The Land of Enchantment is “open for business” with ground rules that are clear and reasonable – and maybe even deserving of consideration beyond New Mexico’s borders.
Just when you thought the political season was over (the 3rd special session is still in progress in Austin as I write), the campaign season is upon us. A domino chain has been initiated by Rick Perry with his decision not to seek re-election. Attorney General Greg Abbott is running for Governor, Land Commissioner Jerry Patterson is running for Lieutenant Governor, Railroad Commission Chairman Barry Smitherman is running for Attorney General, and Railroad Commissioner Christi Craddick is considering running for Comptroller after being called upon by GOP leadership following Susan Combs’ decision not to run for re-election. State Representative Stephani Carter of Richardson is running for Chairman Smitherman’s position on the TRC. There is competition in each of these positions, so Ben and I encourage you to become acquainted with the candidates well in advance of the primaries next spring and support the candidates of your choice, as each of these positions are critical to the management of one of the top 20 economies in the world. Please do not forget our capable and supportive representatives in Austin who are running for re-election: Senator Kel Seliger and former Speaker Tom Craddick. I’ll save the Federal races for another installment.
On the regulatory front, I had the distinct pleasure of meeting in Santa Fe with Daniel Sanchez, Compliance and Enforcement Manager with the Energy, Minerals, and Natural Resources Department in the State of New Mexico. I was interviewing with Mr. Sanchez to qualify Elevation Resources LLC to operate in New Mexico. Mr. Sanchez noted that in recent years, the Oil Conservation Division (NMOCD) has changed its enforcement philosophy. It has reduced the number of attorneys working on enforcement from 8 to 1, and has effected a similar reduction in field enforcement agents. Your first reaction may be that New Mexico has become lenient on operators. Au contraire. Mr. Sanchez has introduced a process of awareness and accountability for companies aspiring to operate in his fine state.
After your company is registered to do business in New Mexico and you apply to operate, a thick packet of information is mailed to your place of business addressed to the top executive or owner. A statement of officers and owners is required. There is particular interest in whether you were a 25 percent or greater owner of any current or former operators. In the event your prior company in which you owned a 25 percent interest is non-compliant, your application will likely be denied. An interview is required with Mr. Daniel Sanchez, preferably in person. The most important document is a single page checklist that appears on page 5 of this issue. It contains 10 regulations and rules that are mandatory. There is a blank to the left of each for the responsible party’s initials, and a signature block at the bottom. Mr. Sanchez reviewed each item with me and Elevation’s COO and co-founder, Gary Dupriest, who was on the phone. Since introducing this process for new applicants [two] years ago, 150 new operators have been authorized, while only two have failed to follow the regulations. Those two companies no longer operate in the State of New Mexico. Another owner of an oil company based in Kentucky said he wanted to comply with the laws and regulations of Kentucky rather than New Mexico. The company was not granted a license to operate in New Mexico.
Mr. Sanchez’ message is straightforward: compliant and responsible operators are welcome in New Mexico. Non-compliant operators will be held financially responsible and will have their license to operate revoked and will have their right to transfer ownership in their assets blocked until they are compliant.
Mr. Sanchez encourages an open dialogue with operators in the planning stages of an operation or an acquisition. In my prior life at Legacy Reserves, where we frequently acquired assets in New Mexico, we shared our plans in advance with the NMOCD to amend our Agreed Compliance Order to accommodate inactive wells being acquired. The ACO had specific actions and timetables required, the cost of which had been factored into the purchase price.
New Mexico is open for business for oil companies seeking to invest money there, assuming you are familiar with and ready to comply with the regulations, which don’t seem unreasonable. Companies like Concho are investing more than $1 billion per year drilling and completing wells in New Mexico, and Legacy has spent close to $1 billion acquiring properties there. Both companies have thrived operating there when others left the state. It will be interesting to see if Texas moves in the same direction as New Mexico toward prevention rather than enforcement of more stringent rules, such as Rule 13 governing well construction and stimulation. As an active operator in Texas and a taxpayer, I certainly hope so. Texas has always been a relatively friendly state in which to operate, but we owe it to ourselves and our stakeholders to operate in a responsible manner to sustain the rapid growth in drilling activity and oil and gas production. The federal government, acting through the EPA, looms ominously over state energy regulatory agencies, so let’s help our New Mexico and Texas regulators fulfill their jobs and maintain our states’ dominion in regulating the energy industry.