SB 418 — OIL & GAS ACT CHANGES

"commission" means the oil conservation we lr n= t e w d 18m a n o commission;

[and =d =m 19: a l M.

"division"b meansr thee oilt conservationº divisiono it an e= r.224488.2AIC 20February of28, the2023 energy,(8:21pm) mineralss andk naturalm resourcese department.]- 4 - e a tn me md 21r C.e l u [ A d M.

"correlative"division" rights" means the opportunity d r e 22 afforded, so far as it is practicable to do so, to the owner of c e s k 23 each property in a pool to produce without waste the owner's e a n b 24 just and equitable share of the oil orconservation gasdivision or both in the pool, u [ being an amount, so far as can be practicably determined and so .224488.2 - 4 - far as can be practicably obtained without waste, substantially in the proportion that the quantity of recoverable oil or gas or both under the propertyenergy, bearsminerals to the total recoverable oil or gas or both in the pool and, for such purpose, to use the owner's just and equitablenatural shareresources ofdepartment.] theC. reservoir energy;

"correlative rights" means the opportunity afforded, so far as it is practicable to do so, to the owner of each property in a pool to produce without waste the owner's just and equitable share of the oil or gas or both in the pool, being an amount, so far as can be practicably determined and so far as can be practicably obtained without waste, substantially in the proportion that the quantity of recoverable oil or gas or both under the property bears to the total recoverable oil or gas or both in the pool and, for such purpose, to use the owner's just and equitable share of the reservoir energy;

"environmental justice community" means a community or population of people that experiences or is at h risk of experiencing higher or more adverse human health or u » r environmental effects, including communities of color, low- t h g e l i income communities and tribal and indigenous communities;

h r i s F.

"fair treatment and meaningful involvement" h , e h means to avoid or minimize, in developing and implementing a t u g e b l e e , gh program, policy, practice or activity, disproportionate adverse n d d i = = o h health or environmental effects on a group of individuals, el t] 17b ,d i a º r including environmental justice communities through we lr n= t e w d 18m a n o consultation with, and the participation of, individuals from =d =m 19: a l the communities affected;

ib r e t º o t n = .224488.2AIC February 28, 2023 (8:21pm) s k m e - 5 - e a n e d r 20e G.l u [ A d the communities affected;

"field"G. means the general area that is underlaid a t m m 21 or appears to be underlaid by at least one pool and includes d r e 22 the underground reservoir or reservoirs containing the crude c e s k 23 petroleum oil or natural gas or both.

The"field" wordsmeans "field"the andgeneral earea athat nis bunderlaid 24or "pool"appears meanto thebe sameunderlaid thingby whenat onlyleast one pool and includes the underground reservoir uor [reservoirs iscontaining involved;the crude petroleum oil or natural gas or both.

however,The "field",words unlike"field" "pool",and may"pool" relatemean tothe twosame .224488.2thing -when 5only -one orunderground morereservoir pools;is involved;

however, "field", unlike "pool", may relate to two or more pools;

h J.

g o t hr (1) an individual, estate, trust, receiver, g e i k cooperative association, club, corporation, company, firm, h r i s partnership, joint venture, syndicate or other entity;

or h , t, (2) the United States or any agency or e u g e b l e e h instrumentality thereof or the state or any political n d d i = = o h subdivision thereof;

el t] 17b ,d i a º e K.

"pool" means an underground reservoir containing wr li n= r t e w d 18m a n o a common accumulation of crude petroleum oil or natural gas or =d =m 19: a l both.

Eachb zonee ofd as generalº structure,o whicht zonen is= i.224488.2AIC aFebruary e28, r2023 20(8:21pm) completelys separatek fromm anye other- zone6 in- thee structure, is a tn me md 21r coverede byl theu word[ "pool"A asd usedboth. in the Oil and Gas Act.

dEach rzone eof 22a "Pool"general structure, which zone is synonymouscompletely withseparate "commonfrom sourceany ofother supply"zone andin withthe cstructure, eis scovered kby 23the "commonword reservoir";"pool" as used in the Oil and Gas Act.

e"Pool" ais nsynonymous bwith 24"common L.source of supply" and with "common reservoir";

"potash"L. means the naturally occurring bedded u [ deposits of the salts of the element potassium;

.224488.2"potash" -means 6the -naturally M.occurring bedded deposits of the salts of the element potassium;

M.

"product" means any commodity or thing made or manufactured from crude petroleum oil or natural gas and all derivatives of crude petroleum oil or natural gas, including refined crude oil, crude tops, topped crude, processed crude h petroleum, residue from crude petroleum, cracking stock, g o t hr uncracked fuel oil, treated crude oil, fuel oil, residuum, gas g e i k oil, naphtha, distillate, gasoline, kerosene, benzine, wash h r i s oil, waste oil, lubricating oil and blends or mixtures of crude h , t, petroleum oil or natural gas or any derivative thereof." e u g e b l e e h SECTION 2.

Section 70-2-3 NMSA 1978 (being Laws 1935, n d d i = = o h Chapter 72, Section 2, as amended) is amended to read:

el t] 17b ,d i a º e "70-2-3.

