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New Mexico Proposes Easing Restrictions on Oil, Gas Pits

New Mexico Gov. Bill Richardson has called on state regulators to work with the oil and natural gas industry to ease restrictions in the state's pit rule, which producers have directly linked to the downturn in drilling in the state.

New Mexico as of Friday was running a total of 46 oil and gas rigs, according to Baker Hughes Inc. That's down from 50 rigs running in the state for the week ending Feb. 13, and well below the 68 rigs a year ago and 84 rigs in February 2007, according to Bob Gallagher, CEO of the New Mexico Oil and Gas Association. Drilling has fallen 35-50% since 2006.

"You can't blame that [drop] all on low prices," Gallagher told NGI. "The state is now in dire financial straits," he said, explaining why Richardson supports relaxing some of the restrictions for producers. The projected budget deficit for New Mexico this year is $500 million, and $750 million next year, Gallagher said. Oil and gas producers, the largest nongovernment industry in the state, contribute 20-25% of the state's budget.

New Mexico's Oil Conservation Division (OCD) is proposing six changes to the rule governing pits, which would "relax it a little bit without impacting the environment," Gallagher said. Drilling muds associated with production are held in pits temporarily (three months) and then are transported to one of three disposal sites in the state. The existing rule severely curtailed the permanent, on-site disposal of pit waste, which had been the industry norm.

A major change being contemplated would involve the burial closure standard, which regulates burial of waste material from oil and gas production, Gallagher said. The current regulation restricts waste burial to 250 milligrams/liter of chlorides. But proposed revisions would increase the level to 3,000 milligrams/liter and would include a comparison to background concentrations at the site.

"This is an extremely significant change. I believe it will have a major impact on the cost of doing business in New Mexico," he noted. He estimated it cost producers $150,000 to $300,000 more per well to test, haul and dispose of waste contents under existing rules. But the proposed rule would allow producers to bury waste material on-site, eliminating the hauling and disposal cost, according to Gallagher.

Implementing a number of the changes will require amendments to the pit rule by the OCD, while others will be routine administrative revisions, he said. Gallagher said he expects the changes to go into effect within 30-45 days.

In addition to amending the waste burial standard for chlorides, the OCD proposes to:

A number of major producers and large independents are active in New Mexico, including ConocoPhillips, BP America, Chevron U.S.A Inc., Devon Energy Corp., XTO Energy Inc., Williams Production Co LLC, Yates Petroleum, El Paso E&P Co. LP, Marathon and Chesapeake Operating Inc.

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