Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance
committees of the Legislature. LFC does not assume responsibility for the accuracy of these reports if they
are used for other purposes.
F I S C A L I M P A C T R E P O R T
SPONSOR
Pope
LAST UPDATED
ORIGINAL DATE 2/12/2025
SHORT TITLE Produced Water & Abandoned Wells
Fun
d
BILL
NUMBER Senate Bill 178
ANALYST Davidson/Torres
REVENUE*
(dollars in thousands)
Type FY25 FY26 FY27 FY28 FY29
Recurring or
Nonrecurring
Fund
Affected
EMNRD $0
$34,000.0 to
$80,490.0
$68,000.0 to
$79,900.0
$68,000.0 to
$78,230.0
$68,000.0 to
$74,670.0
Recurring
Plugging and
Remediating
Abandoned
Wells Fund
(proposed)
Parentheses ( ) indicate revenue decreases.
*Amounts reflect most recent analysis of this legislation.
ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT*
(dollars in thousands)
Agency/Program
FY25 FY26 FY27
3 Year
Total Cost
Recurring or
Nonrecurring
Fund
Affected
EMNRD No fiscal impact $210 $210 $420 Recurring General Fund
Parentheses ( ) indicate expenditure decreases.
*Amounts reflect most recent analysis of this legislation.
Relates to House Bill 137
Sources of Information
LFC Files
Agency Analysis Received From New Mexico Attorney General Energy, Minerals and Natural Resources Department
New Mexico Environment Department
Agency Analysis was Solicited but Not Received From
Department of Finance Administration Tax and Revenue Department Agency Declined to Respond
Office of the State Engineer Senate Bill 178 – Page 2
SUMMARY
Synopsis of Senate Bill 178
Senate Bill 178 amends the Produced Water Act, the Water Quality Act, and the Tax
Administration Act to impose a new fee on produced water from oil and gas wells and restrict
the use of produced water outside the oilfield. The bill establishes a 5 cent per barrel fee on
produced water, with exemptions for water used in enhanced oil recovery, recycled or reused at a
permitted facility, or regulated under the Water Quality Act. Revenue collected from this fee will
be deposited into the newly created plugging and remediating abandoned wells fund, which will
be administered by the Oil Conservation Division (OCD) of the Energy, Minerals and Natural
Resources Department to address abandoned well plugging and site remediation.
The bill also limits the use of produced water off the oilfield to research purposes only and
explicitly prohibits its use for agriculture, irrigation, potable water supplies, aquifer recharge,
industrial processes, environmental restoration, road maintenance, or construction activities. The
Taxation and Revenue Department will be responsible for collecting the produced water fee and
enforcing compliance, with the Tax Administration Act applying to its administration.
This bill does not contain an effective date and, as a result, would go into effect 90 days after the
Legislature adjourns if enacted, or June 20, 2025.
FISCAL IMPLICATIONS
Senate Bill 178 creates a new fund and provides for continuing appropriations. LFC has serious
concerns with including continuing appropriation language in the statutory provisions for newly
created funds because it reduces the ability of the Legislature to establish spending priorities.
Estimates for revenue generation are derived from the state’s Oil and Natural Gas Administration
and Revenue Database (ONGARD), the consensus revenue estimating group (CREG) forecast
for oil production, Oil Conservation Division data on volumes, and data on production by well.
The data were used to determine the amount of water produced per barrel of oil produced and
forecast future ratios of water to oil based on current trends. The resulting ratio starts at 3.34
barrels of produced water per barrel of oil in FY25 to 3.14 barrels of water per barrel of oil in
FY29.
Analysis then estimates exemption of water from fees due to use for enhanced or secondary oil
recovery, recycled or reused water, and permitted use. Based on 2023 data showing 2.3 billion
barrels of produced water, and about 27.1 percent of produced water reinjected or reused, about
72.9 percent of produced water could have a fee imposed. Finally, the program is expected to
increase treatment of water over time and is assumed to increase the fraction of treated and
reused water from 10 percent to 20 percent.
The table below reflects the resulting estimate for revenue collections based on the CREG
estimate for oil production, the estimated water produced to oil production ratio, the exempted
water amount, and the 5-cents-per-barrel fee.
Senate Bill 178 – Page 3
Total Produced
Water
(million bbls)
Non-Exempted
Produced Water
(million bbls)
$.05/bbl
(rounded)
FY22
1,861.3
FY23
2,245.5
FY24
2,386.1
FY25
2,490.5
FY26
2,568.5
1,609.8
$80,490.0
FY27
2,610.6
1,598.0
$79,900.0
FY28
2,618.2
1,564.6
$78,230.0
FY29
2,561.5
1,493.4
$74,670.0
The revenues estimated above are the high-end estimate included on page 1 of this analysis.
Agency estimates for revenues are based on 1.36 billion barrels of nonexempted water produced,
with half of that amount in the first taxable year. These estimates represent the low end of the
estimated revenues on page 1.
The Energy, Minerals and Natural Resources Department (EMNRD) notes implementation of
Senate Bill 178 could require recurring budget increases for the agency’s OCD. EMNRD
estimates it could need up to $210 thousand for two additional personnel to administer the new
fund the bill proposes to create.
Additionally, EMNRD estimates the projected revenue from the new produced water barrel tax
the bill creates could be between $85 and $90 million, based on OCD’s produced water reports.
OCD notes in 2023 the state produced 2.3 billion barrels of produced water, injected 411 million
barrels, and used 221 million barrels of produced water for completions, leaving roughly 1.7
million barrels of produced water that would fall under the new proposed produced water barrel
tax.
