Matador Production fined $176,000 by State for oil and gas 'commingling' violations

An oil and gas operator in the Permian Basin was fined $176,000 by the New Mexico Oil Conservation Division (OCD) for violating its permit by combining oil and gas from separate wells for storage without state approval.

Matador Production was served a notice of violation on Monday for the offense the state reported took place at two wells and a tank battery in Lea County where Matador illegally commingled its production.

The company did not respond to a request for comment.

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Commingling is allowed with state approval to offset storage costs by allowing multiple wells to feed into the same storage facility.

Matador was authorized to commingle on May 15, but the OCD contended it began the process months before in November 2019 as the two wells began to produce.

The fine was assessed from February 25, when the OCD’s authority to issue fines began until April 30.

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In total, the OCD proposed to asses a fine of $176,000 at $1,000 per day for 80 days and including additional charges due to Matador having more than 500 wells registered with OCD and gross sales above $10,000.

“Matador knew that it needs a permit to commingle production from the wells but commenced to commingle and continued to commingle from December 1, 2019 until OCD issued the order on May 15, 2020,” read a violation summary issued by the OCD.

Following the notice of violation, Matador had the ability to either challenge the notice before the Oil Conservation Commission or resolve the issue with the State and potentially see a lower fine.

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If the problem was not resolved within 30 days, the OCD would hold a hearing to assess the penalty which could increase in cost.

“If OCD and the alleged violator agree to resolve the alleged violations in the (notice of violation), the agreement will be incorporated into a stipulated final order signed by both parties and stating that the alleged violator admits OCD’s jurisdiction to file the (notice of violation), consents to the specified relief, including the civil penalty, if any, and waives the right of review by the Oil Conservation Commission,” read the notice.

OCD spokesperson Susan Torres said commingling regulations are important to ensure producers get their fair share of the production stored at the central tank battery.

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She said commingling also allows for less surface disturbance and reduced operational costs.

“The production from each well is determined by one of several allocation methods which are designed to ensure that each owner of the wells being commingled gets their just and equitable share of the oil and gas sold at the central tank battery,” Torres said.

“When done correctly this allows for less surface use and reduced operational costs preventing waste while maintaining protection of correlative rights. OCD requires operators to obtain authorization to commingle multiple leases together prior the commingling occurring in order to ensure royalty owners are given their equitable share.”

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OCD Director Adrienne Sandoval said violating commingling requirements undermines the Division’s ability to protect the rights of operators throughout the state.

“Operating without a permit takes away OCD’s ability to review a permit application for compliance with our rules and statutes before an operator starts to commingle oil production,” Sandoval said.

“Without proper permitting the OCD cannot ensure that the correlative rights of other interest owners are protected as required by state law.”

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The OCD’s ability to fine operators in violation of state law was established in January after House Bill 546 was passed during the 2019 Legislative Session

Before HB 546 was passed, the OCD reported only three penalties were issued in the past decade.

It directed the State’s Oil Conservation Commission to undertake a rulemaking process as the bill went into effect.

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A draft rule was approved on Jan. 2 by the Commission, allowing the OCD to issue penalties for the first time since 2009.

Fines ranged from $2,500 to $10,000 per day, with any fines totaling more than $200,000 required to be issued by a court.

“Reinstating the Division’s authority to assess civil penalties gives us another tool in our toolbox to ensure that the oil and gas industry is acting responsibly in New Mexico,” Sandoval said.

“New Mexico is a great example of how industry can thrive while also being responsible, and this new rule is another step in the right direction to improving regulatory compliance and ensuring a level playing field for diligent operators.”

Adrian Hedden can be reached at 575-628-5516, achedden@currentargus.com or @AdrianHedden on Twitter.