WASTE--DEFINITIONS.--As used in [this][this ] the Oil wr li n= r t e w d 18m a n o and Gas Act, the term "waste", in addition to its ordinary =d =m 19: a l meaning, [shall include] includes:

ib e d s º o t n = .224488.2AIC February 28, 2023 (8:21pm) s k m e - 7 - e a n e d r 20e A.l u [ A d meaning, [shall include] includes:

"undergroundA. waste" as those words are generally a t m m 21 understood in the oil and gas business and in any event to d r e 22 embrace the inefficient, excessive or improper use or c e s k 23 dissipation of the reservoir energy, including gas energy and e a n b 24 water drive, of any pool and the locating, spacing, drilling, u [ equipping, operating or producing of any well [or wells] in a .224488.2 - 7 - manner to reduce or tend to reduce the total quantity of crude petroleum oil or natural gas ultimately recovered from any pool and the use of inefficient underground storage of natural gas;

"underground waste" as those words are generally understood in the oil and gas business and in any event to embrace the inefficient, excessive or improper use or dissipation of the reservoir energy, including gas energy and water drive, of any pool and the locating, spacing, drilling, equipping, operating or producing of any well [or wells ] in a manner to reduce or tend to reduce the total quantity of crude petroleum oil or natural gas ultimately recovered from any pool and the use of inefficient underground storage of natural gas;

"surface waste" as those words are generally understood in the oil and gas business and in any event to h embrace the unnecessary or excessive surface loss or u » r destruction without beneficial use, however caused, of natural t h g e l i gas of any type or in any form or crude petroleum oil or any h r i s product thereof, but including the loss or destruction, without h , e h beneficial use, resulting from evaporation, seepage, leakage or t u g e b l e e , gh fire, especially such loss or destruction, incident to or n d d i = = o h resulting from the manner of spacing, equipping, operating or el t] 17b ,d i a º r producing [well or]or ] wells or incident to or resulting from the we lr n= t e w d 18m a n o use of inefficient storage or from the production of crude =d =m 19: a l petroleum oil or natural gas in excess of the reasonable market i a e r 20 demand;

ab r e t mº o t n = .224488.2AIC February 28, 2023 (8:21pm) s k m 21e C.- 8 - e a n e d r e l u [ A d petroleum oil or natural gas in excess of the reasonable market demand;

theC. production of crude petroleum oil in this d r e 22 state in excess of the reasonable market demand for [such] c e s k 23 crude petroleum oil.

[Such]the Excess production causesof orcrude epetroleum aoil nin bthis 24state results in wasteexcess whichof isthe prohibitedreasonable bymarket [this]demand thefor Oil[such and] Gascrude upetroleum [oil. Act.

The[Such] wordsExcess "reasonableproduction marketcauses demand",or asresults used [herein] in .224488.2waste -which 8is -prohibited thatby act[this with] respect to crude petroleum oil, shall be construed to mean the demandOil for [such] crude petroleum oil for reasonable current requirements for current consumption and useGas withinAct. or outside the state, together with the demand for [such] amounts [as are] reasonably necessary for building up or maintaining reasonable storage reserves of crude petroleum oil or the products thereof or both [such] crude petroleum oil and products;

The words "reasonable market demand", as used [herein] in that act with respect to crude petroleum oil, shall be construed to mean the demand for [such ] crude petroleum oil for reasonable current requirements for current consumption and use within or outside the state, together with the demand for [such] amounts [as are] reasonably necessary for building up or maintaining reasonable storage reserves of crude petroleum oil or the products thereof or both [such ] crude petroleum oil and products;

the nonratable purchase or taking of crude h petroleum oil in this state.

[Such][Such ] Nonratable taking and g o t hr purchasing causes or results in waste as defined in [the][the ] g e i k Subsections A, B and C of this section and causes waste by h r i s violating Section [12 (a) of this act]act ] 70-2-16 NMSA 1978;

h , t, E.

the production in this state of natural gas from e u g e b l e e h any gas well [or wells]wells ] or from any gas pool in excess of the n d d i = = o h reasonable market demand from such source for natural gas of el t] 17b ,d i a º e the type produced or in excess of the capacity of gas wr li n= r t e w d 18m a n o transportation facilities for such type of natural gas.

The =d = 19 a l words "reasonable market demand", as used [herein] in the Oil i a e r 20 and Gas Act with respect to natural gas, shall be construed to a t m m: 21 mean the demand for natural gas for reasonable current d r e 22 requirements, for current consumption and for use within or c e s k 23 outside the state, together with the demand for [such] amounts e a n b 24 [as are] necessary for building up or maintaining reasonable u [ storage reserves of natural gas or products thereof or both .224488.2 - 9 - [such] natural gas and products;

b e d s º o t n = .224488.2AIC February 28, 2023 (8:21pm) s k m e - 9 - e a n e d r e l u [ A d words "reasonable market demand", as used [herein] in the Oil and Gas Act with respect to natural gas, shall be construed to mean the demand for natural gas for reasonable current requirements, for current consumption and for use within or outside the state, together with the demand for [such ] amounts [as are] necessary for building up or maintaining reasonable storage reserves of natural gas or products thereof or both [such] natural gas and products;

drilling or producing operations for oil or gas within any area containing commercial deposits of potash where [such] those operations would have the undue effect [unduly] to reduce the total quantity of [such][such ] the commercial deposits of potash which may reasonably be recovered in commercial quantities or where [such][such ] those operations would interfere unduly with the orderly commercial development of [such][such ] the potash deposits." h SECTION 3.

Section 70-2-4 NMSA 1978 (being Laws 1935, g o t hr Chapter 72, Section 3, as amended) is amended to read:

g e i k "70-2-4.

OIL CONSERVATION COMMISSION--MEMBERS--TERM-- h r i s OFFICERS--QUORUM--POWER TO ADMINISTER OATHS.-- h , t, A.

There is created an "oil conservation e u g e b l e e h commission", hereinafter in the Oil and Gas Act called the n d d i = = o h "commission" [to].[to ].

The commission shall be composed of a e t 17 designee of the commissioner of public lands who is employed by w l n] db 18,d the state land office, a designee of the secretary of energy, = = 19 a l minerals and natural resources, [and] the director of the [oil i a º e rdesignee 20 conservation] division [The designees of the commissioner of a t m m 21 public lands andwho theis secretaryemployed ofby energy,r mineralsi and= natural d r et 22 resources shall be persons who have expertise in the regulation c e sw kd 23m of petroleum production by virtue of education or training] and e a n bo 24the twostate membersland appointedoffice, jointlya bydesignee the speaker of the housesecretary of uenergy, [d representativesm and: the president pro tempore of the senate.

