New Mexico's Oil Regulators Have Limited Enforcement Tools
The state agency that regulates the oil and gas industry in New Mexico lacks full authority to enforce its own rules. This has proven problematic, especially since the latest oil boom took off six years ago.
In 2009 a home grown oil company called Marbob Energy Corporation sued the state of New Mexico. It argued that statutes under the Oil and Gas Act of 1935 did not give the state direct authority to levy fines against the industry. The state supreme court agreed. Since then, companies who violate the Oil and Gas Act haven't paid a penny in penalties.
Bill Brancard is the lead attorney for New Mexico's Energy, Minerals and Natural Resources Department (NMEMNR), position he took after the Marbob case.
"My sense when I took over here was that they were sort of at a loss…after Marbob," Brancard said. "They had this tool; it was taken away from them. They didn't quite know what to do."
Brancard also oversees the Oil Conservation Division, or OCD. It’s the state agency in charge of enforcing oil and gas law. In the seven years before Marbob, OCD levied $2.4 million in fines, according to data complied by the state attorney general's office. After Marbob, the agency had to rethink its strategy.
"Well, we work a lot closer with operators now than we probably did before," said Daniel Sanchez, enforcement supervisor at OCD headquarters in Santa Fe.
Sanchez said that's a good thing.
"It's created a better rapport with a lot of these operators," he said. "It's a lot easier for them to call us and say, 'Look, we have a little issue out here can you help us with it.'"
Now OCD deals with a lot of problems informally: either face to face, over the phone, or via email. Without fines, it plays the good cop. It relies on voluntary compliance. That is, when it comes to following the rules, operators are mostly on the honor system.
"The majority of operators in the state, I believe, are doing the right thing and they want to do the right thing," Sanchez said.
Current and former OCD employees agree that most oil and gas companies operate responsibly. But what about the ones that don’t? What tools does the OCD have?
"All our sanctions are extreme. They all affect the operator's ability to produce," said Gail MacQuesten, an attorney who retired from the OCD in 2011.
MacQuesten helped create a rule known as 5.9. It allows the OCD to target problem operators. When an operator repeatedly refuses to follow orders, 5.9 allows the OCD to deny that operator permits to drill new wells, transport oil, and inject wastewater underground. Essentially it’ll put an operator out of business. But, according to MacQuesten, it’s not enough.
“To have an effective enforcement program you have to have a variety of tools to deal with different enforcement situations," she said.
Rule 5.9 only applies to egregious violations. What’s missing, MacQuesten said, is the ability to deal with minor violations.
“Minor violations that may lead to a serious problem in the future," she said.
The OCD website currently shows only seven operators in violation of 5.9. But a 2012 study by the nonprofit group Earthworks suggests the number of problem operators is greater. They looked at hundreds of instances where OCD flagged an operator for both serious and mild violations. In the cases involving a serious violation, Earthworks found 53 percent of operators complied with the rules within two years. With minor violations, less than half complied within two years.
Fines, MacQuesten said, could help OCD target smaller violations before they become major violations.
"Nowadays we don’t have that option," she said. "And frankly what the operator can do is delay and delay and delay"—until the problem gets big enough to impose the more serious sanctions. Then, if the operator complies at the last minute, MacQuesten said, he’ll suffer no penalty.
"Meanwhile the OCD has spent tremendous amount of time and money in pursuing enforcement. And every other operator out there will look at that operator...and say, 'Why should I comply? I can put off that expense for as long as possible and nothing will happen to me,'" she said.
But among OCD leadership the belief is that fines are not a magic solution to the agency's problems.
"I think the agency at this point is comfortable with the authority we have to get compliance with the industry," said Brancard.
The OCD brushed off a 2013 attempt by a state lawmaker to strengthen the agency’s authority. Only legislators have the power to change how OCD operates.