch. 12, § 1; 2006, ch. 59, § 1; 2015, ch. 79, § 1; 2015, ch. 99, § 1; 2018, ch. 16, § 2.
ANNOTATIONSCross references. — For oil conservation division, see 70-2-5 NMSA 1978.
For oil and gas reclamation fund, see 70-2-37 NMSA 1978.
The 2018 amendment, effective May 16, 2018, increased the maximum amount of financial assurance the oil conservation division could require of oil and gas well operators; in Subsection A, after "plugging financial assurance", added "which shall be set by rule", and after "not to exceed", deleted "fifty thousand dollars ($50,000), except for" and added "two hundred fifty thousand dollars ($250,000)".
The 2015 amendment, effective April, 8, 2015, required operators to provide additional financial assurance for wells held in temporarily abandoned status, and provided that blanket plugging financial assurance for temporarily abandoned status wells shall be set by rule at amounts greater than fifty thousand dollars; in Subsection A, after "(50,000)", added "except for a blanket plugging financial assurance for temporarily abandoned status wells, which shall be set by rule at amounts greater than fifty thousand dollars ($50,000)", after "deems relevant.", deleted "In addition to the blanket plugging financial assurance", after "oil conservation division", changed "may" to "shall", and after "more than two years", added "or, at the election of the operator, may allow an operator to increase its blanket plugging financial assurance to cover wells held in temporarily abandoned status"; in Subsection F, Paragraph 1, after "approved by the", added "office of superintendent of", and after "insurance", deleted "division of the public regulation commission".
Laws 2015, ch. 79, § 1 and Laws 2015, ch. 99, § 1 enacted identical amendments to this section, both effective April 8, 2015. The section was set out as amended by Laws 2015, ch. 99, § 1. See 12-1-8 NMSA 1978.
The 2006 amendment, effective May 17, 2006, provided in Subsection A that a well-specific plugging insurance policy may be furnished; added Subsection F to provide the criteria for an acceptable well-specific plugging insurance policy; and added Subsection G and Paragraphs (1) through (3) of Subsection G to provide the criteria for an acceptable well-specific plugging insurance policy or financial assurance if a one-well financial assurance requirement is increased.
The 2000 amendment, effective May 17, 2000, changed the section heading which formerly read "Bonding requirement"; inserted "financial assurance in the form of an irrevocable letter of credit or" in the first sentence in Subsection A; and substituted "financial assurance" for references to "bonds" and deleted "and regulations" following "rules" throughout the section.
The 1986 amendment substituted "cash or surety bond" for "surety bond" in the first sentence and "bonds" for "surety bonds" in the second sentence of Subsection A; substituted "oil conservation division" for "division" in the first sentence of Subsection B; substituted "bond" for "surety bond" in the second sentence of Subsection B and near the beginning of the first sentence of Subsection E; inserted "of the oil conservation division" following "director" in Subsection C; and made minor stylistic changes throughout the section.
Am. Jur. 2d, A.L.R. and C.J.S. references. — 58 C.J.S. Mines and Minerals § 230.