Marker v. N.M. Oil Conservation Comm'n

LARRY MARKER, Applicant-Appellant, v. NEW MEXICO OIL CONSERVATION COMMISSION, Respondent-Appellee,andNEW MEXICO OIL CONSERVATION DIVISION, Intervenor-Appellee,

IN THE MATTER OF THE PROPOSED AMENDMENTS TO THE COMMISSION'S

RULES ON FINANCIAL ASSURANCE AND PLUGGING AND ABANDONMENT

OF WELLS, 19.15.2, 19.15.8 AND 19.15.25 NMAC STATEWIDE.

and (consolidated for purpose of opinion)

LARRY MARKER, Applicant-Appellant, v. NEW MEXICO OIL CONSERVATION COMMISSION, Respondent-Appellee,andNEW MEXICO OIL CONSERVATION DIVISION, Intervenor-Appellee,

IN THE MATTER OF PROPOSED AMENDMENTS TO THE COMMISSION'S

RULES ON COMPLIANCE AND ENFORCEMENT, 19.15.5 NMAC; STATEWIDE.

No. A-1-CA-37860

No. A-1-CA-38814

COURT OF APPEALS OF THE STATE OF NEW MEXICO

April 19, 2021

This decision of the New Mexico Court of Appeals was not selected for publication in the New Mexico Appellate Reports. Refer to Rule 12-405 NMRA for restrictions on the citation of unpublished decisions. Electronic decisions may contain computer-generated errors or other deviations from the official version filed by the Court of Appeals.

APPEAL FROM THE NEW MEXICO OIL CONSERVATION COMMISSION

Adrienne Sandoval and Heather Riley, Chairs

Larry Marker

Albuquerque, NM

Pro Se Appellant

New Mexico Energy, Minerals and Natural Resources Department

William R. Brancard, Special Assistant Attorney General

Santa Fe, NM

for Appellee in No. A-1-CA-37860

Hector H. Balderas, Attorney General

Christopher Moander, Assistant Attorney General

Sally Malave, Assistant Attorney General

Santa Fe, NM

for Respondent-Appellee in No. A-1-CA-38814

New Mexico Energy, Minerals and Natural Resources Department

William R. Brancard, Special Assistant Attorney General

Eric Ames, Special Assistant Attorney General

Santa Fe, NM

for Intervenor-Appellee in No. A-1-CA-38814

MEMORANDUM OPINION

HANISEE, Chief Judge.

{1} Petitioner Larry Marker (Petitioner)¹, a self-represented litigant, appeals the New Mexico Oil Conservation Commission's (the Commission) rulemaking action amending the rules of financial assurance. Petitioner broadly alleges that in adopting the rule, the Commission acted arbitrarily and capriciously, failed to consider substantial evidence, and violated rulemaking procedures. Finding no error on the part of the Commission, we affirm.

BACKGROUND

{2} The New Mexico Oil and Gas Act (the Act), NMSA 1978, §§ 70-2-1 to -39 (1935, as amended through 2019), provides concurrent jurisdiction and authority to the Commission and the Oil Conservation Division of the Energy, Minerals and Natural Resources Department (the Division) and broadly empowers the agencies to regulate oil and gas operations in the State. See § 70-2-6(B). The Act requires the Commission to be comprised of three members, two of whom must possess expertise in the areas they regulate. See § 70-2-4. The third member of the Commission additionally serves as the director of the Division and must be a registered petroleum engineer or "by virtue of education and experience have expertise in the field." Section 70-2-5(B)(3). The agencies are concurrently empowered to prevent waste, protect correlative rights, enforce rules and regulations, and "do whatever may be reasonably necessary to carry out the purpose of [the A]ct." Section 70-2-11(A).

{3} As a precondition to drilling or producing a well, the operator of the well must provide financial assurance to the Division, which runs "to the benefit of the state and [is] conditioned that the well be plugged and abandoned" upon cessation of use. Section 70-2-14(A). Plugging refers to the act of permanently closing an abandoned well. The purposes of well plugging requirements are to stop waste from escaping a well and to prevent the pollution of fresh water supplies. Nancy Saint Paul, Summers Oil and Gas, § 4:42 Plugging of Abandoned Oil Wells (3d. ed. Nov. 2020). The Act authorizes the Commission to promulgate rules concerning the requirement for financial assurance "conditioned for the performance of the rules[.]" Section 70-2-12(B)(1). "If any of the requirements of the [Act] or the rules promulgated pursuant to the [A]ct have not been complied with, the [Division], after notice and hearing, may order any well plugged and abandoned by the operator[.]" Section 70-2-14(B). The Act mandates two categories of financial assurance for active wells: (1) a blanket plugging financial assurance for temporarily abandoned wells and (2) one-well plugging financial assurance "in amounts determined sufficient to reasonably pay the cost of plugging the wells covered by the financial assurance," which is required for any well that has been held in temporarily abandoned status for more than two years. Section 70-2-14(A). In 1977, the Legislature established a cap of $50,000 for blanket financial assurance in 1977. 1977 N.M. Laws, ch. 237, § 3. In 2018, the Legislature amended the cap on blanket assurance to $250,000. 2018 N.M. Laws, ch. 16, § 2. To implement the increase, the Commission proposed four tiers of blanket plugging financial assurance: (1) $50,000 for operatorswith one to ten wells, (2) $75,000 for operators with eleven to fifty wells, (3) $125,000 for operators with fifty-one to one hundred wells, and (4) $250,000 for operators with more than one hundred wells.

