New Mexico Beckons
The possibility of changes to the “pit rule” could make the state more appealing to energy producers.
Angela Staples
Could relief be in sight for higher-priced oil and gas operations in New Mexico? May 14, 2012, saw the beginning of the public hearings in front of the New Mexico Oil Conservation Commission regarding proposed changes to New Mexico’s “pit rule.” The hearings were requested by the New Mexico Oil and Gas Association, which had asked the New Mexico court to halt ongoing litigation and appeals to allow interpretation of the pit rule to be dealt with on an administrative level. The New Mexico courts agreed to do so, despite protests by environmental groups. The proposed changes will now be presented to the Oil Conservation Commission rather than litigated in court.
During the week long hearing, the pit rule—initially approved by the Oil Conservation Commission under former Governor Bill Richardson’s administration in 2008—will be re-examined at length. The pit rule governs the handling of waste from drilling operations in buried tanks, sumps, pits, and closed-loop systems. Richardson’s administration claimed that the regulations were necessary to prevent wastes from seeping into groundwater, streams, and arroyos. NMOGA argues that its proposed changes would allow producers, especially smaller operators, to be more competitive through the lowering of drilling costs that stem from the rule. NMOGA states that its proposal is based on sound science, has environmental safeguards, and encourages environmentally responsible energy development.
Currently, the pit rule requires the use of a system to recycle and reduce water used in drilling (a closed-loop system); restricts the use of temporary lined, low chloride waste pits to no closer than 500 feet from groundwater, domestic well, spring, or wetland; defines low chloride salt drilling fluid as 3,000 milligram/liter or less; prohibits on-site burial of low salt drilling muds; and only rarely allows one waste pit for multiple wells. The proposed amendments would reduce or remove the requirements for closed-loop systems; allow pits up to 100 feet from groundwater, domestic well, or spring when certain conditions are met; redefine low salt as 15,000 mg/liter or less; allow mud wastes to be buried on-site in certain circumstances; and make standard one waste pit for multiple wells.
Both the State Land Office and the New Mexico Environmental Law Center oppose nearly every revision. However, NMOGA emphasizes that these revisions are necessary to make New Mexico more business friendly, and to keep jobs and tax revenues in the state. The current pit rule makes operations in New Mexico more expensive than surrounding states, and, says NMOGA, does not provide real environmental benefits.
Governor Susana Martinez and other lawmakers agree with the producers, and have backed regulatory changes in order to make New Mexico more business-friendly. A smart move, considering that taxes from production are currently New Mexico’s fourth-largest source of income, as well as the source of more than one-fifth of the state’s general fund revenues, which, in 2010, was an average of over $6 million a day. In her recent speech to the PBPA, Governor Martinez assured us that New Mexico is now “open for business.” The proposed changes to the pit rule would certainly support that assertion, and the passage of the same would be a strong indication that she meant exactly what she said.
Operators, keep a look out; New Mexico may be worth it once again.