In N.M., 3,600 violations, 1 court case, 0 fines

New Mexico oil and gas regulators haven't fined a single driller for violations this year. They didn't last year, either. Or the year before that.

That's not for a lack of problems at well sites. Since 2010, inspectors recorded more than 3,600 violations.

Instead, it's because the state Oil Conservation Division hasn't had the authority to levy fines since March 2009. So when inspectors find a problem, there's not much they can do except ask the driller to fix it.

"We play a lot of poker," explained Daniel Sanchez, the agency's chief of enforcement.

For other state oil and gas agencies, fines are a common element of enforcement, even if many agencies are reluctant to issue them (EnergyWire, July 15). Most other regulatory agencies in New Mexico also have authority to levy fines.


"It's sort of basic good government," said Bruce Baizel, director of Earthworks' Oil & Gas Accountability Project, an environmental group based in the Four Corners region. "Even if it's not a lot of money, a consistent fine does change behavior."

But in 2009, the state Supreme Court agreed with a gas drilling company, Marbob Energy Corp., that the oil and gas agency lacked legal authority to issue fines. To levy fines, the court said, the law requires the agency to ask the state attorney general to file a lawsuit in the county where the violation occurred.

The agency hasn't referred any cases to the attorney general since the ruling, and the attorney general hasn't filed any cases.

"Such cases were for small fines of about $1,000 that would take more money to prosecute versus focusing on working with the operator to fix the problem," explained Jim Winchester, spokesman for the state Energy, Minerals and Natural Resources Department, which includes the Oil Conservation Division.

So there was no fine for a spill of more than 45,000 gallons of oil and brine near Artesia, N.M., earlier this year that reached the Pecos River.

And there was no fine in 2012 when a frack job east of Carlsbad, N.M., went awry and blasted into an older oil well 600 feet away, leading to a spill of 9,000 gallons of oil (EnergyWire, Aug. 5).

And there were no fines since the Marbob ruling for the nine spills that affected groundwater or the 43 that affected waterways.

'Basically unregulated'

State well inspectors recorded 879 violations in 2009, according to state records obtained by EnergyWire through New Mexico's Inspection of Public Records Act. The next year, that jumped to 1,016. Since the beginning of 2010, there have been 3,691 violations recorded at well sites.

In their ruling, the New Mexico justices said that the agency might well need to levy fines but that the laws that established it simply don't grant the authority.

"The commission's enabling statutes are undeniably dated, and perhaps inadequate to face the contemporary challenges," the justices wrote. "We defer, as we must, to the legislature."

At the time, agency Director Mark Fesmire told the Associated Press the ruling left the New Mexico oil and gas industry "basically unregulated."

The Oil Conservation Division, commonly referred to as OCD, does have more severe penalties available. It can revoke a company's bond in some circumstances, which prevents it from operating. The department can also refuse to issue new permits to companies that aren't in compliance.

"The decision changed the OCD enforcement strategy from one of 'fine and move forward' to that of 'threaten to deny permits until an operator gets into compliance,'" Winchester said.

Karin Foster, executive director of the Independent Petroleum Association of New Mexico, or IPANM, said those threats can be more potent than fines.

"They can lose their right to operate, and then they're in a lot more trouble," Foster said.

But that's considered a drastic step and has not happened to an operational company since 2009. There are few, if any, examples before that.

David Neslin, former director of the Oil and Gas Conservation Commission in neighboring Colorado, said that although the public often expects to see fines, there are other ways to enforce the rules such as compliance orders, negotiation and even the threat of bad publicity.

"The most important thing a state commission should do is ensure compliance," Neslin said. "If the ultimate goal is compliance, it's not clear to me that financial penalties are necessary."

But Assistant New Mexico Attorney General Tannis Fox, who is working on a proposal to overhaul the state's drilling laws, says fines are a key part of enforcing state rules.

"You can't have effective enforcement without assessing civil penalties," Fox said.

Swimming upstream

Many states have sought to tighten regulation as more drilling rigs move into new areas, but New Mexico has gone the other way. Earlier this year, the OCD made good on Republican Gov. Susana Martinez's campaign promise to defang the "pit rule," which had required most drillers to store waste in steel tanks instead of open-air pits (EnergyWire, Nov. 15, 2012).

Another state agency allowed oil and gas companies in the southeastern part of the state to skip inspections of electrical systems for 10 months, the Albuquerque Journal reported in April. When Martinez ordered the backlog cleared up, about 85 percent failed.

Until Marbob brought its case, oil and gas companies "assumed we operate like Texas and Colorado," Foster said.

They dealt with fines without questioning whether OCD had a right to levy them, she added.

Marbob had paid $500,000, the largest penalty ever issued by the division, for misreporting information for 22 years. The company was bought by Concho Resources Inc. in 2010.

But Fesmire and the Democratic administration at the time got too aggressive, she said.

"The industry was reeling," she said. "If he hadn't been so aggressive, we'd still be in a pre-Marbob state."

Fesmire said his agency was simply trying to protect the state's increasingly precious groundwater.

"To say that's aggressive, I just don't think that meets the definition," said Fesmire, now a federal offshore drilling regulator in Alaska.

The relevant portion of the state Oil and Gas Act, he said, hadn't been substantially updated since it was enacted in 1935. At that time, the state's leaders were more concerned about protecting oil from water than protecting water from oil.

"Industry likes the outdated regulations because they were written before there were environmental concerns in New Mexico, and compared to now, groundwater was relatively plentiful," he said.

There have been proposals in the Legislature since the Marbob decision to increase the commission's authority, but they haven't gotten far.

Last summer, Attorney General Gary King advanced an overhaul of the Oil and Gas Act. His plan, shepherded by Fox, would restore the commission's ability to levy fines and raise them for the first time since 1935. But it's doubtful such a measure could be debated in next year's legislative session, which is devoted to budget matters.

Industry officials dismissed King's proposal as a political swipe at the oil and gas industry. Noting that King is vying for the Democratic nomination to challenge Martinez, Foster said he is trying to firm up support in the environmental community.

But Fox said it's simply a needed set of reforms.

"I don't think this has anything to do with politics," Fox said. "The Oil and Gas Act is just out of step."



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