By: Kristin Hincke

January 2009

The new rule governing pits used for oilfield waste in New Mexico is continuing to draw scrutiny. The regulation, approved in May 2008, by the Oil Conservation Commission (OCC), prohibits the use of unlined pits for oilfield waste. It also requires that the thickness of the lining for the pits increase from 12 mils to 20 mils and prohibits pits that are too close to water wells. Additionally, no unlined pits will be allowed for future use, unless there is an administrative exception. The exception will require an application, public notice and a complete review by the Environmental Bureau of the Oil Conservation Division (OCD). The rule also requires that the abandoned pit waste be removed to a landfill and the pit site be restored, unless the operator can demonstrate that the pit waste will not be detrimental to the environment.

The ruling also specifies the requirements that operators must follow to properly site, design and construct, operate and close pits, closed-loop systems, below-grade tanks, and sumps used in connection with oil and gas operations. The state commission approved the pit rules after more than a year of stakeholder discussions and public hearings organized by the OCD. More than 5,000 pages of transcripts were generated. The OCD has gradually imposed stricter rules in oilfi eld waste during the term of Gov. Bill Richardson. The commission believes that this new rule presents major progress in the protection of the environment during oil and gas operations and is supported by many ranchers, landowners and citizen groups throughout the state. “We can produce oil and gas in New Mexico in an environmentally sound manner,” Commission Chair Mark Fesmire states. “The adoption of this new rule is a significant step forward in preventing future legacy issues and protecting our environment.”

New Mexico Senator Pete Domenici expressed his doubts to the governor before the ruling passed. “I believe we must do everything in our power to make sure that contamination from drilling does not occur,” he said in a statement. “But this new rule has the potential to be double trouble for our country and the people of New Mexico. It could curb domestic production of oil and gas, making us more dependent on foreign oil, and it almost certainly will drive oil and gas business right out of our state which could mean the loss of over a billion dollars a year to our state’s economy.”

Gov. Richardson responded to Domenici’s comments by respectfully disagreeing. “The oil and gas industry, which continues to enjoy historic profits, should not be allowed to drill New Mexico land with little regard for protecting the environment,” he said. The Independent Petroleum Association of New Mexico (IPANM) is appealing the ruling supported by an industry group comprised of 16 large producers who also filed an appeal. According to the IPANM, the cost of complying with the ruling is too much of a burden for small independent operators.

The group estimates it will cost an additional $50,000 to $250,000 per well drilled to comply. In its appeal, the association argues that no economic impact study was done as required by the state Small Business Regulators Relief Act. Environmental groups such as the Oil & Gas Accountability Project (OGAP) maintain that the industry will end up saving money in the long run by moving to closed-loop systems. Testimony before the commission claimed that closed-loop systems saved 3 percent per well and enabled companies to cut costs on construction, water, drilling muds and waste disposal. The New Mexico Oil and Gas Association (NMOGA) worked with industry on several key compromises including raising toxicity standards to allow more waste to be buried on-site in deep trenches rather than being hauled away.

Although NMOGA does not support the litigation brought about by the IPANM, association President Bob Gallagher has attributed the decline in oil and gas revenues in the state to this ruling and has criticized New Mexico Department of Energy, Minerals and Natural Resources Secretary Joanna Prukop for producing records showing 421 cases of pit-related contamination, which are misleading. Prukop has stated she released these records in an attempt to defend her agency’s actions.

According to Gallagher, 143 of these sites are related to efforts by pipeline companies to eliminate dehydration at well sites and have nothing to do with drilling, workover or completion activities. Another 23 sites, Gallagher alleges, are shown as being located in USGS Public Lands Survey western ranges 22 and higher which puts these wells in Arizona. Yet another 29 sites were related to other pipeline company activity and had nothing to do with drilling and production pits.

“For decades, the oil and gas industry has worked with the New Mexico Oil Conservation Commission to develop rules that assure that the contents of drilling and reserve pits do not contaminate groundwater,” Gallagher said. “These efforts have been successful. This fact is confirmed by the Division’s data, for it fails to identify a single site where groundwater has been contaminated as a result of the failure of a temporary earthen reserve pit used during the drilling, workover or completion of an oil or gas well.”

“At a time when we all should be concerned about our environment, responsible development of our natural resources, and a sound revenue base from which our government can meet the needs of the people of New Mexico, Secretary Prukop and the department that she leads, seem to be dangerously out of step,” Gallagher continued. “They are making important decisions based on incorrect and misleading information.”

According to published reports, oil and gas royalties are responsible for nearly a quarter of New Mexico’s $5.7 billion general fund. The state relies heavily on such revenues to fund public education and other basic needs. If costs were to significantly increase for companies in New Mexico, many in the industry fear these companies would simply relocate to Texas, Oklahoma, Colorado or other states that do not have such regulations. There are 55,000 wells currently in operation in New Mexico that are affected by this ruling.