19.2.100 NMAC

TITLE 19 NATURAL RESOURCES AND WILDLIFE

CHAPTER 2 STATE TRUST LANDS

PART 100 RELATING TO OIL AND GAS LEASES

19.2.100.1 ISSUING AGENCY: Commissioner of Public Lands, New Mexico State Land Office, PO Box 1148, Santa Fe, New Mexico 87504-1148.

[19.2.100.1 NMAC – Rn, SLO Rule 1, 12/13/2002]

19.2.100.2 SCOPE: [Reserved]

19.2.100.3 STATUTORY AUTHORITY: [Reserved]

19.2.100.4 DURATION: [Reserved]

19.2.100.5 EFFECTIVE DATE: June 24, 1985.

[19.2.100.5 NMAC – Rn, SLO Rule 1, 12/13/2002]

19.2.100.6 OBJECTIVE: [Reserved]

19.2.100.7 DEFINITIONS: [Reserved]

19.2.100.8 PRODUCTS INCLUDED: The commissioner is authorized to execute and issue oil and gas leases covering state common school and institutional trust lands as lessor in the name of the state of New Mexico. The form of basic lease is statutory and includes carbon dioxide. All leases issued after June 9, 1963, include helium. Leases issued on or before June 9, 1963, do not include helium gas unless stipulated as provided in 19.2.100.55 NMAC. All forms are provided by the land office.

[19.2.100.8 NMAC - Rn, SLO Rule 1, Section 1.001, 12/13/2002]

19.2.100.9 CLASSIFICATION INTO DISTRICTS: There are two types of districts, known respectively as restricted districts and non or unrestricted districts. A restricted district comprises an area usually in a proven oil and gas area and is created by statute or by authority of the commissioner. A non- or unrestricted district includes all lands outside the exterior boundaries of restricted districts.

[19.2.100.9 NMAC - Rn, SLO Rule 1, Section 1.002, 12/13/2002]

19.2.100.10 LANDS SUBJECT TO LEASE: All state lands presently open for oil and gas lease purposes, or lands which may become open in the future due to the cancellation or expiration of leases, or for any other reason, may be leased only by competitive bid after public notice in accordance with 19.2.100.25 NMAC hereof, except as provided in 19.2.100.12 NMAC.

[19.2.100.10 NMAC - Rn, SLO Rule 1, Section 1.003, 12/13/2002]

19.2.100.11 RESTRICTED DISTRICTS - LEASING:

A. All lands within a restricted district are classified as restricted lands and no tract of such lands shall be leased without being further categorized by the commissioner as either regular or premium based upon five factors: oil and gas trends; oil and gas traps; reservoir volume and recovery rating; lease bonus rating; and exploration and activity. A percentage of zero percent to twenty percent shall be allocated to each factor. In allocating percentages, the following procedures and criteria shall be used:

(1) Oil and gas trends, i.e., where depositional and structural conditions are favorable for accumulation of oil and gas, shall be determined as accurately as possible by the commissioner upon the advice of a qualified geologist using drilling patterns, geological society data, well records and logs, available seismic surface and subsurface geological information and structural maps;

(2) The likelihood of locating structural or stratographic oil and gas traps necessary for the accumulation of oil or gas in commercial quantities shall be determined by the commissioner upon the advice of a qualified geologist and a petroleum engineer based upon available seismic and geological data;

(3) Reservoir volume and recovery rating shall be determined considering the nearest known reservoir conditions which may be reasonably assumed to be applicable. Known porosity, permeability, water saturation, pressures and recovery factors shall be included when available and shall be utilized by a qualified petroleum engineer in recommending a reservoir volume and recovery rating;

(4) Lease bonus rating shall be based upon all available recent leasing data which may be reasonably assumed to be applicable. In the absence of sufficient recent leasing data, drilling patterns, geological trends, available seismic data and known or reasonably assumed structural features may be considered in determining the lease bonus rating; and

(5) Exploration and drilling activity shall be determined considering all available information which may include drilling patterns, approved drilling permits, progress reports of drilling wells, workover notices and other information which may be reasonably assumed to be applicable.

B. If the total percentage of all factors for a tract of land is less than seventy-five percent, the tract shall be categorized as regular. If the total percentage of all factors for a tract of land is seventy-five percent or more, the tract shall be categorized as premium.

[19.2.100.11 NMAC – Rn, SLO Rule 1, Section 1.004, 12/13/2002]

19.2.100.12 UNRESTRICTED DISTRICTS: Lands in an unrestricted district are ordinarily leased by offering them for sale at public auction to the highest and best bidder, as hereinafter explained and in accordance with 19.2.100.25 NMAC et seq. However, such lands may be leased on application without bidding if, in the opinion of the commissioner, the best interests of the trust will be served by so doing.