.224488.2b e d s º o t n = .224488.2AIC February 28, 2023 (8:21pm) s k m e - 10 - B.e a n e d r e l u [ A d minerals and natural resources, [and] the director of the [oil conservation] division [The designees of the commissioner of public lands and the secretary of energy, minerals and natural resources shall be persons who have expertise in the regulation of petroleum production by virtue of education or training] and two members appointed jointly by the speaker of the house of representatives and the president pro tempore of the senate.

B.

In addition, one of the members appointed jointly by the speaker of the house of representatives and the president pro tempore of the senate shall have expertise in environmental law, policy or science or in public health law, policy or science and shall represent the state's interest in a h beautiful and healthful environment and the other member u » r appointed jointly by the speaker and the president pro tempore t h g e l i shall have expertise in the fair treatment and meaningful h r i s involvement of environmental justice communities and shall h , e h represent the state's interest in the fair treatment and t u g e b l e e , gh meaningful involvement of people and communities.

n d d i = = o h C.

No salary or compensation shall be paid any el t] 17b ,d i a º r member of the commission for [his][his ] services as a member of the we lr n= t e w d 18m a n o commission;

[The term of office of each member of the =d = 19 a l commission shall be concurrent with the other office held by i a e r 20 him] provided that public members shall receive per diem and a t m m: 21 mileage in accordance with the Per Diem and Mileage Act.

Theb r e t º o t n = .224488.2AIC February 28, 2023 (8:21pm) s k m e - 11 - e a n e d r e 22l u [ A d commission shall organizebe concurrent with the other office held by electinghim] aprovided [chairman]that chairpublic frommembers cshall ereceive sper kdiem 23and itsmileage membership.in accordance with the Per Diem and Mileage Act.

[Two]The Acommission majorityshall oforganize theby memberselecting of the e a n[chairman b] 24chair commissionfrom shallits constitutemembership. a quorum for all purposes.

The[Two] uA [majority commissionof shall adopt a seal, and the sealmembers affixed to any .224488.2 - 11 - paper signed by the director of the [oilcommission conservation] division shall beconstitute primaa faciequorum evidencefor ofall duepurposes. execution.

The commission shall adopt a seal, and the seal affixed to any paper signed by the director of the [oil conservation ] division shall be prima facie evidence of due execution.

Any member of the commission or the director of the [oil conservation]conservation ] division or any employee of the commission or division shall have power to administer oaths to any witness in any hearing, investigation or proceeding contemplated [by][by ] pursuant to the Oil and Gas Act or by any other law of this state relating to the conservation of oil and gas.

h D.

The term of office of a designee of the g o t hr commissioner of public lands shall be concurrent with the term g e i k of office held by the commissioner of public lands.

The term h r i s of office of a designee of the secretary of energy, minerals h , t, and natural resources shall be concurrent with the term of e u g e b l e e h office of the governor.

The term of office of the two members n d d i = = o h of the commission appointed jointly by the speaker of the house el t] 17b ,d i a º e of representatives and the president pro tempore of the senate wr li n= r t e w d 18m a n o shall be four years;

provided that the initial term of the =d = 19 a l member of the commission appointed by the speaker and the i a e r 20 president pro tempore to represent the state's interest in a a t m m: 21 beautiful and healthful environment shall be two years.

b e d s º o t n = .224488.2AIC February 28, 2023 (8:21pm) s k m e - 12 - e a n e d r e 22l Membersu [ A d member of the commission mayappointed serveby consecutivethe terms.speaker and the president pro tempore to represent the state's interest in a beautiful and healthful environment shall be two years.

cMembers eof sthe kcommission 23may E.serve consecutive terms.

TheE. members of the commission designated by the e a n b 24 secretary of energy, minerals and natural resources or u [ appointed jointly by the speaker of the house of .224488.2 - 12 - representatives and the president pro tempore of the senate shall not have had an ownership interest in, been employed by or been under contract with an oil or gas company at any time one year prior to appointment or while serving on the commission.

ByThe Marchmembers 1of the commission designated by the secretary of eachenergy, year,minerals eachand membernatural resources or appointed jointly by the speaker of the commissionhouse shallof discloserepresentatives toand the divisionpresident allpro sourcestempore of incomethe relatingsenate toshall oilnot orhave gashad foran thatownership memberinterest ofin, thebeen commissionemployed andby theor member'sbeen spouse,under ifcontract any,with foran theoil previousor year,gas thatcompany exceedat tenany thousandtime dollarsone ($10,000)."year SECTIONprior 4.to appointment or while serving on the commission.

SectionBy 70-2-5March NMSA1 1978of (beingeach Lawsyear, 1977,each Chaptermember 255,of Sectionthe 40,commission asshall amended)disclose isto amendedthe division all sources of income relating to read:oil or gas for that member of the commission and the member's spouse, if any, for the previous year, that exceed ten thousand dollars ($10,000)." h SECTION 4.

"70-2-5.Section 70-2-5 NMSA 1978 (being Laws 1977, g o t hr Chapter 255, Section 40, as amended) is amended to read:

OILg CONSERVATIONe DIVISION--[DIRECTOR]--STATEi OILk CONSERVATION"70-2-5. DIRECTOR--[STATE PETROLEUM ENGINEER].-- A.

TheOIL directorCONSERVATION ofDIVISION--[DIRECTOR the]--STATE [oilOIL conservation]h divisionr [ofi thes energy,CONSERVATION mineralsDIRECTOR--[STATE andPETROLEUM naturalENGINEER].-- resourcesh department], shallt, beA. known as the "state [petroleum engineer] oil e t 17 conservation director".

wThe director of the [oil conservation ] division e u g e b l e e h [of the energy, minerals and natural resources department ] n d 18d B.i = = o h shall be known as the "state [petroleum engineer ] oil l ] b ,d i a º e conservation director".

