New Mexico Oilfield Acquisitions: Due Diligence Extends Beyond Environmental Liabilities

During the pre-acquisition phase, imagine you just received a satisfactory Environmental Site Assessment Report (ESA), and your purchase went through as planned.  But shortly afterwards, you are caught flat-footed to learn one or more of the following:

·         The seller did not hold an active state lease associated with the well, and a right of entry will be required for any onsite work.

·         NMSLO is requiring more remediation than you anticipated, and costs are getting out of control.

·         Your new facilities have legacy issues that will put your team squarely out of compliance with the new Gas Capture Rules that are enforced by the New Mexico Oil and Gas Conservation Division (NMOCD)

·         The newly released 2024 plugging guidance from NMOCD dramatically changed your predicted plugging timeline and costs.

·         You receive notice from NMOCD or NMSLO that you are a non-compliant operator due to the number of inactive wells you now own.

·         The New Mexico State Land Office (SLO) Environmental Compliance Office suspects there were non-reported releases on your newly acquired well sites.

Unfortunately, these are all examples of unforeseen acquisition challenges that are often encountered.  In the ever-challenging landscape of New Mexico environmental and operational regulations, focusing solely on environmental concerns prior to any acquisition is simply not enough!   Rather, it is important to expand your initial due diligence scope to incorporate a top-line review of additional regulatory hurdles that can stall a planned well or lease transfer, lead to civil penalties, or result in the unnecessary loss of your NMSLO mineral lease.

Clearly understanding the regulatory and operational environments, ALL Consulting has a storied history of completing value-driven, pre-acquisition due diligence that helps the purchaser identify and address the most prominent concerns prior to ownership transfer.  In a series of upcoming articles, ALL will focus on how best to mitigate the most common challenges one can expect to face when acquiring assets in NM.

If your team is looking to complete an acquisition of Oil and Gas assets in New Mexico and you are looking for support in navigating this state’s complicated regulatory landscape, please contact Mark F. Kidder or Oliver Seekins for assistance.

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