HM 29 — ENERGY OPERATION BONDING AMOUNTS

HOUSE ENERGY, ENVIRONMENT AND NATURAL RESOURCES COMMITTEE SUBSTITUTE FOR HOUSE MEMORIAL 29 54TH LEGISLATURE - STATE OF NEW MEXICO - SECOND SESSION , 2020 INTRODUCED4 BY Matthew McQueen 6 8 10 A MEMORIAL REQUESTING A REVIEW OF STATEWIDE REMEDIATION AND RECLAMATION BONDS AND EXPRESSING SUPPORT FOR ESTABLISHING SUFFICIENT BONDING AMOUNTS FOR ENERGY OPERATIONS.

1514 WHEREAS, New Mexico is one of North America's leading energy producers;

and e t 17 WHEREAS, multiple state agencies are tasked with ensuring w l n d 18 adequate bonding protection for energy-energy-related and extraction-relatedoil-and-gas- = = 19 aextraction-related l activities on public and private lands;

and i a el ri 20a WHEREAS, the commissioner of public lands, as the chief e r 20 a t m m 21 executive of the state land office, has a constitutional and d r e 22 statutory duty to manage and care for approximately nine c e s k 23 million acres of surface land and thirteen million acres of e a n b 24 mineral estate throughout New Mexico;

and u [ WHEREAS, the oil conservation division of the energy, .217374.2 HENRC/HM 29 minerals and natural resources .216793.2 department regulates mining, oil and gas activities and produced water disposaldisposal, and the department manages clean energy programs;

and WHEREAS, the department of environment'senvironment missionregulates isenergy- torelated protectactivities andnot restoreexclusively regulated under the environmentOil forand futureGas generations;Act;

and WHEREAS, persons engaged in energy-energy-related and extraction-relatedoil-and- gas-extraction-related activities can be required by law and contract to reclaim lands disturbed by those activities and to remediate surface and subsurface contamination caused by those activities;

and WHEREAS, requiring that persons engaged in energy-energy-related e e 17 and extraction-relatedoil-and-gas-extraction-related activities provide e e n d 18 regulators and land management agencies with bonds or personal = = l ] 19 financial security can be an effective way to ensure that the personsa engagedl inr ei e20 17persons engaged in those activities perform their obligations t e a t to reclaim the land e e n d 18 and remediate surface and subsurface m m 21 e d contamination;

and =r =e l22 ]c 19e r c 23 WHEREAS, bonds help prevent or reduce taxpayer losses;

and e a ln rb i24 20 WHEREAS, bonds should be set at amounts that provide tu e[ a t sufficient financial assurance to prevent remediation and m.217374.2 m- 212 e- dHENRC/HM r29 e 22 compliance costs, such as the costs of remediating sites and c e r c 23 removing infrastructure, from falling on taxpayers or state e a n b 24 land trust beneficiaries;

and u [ WHEREAS, there are approximately fifty-seven thousand four .216793.2 - 2 - hundred one active oil and gas wells and sixty-four thousand eight hundred fifty-eight inactive wells statewide, of which seven hundred eleven wells are orphaned wells and fourteen thousand sixty active and seventeen thousand six hundred eighty-six inactive oil and gas wells are on state trust lands;

and WHEREAS, the current state land office bonding e e 17 requirements require a maximum bond of twenty-five thousand e e n d 18 dollars ($25,000), which covers an unlimited number of oil and = = l ] 19 gas and mineral leases, as well as rights of way, recycling a l r i 20 facilities and all other types of leases issued on state land et e 17a t statewide to a single lessee;

and em em n21 e d 18 WHEREAS, bond requirements of the oil conservation =r =e l22 ]c 19e r c 23 division of the energy, minerals and natural resources e a ln rb i24 20 department are generally limited to plugging and abandonment tu e[ a t costs, in an amount that varies depending on the number of m.217374.2 m- 213 e- dHENRC/HM r29 e 22 wells per operator, with the maximum amount set at two hundred c e r c 23 fifty thousand dollars ($250,000) for over one hundred wells;