Ther directori shall= ber appointedt bye thew secretaryd =m = 19 a ln ofo energy,B. minerals and natural resources and shall:

iThe adirector eshall rbe 20appointed (1)by bethe asecretary residentd ofm this: state;

andb ae d s º o t mn m= 21.224488.2AIC [(2)February be28, registered2023 by(8:21pm) thes statek boardm ofe d- r13 - e 22a registrationn fore professionald engineersr ande landl surveyorsu as[ aA cd eof senergy, kminerals 23and petroleumnatural engineer;resources and shall:

or(1) ebe a nresident b 24 (3)] (2) by virtue of educationthis [and]state; or u [ experience have expertise in the [field of petroleum .224488.2 - 13 - engineering] regulation of petroleum oil and natural gas production and knowledge of the environmental, health and social impacts caused by oil and gas production to people and the environment." SECTION 5.

and [(2) be registered by the state board of registration for professional engineers and land surveyors as a petroleum engineer;

or (3)] (2) by virtue of education [and] or experience have expertise in the [field of petroleum engineering] regulation of petroleum oil and natural gas production and knowledge of the environmental, health and social impacts caused by oil and gas production to people and the environment." SECTION 5.

The division [is hereby empowered and it is its h duty to] shall prevent waste prohibited by [this] the Oil and g o t hr Gas Act, [and to] protect correlative rights, protect health g e i k and the environment, promote the public interest, health, h r i s safety and general welfare and promote the fair treatment and h , t, meaningful involvement of the public, including environmental e u g e b l e e h justice communities, as [in this act] provided in that act.

To n d d i = = o h that end, the division [is empowered to]to ] may make and enforce el t] 17b ,d i a º e rules, regulations and orders and [to][to ] do whatever may be wr li n= r t e w d 18m a n o reasonably necessary to carry out the purpose of [this][this ] that =d =m 19: a l act, whether or not indicated or specified in any section i a e r 20 [hereof] of that act.

ab e d s º o t mn = .224488.2AIC February 28, 2023 (8:21pm) s k m 21e B.- 14 - e a n e d r e l u [ A d act, whether or not indicated or specified in any section [hereof] of that act.

TheB. commission shall have concurrent d r e 22 jurisdiction and authority with the division to the extent c e s k 23 necessary for the commission to perform its duties as required e a n b 24 by law." u [ SECTION 6.

SectionThe 70-2-12commission NMSAshall 1978have (beingconcurrent Lawsjurisdiction 1978,and .224488.2authority -with 14the -division Chapterto 71,the Sectionextent 1,necessary for the commission to perform its duties as amended)required isby amendedlaw." toSECTION read:6.

Section 70-2-12 NMSA 1978 (being Laws 1978, Chapter 71, Section 1, as amended) is amended to read:

The [oil conservation]conservation ] division [of the energy, minerals and natural resources department] may:

(4) examine, check, test and gauge oil and gas h wells, tanks, plants, refineries and all means and modes of g o t hr transportation and equipment;

g e i k (5) hold hearings;

h r i s (6) provide for the keeping of records and the h , t, making of reports and for the checking of the accuracy of the e u g e b l e e h records and reports;

n d d i = = o h (7) limit and prorate production of crude el t] 17b ,d i a º e petroleum oil or natural gas or both as provided in the Oil and wr li n= r t e w d 18m a n o Gas Act;

and =d = 19 a l (8) require either generally or in particular i a e r 20 areas certificates of clearance or tenders in connection with a t m m: 21 the transportation of crude petroleum oil or natural gas or any d r e 22 products of either or both oil and products or both natural gas c e s k 23 and products.

b e d s º o t n = .224488.2AIC February 28, 2023 (8:21pm) s k m e - 15 - e a n be 24d B.r e l u [ A d (8) require either generally or in particular areas certificates of clearance or tenders in connection with the transportation of crude petroleum oil or natural gas or any products of either or both oil and products or both natural gas and products.

TheB. [oil conservation] division may make rules u [ and orders for the purposes and with respect to the subject .224488.2 - 15 - matter stated in this subsection:

The [oil conservation ] division may make rules and orders for the purposes and with respect to the subject matter stated in this subsection:

(2) to prevent crude petroleum oil, natural gas or water from escaping from strata in which it is found h into other strata;

u » r (3) to require reports showing locations of t h g e l i all oil or gas wells and for the filing of logs and drilling h r i s records or reports;

h , e h (4) to prevent the drowning by water of any t u g e b l e e , gh stratum or part thereof capable of producing oil or gas or both n d d i = = o h oil and gas in paying quantities and to prevent the premature el t] 17b ,d i a º r and irregular encroachment of water or any other kind of water we lr n= t e w d 18m a n o encroachment that reduces or tends to reduce the total ultimate =d =m 19: a l recovery of crude petroleum oil or gas or both oil and gas from i a e r 20 any pool;

ab r e t mº o t n = .224488.2AIC February 28, 2023 (8:21pm) s k m 21e (5)- to16 prevent- fires;e a n e d r e l u [ A d recovery of crude petroleum oil or gas or both oil and gas from any pool;

d(5) r e 22 (6) to prevent "blow-ups"fires; and "caving" in the c e s k 23 sense that the conditions indicated by such terms are generally e a n b 24 understood in the oil and gas business;

u(6) [ (7) to requireprevent wells"blow-ups" toand be"caving" drilled,in operatedthe .224488.2sense -that 16the -conditions andindicated producedby in such mannerterms asare togenerally preventunderstood injuryin tothe neighboringoil leasesand orgas properties;business;