{4} On March 28, 2018, the Division filed an application for rulemaking with the Commission to amend the rules governing financial assurance. At a public meeting held on April 12, 2018, the Commission voted to hold a public hearing on the proposed rule. Although the hearing was originally scheduled for May 24, 2018, it was continued to July 19, 2018. The Commission provided public notice of both. During two days of hearings on July 19 and 20, 2018, the Division presented two technical witnesses who explained and supported the proposed rule changes. The Division also offered exhibits in support of the proposals. Two members of the public, Petitioner and Rory McFinn, also testified at the hearing and raised concerns about the financial impact of the proposed rule for low-volume operators. Petitioner proposed an amendment of $5,000 plus an additional $2 per foot for one-well financial assurance.

{5} Independent Petroleum Association of New Mexico (IPANM), the sole intervening party to the proceedings, offered modifications to the amended blanket insurance rule and proposed a blanket bond of $25,000 less for each tier than what was required under the prior rules for operators with one to ten wells. Responding to requests from the Commission, the Division provided exhibits comparing the impacts of IPANM and Petitioner's proposed modifications to the tiers on current operators. The Commission commenced deliberations on July 20, 2018, and after reviewing the proposed rule changes, the modifications submitted by IPANM and Petitioner, and the evidence presented at the hearing, the Commission adopted the amended rule as Order R-14834 (the Order) on August 20, 2018.

{6} Pursuant to Section 70-2-25(A), Petitioner submitted a request for a rehearing with the Commission on September 6, 2018. Although Petitioner was not technically eligible for a rehearing as he was not a party to the proceedings, the Commission voted to conduct a rehearing limited to the applicability of the financial assurance rule to wells requiring federal assurance, and in doing so allowed Petitioner to become a party. The Commission also ordered the Division to propose amendments to 19.15.8 NMAC, which addressed the application of financial assurance requirements on federal wells. The rehearing was conducted on November 15, 2018, was attended by Division personnel, and included appearances by IPANM and Petitioner. At the rehearing, the Division also proposed an additional rule revision—wells requiring federal assurance would be excluded from the calculations used to determine the tiers of blanket-financial assurance. Petitioner supported this revision but raised his continued concerns about the difficulty for small operators to comply with the revised tiers for blanket bonds. The Commission voted to adopt the rule changes based on the Division's proposal, including the revision to exclude wells requiring federal financial assurance. Further applications for rehearing were submitted by Petitioner and denied as a matter of law by the Commission. The rule changes became effective on January 15, 2019, and this appeal followed.

DISCUSSION

{7} Although Petitioner's arguments on appeal are at times unclear and unsupported, we understand them to be as follows: (1) the amendment was not supported by substantial evidence; (2) the adoption of the rule was arbitrary and capricious; (3) the Commission did not follow the required rulemaking procedure; and (4) the Commission violated procedural due process. Petitioner requests that we void and rescind the Order of the Commission and allow the Division to repetition the Commission. The Commission answers that the rule changes were supported by substantial evidence, were not arbitrary and capricious, and followed required rulemaking procedures.

Standard of Review

{8} In reviewing an administrative order on its merits, we conduct the same review as the district court sitting in its appellate capacity. See Rio Grande Chapter of Sierra Club v. N.M. Mining Comm'n, 2003-NMSC-005, ¶ 16, 133 N.M. 97, 61 P.3d 806. Thus, we determine: "(1) whether the agency acted fraudulently, arbitrarily, or capriciously; (2) whether based upon the whole record on review, the decision of the agency is not supported by substantial evidence; (3) whether the action of the agency was outside the scope of authority of the agency; or (4) whether the action of the agency was otherwise not in accordance with law." Rule 1-075(R) NMRA. An agency's action is arbitrary and capricious if it is "unreasonable or without a rational basis, when viewed in light of the whole record." Archuleta v. Santa Fe Police Dep't ex rel. City of Santa Fe, 2005-NMSC-006, ¶ 17, 137 N.M. 161, 108 P.3d 1019 (internal quotation marks and citation...