Summary:

 House Bill 457 (HB 457) enacts the Geologic Carbon Dioxide Sequestration Act. It provides for unitization of formations for subsurface sequestration of carbon dioxide. HB 457 creates the Oil Conservation Division Systems and Hearings Fund and establishes fees.

 

Legislation Overview:

 House Bill 457 (HB 457) enacts the Geologic Carbon Dioxide Sequestration Act which has nine definitions: carbon dioxide; commission; director; division; geologic sequestration; operator; pore space; sequestration facility; and sequestration unit.  
HB 457 permits the sequestration of carbon dioxide under this Act and applies the Act’s provisions to those sequestration facilities that commence injection after the effective date of the 2025 act with an exception. It does not apply to the injection of carbon dioxide in connection with enhanced oil and gas operations, commonly known as fracking, and does not supercede existing mineral rights, existing surface rights or existing disposal rights. HB 457 grants to the Oil Conservation Division (OCD) of the Energy, Minerals and Natural Resources Department (EMNRD) the authority to adopt rules, issue orders for implementation of, and enforce the provisions of the Act. 
HB 457 obliges the operator that desires to form a sequestration unit to acquire the rights necessary within the proposed sequestration unit prior to unitization of such interests as provided for in section 5 of this Act. It requires that the lands to be included will be of a sufficient area that would reasonably contain the migration of the sequestered carbon dioxide and identify the reasonable area for buffer and subsurface monitoring zones required by federal or state law, rule, regulation, order or permit. It gives the commissioner of public lands the authority to grant operator rights for geologic sequestration on lands subject to its jurisdiction on such
terms as it finds are reasonable and that provide compensation equal to the fair market value of the rights. The OCD grants the operator the right to form and commence operation of such a sequestration.
HB 457 allows an operator to apply for the unitization of a geologic formation or formations for geologic sequestration of carbon dioxide. The OCD shall issue such an order upon finding that the requirements of sections 5 and 6 of the Act have been met. The application must contain a copy of a permit or draft permit for such injection if required under federal law; a description of the proposed geologic formation or formations and a plat of the surface lands including buffer and subsurface monitoring zones; the names and addresses the owners of the surface estate within the proposed sequestration unit and of lands within one-half mile of the exterior boundary of the proposed sequestration unit as disclosed by certain county record or  state or federal agencies. The same notice requirement applies to the owners of mineral estates and mineral lessees and owners of the pore space. The application includes detailed information including the capacity of the formation; the anticipated pressure of each formation; if available, the proposed locations, type, and depth of and casing program for the wells; anticipated dates and timelines concerning the commencement and life of the sequestration facility; and the amount of compensation the owner proposes to pay whether based on volume of carbon dioxide injected or acreage.  The compensation includes owners in the buffer and monitoring zones. It provides for cases where the surface and subsurface rights have been severed.
HB 457 requires the OCD to hold a hearing and establishes the notice and timelines required under this Act in addition to those required by law or by OCD rules. It provides for methods of notice to unknown or non-locatable owners and the specific information to be contained in this additional notice.
HB 457 details the findings the OCD should make after a hearing on the application if established by the evidence. The necessary findings involve the suitability and capacity of the sequestration unit; non-contamination of mineral rights unless the owners of these mineral rights have consented to the sequestration unit; the fairness of the compensation paid to certain classes or groups of owners including those in the buffer or monitoring zones; and that the formation or stratum sought to be utilized is not being used or currently proposed to be used for mineral development or for another sequestration unit; the owner has made a good faith effort to secure the sequestration unit through voluntary agreements and has secured agreement from at least eighty-five of the owners. It requires a finding that the application contains the information required and that it does not violate stipulations within the Oil and Gas Act for the prevention of waste and preservation of correlative rights. An order will not be issued until the operator receives agreements from at least eighty-five percent of the owners as defined. If the agreements are not provided within six months of the application’s submittal, the OCD will revoke the application unless the OCD finds there is good cause to extend the time for ratification for up to another six months only. 
HB 457 allows the OCD to amend an order after certain notices have been provided and a hearing held on the expansion, modification or other amendments proposed. It requires that a certified copy of any OCD order pursuant to this section be filed in the land records of the counties where a portion of the sequestration unit and attendant buffer and monitoring zones are located. 
HB 457 states that the effect of a unitization order providing for a sequestration unit only conveys the right to inject carbon dioxide into the formation or formations subject to the sequestration unit. It requires a separate agreement between the surface owner and operator to use the surface for access and sequestration facilities. HB 457 specifies that no order or agreement may violate the terms and requirements of well permits within the sequestration unit and does not convey the right of eminent domain. It provides the formula for establishing pro rata shares of the proceeds for the sequestration of carbon dioxide based on a ratio of the part over the whole acreage. It requires the owner to deposit an unlocatable or unknown owner’s share into an interest bearing account for a period of five years or until it is distributed to the rightful owner, whichever is less.  If unclaimed after five years, the NM Taxation and Revenue receives the amount of the unclaimed share.
HB 457 limits the ownership of the injected carbon to the operator and prohibits surface or mineral owners or lessees any right to claim or control the carbon dioxide within the sequestration unit unless approved by the operator and OCD or for certain oil and gas drilling operations. A person operating a sequestration unit or facility in compliance with an order or certificate is not considered a public utility or a common carrier as defined in the Oil and Gas Act.
HB 457 does not prevent a mineral owner or lessee from drilling through a sequestration unit or near a sequestration facility as long as the owner or lessee takes reasonable measures to protect the facility against escape of the stored carbon dioxide. It does not affect or limit any enhanced oil recovery or enhanced gas recovery project permitted by the OCD or the Oil Conservation Commission (OCC) or prohibit use of human-caused or naturally occurring carbon dioxide in such projects.
HB 457 conveys authority to the OCD to establish rules to impose both annual regulatory fees and application fees—either fee is to be based on projected or anticipated cost to the OCD for oversight and regulation of sequestration facilities or for processing the application.
HB 457 creates the nonreverting Oil Conservation Division Systems and Hearings Fund that is funded by the annual regulatory fee and the application fee established in this Act. The legislature may appropriate money from this fund to the OCD to develop and modernize the division's online application processing system, online case management system and online case file system and for other technical upgrades and hearing administration costs needed to support an underground injection control class VI program, including programmatic personnel.
HB 457 declares that owner or owners of the surface area above the strata own the pore space in all subsurface strata. It excludes a formation to the extent that the dominant mineral estate is utilizing the surface estate for mineral production from the provisions of this Act.  HB 457 establishes that a conveyance of the surface ownership of real property is a conveyance of the pore space unless previously severed. It allows for conveyance of ownership of the pore space and prohibits an agreement conveying mineral or other interests underlying the surface to include ownership of any pore space unless explicitly conveyed. It excludes notice to the owner of a pore space when notice is required to be given to a surface owner, an mineral interest owner, or both unless the law so specifies.
 

