Lawmakers timid about regulating oil and gas

New Mexico legislators’ latest run at regulating the oil and gas industry by updating the 90-year-old Oil and Gas Act illuminated the continuing struggles faced with trying to craft rules for an industry that produces nearly half the state’s revenue. Their efforts at finding a balance continue to leave environmentalists frustrated with the ripple effects, including costs, that they see reaching frontline communities and ecosystems.

Before its first hearing Thursday, lawmakers struck a requirement that oil and gas infrastructure be more than a third of a mile from schools, health facilities, multifamily housing, occupied homes and at least 300 feet from waterways from a bill heard by the House Energy, Environment & Natural Resources committee.

“I know there’s a lot of disappointment about that, and I share that disappointment,” said Rep. Matthew McQueen, D-Galisteo, chairman of the committee and a co-sponsor of the bill.

McQueen presented a “substitute” bill during Thursday’s committee meeting. Substitute bills often come together following behind-closed-doors negotiations among lawmakers, lobbyists and various other parties.

“The setback requirements were a sticking point,” McQueen said.

Thursday’s decision removed a buffer intended to protect communities from environmental hazards. Living near oil and gas wells has been linked to higher levels of exposure to pollutants including toxic particulate matter, carbon monoxide, ozone, and volatile organic compounds that may affect health. But oil and gas industry representatives say there’s redundancy in this rule, and that the links between health issues and nearby oil and gas wells remain unproven.

“Setbacks aren’t needed because communities in the Permian and the San Juan basins already have setbacks,” said Frederick Bermudez, vice president of communications for the New Mexico Oil and Gas Association. “Additionally, setback distances aren’t based on scientific necessity.”

Thursday’s decision to remove the language about buffers also means New Mexico’s already vulnerable waters are denied a potential layer of protection, particularly after a U.S. Supreme Court ruling last year that found the Clean Water Act doesn’t apply to intermittent waterways, like streams that flow only seasonally or in sections, as well as arroyos, cienegas and playa lakes. That decision carved out 95 percent of waterways and wetlands in the state from protection under that federal clean water law.

As revised, the bill still would increase bonding requirements for oil and gas wells on state lands from $250,000 to $10 million, shifting the likely financial burden of cleaning up abandoned wells from taxpayers to the oil and gas industry. The legislation would also firm up methane rules that require oil and gas well operators to capture 98 percent of natural gas produced beginning in 2027. Fees and civil penalties are also increased.

Oil and gas industry representatives and other pro-business interests spoke against the bill, arguing that it will force companies out of business or out of state, kill jobs, disproportionately hammer small producers and gut state revenue.

“Our overriding concern is that there continue to be burdensome regulations, fees and rules imposed on the industry that is currently providing about 40 percent to 50 percent of the state’s budget,” Carla Sonntag, president and CEO of the New Mexico Business Coalition, said at the committee meeting. “We’re seeing that the state is happy to take the money from this industry, but it frequently is raising barriers and constraints that cause more harm to our operators.”

In addition to the setbacks the bill would have required for homes and other buildings, it would have called for buffers of 660 feet from streams that flow year round as well as wetlands and irrigation structures, and 300 feet away from smaller streams that flow only part of the year.

“Having buffers around streams is a well-known way to protect our waterways from all sorts of pollution sources, and it’s a tried-and-true method that many communities implement to protect their rivers and streams,” said Rachel Conn, deputy director of Amigos Bravos, a statewide water conservation organization. “These were protections that would protect our wildlife, our recreation uses and our farmers and ranchers from spills and pollution getting into our waterways from oil and gas development.”

More than 700 spills were reported in 2023 and the first two weeks of 2024, according to one analysis, releasing crude oil, water used for fracking that was then laced with hydrocarbons and chemicals and drilling mud. In one incident, a pipeline running across agricultural land near Shiprock leaked crude oil onto land used for farming. The spill ran 550 feet down a roadside ditch, then another 1,800 feet in a dry wash, headed toward the San Juan River before berms stopped it, the Arizona Republic reported. These problems can persist and spread.

“If you dump pollution or poison or into these smaller drainages when they’re dry, when it flows, that pollution will be mobilized,” Conn said. “They all lead to our larger waterways.”

When the Trump administration moved to change the interpretation of the Clean Water Act to leave out disconnected and intermittent waterways, Environment Department Secretary James Kenney wrote to ask them to reconsider. New Mexico’s limited water resources relied on the Clean Water Act, he wrote, cutting these waterways out of it would threaten ecosystems, public health, and quality of life. Even the Santa Fe River, which flows only periodically throughout its 46-mile route to join the Rio Grande, would be exempt from limits on pollutants.

In answering questions to another lawmaker, bill sponsor Rep. Kristina Ortez, D-Taos, said the rules on setbacks were removed because of concerns around stakeholder and public input.

But Energy, Minerals, and Natural Resources staff convened meetings with more than 30 representatives from the state, nonprofits, and industry every other Friday afternoon from September to December to draft the bill to update the 1935 Oil and Gas Act. Oil and gas industry professionals were well-represented in those meetings, according to a roster the Energy, Minerals and Natural Resources deputy secretary read aloud during the committee meeting.

“From my perspective, the out-and-out industry opposition came late in the day, after negotiating for four months, and it was disappointing in light of the fact that we had accepted so many compromises and were willing to go forward,” said Tannis Fox, staff attorney with the Western Environmental Law Center and a participant in the stakeholder meetings, including a subgroup on setbacks. Throughout those meetings, she said, setbacks presented the thorniest topic, but she thought they’d reached a workable compromise.

Environmental groups had hoped for setbacks of a mile, with no exceptions, and some had been willing to settle for less than half that distance. (Some disengaged from the process entirely.)

The setbacks could have given the state a stopgap to protect water sources while a bigger effort is underway, Fox said: Standing up a state surface water permitting program. But Fox has heard that process could take anywhere from five to 10 years. So eyes were also on the Protect State Waters bill, which seeks $840,000 to add Environment Department staff to monitor and enforce limits on pollution in waterways now considered outside the purview of the U.S. Environmental Protection Agency. But it only offers a one-time appropriation for fiscal year 2025. That bill passed the Senate Conservation Committee on Thursday morning.

“​​What we’re looking at is layers of protection right now until a more comprehensive program can be established,” Fox said.

State staff and lawmakers acknowledged the challenges in regulating an industry that provides about half of general fund revenue for the state. The fiscal impact report shows an $825 million loss to state revenue — and it didn’t even analyze the effects of setbacks.

“We are focusing in on the core financial components of what is our most important financial realm, and industries that we have been, are, and will continue to be partners with,” said Rep. Nathan Small, D-Las Cruces, who also mentioned the difficulties he’d faced working to pass a bill that reinstated the Oil Conservation Division’s authority to fine oil and gas companies for leaks and spills.

The substitute bill narrowly passed on a 6-to-5 vote after four hours of discussion.

“This bill is a step in the right direction,” McQueen said in closing remarks. “It doesn’t do nearly everything I’d like it to do.”