(7) to require wells to be drilled, operated and produced in such manner as to prevent injury to neighboring leases or properties;

h (11) to determine whether a particular well or g o t hr pool is a gas or oil well or a gas or oil pool, as the case may g e i k be, and from time to time to classify and reclassify wells and h r i s pools accordingly;

h , t, (12) to determine the limits of any pool e u g e b l e e h producing crude petroleum oil or natural gas or both and from n d d i = = o h time to time redetermine the limits;

el t] 17b ,d i a º e (13) to regulate the methods and devices wr li n= r t e w d 18m a n o employed for storage in this state of oil or natural gas or any =d =m 19: a l product of either, including subsurface storage;

ib a e rd 20s (14)º too permitt then injection= of.224488.2AIC naturalFebruary gas28, or2023 a(8:21pm) ts mk m 21e of- any17 other- substancee intoa anyn poole in this state for the d r e 22l purposeu of[ repressuring,A cycling,d pressureproduct maintenance,of ceither, eincluding ssubsurface kstorage; 23 secondary or any other enhanced recovery operations;

e(14) a n b 24 (15) to regulatepermit the disposition,injection handling, u [ transport, storage, recycling, treatment and disposal of .224488.2natural -gas 17 - produced water during, or for reuse in, the exploration, drilling, production, treatment or refinement of oilany orother gas,substance includinginto disposalany bypool injectionin pursuantthis tostate authorityfor delegated under the federalpurpose Safeof Drinkingrepressuring, Watercycling, Act,pressure inmaintenance, asecondary manneror thatany protectsother publicenhanced health,recovery theoperations; environment and fresh water resources;

(15) to regulate the disposition, handling, transport, storage, recycling, treatment and disposal of produced water during, or for reuse in, the exploration, drilling, production, treatment or refinement of oil or gas, including disposal by injection pursuant to authority delegated under the federal Safe Drinking Water Act, in a manner that protects public health, the environment and fresh water resources;

h (17) to regulate and, where necessary, u » r prohibit drilling or producing operations for oil or gas within t h g e l i any area containing commercial deposits of potash where the h r i s operations would have the effect unduly to reduce the total h , e h quantity of the commercial deposits of potash that may t u g e b l e e , gh reasonably be recovered in commercial quantities or where the n d d i = = o h operations would interfere unduly with the orderly commercial el t] 17b ,d i a º r development of the potash deposits;

w l n d 18 (18) to spend the oil and gas reclamation fund = = 19 a l and do all acts necessary and proper to plug dry and abandoned i a e r 20= oil and gas wells and to restore and remediate abandoned well a t me mw 21 sites and associated production facilities in accordance with d rm e 22 the provisions of the Oil and Gas Act, the rules adopted under c e s k 23 that act and the Procurement Code, including disposing of e a n bo 24(18) salvageableto equipmentspend andthe material removed from oil and gas ureclamation [fund wellsd beingm plugged: by the state;

.224488.2b r e t º o t n = .224488.2AIC February 28, 2023 (8:21pm) s k m e - 18 - (19)e a n e d r e l u [ A d and do all acts necessary and proper to makeplug welldry priceand categoryabandoned determinationsoil pursuantand gas wells and to restore and remediate abandoned well sites and associated production facilities in accordance with the provisions of the federalOil Naturaland Gas PolicyAct, Actthe ofrules 1978adopted orunder anythat successor act and,and bythe regulation,Procurement toCode, adoptincluding feesdisposing forof suchsalvageable determinations,equipment whichand feesmaterial shallremoved notfrom exceedoil twenty-fiveand dollarsgas ($25.00)wells perbeing filing.plugged by the state;

Such(19) feesto shallmake bewell creditedprice category determinations pursuant to the accountprovisions of the [oilfederal conservation]Natural divisionGas Policy Act of 1978 or any successor act and, by theregulation, stateto treasureradopt andfees mayfor besuch expendeddeterminations, aswhich authorizedfees byshall thenot legislature;exceed twenty-five dollars ($25.00) per filing.

(20)Such tofees regulateshall thebe constructioncredited andto operationthe account of oilthe treating[oil plantsconservation and] todivision requireby the postingstate oftreasurer bondsand formay thebe reclamationexpended ofas treatingauthorized plantby sitesthe afterlegislature; cessation of operations;

(21)(20) to regulate the dispositionconstruction and h operation of nondomesticoil wastestreating resultingplants fromand to require the exploration,posting development,of productionu or» storager bonds for the reclamation of crudetreating oilplant orsites naturalafter gast toh protectg publice healthl andi thecessation environment;of operations;

[and]h er ti 17s (22)(21) to regulate the disposition of wh l, ne dh 18 nondomestic wastes resulting from the oilexploration, fielddevelopment, servicet =u =g 19e ab l industry,e thee transportation, ofgh crudeproduction oil or naturalstorage gas,of thecrude ioil aor e r 20 treatment of natural gas orto theprotect refinementn ofd cruded oili to= a= to mh m 21 protect public health and the environment,environment; including d r e 22 administering the Water Quality Act as provided in Subsection E c e s k 23 of Section 74-6-4 NMSA 1978;

[and ] l ] b ,d i a º r (22) to regulate the disposition of e r = t e w d m a n bo 24nondomestic (23)wastes toresulting protectfrom the environment;oil field service d m :

ub [r (24)e tot promoteº theo publict interest,n health,= .224488.2.224488.2AIC February 28, 2023 (8:21pm) s k m e - 19 - safetye a n e d r e l u [ A d industry, the transportation of crude oil or natural gas, the treatment of natural gas or the refinement of crude oil to protect public health and generalthe welfare;environment, including administering the Water Quality Act as provided in Subsection E of Section 74-6-4 NMSA 1978;

(23) to protect the environment;

(24) to promote the public interest, health, safety and general welfare;

h "70-2-14.

REQUIREMENT FOR FINANCIAL ASSURANCE.-- g o t hr A.