[19.2.100.12 NMAC - Rn, SLO Rule 1, Section 1.005, 12/13/2002]

19.2.100.13 TERM AND FORM OF LEASES: The commissioner shall issue oil and gas leases upon one of three statutory forms as follows, the form and royalty rate to be specified in the regular notice of public lease sale:

A. For lands classified as non-restricted lands under Section 19-10-3 NMSA 1978 and 19.2.100.9 NMAC, the commissioner shall use the exploratory lease form as set forth in Section 19-10-4.1 NMSA 1978.

B. For lands classified as restricted lands and categorized as regular under Section 19-10-3 NMSA 1978 and 19.2.100.11 NMAC, the commissioner, in his discretion, may use the exploratory lease form as set forth in Section 19-10-4.1 NMSA 1978 or the discovery lease form as set forth in Section 19-10-4.2 NMSA 1978.

C. For lands classified as restricted lands and categorized as premium under Section 19-10-3 NMSA 1978 and 19.2.100.11 NMAC, the commissioner, in his discretion, may use the exploratory lease form as set forth in Section 19-10-4.1 NMSA 1978, the discovery lease form as set forth in Section 19-10-4.2 NMSA 1978 or the development lease form as set forth in Section 19-10-4.3 NMSA 1978; provided, that in using the development lease form for a tract receiving less than ninety total percentage points under Section 19-10-3 NMSA 1978 and 19.2.100.11 NMAC, the royalty rate shall not exceed three-sixteenths.

[19.2.100.13 NMAC - Rn, SLO Rule 1, Section 1.006, 12/13/2002]

19.2.100.14 ANNUAL RENTAL - PRIMARY AND SECONDARY TERM: All leases issued by the commissioner shall provide for an annual rental to be paid by the lessee, whether or not a lease is producing oil or gas. The initial rental shall be fixed by the commissioner, but in no case shall the initial amount be less than twenty-five cents ($0.25) nor more than one dollar ($1.00) per acre. For ten-year leases, if production in paying quantities is obtained during the primary term of the first five years, then the initial rental rate shall be applicable as long as the lease is held by such production. If no production in paying quantities is obtained during the primary term and the lease enters the secondary term of five years, the rental for the remaining life of the lease shall be either double that of the primary term or the highest rate of rental prevailing in the area at the commencement of the secondary term, whichever is higher.

[19.2.100.14 NMAC – Rn, SLO Rule 1, Section 1.007, 12/13/2002]

19.2.100.15 MINIMUM CHARGE: The minimum initial charge for any lease shall be one hundred dollars ($100.00) or the minimum rental rate, whichever is greater, plus a thirty-dollar ($30.00) application fee. Minimum rental rate is computed by multiplying the rental rate by the acreage in each advertised tract.

[19.2.100.15 NMAC - Rn, SLO Rule 1, Section 1.008, 12/13/2002]

19.2.100.16 LIMITATION OF ACREAGE: Unless otherwise approved and granted by the commissioner, no oil and gas lease shall be issued to cover more than the total number of acres of two sections of land to be wholly or partially included in the lease, regardless of the number of acres within those sections, provided that the lease may incorporate lands within more than two different sections of land.

[19.2.100.16 NMAC – Rn, SLO Rule 1, Section 1.009, 12/13/2002]

19.2.100.17 DIFFERENT RENTAL DISTRICTS - HIGHEST RENTAL PREVAILING: Where part of the lands in any lease are situated in one rental district and part thereof in another, or other districts, the lessee shall pay the rental prevailing in the district wherein part of the lands affected are situated having the highest rental.

[19.2.100.17 NMAC – Rn, SLO Rule 1, Section 1.010, 12/13/2002]

19.2.100.18 [Reserved]

[19.2.100.18 NMAC – Rn, SLO Rule 1, Section 1.011, 12/13/2002]

19.2.100.19 CLEAR-LIST OF LANDS FROM UNITED STATES ESSENTIAL BEFORE ISSUANCE OF LEASE: Ordinarily, leases will not be issued for selected lands which have not been clear-listed or for any lands where the records of the state land office show the title of the state to be in question, controversy or dispute.

[19.2.100.19 NMAC – Rn, SLO Rule 1, Section 1.012, 12/13/2002]

19.2.100.20 LIMITATION TO NOT MORE THAN TWO PERSONS OR LEGAL ENTITIES - TRUST LIMITATIONS - WAIVERS: As a matter of administration and without affecting property rights in oil and gas leases, whenever more than two persons or legal entities apply for the issuance of an oil and gas lease, the commissioner shall grant the lease in the names of no more than two persons acting as attorneys-in-fact for all potential interest owners. In the case of a trust, the trust must be express and a copy of the creating document filed with the commissioner. If more than two trustees are named, a lease shall be granted in the names of no more than two trustees acting as attorneys-in-fact for all trustees. The limitations in this rule may be waived by the commissioner for good cause.

