As the New Mexico Legislature’s 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’s general shutout of bills aimed at reforming the fossil fuel business.
The state is the country’s second-largest oil producer and a top-10 natural gas producer as well. So despite New Mexico’s small population, state policy changes have an outsized effect on the nation’s fossil fuel industry. And since Gov. Michelle Lujan Grisham came to office in 2019 with a drive to reduce the state’s carbon emissions, New Mexico has enacted some of the toughest oil and gas production regulations in the country, but those have curbed neither production nor greenhouse gas emissions related to that production.
This year’s legislation comes at the industry from all angles. A trio of bills sponsored by Rep. Debra Sariñana would dramatically limit the use of fresh water in oil and gas operations and require detailed reports on how water is used; impose mandatory fines for spills of chemicals, oil and so-called produced water that comes up alongside oil and gas; and create child health protection zones 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 Sariñana fired up. “Kids shouldn’t go to school and get sick,” she says.
In recent years, several studies have shown that living near oil and gas wells increases a person’s 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’s most productive oilfield, the Permian Basin. The school is surrounded by 124 active oil and injection wells within a one-mile radius.
“By now [industry] should … know better than to put gas and oil wells right by schools because of the effect they’re going to have,” Sariñana says. “They know about this — they’ve known about it for years.”
The New Mexico Oil and Gas Association, the state’s largest industry organization, says it’s keeping an eye on Sariñana’s trio of bills. “The 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,” Frederick Bermudez, the new vice president of communications, writes in an email. “NMOGA and its industry members support legislation that is grounded in science,” he writes, then notes that oil and gas funds much of the state’s budget.
Two of Sariñana’s three bills, in different forms and to different extents, are mirrored in the Oil and Gas Act update spearheaded by Gov. Lujan Grisham’s office and shepherded by the Oil Conservation Division, the state’s 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’t received a full review in decades. The division’s press officer has called the current law “stale.”
The bill’s sponsor, Rep. Kristina Ortez, says it reflects compromises from both sides. “It doesn’t make anybody very happy, to be quite honest … But I think it makes sense for where we are right now,” she says. “It’s targeted. And it’s reasonable. And it’s common sense.”
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’s legislative session. She was part of the working group on this year’s bill and says it has “significant and important reforms to the Oil and Gas Act that we like,” but that her group has not yet gone through all of the wording in the final bill and can’t yet say if it will support the proposed legislation.
The bill includes measures to:
- Lock the state’s 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’t buy wells.
Fox, who was previously deputy general counsel for the state Environment Department and assistant attorney general with the New Mexico Attorney General’s Office, says the setback provisions were “the most complicated, the most controversial and the hardest to reach some kind of common ground on.” In addition, she says, “Those are provisions that I don’t think anybody’s going to be … 100% happy with.” But “that is the nature of legislation.”
“The setbacks, while probably not perfect, are several thousand percent better … than what we have now, which is nothing,“ Ortez says.
Asked about the legislation, Bermudez writes, “NMOGA will continue to follow the progress of bills related to the industry and stands ready to inform, partner and address concerns with state legislators.”
Ortez says, “There have been numerous efforts to reform the oil and gas industry [in the past] that have failed really, really hard.”
But, she says, “Hope springs eternal.”
Not all bills that would affect the industry focus on oilfield regulations. A bill from Rep. Matthew McQueen would increase royalty rates on oil and gas produced on state trust lands from 20% to 25%. “That’s all it is,” McQueen says of the legislation, which consists of a few dozen word changes in the existing law. “[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.”
In addition, state land royalties generally pay for education needs, and, he says, “We shouldn’t be leaving money on the table.”
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’s general fund budget comes from oil and gas revenues, and that doesn’t 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 — one from the governor’s 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’s total budget proposal reflects a 9.9% spending increase, and the Finance Committee offers a 5.9% increase – almost all of that from oil and gas revenues. The governor’s 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 — including enforcement and legal positions — was nixed in the Legislative Finance Committee proposal.
“I don’t think we’re giving enough money to either agency,” Rep. Sariñana says. “We don’t have enough people to do the job.” And she says, “That’s on us, the Legislature.”
At a House Appropriations and Finance Committee meeting last Friday evening where department heads defended their requests in the governor’s 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. Sariñana, Kenney said his division didn’t have enough people to follow up on the oilfield pollution data his agency receives from multiple sources. “The data tells us there are more emissions happening than are being reported [by producers],” he said.
“Is that a hint that you need more money?” Sariñana asked.
“Our Executive Recommendation is more than a hint, yes.” Kenney said.