Each person, firm, corporation or association g e i k [who] that operates any oil, gas or service well within the h r i s state shall, as a condition precedent to drilling or producing h , t, the well, furnish financial assurance in the form of an e u g e b l e e h irrevocable letter of credit or a cash or surety bond or a well-specificn pluggingd insuranced policyi pursuant= to= theo eh twell-specific 17plugging provisionsinsurance ofpolicy thispursuant section to the [oil conservation] division w l n] db 18,d [ofi thea energy,º mineralse andprovisions naturalof resourcesthis department]section = = 19 a l running to the benefit[oil ofconservation the] statedivision andr conditionedi that= ther it a e rw 20d wellm bea pluggedn ando abandoned[of and the locationenergy, beminerals restored and anatural tresources mdepartment m] 21 remediated in compliance with the rules of the [oil d rm e: 22 conservation] division.

Theb [oile conservation]d divisions shallº co et n = .224488.2AIC February 28, 2023 (8:21pm) s k 23m establishe categories- 20 - e a n e d r e l u [ A d running to the benefit of financialthe assurancestate afterand noticeconditioned that the well be plugged and eabandoned aand nthe blocation 24be hearing.restored and remediated in compliance with the rules of the [oil conservation] division.

SuchThe categories[oil [shall]conservation] maydivision include, for active u [ wells, a blanket [plugging] financial assurance [which shall beestablish .224488.2categories -of 20 - set by rule in an amount not to exceed two hundred fifty thousand dollars ($250,000), a blanket plugging financial assurance forafter temporarilynotice abandoned status wells, which shall be set by rule at amounts greater than fifty thousand dollars ($50,000), and one-wellhearing. plugging financial assurance] or a one- well financial assurance and for wells that have been inactive more than one year, wells held in temporarily abandoned status for more than one year and wells that produce less than sixty barrels of oil per day or less than one hundred twenty thousand cubic feet of gas per day, a one-well financial assurance, in amounts determined sufficient to reasonably pay the cost of plugging and abandoning the wells and restoring and remediating the locations covered by the financial assurance.

InSuch establishing categories of[shall financial] assurance,may theinclude, [oilfor conservation]active divisionwells, shalla considerblanket the[plugging] depthfinancial ofassurance the[which wellshall involved,be theset lengthby ofrule timein sincean theamount wellnot wasto produced,exceed thetwo ehundred tfifty 17thousand costdollars of($250,000), a blanket plugging andfinancial abandoningassurance similarfor temporarily abandoned status wells, thewhich costshall ofbe wset lby nrule dat 18amounts restoringgreater andthan remediatingfifty similarthousand locations,dollars the($50,000), productionand =one-well =plugging 19financial assurance] or a lone- levelwell offinancial theassurance well,and thefor riskwells ofthat wellhave abandonment,been theinactive compliancemore ithan aone eyear, rwells 20held in temporarily abandoned status for more than one year and enforcementwells historySCONCº, upon transfer,»SCONC that produce less than sixty barrels of theoil well,per theday proximityor less h than one hundred twenty thousand cubic feet of thegas wellper day, a g o t mhr mone-well 21financial assurance, in amounts determined sufficient g e i k to peoplereasonably andpay communitiesthe andcost suchof otherplugging factorsand asabandoning the [oilwells dh r ei 22s conservation]and divisionrestoring deemsand relevant.remediating the locations covered by the h , t, financial assurance.

[TheIn oilestablishing conservationcategories cof financial e su kg 23e divisionb shalll requiree ae one-wellh financialassurance, assurancethe on[oil anyconservation e] adivision nshall bconsider 24the welln thatd hasd beeni held= in= ao temporarilyh abandoneddepth statusof forthe uwell [involved, morethe thanlength twoof yearstime or,since at the electionwell ofl the] operator,b may,d .224488.2i -a 21º -e allowwas anproduced, operatorthe tocost increaseof itsplugging blanketand pluggingabandoning financialsimilar assurancer toi cover= wellsr heldt ine temporarilyw abandonedd status.]m Alla financialn assuranceo shallwells, remainthe incost forceof untilrestoring releasedand byremediating thesimilar [oillocations, conservation]d division.m :

Theb [oile conservation]d divisions shallº releaseo financialt assurancen when= it.224488.2AIC isFebruary satisfied28, 2023 (8:21pm) s k m e - 21 - e a n e d r e l u [ A d the conditionsproduction level of the financialwell, assurancethe haverisk beenof fullywell performed.abandonment, the compliance and enforcement history of the well, the proximity of the well to people and communities 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.

If any of the requirements of the Oil and Gas Act or the rules promulgated pursuant to that act have not been h complied with, the [oil conservation]conservation ] division, after notice g o t hr and hearing, may order any well plugged and abandoned and the g e i k location restored and remediated by the operator or surety or h r i s both in accordance with division rules.

If the order is not h , t, complied with in the time period set out in the order, the e u g e b l e e h financial assurance shall be forfeited.

n d d i = = o h C.

When any financial assurance is forfeited pursuant el t] 17b ,d i a º e to the provisions of the Oil and Gas Act or rules promulgated wr li n= r t e w d 18m a n o pursuant to that act, the director of the [oil conservation]conservation =] =d 19m a: l division shall give notice to the attorney general, who shall i a e r 20 collect the forfeiture without delay.

ab e d s º o t mn = .224488.2AIC February 28, 2023 (8:21pm) s k m 21e D.- 22 - e a n e d r e l u [ A d division shall give notice to the attorney general, who shall collect the forfeiture without delay.

AllD. forfeitures shall be deposited in the state d r e 22 treasury in the oil and gas reclamation fund.

cAll eforfeitures sshall kbe 23deposited E.in the state treasury in the oil and gas reclamation fund.

WhenE. the financial assurance proves insufficient e a n b 24 to cover the cost of plugging and abandoning oil and gas wells u [ and restoring and remediating the location on land other than .224488.2 - 22 - 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.

When the financial assurance proves insufficient to cover the cost of plugging and abandoning oil and gas wells and restoring and remediating the location 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.

h F.