[19.2.100.20 NMAC – Rn, SLO Rule 1, Section 1.013, 12/13/2002]

19.2.100.21 LEASE WITHIN 25 MILES SQUARE - RIGHT OF COMMISSIONER: No one lease may be issued for lands which will not fall within the area of a square twenty-five miles long by twenty-five miles wide; however, this requirement may be waived by the commissioner in any proper case.

[19.2.100.21 NMAC – Rn, SLO Rule 1, Section 1.014, 12/13/2002]

19.2.100.22 LIMITATION TO NOT MORE THAN ONE BENEFICIARY INSTITUTION: Leases will not be issued covering lands belonging to more than one beneficiary institution.

[19.2.100.22 NMAC – Rn, SLO Rule 1, Section 1.015, 12/13/2002]

19.2.100.23 SURETY TO PROTECT SURFACE PURCHASER AND LESSEE - WAIVERS:

A. Before any lessee shall commence development or operations, including any and all prospecting activities upon the lands, such lessee or operator shall execute and file with the commissioner a good and sufficient bond or other surety, in an amount to be fixed by the commissioner but not less than ten thousand dollars ($10,000) in favor of the state of New Mexico for the benefit of the appropriate trust beneficiary and the state's contract purchasers, patentees and surface lessees, to secure payment to the extent allowed by law for such damage to their interests and tangible improvements upon such lands as may be suffered by reason of development, use and occupation of the lands by the oil and gas lessee.

B. A bond or other surety in the minimum amount of ten thousand dollars ($10,000) for each lease shall be deemed sufficient unless and until the commissioner determines, or one or more surface lessees or purchasers show the commissioner, that such an amount is not adequate in a given case. Provided, however, that if a lessee holds more than one oil and gas lease, a blanket bond or other surety in the amount of twenty thousand dollars ($20,000) will be acceptable unless and until the commissioner determines, or one or more surface lessees or purchasers show the commissioner, that such an amount is not adequate in a given case. Provided further, that if any purchaser, patentees or surface lessees shall file with the commissioner a waiver duly executed and acknowledged by him of his right to require such bond or other surety pursuant to Section 19-10-26 NMSA 1978 the development, occupation and use of the lands by the oil and gas lessee may in the discretion of the commissioner be permitted without said surety.

C. With the approval of the commissioner, in lieu of the single and blanket bonds for oil and gas lessees, a twenty-five thousand dollar ($25,000) bond or other surety may be used at the option of lessee for the use and benefit of the commissioner, to secure surface improvement damage and the performance of the lessee under one or more state leases or permits for minerals, oil and gas, coal or geothermal resources or as holder under one or more state rights of way or easements which the lessee has executed with the commissioner. The lessee will be obligated to perform and keep all terms, covenants, conditions and requirements of all state leases for minerals, oil and gas, coal or geothermal resources and of all state rights of way and easements executed with the commissioner, including the payment of royalties when due and compliance with all established mining plans and reclamation requirements.

[19.2.100.23 NMAC – Rn, SLO Rule 1, Section 1.016, 12/13/2002]

19.2.100.24 [Reserved]

[19.2.100.24 NMAC - Rn, SLO Rule 1, Section 1.017, 12/13/2002]

19.2.100.25 COMPETITIVE BIDDING ON ALL LANDS WITHIN RESTRICTED DISTRICTS: No oil and gas leases upon any state lands within any restricted district will be issued except to the highest and best bidder after competitive offers by sealed bids or a public auction. Regularly advertised sales covering lands within restricted areas are held on the third Tuesday of each month, or on the next business day following where the third Tuesday falls on a legal holiday, unless the commissioner decides not to hold a sale. Lands outside the restricted districts may also be offered on said third Tuesday when it is deemed advisable. The commissioner may, in his discretion, hold oil and gas lease sales, as aforesaid, by a combination of the methods set out above, and may also hold any sale at the county seat of the county where the lands or the greater part thereof are situated.

[19.2.100.25 NMAC – Rn, SLO Rule 1, Section 1.018, 12/13/2002]

19.2.100.26 NOTICE OF SALE: On or before ten days prior to the date of any such sale, notice of the same shall be posted in a conspicuous place in the state land office specifying the place, date and hour of the sale, and containing a description of the lands to be offered for lease, with a statement of the minimum bid which will be accepted.

[19.2.100.26 NMAC – Rn, SLO Rule 1, Section 1.019, 12/13/2002]

19.2.100.27 ACCEPTANCE OF BIDS: Up to the hour set for such sale, the commissioner will receive sealed bids for an oil and gas lease upon any tract of land described in the posted notice. All sealed bids submitted will be opened at the hour mentioned in the notice, and the lease will be awarded to the highest and best bidder, subject to the discretionary right of the commissioner to reject any bid.

