EARTHWORKS

NM Oil & Gas Enforcement - Enforcement Actions

Inconsistent use of sanctions

Box 1: These are not serious violations?

When examining the Compliance Summaries and data in OCD well files, Earthworks found incidents that surprisingly did not result in LOVs. For example: In February 2011, DC Energy was discovered to be illegally dumping produced water from two of its wells.[4] Illegal dumping of waste should be taken seriously and treated as a high-priority violation, but instead, it resulted in a phone call to the operator, so there is not even a paper trail showing the amount of produced water dumped or the location of the act. In May 2011, Robinson Oil Co. was sent a letter (not a LOV) outlining problems at two wells. At the first well, the OCD inspector noted that a leak reported by a rancher had been “covered up. . . some staining north of well. Need to submit C-141 for release rule 19.15.29.8. Also gas leaking at heater treater from gauge on northside and back pressure valve on eastside.” The letter states that at the second well the rancher reported that a flow line leak had been covered up with caliche. The letter states that “No C-141. Rule 19.15.29.8. Line has several leaks.” As of March 27, 2012, no C-141s had been filed for these wells.[5] Also, we found many cases where operators received an LOV on the first notice of an idle well, but others where operators did not receive an LOV even though it was the second, third, or sixth notice letter informing the operator that its idle well was out of compliance.

When a serious violation of OCD rules is discovered, an OCD inspector may issue a formal Letter of Violation (LOV). For less serious violations, noncompliance letters (LET) or Field Visit Inspection Letters (FVIs) may be sent.

But New Mexico lacks state guidelines for determining what constitutes a significant violation of OCD rules. This means each individual inspector has complete discretion to determine what constitutes a serious violation requiring an LOV. According to OCD, “Each inspector has his own criteria,”[1] for determining when Letters of Violation are issued to operators. As a result, operators may receive different treatment simply because their site was inspected by inspector X instead of inspector Y.

Based on Earthworks’ analysis of OCD data acquired through a public information request, it is clear that LOVs are inconsistently applied. For example, in 2011 the very same rule violations resulted in an LOV, LET or FVI. About half of the operators that did not have signs on their wells received an LOV, while half received FVI or LET. Similarly, the more serious violation of a "failed pressure test" resulted in 8 LOVs, 11 FVIs and 7 LETs. (View data chart)

Furthermore, there are regional differences in the use of LOVs as an enforcement tool. For example, very few Letters of Violation are issued out of the Aztec field office – a district that has more than 22,000 active oil and gas wells.[2] According to OCD, the Aztec District has a “different type of working relationship with operators,”[3] than other OCD districts. There are fewer operators, and so Aztec inspectors convey non-compliance through emails, phone calls or letters that are not official Letters of Violation.

When enforcement actions for both minor and more serious violations can vary widely from one inspector to the next, and from one district to the next, it erodes public confidence in OCD. Where inspectors have their own personal criteria for enforcement, it makes a mockery of the notion that we are a country of laws. And it creates the opposite of the regulatory “certainty” oil and gas operators repeatedly and publicly claim they desire.

Penalties ineffective and outdated

Oil & gas fines collected by OCD

Click chart for larger version

The OCD lacks a regulatory tool that many other oil-and-gas-producing states and even other New Mexico state agencies possess -- the ability to levy civil penalties on operators who violate the rules. Not only do such penalties help to deter operators from breaking the rules, they can also be a source of revenue to help fund oil and gas agency programs (such as enforcement, plugging of inactive wells or others).

In Pennsylvania, the Department of Environment can penalize operators of unconventional gas wells up to $75,000 plus $5,000 for each continuing day of violation and operators of conventional wells $25,000 plus $1,000 per day for violating oil and gas rules. In Texas, the Railroad Commission can fine oil and gas operators up to $10,000/day if they break rules pertaining to safety or pollution prevention. In recent years, Pennsylvania, Texas and Colorado have each annually collected millions of dollars worth of revenue from penalties for oil and gas rule violations.

As seen in the chart, in the years 2007 through 2009 New Mexico collected hundreds of thousands of dollars in penalties [6] per year from the oil and gas industry. In 2009, however, an oil and gas company won a court case that effectively stopped New Mexico from collecting penalties for rule violations (discussed below). The $14,000 collected in 2010 was largely through penalties for violating terms of Agreed Compliance Orders, not from penalties assessed for rule violations.