An operator required to file financial assurance g o t hr for a well pursuant to this section is considered to have met g e i k that requirement if the operator obtains a plugging insurance h r i s policy that:

h , t, (1) includes the specific well;

[and that e u g e b l e e h (1)] (2) is approved by the office of n d d i = = o h superintendent of insurance;

el t] 17b ,d i a º e [(2)] (3) names the state of New Mexico as owner wr li n= r t e w d 18m a n o of the policy and contingent beneficiary;

=d =m 19: a l [(3)] (4) names a primary beneficiary who agrees i a e r 20 to plug the specified wellbore;

ab e d s º o t mn m= 21.224488.2AIC [(4)]February (5)28, is2023 fully(8:21pm) prepaids andk cannotm bee - 23 - e a n e d r e 22l canceledu or[ surrendered;A d [(3)] (4) names a primary beneficiary who agrees to plug the specified wellbore;

c[(4)] e(5) sis kfully 23prepaid [(5)] (6) provides that the policy continues in e a n b 24 effect until the specified wellbore has been plugged and ucannot [be abandonedcanceled andor thesurrendered; location restored and remediated;

.224488.2[(5)] -(6) 23 - [(6)] (7) provides that benefitsthe willpolicy becontinues paidin when,effect butuntil not before, the specified wellbore has been plugged and abandoned and the location restored and remediatedremediated; in accordance with rules of the [oil conservation] division in effect at the time of plugging, abandoning, restoring and remediating;

and[(6)] [(7)](7) (8) provides that benefits thatwill arebe paid when, but not lessbefore, thanthe anspecified amountwellbore equalhas tobeen plugged and abandoned and the one-welllocation financialrestored assuranceand requiredremediated byin accordance with rules of the [oil conservation]conservation ] division rules.in effect at the time of plugging, abandoning, restoring and remediating;

G.and [(7)] (8) provides benefits that are not less than an amount equal to the one-well financial assurance required by [oil conservation ] division rules.

If,h subsequentG. 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)If, thesubsequent existingto an operator obtaining an g o t hr insurance policy benefitas equalsprovided in this section, the one-well g e i k financial assurance requirement applicable to the operator's h r i s well is increased, either because the well is deepened or the h , t, rules of the [oil conservation ] division are amended, the e tu 17g exceedse b l e e h operator is considered to have met the revised requirement;requirement if:

w l n d 18d (2)i the operator obtains an amendment increasing = = 19o ah l(1) the existing policy benefit byequals theor amountl of] theb increase,d in the i a º e rexceeds 20the applicablerevised financial assurance requirement;

orr ai t= mr mt 21e (3)w the operator obtains financial assurance d rm ea 22n equalo to(2) the amount,operator ifobtains any,an byamendment whichincreasing thed revisedm requirement: c e s k 23 exceeds the policy benefit." e a n b 24 SECTION 8.

Sectionb 70-2-31e NMSAd 1978s (beingº Lawso 1981,t n = .224488.2AIC February 28, 2023 (8:21pm) s k m e - 24 - e a n e d r e l u [ ChapterA 362,d Sectionthe 1,policy asbenefit amended)by isthe amendedamount toof read:the increase in the applicable financial assurance requirement;

.224488.2or -(3) 24the -operator "70-2-31.obtains financial assurance equal to the amount, if any, by which the revised requirement exceeds the policy benefit." SECTION 8.

Section 70-2-31 NMSA 1978 (being Laws 1981, Chapter 362, Section 1, as amended) is amended to read:

"70-2-31.

or h (3) issuing a temporary cessation order if the g o t hr division determines that the violation is causing or will cause g e i k an imminent danger to public health or safety or a significant h r i s imminent environmental harm.

The cessation order will remain h , t, in effect until the earlier of when the violation is abated or e u g e b l e e h thirty days unless a hearing is held before the division and a n d d i = = o h new order is issued.

el t] 17b ,d i a º e B.

A notice of violation issued pursuant to Paragraph wr li n d 18 (1) of Subsection A of this section shall state with reasonable = = 19 a l specificity the nature of the violation, shall require i a e r 20 compliance immediately or within a specified time period, shall a t me mw 21 provide notice of the availability of an informal review and d rm e 22 the date of a hearingn beforeo the(1) division and shall provide c e s k 23 notice of potentialSubsection sanctions,A including assessing a penalty, e a n b 24 suspending, canceling or terminating a permit or authorization, u [ shutting in a well and plugging and abandonment of athis wellsection andshall .224488.2state -with 25reasonable -d forfeitingm financial: assurance pursuant to Section 70-2-14 NMSA 1978.

b e d s º o t n = .224488.2AIC February 28, 2023 (8:21pm) s k m e - 25 - e a n e d r e l u [ A d specificity the nature of the violation, shall require compliance immediately or within a specified time period, shall provide notice of the availability of an informal review and the date of a hearing before the division and shall provide notice of potential sanctions, including assessing a penalty, suspending, canceling or terminating a permit or authorization, shutting in a well and plugging and abandonment of a well and forfeiting financial assurance pursuant to Section 70-2-14 NMSA 1978.

In assessing a penalty authorized by this section, the division shall take into account the seriousness of the violation, any good faith h efforts to comply with the applicable requirements, any history u » r of noncompliance under the Oil and Gas Act and other relevant t h g e l i factors.

When a decision is rendered by the division after a h r i s hearing, any party of record adversely affected shall have the h , e h right to have the matter heard de novo before the commission t u g e b l e e , gh pursuant to Section 70-2-13 NMSA 1978.

n d d i = = o h D.

Any civil penalty assessed by a court or by the el t] 17b ,d i a º r division or commission pursuant to this section may not exceed w l n d 18 two thousand five hundred dollars ($2,500) per day of = = 19 a l noncompliance for each violation unless the violation presents i a e r 20= a risk either to the health or safety of the public or of a t me mw 21 causing significant environmental harm, or unless the d rm e 22 noncompliance continues beyond a time specified in the notice c e s k 23 of violation or order issued by the division, commission or e a n bo 24two court, whereupon the civil penalty may not exceed ten thousand ufive [hundred dollars ($10,000)($2,500) per day of noncomplianced form each: violation.