[19.2.100.27 NMAC – Rn, SLO Rule 1, Section 1.020, 12/13/2002]

19.2.100.28 WHERE NO SEALED BIDS RECEIVED: Each of said tracts described in the notice on which no sealed bids are received may be offered for lease at public auction to the highest and best bidder, for cash, and lease will be awarded to such highest and best bidder if the offer shall be deemed acceptable. If no sealed bids or other bids are received for any tract described in the notice, such tract will be withdrawn until further notice at the discretion of the commissioner.

[19.2.100.28 NMAC – Rn, SLO Rule 1, Section 1.021, 12/13/2002]

19.2.100.29 APPLICATION UNDER OATH - FEES: Application for lease accompanying sealed bids shall be executed under oath by the applicant, or by his agent or attorney, duly authorized in writing, or by an officer or attorney-in-fact of a corporation, if application is by a corporation, and must be accompanied by a bid fee of thirty dollars ($30.00) (applied toward application fee for successful bidder) and the amount of the first year's rental and bonus offered. Unless approval of the commissioner for use of non-certified exchange is obtained, payment shall be made in cash, money order or certified check on a solvent bank. The land office furnishes application blanks upon request.

[19.2.100.29 NMAC – Rn, SLO Rule 1, Section 1.022, 12/13/2002]

19.2.100.30 TIE BIDS: When two or more sealed highest and best bids received for the same tract of land are equal, the commissioner (if such highest and best bidders are present and cannot agree, by stipulation in writing, on how such tract shall be disposed of) shall call such equal highest and best bidders before him in the state land office (or if such sale is held in the county in which such lands are located, the person conducting such sale shall call such equal highest and best bidders before him) on the same day such bids are opened, and again offer such tracts at auction to such bidders only, and grant such lease to the then highest and best bidder. If such bidders are not present when such bids are opened, then the commissioner will notify such bidders to submit sealed proposals within ten days next following the date of the sale at which such bids were determined to be equal.

[19.2.100.30 NMAC – Rn, SLO Rule 1, Section 1.023, 12/13/2002]

19.2.100.31 RIGHT TO REJECT ANY AND ALL BIDS - WITHHOLDING FROM LEASING: The commissioner reserves the right to reject any and all bids not in conformity with law and the posted notice of sale, and to require higher rentals, impose additional restrictions and requirements and to withhold lands from leasing whenever, in his discretion, he shall deem it to be for the best interests of the trust to do so.

[19.2.100.31 NMAC – Rn, SLO Rule 1, Section 1.024, 12/13/2002]

19.2.100.32 TRANSFER AND ASSIGNMENT OF OIL AND GAS LEASES: Any transfer of an oil and gas lease or assignment is considered to convey an interest in real property and is therefore required to be formally executed by the proper parties and upon prescribed forms furnished by the state land office before such transfer or assignment shall be approved by the commissioner. Ordinarily, leases shall be transferred or assigned in the names of no more than two persons or legal entities as provided in 19.2.100.20 NMAC.

[19.2.100.32 NMAC – Rn, SLO Rule 1, Section 1.025, 12/13/2002]

19.2.100.33 JOINT TENANTS: Where an oil and gas lease is held in joint tenancy with the right of survivorship and a tenant dies, the lease shall be considered as belonging to the survivor or survivors and shall be so transferred upon presentation of a certified copy of the death certificate of the deceased tenant and payment of the proper rentals and fees.

[19.2.100.33 NMAC – Rn, SLO Rule 1, Section 1.026, 12/13/2002]

19.2.100.34 RESIDENT DECEDENT: To effect transfer of regular interest in state oil and gas leases of a deceased person resident in New Mexico, proper probate proceedings should be had in the county of residence of the deceased and certified copies of such proceedings, showing proper legal authority to transfer, should be filed with the commissioner.

[19.2.100.34 NMAC – Rn, SLO Rule 1, Section 1.027, 12/13/2002]

19.2.100.35 FOREIGN DECEDENT: In the event a decedent owner of a lease was resident of a state other than New Mexico, the estate must be probated in the state of such residence and ancillary proceedings conducted in the proper New Mexico court, and certified copies of such proceedings showing proper legal authority to transfer must be filed with the commissioner. Provided, however, where the decedent died on or after July 1, 1976, the lease may be transferred upon the foreign personal representative's compliance with the provisions of the New Mexico Probate Code.

[19.2.100.35 NMAC – Rn, SLO Rule 1, Section 1.028, 12/13/2002]

19.2.100.36 CO-OPERATIVE AGREEMENTS: Assignments of acreage committed to unit or co-operative agreements shall meet the requirements of Subsection G of 19.2.100.51 NMAC.

