The House Energy, Environment, and Natural Resources Committee substitute for House Bill 403 (HENRCcs/HB 403) modifies the Oil and Gas Reclamation Fund by increasing the portion of the Oil and Gas Conservation Tax allocated to the fund and revising how funds can be used. The bill phases in an increase in tax revenue distributed to the fund over three years, eventually reaching 100% of net receipts. It also appropriates all money in the fund to the Oil Conservation Division of the Energy, Minerals and Natural Resources Department for specific purposes, including personnel for well surveys and planning for plugging abandoned wells and restoring well sites. 

 House Bill 403 (HB 403) modifies the distribution of revenue from the Oil and Gas Conservation Tax, increasing the amount allocated to the Oil and Gas Reclamation Fund. The bill removes outdated provisions specifying previous tax rates and instead states that all net receipts attributable to the tax under the Oil and Gas Conservation Tax Act will be distributed to the fund.

The bill also changes how money in the fund can be spent. Under current law, some funds were previously allocated for energy education, but HB 403 eliminates this provision. Instead, the bill mandates that the greater of $40,000,000 or 5% of the fund’s three-year average year-end market value be dedicated to:
	•  Employing personnel to survey abandoned wells, well sites, and associated production facilities.
	•  Administering well-plugging operations and remediating improperly abandoned sites.

The Oil Conservation Division of the Energy, Minerals, and Natural Resources Department will continue administering the fund and overseeing well-plugging and reclamation efforts. The division will retain authority to recover plugging costs from operators and will be required to submit an annual report on fund expenditures. HB 403 takes effect on July 1, 2025.

Implications

HB 403 significantly increases the financial resources available for well-plugging and environmental remediation, which could accelerate the cleanup of abandoned oil and gas sites in New Mexico. By eliminating the previous cap on fund expenditures, the bill allows for a more flexible and needs-based approach to addressing well abandonment.

The bill’s increased allocation of Oil and Gas Conservation Tax revenue to the reclamation fund may reduce the amount available for other state programs funded by this tax. However, the long-term benefits of reducing environmental hazards and potential liabilities from abandoned wells could outweigh the immediate fiscal trade-offs. The removal of funding for energy education programs could impact outreach and workforce development initiatives that previously relied on this allocation. 

 Under current law, only a portion of the Oil and Gas Conservation Tax revenue is allocated to the Oil and Gas Reclamation Fund. Additionally, fund expenditures were capped, and up to $150,000 was allocated annually for energy education programs. HB 403 removes these restrictions, prioritizing well-plugging and environmental remediation. 

 Committee Substitute February 22, 2025 in HENRC: 

HENRCcs/HB 403: The House Energy, Environment, and Natural Resources Committee Substitute for House Bill 403 revises Section 7-1-6.21 NMSA 1978 to gradually increase the percentage of Oil and Gas Conservation Tax net receipts distributed to the Oil and Gas Reclamation Fund. The percentage increases as follows:
   •  50% from July 1, 2025, to June 30, 2026
   •  75% from July 1, 2026, to June 30, 2027
   •  100% starting July 1, 2027

This change ensures that by 2027, all net receipts from the Oil and Gas Conservation Tax will be directed to the fund.

The bill also amends Section 70-2-38 NMSA 1978 by specifying that all money in the Oil and Gas Reclamation Fund is appropriated to the Oil Conservation Division. These funds must be used exclusively for:
   1.	Employing personnel to survey abandoned wells, well sites, and associated production facilities.
   2.	Preparing and executing plans to plug abandoned wells and restore affected sites.

The bill removes previous language allowing up to $150,000 annually from the fund to support energy education programs.

The Oil Conservation Division is required to report annually on fund expenditures and activities. Contracts for well plugging and site restoration must comply with the Procurement Code, and contractors may deduct proceeds from selling salvaged equipment from project costs.

The bill retains provisions allowing the state to seek reimbursement from responsible operators when public funds are used to plug abandoned wells. 

Implications of the Changes

The committee substitute makes the funding increase more gradual, allowing the state to adjust budget allocations over time. By phasing in the tax revenue shift, the bill avoids an immediate reallocation of funds that could impact other tax-supported programs. However, by 2027, the entire net receipt amount will be directed to the Oil and Gas Reclamation Fund, significantly expanding its financial resources for well plugging and environmental restoration.

By fully appropriating the fund for reclamation activities, the substitute strengthens the Oil Conservation Division’s ability to address abandoned wells and associated environmental issues. This change ensures consistent funding for remediation efforts without requiring additional legislative appropriations. However, it also means that these funds cannot be redirected for other purposes, limiting legislative flexibility.

The removal of energy education funding reflects a policy decision to concentrate resources on environmental remediation. While this ensures that funds are dedicated to well plugging and restoration, it eliminates financial support for educational initiatives that could have helped inform the public about energy-related environmental issues.