Jim Winchester

Beginning October 20th, the New Mexico Oil Conservation Commission will stage a rulemaking to consider proposals by radical environmental groups to impose significant new costs on industry. These new rules illegally bypass required legislative approval, and have been written with the explicit intention of shutting down small, local, multi-generational New Mexico independent producers.

The new language would immediately raise financial assurance bonding by orders of magnitude on later-in-life, marginal wells. With an immediate bond increase assessment per well, there will not be enough of the still-available, but yet-to-be extracted, oil & gas remaining in the underground to financially breakeven. 

As a result, most independent producers will have no choice but to shut-in and plug their lower producing wells, and prematurely cut off oil & gas production before the subsurface reservoir is drained. Such wells can often be reworked or repurposed to enhance production or to dispose of produced water. But, with these options effectively eliminated by the new rules, well revenues (including significant state revenues) will be lost for no justifiable reason.

The new bonding provisions are only part of the rewritten rule. If adopted, state regulators will be granted new authority to deny well operators from selling their existing marginal wells. The state, without due process and without justification, could simply kill the sale of production wells if they deem the buyer to not be financially solvent through their own estimations. This is autocracy over an entire industry on the regulatory level, and will certainly block most operators from selling or acquiring new wells altogether.

The rewritten rules and upcoming hearing has already had a chilling effect not only on the oil & gas industry, but the larger New Mexico business community. The message is clear: Environmentalists and regulators in New Mexico can write and implement their own regulations without the need for legislative consent or substantial consideration of industry feedback. 

In fact, the concerns of independent producers were not even solicited before this rule was filed. State-based oil & gas companies will testify that because no input from independents was considered, they may have no choice but to shut down and leave the state because of the excessive bonding costs and uncertainty over the ability to buy and sell producing wells.

There’s an ugly reality exposed by this rulemaking hearing. On one hand, the state touts industry’s increased production and feasts on enormous oil & gas state revenues.  On the other hand, the state and the enviros continue to kill off smaller independent producers. Since 2017, the number of state oil & gas reporting entities has decreased by 20%. That’s over 100 mostly independent producers who are now either out-of-business, or have left New Mexico due to new regulations antagonistic towards smaller oil & gas companies. 

These are responsible, state-based, and multi-generational producers that live in the communities where they produce oil & gas, and contribute directly to their rural economies. Environmentalists even acknowledge and applaud the future shutdowns this new rule will cause in their already submitted written testimony, which reveals their true intentions.

To counter this inherent hostility, industry intends to present the real facts during the upcoming rulemaking hearing. Industry testimony will demonstrate that operators already plug over 95% of their own non-producing wells, which accounts for hundreds of wells each year. The state’s inflated projection of unfunded liability on wells does not account for that fact. Industry will also demonstrate that state regulators do not even draw upon the existing financial assurance bond money that exists to plug abandoned wells meaning that industry is being asked to bear significant new costs that will have virtually no benefit. 

Also troubling, the state does not adequately administer the already-existing industry-financed reclamation fund, which currently has a balance of over $50 million that remains unspent. Furthermore, the state only contracts with hand-picked oil & gas service companies to plug wells, where as other options are available and more efficient. These are the kinds of facts never show up in biased, environmentally-funded, state-endorsed studies on New Mexico’s unplugged well inventory.

The Independent Petroleum Association of New Mexico (IPANM) will fight for the responsible, New Mexico-based independent producers at this hearing. These companies already plug their own wells, pay into the state’s reclamation fund to plug other wells, and protect the ground where they work upon. Sadly, they will face unnecessary shut-ins and complete shutdowns if this rule is passed.

We urge the 3-member Oil Conservation Commission to listen to the testimony of the independent producers, recognize the intended and unintended consequences of these bad rules, and reject the environmentalists’ petition that will kill an important segment of the oil & gas industry. Finally, we urge everyday citizens whose lives are better because of oil & gas to stand up during the hearing public comments and defend the industry that provides for all New Mexicans.

Jim Winchester is the executive director of the Independent Petroleum Association of New Mexico.