Prior to November 2009, the OCD had the ability to administratively assess civil penalties for violations of the state’s oil and gas regulations. In November 2007, Marbob Energy Corporation (Marbob) challenged the agency’s statutory authority to assess civil penalties. In November 2009, the New Mexico Supreme Court ruled that OCD does not have the authority to administratively assess penalties for violations. Rather, the Court ruled that the state Attorney General’s office must bring suit on behalf of the OCD for each and every violation to establish liability and assess the appropriate penalty, and this suit must be brought in the district court in the county in which the operator/defendant resides or in the county where the violation occurred.

Comparison of NM statutory penalties

Click chart for larger, footnoted version

Not only is the maximum penalty extremely low, but the threshold for assessing this penalty is extremely high: penalties only apply if an operator knowingly and willfully commits the violation. This is a much higher burden of proof than in is required in other states such as Pennsylvania, where civil penalties “may be assessed whether or not the violation was willful.“ New Mexico’s own Air Quality Bureau has a policy that states, “a violator’s knowledge regarding the requirement may result in an upward adjustment [to the penalty amount], but the violator’s lack of knowledge regarding the requirement does not excuse the violation because ignorance of the law is not a defense to liability.”

As seen from this table, other New Mexico resource or environmental statutes provide for higher penalties than the Oil and Gas Act, they provide “strict liability” for civil penalties (i.e., a violator is subject to a penalty for any violation regardless of knowledge or intent), and the penalties can be assessed administratively (i.e., by the agencies, not the courts).

Clearly, New Mexico’s oil and gas statute needs to be revised to return to OCD the ability to assess administrative penalties, and increase penalty amounts to at least match other oil and gas producing states and other agencies within New Mexico. Otherwise, there will continue to be little motivation for oil and gas operators to adhere to New Mexico's oil and gas rules.

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For more information:

• Earthworks: Enforcement Report - OCD: Public should not have confidence that oil and gas development is occurring responsibly in the state of New Mexico. Report
• Earthworks: New Mexico Oil & Gas Enforcement. Web page
• Earthworks: New Mexico Oil & Gas Enforcement - Inspections. Web page
• Earthworks: New Mexico Oil & Gas Enforcement - Violations. Web page
• Earthworks: New Mexico Oil & Gas Enforcement - Enforcement Actions. Web page
• Earthworks: New Mexico Oil & Gas Enforcement - the Public's Role. Web page

Endnotes

1 Personal communication between Lisa Sumi and Gwen Lachelt, Earthworks and New Mexico Oil Conservation Division Enforcement and Compliance Manager, Daniel Sanchez, OCD attorney, Sonny Swazo, and New Mexico Environment Department & Energy, Minerals & Natural Resources Department Communications officer, Jim Winchester. April 11, 2012.

2 OCD Electronic Permitting System - Well Search. Searched District: Aztec; Status: active; Well type: Gas (20,522 wells) and Well type: Oil (1,759). Data accessed May 3, 2012.

3 Personal communication between Lisa Sumi and Gwen Lachelt, Earthworks and New Mexico Oil Conservation Division Enforcement and Compliance Manager, Daniel Sanchez, OCD attorney, Sonny Swazo, and New Mexico Environment Department & Energy, Minerals & Natural Resources Department Communications officer, Jim Winchester. April 11, 2012.

4 On Feb. 24, 2011 OCD found that DE Energy Gregory El Paso Fed. #004 (API 30-025-11871) illegally dumped produced water (see Compliance section) and OCD found trucks dumping produced water at DE Energy’s Crosby Deep #002 well (API 30-025-24287).

5 Searched OCD Electronic Permitting (EPS) Spills database for Robinson Oil’s wells API: 30-005-20767 (Griffin No. 001) and API: 30-005-20794 (Griffin No. 002). Also, did an EPS Well Search for these wells, and looked at the well file document but did not find any C-141s.

6 New Mexico Legislative Finance Committee. Fiscal Impact Report for HB 176 “Oil and Gas Enforcement.”

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