[19.2.100.36 NMAC – Rn, SLO Rule 1, Section 1.029, 12/13/2002]

19.2.100.37 [Reserved]

[19.2.100.37 NMAC – Rn, SLO Rule 1, Section 1.030, 12/13/2002]

19.2.100.38 LEASE CONTINUED BY PRODUCTION IN PAYING QUANTITIES: Except as otherwise provided in a co-operative agreement, production in paying quantities upon any part of the acreage included in any state oil and gas lease continues the lease upon every subdivision thereof (whether the same remains in the original lease or is assigned before or after production is had) subject, however, to the continued payment of rentals at the rate in effect at the time of production, and further subject to the implied covenants of development contained in any such lease.

[19.2.100.38 NMAC – Rn, SLO Rule 1, Section 1.031, 12/13/2002]

19.2.100.39 ASSIGNMENTS TO BE IN TRIPLICATE - ACKNOWLEDGMENT REQUIRED: Assignments of oil and gas leases shall be filed in triplicate in the office of the commissioner and must be executed and acknowledged in the manner provided for transfer of real estate in New Mexico. The original copy of each assignment will be recorded and filed as a public record in the state land office and one copy returned to the person entitled to same.

[19.2.100.39 NMAC – Rn, SLO Rule 1, Section 1.032, 12/13/2002]

19.2.100.40 ASSIGNMENTS TO BE RECORDED IN THE LAND OFFICE: Assignments must be filed with the commissioner for approval within one hundred days after having been signed by the assignor as shown upon the face of the instrument, accompanied by a filing fee of thirty dollars ($30.00). Those presented after expiration of that time shall not be approved unless it can be shown to the satisfaction of the commissioner that extreme hardship will result to one or more of the parties and that no prejudice to the rights of the state will occur. An additional fee of seventy-five dollars ($75.00) will be charged for each such assignment (or each group of assignments if the same basic facts are involved) to cover expense of investigation and records search.

[19.2.100.40 NMAC – Rn, SLO Rule 1, Section 1.033, 12/13/2002]

19.2.100.41 RESTRICTIONS: Assignments shall not be accepted nor approved by the commissioner:

A. For less than assignor's entire interest in any legal subdivision (except where transfer is by operation of law).

B. For less than a legal subdivision.

C. In the names of more than two persons or legal entities. (See 19.2.100.20 NMAC).

D. In the name of a trusteeship unless the trust is expressly set forth and not more than two persons are named as trustee.

E. After lis pendens is filed.

F. For any assignment containing any language other than the approved form.

G. Where the assignment covers acreage included in more than one lease.

H. If the lease is not in good standing.

I. Unless the assignor covenants to the assignee and the commissioner that the assigned leasehold estate is valid and subsisting and that all rental and royalties due thereunder have been properly paid.

[19.2.100.41 NMAC – Rn, SLO Rule 1, Section 1.034, 12/13/2002]

19.2.100.42 APPROVAL AND FILING WITHHELD:

A. When assignments are accompanied by personal checks, the commissioner reserves the right to withhold approval of any and all assignments until checks are cleared and rentals on the lease from which assignments are made must be fully paid before assignments are subject to filing in the state land office.

B. When an assignment is presented to the commissioner for approval and the address of record of the assignee thereon is the same as that of the assignor, or when such address had not been established on the records of the state land office, or when the approved assignment is to be returned to the assignor, the commissioner reserves the right to withhold approval and filing of the assignment until the assignee has verified, under oath, the address and his acceptance of the assignment of the lease.

[19.2.100.42 NMAC – Rn, SLO Rule 1, Section 1.035, 12/13/2002]

19.2.100.43 EFFECT OF COMMISSIONER'S APPROVAL - MISCELLANEOUS INSTRUMENTS: Upon approval by the commissioner, the assignor shall be relieved from all obligations owing to the state with respect to the lands embraced in the assignment, and the state shall be likewise relieved from all obligations to the assignor as to the said lands, and the assignee shall succeed to all of the rights and privileges of the assignor and assumes all of the duties and obligations of the assignor as to the said lands. Provided, however, any record owner of any lease may enter into any contract for development of the leasehold premises or any portion thereof, or may create overriding royalties or obligations payable out of production, or enter into any other agreements with respect to the development of the leasehold premises or disposition of the production therefrom, and it shall not be necessary for any such contracts, agreements or other instruments to be approved by the commissioner, but nothing contained in these items shall relieve the record title owner of such lease from complying with any of the terms or provisions thereof, and the commissioner shall look solely and only to such record owner for compliance therewith, and in any controversy respecting any such contracts, agreements or other instruments entered into by the lessee with other persons, neither the state of New Mexico nor the commissioner shall be a necessary party. All such contracts and other instruments may be filed either in the office of the commissioner or recorded in the office of the county clerk wherein the lands are situated, and the filing or recording thereof shall constitute notice to all the world of the existence and contents of the instrument so filed. The fee for filing such miscellaneous instruments in the office of the commissioner shall be ten dollars ($10.00) per instrument.

