Bid to overhaul New Mexico oil and gas regulations clears first hurdle amid litigation

SANTA FE, N.M. — An effort to modernize state oversight of a thriving petroleum industry in the nation's No. 2 state for oil production advanced past its first committee vetting Thursday at the New Mexico Legislature.

The bill would rewrite portions of the state's 1930s-era Oil and Gas Act in order to help regulators keep pace with the industry's meteoric growth in recent years — as well as increasingly assertive calls to hold the sector accountable for air pollution, spills and the costly cleanup of equipment and abandoned wells.

It advanced on 6-5 vote of the lead House committee on natural resources, over the objections of small and moderate sized oil producers but with the public endorsements of industry heavyweights Occidental Petroleum and EOG Resources.

The initiative would increase financial assurances for well plugging and cleanups, while ratcheting up administrative fees and penalties for regulatory violations. The bill also would give regulators greater authority over applications to transfer ownership of wells that often change hands when oil and natural gas output declines.

Bill cosponsor Rep. Matthew McQueen of Galisteo urged colleagues to rally behind the bill, warning that a downturn in the industry could saddle the state with immense liabilities for orphaned wells.

“If we can’t put appropriate safeguards in place during record (oil) production then we’re never going to have those safeguards in place,” he said. “We’ve had boom industries in New Mexico before. We had uranium mining — they went bust. We’re still dealing with that legacy that was not cleaned up.”

Initial provisions were dropped from the bill that would have established no-drilling buffer zones around schools, residences, surface waters and critical habitats across New Mexico, to the dismay of environmentalists and community advocates who vowed to press legislators to reinstate setback requirements. The State Land Office recently imposed its own buffer around schools.

The Democratic-led Legislature and governor are being sued over alleged failures to meet constitutional provisions for protecting against oil and gas pollution, as fed-up residents living near oil wells and environmental groups turn to the judiciary for relief. The lawsuit filed in May 2023 seeks compliance with a “pollution control clause” of the New Mexico Constitution.

“This bill utterly fails to impose any real restrictions on the oil industry and does nothing to protect frontline communities from the toxic pollution they’re exposed to every single day,” said Gail Evans, an attorney with the Center for Biological Diversity and lead counsel in the lawsuit to plaintiffs including Indigenous Lifeways, Pueblo Action Alliance, Youth United for Climate Crisis Action.

Democratic state Rep. Nathan Small of Las Cruces — the lead House budget negotiator — warned that deleted provisions from the bill “would make it extremely difficult and unlikely for these important fiscal protections to move forward.” He voted to advance the bill toward a second vetting before a possible House floor vote.

Ahtza Chavez, executive director of the Native American environmental and social justice group NM Native Vote, participated in working groups on the bill organized by Gov. Lujan Grisham over the past six months, alongside state oil-field regulators and industry representatives.

She called the elimination of setback requirements “devastating" but pledged support for the amended bill.

“They’ve had 90 years to do better and they have not protected our communities,” said Chavez, an Albuquerque resident who is Diné, tracing her ancestry to the Navajo as well as Kewa Pueblo.

The committee-endorsed bill would increase a common financial assurance to remediate multiple wells from a maximum of $250,000 to $10 million. The cap on daily penalties for regulatory violations would increase from $2,500 to as much as $25,000, with no cumulative limit.

Voting against the bill, Republican state Rep. Larry Scott of Hobbs, said the initiative represents an existential threat to small-scale oil and natural gas producers, echoing concerns raised by several businesses.

“The concern is that, with the stroke of a pen, financial assurances and penalties can put these small operators completely out of business,” said Scott, also a petroleum-industry engineer.

The bill would also expand the state’s regulatory authority over other types of well activity in anticipation of a gradual transition away from fossil fuel production — including geothermal projects that harness underground heat to produce electricity, or emerging underground systems of kinetic energy storage.