The state Oil Conservation Commission is facing two legal challenges to its newly adopted pit rule from oil and gas producers both large and small.
The rule, which the Commission signed in May, puts more stringent limitations on operators. It requires permits for tanks, closed-loop systems and pits, which are used to dispose of drilling and operational wastes like “produced water” that come to the surface when a well is drilled. It defines mandatory setbacks from features like surface water and imposes closure requirements, asking for things like soil samples and reseeding once a pit has been closed. Now challengers are asking for relief from the rule.
Many energy companies operating in Rio Arriba County are more concerned about the pit rule than the four-month moratorium Rio Arriba County imposed on drilling new wells in April. The moratorium does not apply on federal or tribal lands, where most drilling in the County takes place. On the other hand, the pit rules apply to all drilling in the state.
The Independent Petroleum Association of New Mexico filed the first challenge against the pit rules July 11 in state District Court. The Association, which represents smaller operators in the state, claims the new requirement is especially burdensome to small companies. The filing states the Commission did not give the Association an opportunity to present data regarding the potential economic impacts to small operators prior to the hearings that led to the rule.
The Association also claims the Commission overstepped its bounds with language in the rule dealing with groundwater. The filing states the state Water Quality Control Commission “has exclusive jurisdictional authority over the creation of rules for the protection of groundwater.” According to state statute, the Oil Conservation Commission does have the authority to administer the Water Quality Act. However, the Association may claim the state Ground Water Protection Act, which is not named in the Oil and Gas Act, provides the only authority in the state to regulate groundwater, especially since it specifically addresses “leaking storage tanks.”
The pit rule states operators must demonstrate surface and groundwater will be protected, and it limits drilling activities and the use of pits and below-grade tanks in areas where groundwater is less than 50 feet deep. It also applies Water Quality Control Commission standards to the rule, which the petition says is inappropriate and a violation of the Oil Conservation Commission’s authority.
The Association claims the rule is “arbitrary and capricious,” and the Commission ignored scientific evidence with which it was presented during the public hearings regarding the rule. Karin Foster, the Association’s attorney, did not return calls seeking comment.
On July 22, a group of larger operators, including ConocoPhillips, Devon Energy, Williams Production Company and XTO Energy filed a similar petition in District Court. Their filing also states the Water Quality Control Commission is responsible for groundwater standards, and the Oil Conservation Commission exceeded its authority in its application of groundwater standards to the pit rule.
Like the Association, this group goes on to say the Commission has placed too much emphasis on its duty to protect the environment over its other directives: to prevent waste and protect correlative rights. It also claims the rule’s standards are not supported by evidence, and the Commission did not explain its reasons for adopting the rule in the first place. The words “arbitrary, capricious and unreasonable” are applied to the rule multiple times. The group’s attorney, William Carr, did not return calls for comment.
Division spokeswoman Jodi Porter would not comment on the cases in detail, but she said the Division is not considering a revision of the rule to accommodate the challengers. She said the Division did have good reason to create the pit rule, as it has more than 400 cases on file documenting groundwater contamination from pits.
“The state has had a problem with oil-field waste pits in the past and how pits were closed,” she said. “The new pit rule sets a tough but fair standard.”
Porter said testimony during the pit rule hearings estimated an added cost of between $35,000 and $150,000 for each well site with the rule’s added demands. However, she said the cost to clean up a contaminated area can reach into the millions.
“The liability for doing it wrong is a lot more expensive,” she said. “I think it’s responsible regulation.”
Craig Schmitz, of Lindrith, operates a business that, in part, makes new well pads and roads for drillers. He said he disagrees with the rule, and he has already seen it slow down business. Companies that got state permits before the rule was enacted have had those permits rescinded pending a new application to drill with the new, more detailed, information.
“That’s what’s hurting us right now, really,” Schmitz said.
He said the propagation of more closed-loop systems may hurt his business, as well, because there may be less reclamation work to do when drilling is finished.
Dave Mankiewicz, the minerals manager for the federal Bureau of Land Management’s office in Farmington, said the pit rule is “overkill” in the Northwestern part of the state. He said two separate rules — one applying to the Northwest, where gas is the main product, and one in the Southeast, where oil is bigger — might be a good idea.
“We basically drill with water and mud,” Mankiewicz said of the operators on Bureau lands near Farmington. “It’s not an environmentally hazardous drilling fluid.”
Jim Lovato, a petroleum engineer who works with Mankiewicz, said the Bureau may work out a memorandum of understanding with the state in an attempt to slacken the rule on Bureau lands.
Bob Gallagher, president of the New Mexico Oil and Gas Association, works closely with oil and gas companies and was involved in the making of the pit rule. The Association represents the bigger producers in the state, and Gallagher was a vocal opponent of the County moratorium.
Gallagher said a lot of progress was made during the public hearings with the Division, and the Association has no plans to challenge the rule. He said he disagrees with some of the Division’s “interpretations” of the rule, such as making drillers who had permits granted before the rule was adopted go through the permitting process a second time. He also said the rule will add to the cost of doing business. However, he said the Division has been willing to work with the industry, and he is looking toward the future.
“Rules are made by compromise, and this rule is doable, especially when you compare it to the original draft,” he said. “We need to move on.”