[19.2.100.43 NMAC – Rn, SLO Rule 1, Section 1.036, 12/13/2002]

19.2.100.44 [Reserved]

[19.2.100.44 NMAC – Rn, SLO Rule 1, Section 1.037, 12/13/2002]

19.2.100.45 TRANSFER OF RIGHTS BY CORPORATE ENTITIES - BY PURCHASE: Transfer of oil and gas interests by corporations shall be formally executed, as in the case of transfer of real estate in New Mexico, in conformity with statute and by payment of proper fees as provided in this Rule.

[19.2.100.45 NMAC – Rn, SLO Rule 1, Section 1.038, 12/13/2002]

19.2.100.46 TRANSFER OF RIGHTS BY CORPORATE ENTITIES - BY CONSOLIDATION: In cases where corporations consolidate, transfer of oil and gas interests to the newly created corporation shall be accomplished pursuant to 19.2.100.39 through 19.2.100.45 NMAC.

[19.2.100.46 NMAC – Rn, SLO Rule 1, Section 1.039, 12/13/2002]

19.2.100.47 TRANSFER OF RIGHTS BY CORPORATE ENTITIES - BY MERGER: In cases where two or more corporations merge, transfer of oil and gas interests to the surviving corporation shall be accomplished by filing with the commissioner a copy of the merger agreement or certificate of merger. Thereafter, the oil and gas lease shall be transferred on the books of the land office in the name of the surviving corporation.

[19.2.100.47 NMAC – Rn, SLO Rule 1, Section 1.040 12/13/2002]

19.2.100.48 TRANSFER OF RIGHTS BY CORPORATE ENTITIES - BY REORGANIZATION: Where the assets of any corporation are taken over under court order by a corporation, the procedure will follow the provisions of the court order, which should direct separate assignments to be executed and filed for approval in the state land office.

[19.2.100.48 NMAC – Rn, SLO Rule 1, Section 1.041, 12/13/2002]

19.2.100.49 NOTICE OF PENDENCY OF SUIT FEES - EFFECT ON THE ABILITY TO ASSIGN LEASE: At the time of filing of any suit affecting an oil and gas lease or the interest of any person therein, or at any time thereafter before judgment, the plaintiff may file with the commissioner a notice of pendency of suit containing the names of the parties thereto, the object of the action and a description of the lands affected, and upon filing of such notice and payment of the required fees the land affected by such suit will not be subject to assignment or other disposition until such suit shall be finally determined and disposed of.

[19.2.100.49 NMAC – Rn, SLO Rule 1, Section 1.042, 12/13/2002]

19.2.100.50 CANCELLATION FOR DEFAULT: The commissioner may cancel any lease or assignment thereof for default upon giving the lessee or assignee notice by registered mail (certified mail if the lease so provides) of his intention to cancel, specifying the default and, unless the lessee or assignee remedies the default within thirty days of the mailing date, the commissioner may cancel the lease or assignment. Proof of receipt of notice is not necessary or required before a valid cancellation may be entered.

[19.2.100.50 NMAC – Rn, SLO Rule 1, Section 1.043, 12/13/2002]

19.2.100.51 CO-OPERATIVE AND UNIT AGREEMENTS:

A. Purpose - Consent: The commissioner may consent to and approve agreements made by lessees of state lands for any of the purposes enumerated in Section 19-10-45 NMSA 1978.

B. Application - Requisites of Agreements: Formal application shall be filed with the commissioner for approval of a co-operative or unit agreement at least twenty days in advance of the New Mexico oil conservation division's hearing date. The filing fee therefor shall be thirty dollars ($30.00) for each section or fractional part thereof, whether the acreage is federal, state or privately owned. A unit agreement presented must have a unique unit name that will identify the agreement for so long as the agreement remains in effect and only under extraordinary circumstances will a unit name change be allowed after initial approval is granted. Applications for approval shall contain a statement of facts showing:

(1) That such agreement will tend to promote the conservation of oil and gas and the better utilization of reservoir energy.

(2) That under the proposed unit operation, the state of New Mexico will receive its fair share of the recoverable oil and gas in place under its lands in the proposed unit area.

(3) That each beneficiary institution of the state of New Mexico will receive its fair and equitable share of the recoverable oil and gas under its lands within the unit area.

(4) That such unit agreement is in other respects for the best interest of the trust.

C. Information to be Furnished:

(1) Complete geological and engineering data shall be presented with the application and the information offered for the commissioner's action must be in clear and understandable form. Such data shall be kept confidential by the commissioner pursuant to Section 19-1-2.1 NMSA 1978 for a period of six months or until the unit agreement is approved, whichever first occurs. Then such data will be made a permanent part of the records and open for public inspection. If for any reason such proposed agreement is not approved, then at the request of the applicant, the data shall be returned to the applicant.

(2) Use of Fresh Water: The use of fresh water in waterflood units is discouraged in the cases where salt water is practical. If an operator plans to use fresh water in a proposed unit, the following specific information should also be provided:

(a) Laboratory analyses of water compatibility tests (fresh vs. salt water).

