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New Mexico Completes Initial Hearings on 'Pit Rule'

New Mexico has completed initial hearings on a request from the state's two main energy industry groups that the "pit rule" be modified to make it more cost effective. The hearings are scheduled to continue June 20 in Santa Fe, NM.

Put on hold by a state judge until a hearing scheduled for June (see Daily GPI, Feb. 28), the Independent Petroleum Association (IPA) and Oil and Gas Association (OGA) have continued to seek administrative changes to New Mexico's rules for handling natural gas and oil drilling production waste. IPA and OGA representatives told the state Oil Conservation Commission (OCC) last week that their costs are rising to comply with the pit rules, and local ranchers expressed environmental concerns.

While different stakeholders expressed varying perspectives on how to structure the rules, they all agreed that oil and gas development needs to move ahead. The question is how best to protect water and land uses. The landowners view the pit rule as their means of assuring some protection without shutting down energy development.

Five industry representatives -- Jerry Fanning from Yates Petroleum and the chair of New Mexico's OGA, three environmental consultants, a minerals expert and a soils expert -- provided testimony and were subject to cross-examination before the three-member OCC, which includes state oil conservation division director Jami Bailey, state Land Commissioner Greg Bloom and state Minerals and Natural Resources Commissioner Robert Balch.

Last Monday, during the first of four hearing days, the commissioners rejected two motions by the New Mexico Environmental Law Center calling for Bailey and Balch to disqualify themselves because of alleged bias and prejudgment of the issues, and a motion for Bloom to recuse himself. The OCC also denied a motion to bring into the hearings the record from the 2008 pit rule hearings.

A group of 10-15 protesters entered the hearing room after lunch the first day and a smaller group the second day, but eventually left and never disrupted the proceedings, according to the OCC's communications director.

In his direct testimony, Fanning said the current rules have created problems and confusion for operators. The proposed amendments supported by the industry would "allow operators clarity on what they need to do to remain in compliance," he said.

One of the environmental consultants, petroleum engineer James Arthur, discussed the history of New Mexico's estimated 80,000 to 100,000 oil/gas production pits, saying that they have experienced a good success rate.

Court challenges are pending by both the industry groups and environmentalists. Earlier this year the OCC was looking at making some changes (see Daily GPI, Jan. 12) but the hearing was postponed.

The case is a legal entanglement that could go on for years before reaching the New Mexico Supreme Court, according to industry representatives, who noted that environmentalists appear committed to dragging out the process. Last fall the industry groups took two steps aimed at revising a regulation established in 2008 to handle waste produced at drilling and production sites. The associations allege that the pit rule drives up costs and chases drilling rigs to other states (see Daily GPI, Oct. 7, 2011).

Environmentalists have accused producers of trying to gut groundwater contamination rules. Association officials contend that by modifying the rules more wells will be drilled, which would mean more positive economic stimulus.

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