e a n b 24 and u [ WHEREAS, the existing exposure for plugging inactive well .216793.2 - 3 - sites on state lands alone is over five million dollars ($5,000,000), and the cost of remediating these sites would cost additional unknown millions of dollars;

and WHEREAS, the existing exposure for decommissioning pipelines and remediating rights of way on state lands alone is hundreds of millions of dollars, and the cost of remediating these rights of way if, for example, leaks and spills occur, would cost additional unknown millions of dollars;

and WHEREAS, in a September 2019 report, the United States e e 17 government accountability office reviewed whether bonding e e n d 18 inadequacies exist and found that oil and gas bond amounts set = = l ] 19 by the bureau of land management of the United States a l r i 20 department of the interior largely have not been updated in et e 17a t forty years or more and fail to serve their intended purpose em em n21 e d 18 and recommended that bond minimums be raised to more closely =r =e l22 ]c 19e r c 23 reflect actual remediation and reclamation costs;

and e a ln rb i24 20 WHEREAS, the bureau of land management concurred with the tu e[ a t report's findings to routinely review oil and gas bonds and set m.217374.2 m- 214 e- dHENRC/HM r29 e 22 amounts that appropriately reflect the risks and liabilities c e r c 23 posed by lessees and operators to protect taxpayers;

and e a n b 24 WHEREAS, the minimum bond amounts utilized by the bureau u [ of land management and found to be insufficient are in many .216793.2 - 4 - cases the same rates applicable to state land office and oil conservation division bond thresholds;

NOW, THEREFORE, BE IT RESOLVED BY THE HOUSE OF REPRESENTATIVES OF THE STATE OF NEW MEXICO that support be expressed for establishing bonding amounts that are sufficient to cover reasonably anticipated remediation and reclamation costs and lease obligations;obligations for energy-related and oil-and-gas- extraction-related activities;

and BE IT FURTHER RESOLVED that the state land office, in consultation with the oil conservation division of the energy, minerals and natural resources department and the department of environmentenvironment, be requested to conduct a bond adequacy review e e 17 related to energy production and infrastructure;

and e e n d 18 BE IT FURTHER RESOLVED that the agencies be requested to = = l ] 19 evaluate how to collectively ensure adequate bondingbonding, toa fulfilll theirr respectivei statutory20 obligationsappropriate use of funds from forfeited bonds and adequate t e a t funding and appropriate use of statutorily dedicated m m 21 e d reclamation funds to avoid having excess expenses fall on r e 22 c e r c 23 taxpayers or state land trust beneficiaries e e 17 and to report theire a n b 24 findings to the appropriate legislative e e n d 18 interim committee by u [ December 1, 2020;

and =.217374.2 =- l5 ]- 19HENRC/HM 29 BE IT FURTHER RESOLVED that copies of this memorial be a l r i 20 transmitted to the commissioner of public lands, or the secretarycommissioner's tdesignee, eform aand tchair ofan environment,advisory thegroup secretaryto ofmeet, energy,share mineralsinformation and naturalevaluate mexisting mrequirements 21for eand dlimits ron ebonding 22and resourcesto andassess the directorneed offor thechanges legislativeto financelaws, crules eand rpolicies cto 23achieve committee.the objectives of this memorial;

eand aBE nIT bFURTHER 24RESOLVED -that 5the -advisory ugroup [be .216793.2composed of representatives from the following groups:

A.

the state land office;

B.

the oil and conservation division of the energy, minerals and natural resources department;

C.

the department of environment;

and D.

affected stakeholders, including representatives of large and small oil and gas producers, midstream operators, other energy project operators, environmental and conservation advocacy organizations and interested members of the public;

e e 17 and e e n d 18 BE IT FURTHER RESOLVED that copies of this memorial be = = l ] 19 transmitted to the commissioner of public lands, the secretary a l r i 20 of environment, the secretary of energy, minerals and natural t e a t resources and the director of the legislative finance m m 21 e d committee.

r e 22 c e r c 23 - 6 - e a n b 24 u [ .217374.2