The Environment Department (NMED) notes the bill would require NMED to issue permits for
the use of produced water in research settings only but does not allow for NMED to use the
proposed fund to support the additional permitting actions taken on by NMED. NMED further
notes the bill would complicate current practice regarding discharge permits for produced water:
The current fee schedule in 20.6.2.3114 NMAC does not consider a fee for a discharge
permit specifically for produced water, which is not of the same volume and character as
would be found for domestic, mining, or industrial wastewater. This would require
amending 20.6.2 NMAC or trying to justify alternate permit fees under the current fee
schedule.
SIGNIFICANT ISSUES
Produced Water
Produced water is a byproduct of hydraulic fracking and is unique to the area it is drilled from,
resulting
in each barrel of produced water having a unique dissolved solids structure. Produced
water, depending on the area it is created from, has been found to have varying levels of toxic Senate Bill 178 – Page 4
and radioactive substances in it.
1
New Mexico produces roughly 2 billion barrels of produced
water a year. Portions of this produced water are recycled and reused in oil production, with the
industry getting to 60 percent of drilling use from reused water, in recent years.
Projects to clean produced water for industrial use, a standard varying dependent on use, have
not been achieved at a large scale and would require infrastructure the state does not have.
Cleaning produced water, removing the total dissolved solids (TDS) so that it can be used
beyond the oil field requires the removal of radioactive and toxic dissolved solids, a level of
water purification requiring substantial infrastructure. Currently, there are no plans to clean
produced water to drinking water level, which would require produced water to be clean to the
drinking water requirement of TDS level of less than 500 parts per million.
A study done by the U. S Environmental Protection Agency notes:
2
Based on information provided in this study, this is primarily due to the availability of
other wastewater management options that are lower cost, such as reuse within the oil
and gas field or disposal in Class II UIC wells, as well as the cost associated with treating
produced waters to a level suitable for discharge. Industry indicated that unless the
produced water has total dissolved solids concentrations generally of less than a few
thousand milligrams per liter, treatment using membranes (e.g., reverse osmosis) or
distillation would be necessary to generate water that is suitable for agricultural uses or
for discharge to surface waters. The cost of such treatment is not currently competitive
where other wastewater management options are available.
Research from the New Mexico Produced Water Consortium out of New Mexico State
University found a range of TDS in produced water from the Permian Basin between 100,800 to
201,500 TDS mg/L.
3
Agency Analysis
EMNRD notes Senate B
ill 178 duplicates the purpose and application of the state’s reclamation
fund, a fund used by OCD for the same work and a fund the division can use for administrative
costs, which Senate Bill 178’s fund does not. The New Mexico Attorney General (NMAG)
echoes concerns the bill’s proposed fund is duplicative and if passed could complicate
operations.
NMAG analysis notes the bill is unclear on how its “prod
uced water fee” is to be interpreted
regarding its context with the Tax Administration Act, as well as how to interpret it “in harmony
with the proceeding environmental fees which also contain the “which fee shall be considered a
tax” language.”
NMED expresses concerns the proposed changes to
the Produced Water Act conflict with the
current proposed regulation changes before the Water Quality Control Commission (WQCC).
NMED notes, due to the possibility of passage of the bill before a ruling is issued by WQCC,
passage of Senate Bill 178 could create conflict and possibly negate the rulemaking process
currently done by WQCC.
1
https://www.epa.gov/radiation/tenorm-oil-and-gas-production-wastes
2
https://www.env.nm.gov/opf/wp-content/uploads/sites/13/2024/05/108-110.pdf
3
https://nmpwrc.nmsu.edu/resources/documents/2022-JHM-Characterization-of-PW-and-Pecos-River-quality.pdf Senate Bill 178 – Page 5
NMED analysis notes implementation of the new proposed rules in the bill would be difficult
because the bill does not differen
tiate treated and not treated produced water. The current bill
does not distinguish if the rules regarding produced water reuse apply to treated and not treated
produced water, only stating the rule applies to simply produced water. NMED analysis notes
clarifying the application of the rule would aid in implementation.
NMED notes the bill’s striking of the language “for activities unrelated to the exploration,
drilling, production treatment or refinement of oil or gas,” and thus requiring permits to be issued
by NMED, would complicate the current delegation of authority between OCD and NMED.
Further, NMED notes the bill’s removal of “treated produced water” prevents any future reuse
scenarios and further complicates the current rule making process before WQCC.
NMED expresses concern regarding Senate Bill 178’s proposed language for “use of produced
water permitted by the department.” NMED notes:
This language is not clear on “permitted” as in allowing, or “permitted” as in issuance of
a ground water discharge permit. This leads to the second issue in the section where it
states “produced water shall be used for research purposes only, and permits for use shall
not allow...discharge of produced water.” This language is contrary to what regulations
currently allow under 20.6.2 where a permit is issued for a potential discharge. This
makes implementation an issue.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
Senate Bill 178 duplicates the produced water barrel tax proposed in House Bill 137 but conflicts
in purpose, with SB178 restricting the use of produced water to the oil field and HB137
promoting the use of treated produced water as a way to reduce the state’s reliance on fresh
water. Senate Bill 178 creates a different fund than House Bill 137. Passage of both bills would
complicate the use of the tax revenue.
TECHNICAL ISSUES
NMED notes language within Senate Bill 178 is not consistent with current authority and
practice reg
arding which entity will promulgate rules regarding regulations. The bill currently
rests this authority with OCD, when currently the role falls to the Oil Conservation Commission.
NMED also notes the bill would complicate current authority held by OCD, noting the bill
proposes new language which:
Adds restrictions on the “construction maintenance, roadway ice or dust control or other
construction.” This is in conflict with OCD’s authority to permit such activities within the
delegation granted by the WQCC. Language needs to be added back clarifying that the
rules to be adopted and administered by the environment department are limited to those
“activities unrelated to the exploration, drilling, production, treatment or refinement of oil
and gas.”
AD/IT/rl/hg