Update on New Mexico’s Methane Rules
EMNRD Finalized Regulations
A few weeks ago, on May 25, 2021, the EMNRD published its new rules which limit most venting and flaring of natural gas as part of New Mexico’s mission to reduce methane emissions. The rules are now in effect and are viewable in the New Mexico Register. The rules are adopted pursuant to the Oil and Gas Act and apply to persons engaged in oil and gas exploration within New Mexico.
The EMNRD’s published regulation at 22.214.171.124 NMAC declares venting and flaring of natural gas to be waste and prohibits it with limited exceptions. Those exceptions are different for each phase of operations: drilling, completion or recompletion, and production. There are a few exceptions to the general prohibition against venting and flaring, but other applicable state and federal laws can alter the rights of operators by narrowing the exceptions. The regulation requires operators to use system and equipment components that are designed to minimize the escape of natural gas, and the requirements for these components vary depending on when they were installed or replaced. Operators may need to conduct routine AVO (audio, visual, and olfactory) inspections, the frequency and necessity of which depend on a number of considerations, including well production capacity, whether the operator is on site, and whether there is a remote or automated monitoring technology to detect leaks and releases in lieu of inspections. Operators must measure and report instances of venting and flaring to the EMNRD monthly, and must make the records available for inspection by the EMNRD upon request. In addition to the monthly reporting forms, particular occurrences of certain types and quantities of venting and flaring mandate the operator to notify the EMNRD, and the procedure for communicating such releases varies depending on the type and quantity. Extra reporting requirements apply for wells or facilities in which the state owns a royalty interest.
The EMNRD’s published regulation at 126.96.36.199 NMAC requires operators, starting April 1, 2022, to capture no less than 98 percent of produced gas by December 31, 2026. Operators must first establish a baseline capture rate, which is determined by their final and first quarter reports of 2021 and 2022, respectively. Each successive year, operators must show ratable progress toward the 98 percent goal. The operator must increase its annual percentage of captured gas based on a mathematical formula provided in the regulation. An operator that has not met its annual capture requirements for the previous year must submit to the EMNRD a compliance plan demonstrating its ability to comply with its annual requirement for the current year. If the EMNRD still determines that the plan does not demonstrate ability to comply, then the operator’s approved APDs for wells not yet spudded will be suspended. The EMNRD may also take any other additional action authorized by law for failure to comply with its annual gas capture requirements, including shutting in wells and levying civil penalties. Operators may be asked by the EMNRD to retain a third party to conduct certain activities, such as data verification. Operators henceforth must also file natural gas management plans with each APD for a new or recompleted well, and these plans mandate necessary actions for each proposed well to comply with the capture requirements.
The EMNRD enacted similar regulations for natural gas gathering systems at 19.15.28. However, there are differences between 19.15.27 and 19.15.28 prescriptions, including inspection requirements, exceptions to the general prohibition against venting and flaring, and operations plans filings.
NMED New Proposed Regulations
On May 6, 2021, the NMED released its new proposed rule to regulate volatile organic compounds and nitrogen oxides in the oil patch. Located in 20.2.50 NMAC, this rule builds upon the initial draft that the NMED issued July 20, 2020. The rule is adopted pursuant to the Environmental Improvement Act and Air Quality Control Act, and applies to oil and gas production, processing, and transmission sources.
The proposed rule requires oil and gas operators to maintain sound specifications, engineering, and maintenance practices. It sets forth emissions standards as well as requirements for monitoring, recordkeeping, and reporting for various equipment and processes. Equipment includes engines, turbines, compressors, control devices, dehydrators, heaters, pneumatic controllers and pumps, storage vessels, and more. Processes include liquid unloading, liquid transfers, pig launching and retrieving, well workovers, and more. Emissions standards and monitoring, recordkeeping, and reporting requirements can vary among various types of equipment and processes, and can also vary between the same type of equipment or process.
The new rule contains many modifications from the July 20, 2020 rule, ranging from relatively small procedural revisions to large, substantive revisions. Perhaps most notably, the new rule omits from the previous draft the exemptions afforded to stripper wells and facilities with low PTE (potential to emit). Among other changes, the new rule added requirements for small business facilities, and the standards from the July 20, 2020 rule for evaporation ponds were supplanted with the same for produced water management units.
The new rule must be presented to the seven-member New Mexico Environmental Improvement Board before taking effect, and a public hearing before the Board is expected this fall. That process will provide additional opportunities for public engagement, including opportunity for written and oral comments. Pending the Board’s decision, NMED anticipates that the rule will go into effect in early 2022.
This article is authored by Modrall Sperling Shareholder Chris Killion and Summer Associate Shawn Ren