New Mexico § 70-2-14 - Requirement for financial assurance

§ 70-2-14. Requirement for financial assurance

A. Each person, firm, corporation or association who operates any oil, gas or service

well within the state shall, as a condition precedent to drilling or producing the

well, furnish financial assurance in the form of an irrevocable letter of credit or

a cash or surety bond or a well-specific plugging insurance policy pursuant to the

provisions of this section to the oil conservation division of the energy, minerals

and natural resources department running to the benefit of the state and conditioned

that the well be plugged and abandoned in compliance with the rules of the oil conservation

division. The oil conservation division shall establish categories of financial assurance

after notice and hearing. Such categories shall include a blanket plugging financial assurance, which shall

be set by rule in an amount not to exceed two hundred fifty thousand dollars ($250,000),

a blanket plugging financial assurance for temporarily abandoned status wells, which

shall be set by rule at amounts greater than fifty thousand dollars ($50,000), and

one-well plugging financial assurance in amounts determined sufficient to reasonably

pay the cost of plugging the wells covered by the financial assurance. In establishing categories of financial assurance, the oil conservation division

shall consider the depth of the well involved, the length of time since the well was

produced, the cost of plugging similar wells and such other factors as the oil conservation

division deems relevant. The oil conservation division shall require a one-well financial assurance on any

well that has been held in a temporarily abandoned status for more than two years

or, at the election of the operator, may allow an operator to increase its blanket

plugging financial assurance to cover wells held in temporarily abandoned status. All financial assurance shall remain in force until released by the oil conservation

division. The oil conservation division shall release financial assurance when it is satisfied

the conditions of the financial assurance have been fully performed. B. If any of the requirements of the Oil and Gas Act or the rules promulgated pursuant

to that act have not been complied with, the oil conservation division, after notice

and hearing, may order any well plugged and abandoned by the operator or surety or

both in accordance with division rules. If the order is not complied with in the time period set out in the order, the financial

assurance shall be forfeited. C. When any financial assurance is forfeited pursuant to the provisions of the Oil

and Gas Act or rules promulgated pursuant to that act, the director of the oil conservation

division shall give notice to the attorney general, who shall collect the forfeiture

without delay. D. All forfeitures shall be deposited in the state treasury in the oil and gas reclamation

fund. E. When the financial assurance proves insufficient to cover the cost of plugging

oil and gas wells on land other than federal land and funds must be expended from

the oil and gas reclamation fund to meet the additional expenses, the oil conservation

division is authorized to bring suit against the operator in the district court of

the county in which the well is located for indemnification for all costs incurred

by the oil conservation division in plugging the well. All funds collected pursuant to a judgment in a suit for indemnification brought

under the provisions of this section shall be deposited in the oil and gas reclamation

fund. F. An operator required to file financial assurance for a well pursuant to this section

is considered to have met that requirement if the operator obtains a plugging insurance

policy that includes the specific well and that: (1) is approved by the office of superintendent of insurance; (2) names the state of New Mexico as owner of the policy and contingent beneficiary; (3) names a primary beneficiary who agrees to plug the specified wellbore; (4) is fully prepaid and cannot be canceled or surrendered; (5) provides that the policy continues in effect until the specified wellbore has

been plugged; (6) provides that benefits will be paid when, but not before, the specified wellbore

has been plugged in accordance with rules of the oil conservation division in effect

at the time of plugging; and (7) provides benefits that are not less than an amount equal to the one-well financial

assurance required by oil conservation division rules. G. If, subsequent to an operator obtaining an insurance policy as provided in this

section, the one-well financial assurance requirement applicable to the operator's

well is increased, either because the well is deepened or the rules of the oil conservation

division are amended, the operator is considered to have met the revised requirement

if: (1) the existing policy benefit equals or exceeds the revised requirement; (2) the operator obtains an amendment increasing the policy benefit by the amount

of the increase in the applicable financial assurance requirement; or (3) the operator obtains financial assurance equal to the amount, if any, by which

the revised requirement exceeds the policy benefit.