.224488.2b r e t º o t n = .224488.2AIC February 28, 2023 (8:21pm) s k m e - 26 - [Noe penaltya assessedn bye d r e l u [ A d noncompliance for each violation unless the divisionviolation presents a risk either to the health or commissionsafety afterof the public or of causing significant environmental harm, or unless the noncompliance continues beyond a hearingtime specified in the notice of violation or order issued by the division, commission or court, whereupon the civil penalty may not exceed twoten hundred thousand dollars ($200,000);($10,000) per day of noncompliance for each violation.

[No penalty assessed by the division or commission after a hearing may exceed two hundred thousand dollars ($200,000);

h F.

It is unlawful, subject to a criminal penalty of a u » r fine of not more than five thousand dollars ($5,000) or t h g e l i imprisonment for a term not exceeding three years or both such h r i s fine and imprisonment, for any person to knowingly and h , e h willfully:

t u g e b l e e , gh (1) violate any provision of the Oil and Gas Act n d d i = = o h or any rule, regulation or order of the commission or the el t] 17b ,d i a º r division issued pursuant to that act;

or we lr n= t e w d 18m a n o (2) do any of the following for the purpose of =d = 19 a l evading or violating the Oil and Gas Act or any rule, i a e r 20 regulation or order of the commission or the division issued a t m m: 21 pursuant to that act:

db r e 22t (a)º makeo anyt falsen entry= or.224488.2AIC statementFebruary in28, 2023 (8:21pm) s k m e - 27 - e a cn e sd kr 23e reportl requiredu by[ A d evading or violating the Oil and Gas Act or by any rule, e a n b 24 regulation or order of the commission or the division issued u [ pursuant to that act;act:

.224488.2(a) - 27 - (b) make or cause to be made any false entry inor anystatement record,in accounta orreport memorandum required by the Oil and Gas Act or by any rule, regulation or order of the commission or division issued pursuant to that act;

(b) make or cause to be made any false entry in any record, account or memorandum required by the Oil and Gas Act or by any rule, regulation or order of the commission or division issued pursuant to that act;

or (d) remove from this state or destroy, mutilate, alter or falsify any such record, account or h memorandum.

u » r G.

For the purposes of Subsection F of this section, t h g e l i each day of violation shall constitute a separate offense.

h r i s H.

Any person who knowingly and willfully procures, h , e h counsels, aids or abets the commission of any act described in t u g e b l e e , gh Subsection A or F of this section shall be subject to the same n d d i = = o h penalties as are prescribed in Subsection D or F of this el t] 17b ,d i a º r section." we lr n= t e w d 18m a n o SECTION 9.

A new section of the Oil and Gas Act is =d =m 19: a l enacted to read:

ib ar e rt 20º "[NEWo MATERIAL]t ENVIRONMENTALn JUSTICE= ADVISORY.224488.2AIC COUNCIL.--February a28, t2023 m(8:21pm) s k m 21e A.- 28 - e a n e d r e l u [ A d enacted to read:

The"[NEW "environmentalMATERIAL justice] advisoryENVIRONMENTAL council"JUSTICE isADVISORY dCOUNCIL.-- rA. e 22 created and is administratively attached to the energy, c e s k 23 minerals and natural resources department.

The energy,"environmental ejustice aadvisory ncouncil" bis 24created minerals and naturalis resourcesadministratively departmentattached mayto providethe uenergy, [minerals administrative staff and assistancenatural toresources thedepartment. advisory council.

.224488.2 - 28 - The advisoryenergy, councilminerals shall advise the commission and thenatural divisionresources ondepartment howmay toprovide identifyadministrative andstaff address current and historicassistance environmental injustices and inequities in the operation and regulation of oil and gas activities within the authority of the commission and division, including how to identify and address disproportionate, adverse and cumulative risks and impacts of oil and gas operations on environmental justice communities and how to promote the fairadvisory treatmentcouncil. and meaningful involvement of environmental justice communities in the permitting, planning, rulemaking and decision making in such activities.

The advisory council shall advise the commission and the division on how to identify and address current and historic environmental injustices and inequities in the operation and regulation of oil and gas activities within the authority of the commission and division, including how to identify and address disproportionate, adverse and cumulative risks and impacts of oil and gas operations on environmental justice communities and how to promote the fair treatment and meaningful involvement of environmental justice communities in h the permitting, planning, rulemaking and decision making in u » r such activities.

t h g e l i (1) four representatives of disproportionately h r i s impacted communities appointed by the secretary of Indian h , e h affairs, including representatives from communities within the t u g e b l e e , gh San Juan and Permian basins;

n d d i = = o h (2) four representatives of tribal governments el t] 17b ,d i a º r or entities, appointed by the chair of the commission;

and we lr n= t e w d 18m a n o (3) one representative of local governments =d =m 19: a l appointed by the chair of the commission.

ib r e t º o t n = .224488.2AIC February 28, 2023 (8:21pm) s k m e - 29 - e a n e d r 20e B.l u [ A d appointed by the chair of the commission.

TheB. members of the advisory council shall elect a a t m m 21 chair of the advisory council.

dThe rmembers eof 22the C.advisory council shall elect a chair of the advisory council.

MembersC. of the advisory council may receive per c e s k 23 diem and mileage pursuant to the Per Diem and Mileage Act." e a n b 24 - 29 - u [ .224488.2

Members of the advisory council may receive per diem and mileage pursuant to the Per Diem and Mileage Act." - 30 - » g o » r h t i k l i g t h s , e h t l i w l b l e e , g n d l h = = b , a l º d i a r e r = , a t e d m a n o d m :

b r e t º o t n = .224488.2AIC February 28, 2023 (8:21pm) s k em e e a n e d r e l u [ A d