Amendments:

 3/7/25
The House Commerce and Economic Development Committee amended HENRCa/HB 457 (HCEDCaa/HB 457 by adding tribal consultation in Section 3 of the act that gives the OCD authority to make rules concerning carbon sequestration.  It requires the EMNRD and the OCD to consult with New Mexico Indian nations, tribes and pueblos that may have an interest in surface and subsurface impacts associated with specific carbon sequestration permit proposal in a manner consistent with Section 11-18-3 NMSA 1978.

3/1/25
The House Energy, Environment and Natural Resources Committee amended HB 457 (HB 457A HENRC) by changing the Roman numerals to Arabic numbers when referencing class 2 or class 6 underground injection control wells throughout the bill.  Under the Applicability section of the Sequestration Act, HB 457A HENRC clarifies that pore space ownership is separate from the mineral estate, resides with the surface owner, and may be severed from the surface estate. It makes a technical change when referencing the Sequestration Act in the Applicability section.
HB 457A HENRC adds to the application requirements for unitization of sequestration facilities a specific actionable and measurable community benefits plan that includes a process for community engagement and that is designed to provide broadly shared benefits to the public who are or may be affected by the sequestration unit or associated facilities. It clarifies that the applicant must submit copies of any permit applications and, if available, any permits or draft permits for injection of carbon dioxide required under applicable federal or state law rather than limiting it to injection of carbon dioxide permits or draft permits required by federal law.