(b) Reservoir analyses for swelling clays and soluble salts.

(c) Estimate of monthly make-up water required for operations.

(d) Location and depth of area salt water wells or quantities of produced water available for injection.

D. Decision Postponed: In any matter respecting co-operative and unit agreements, the commissioner may postpone his decision pending action by the oil conservation division and may use any information obtained by his own investigators, or obtained by the oil conservation division to enable him to act properly on the matter. The applicant shall deposit with the commissioner a sum of money estimated to be sufficient to meet the actual and necessary expenses of any investigation or inspection by representatives of the state land office.

E. Leases Conformed: When any co-operative or unit agreement has been approved by the commissioner and executed by the lessee, the terms and provisions of the lease, so far as they apply to lands within the unit area, are automatically amended to conform to the terms and provisions of the co-operative agreement; otherwise, said terms and provisions shall remain in full force and effect.

F. Posting to tract books: In every case where a co-operative unit agreement is finally approved by the commissioner such agreement and the application therefor shall be entered upon the tract books of the state land office, filed and recorded, together with any order respecting the same issued by the New Mexico oil conservation division; any modification or dissolution of such co-operative or unit agreement shall be likewise entered and filed. The fees therefor shall be those regularly charged by the state land office for similar services.

G. Assignments: No assignment of acreage under lease within any unitized or co-operative area will be approved by the commissioner unless the assignment is subject to the provisions of the co-operative or unit agreement covering the area within which the acreage sought to be assigned lies, or unless the commissioner and all parties to the co-operative agreement agree, in writing, that such acreage is not needed for proper co-operative operations.

H. Form of Agreement: No specific forms for the various types of co-operative or unit operating agreements are required; however, sample forms of agreements now in operation will be furnished for guidance upon request, if available. Agreements submitted for approval must be submitted in duplicate. At least one copy must contain original signatures, which copy, after approval of the agreement, will be retained by the commissioner as the approved copy.

[19.2.100.51 NMAC – Rn, SLO Rule 1, Sections 1.044, 1.045, 1.046, 1.046.1, 1.047, 1.048, 1.049, 1.050, 1.051, 12/13/2002]

19.2.100.52 Forced Pooling - oil conservation division order:

A. The record owner or operator of all oil and gas leases covering the state owned lands forced pooled by order of the New Mexico oil conservation division, either under Section 70-2-17 (gas proration unit) or under Section 70-7-1 NMSA 1978 (statutory unitization act for secondary recovery), shall file with the commissioner the following information:

(1) One copy of application for hearing for forced pooling at least ten days prior to date set for hearing.

(2) State lease number, record owner and legal description of all state lands forced pooled.

(3) Oil conservation division order number and date.

(4) Legal description and type (federal, fee, or Indian) of all lands included in forced pooling order.

(5) Location, formation, and depth of well.

(6) Oil conservation division approved copies of forms numbered C-101, C-102, C-103, C-104 and C-105. These are to be filed at same time as filed with oil conservation division.

(7) Date production commenced.

(8) A copy of the agreement for unit operations involving state lands approved in writing by the oil conservation division, and signed by parties required by the agreement to initially pay at least seventy-five percent of unit operating costs, and by owners of at least seventy-five percent of the non-cost bearing interests such as royalties, overriding royalties and production payments.

B. This Rule has no application to a situation wherein all parties have voluntarily executed a communitization agreement covering all lands in a proration unit or a secondary recovery unit and such agreement has been approved by the commissioner.

[19.2.100.52 NMAC – Rn, SLO Rule 1, Section 1.052, 12/13/2002]

19.2.100.53 COMMINGLING AND OFF-LEASE STORAGE OF OIL AND GAS ON STATE TRUST LANDS:

A. Commingling Prohibited: Unless approved pursuant to Subsection B of 19.2.100.53 NMAC, the commingling, confusion or the intercommunication of oil or gas production from any state well with any production from any other well, whether state or non-state, by the use of common tankage facilities or central delivery points, is strictly prohibited.

B. Commingling Allowed - Off-Lease Storage:

(1) Commingling of oil and gas production, including downhole commingling, if properly metered or allocated and accounted for, may be permitted within the discretion of the commissioner only after his receipt of a written application containing the information specified in Subsection C of 19.2.100.53 NMAC and application fee as set in 19.2.100.65 NMAC.

(2) Off-lease storage of production may be permitted if properly metered or allocated and accounted for, within the discretion of the commissioner only after his receipt of a written application containing the information specified in Subsection C of 19.2.100.53 NMAC and an application fee as set in 19.2.100.65 NMAC.

C. Application for Permission to Commingle or Off-Lease Store Production. Applications for permission to commingle or off-lease store production shall be directed to the commissioner and shall include:

(1) Formal application stating the type of permission desired and the reasons therefor, accompanied by an application fee of thirty dollars ($30.00).

(2) Plat showing the location of leases, wells, flow lines, metering facilities and common tankage. All plats and diagrams should differentiate between surface and underground pipe.

(3) A list of the involved leases arranged by their state land office lease number, their legal description and including state beneficiaries.

(4) A designation of the pool from which each well produces.

(5) An economic analysis of proposed operation showing profit or loss to the state of New Mexico.

(6) Schematic diagram of entire system from production manifold to pipeline connection showing position of all components of flow stream.

(7) Description of the operating sequence explaining the complete operation.

(8) The applicant's proposal for allocating or metering production so that all production is properly accounted for at the well.

(9) Any other pertinent data that will assist the commissioner in deciding upon the application.

[19.2.100.53 NMAC – Rn, SLO Rule 1, Sections 1.053, 1.054, 1.055, 12/13/2002]

19.2.100.54 ACREAGE TAKEN FOR MILITARY PURPOSES - WAIVER OF DEVELOPMENT REQUIREMENTS:

A. Where the use of lands embraced in any state oil and gas lease is taken by the United States government for military purposes, under such circumstances as will prevent drilling and development by the lessee, the commissioner may, on application by the lessee, waive compliance with the drilling and development requirements of any such lease during the period of such use and for six months thereafter, but in no event for more than five years from the beginning of such use by the United States. Where the use of only part of the lands embraced in such oil and gas lease is taken, any waiver shall extend only to the lands the use of which is so taken.

B. In all cases, the lessee shall continue to pay rentals at the rate which is in effect at the time of taking, and failure to so pay rentals subjects the lease to the regular cancellation procedure.

C. Waivers, when executed and approved, relate back to the date of the notice of taking by the United States.

[19.2.100.54 NMAC – Rn, SLO Rule 1, Section 1.056, 12/13/2002]

19.2.100.55 Stipulation to Current Lease Provisions:

A. The owner of any oil and gas lease issued by the commissioner which does not contain all of the provisions of the current applicable five- or ten-year lease form or which does not include helium gas within its terms may file an application to include all the provisions of such applicable lease form and to include helium gas, provided the lease has been maintained in good standing according to the terms and conditions thereof and all applicable statutes and regulations.

B. The application for stipulation shall be made in duplicate and on a form prescribed and furnished by the commissioner and shall be filed in duplicate, accompanied by a fee of seventy-five dollars ($75.00).

C. Upon filing of such an application and determination by the commissioner that the application conforms to the governing statutes and this Rule, the commissioner shall execute a stipulation and thereupon the provisions of the current applicable five- or ten-year lease form and inclusion of helium gas will be part of said existing lease with the like effect as if originally incorporated therein; provided, however, that no such stipulation shall be effective or binding on any of the parties until each and every working interest owner and record owner of the original lease or approved assignment thereof has signed the stipulation.

D. One executed copy of the stipulation will be attached to the original lease in the files of the commissioner. The remaining copy will be forwarded to the applicant with the receipt of the state land office evidencing payment of the filing fee.

[19.2.100.55 NMAC – Rn, SLO Rule 1, Section 1.057, 12/13/2002]

19.2.100.56 Continuation of Lease After Expiration of Term:

A. The payment in advance of rentals for the lease year commencing at the expiration of the secondary term in a ten-year lease or at the expiration of the five-year term in a five-year lease shall be a prerequisite for relying upon current bona fide drilling or reworking operations to extend the lease beyond such term. There will be no refund by the state land office of any sum received by it as rental under the terms of any oil and gas lease issued by the commissioner, whether in the primary or secondary term or subsequent to the expiration thereof.

B. The owner of any oil and gas lease proposing to conduct drilling or reworking operations and proposing to rely upon such operations to extend the lease beyond the fixed term in accordance with the provisions thereof shall file in the oil and gas division of the state land office, prior to the expiration of the secondary term of a ten-year lease or the primary term of a five-year lease, a statement in writing of the location of the proposed well, the drilling or reworking of which will be relied upon to continue said lease in effect, the depth to which it is proposed to drill said well, the reworking operations which, if any, are contemplated and the name and address of the drilling contractor or other persons who will conduct such operations. The approval by the commissioner of the operations so proposed will normally be evidenced by the signature of the commissioner on a copy of such statement, but any such proposed operation, about which a statement has been filed in accordance with this item, shall be conclusively presumed to have been approved by the commissioner prior to the expiration of the lease to which it relates, unless the commissioner shall, prior to the expiration of said lease, advise the applicant, in writing, of his disapproval and the reasons therefor.

C. The owner of an oil and gas lease who, subsequent to the expiration of the secondary term in a ten-year lease or the primary term in a five-year lease, is engaged in drilling or reworking operations on lands embraced therein, and who proposes to rely upon such operations as extending said lease in accordance with the provisions thereof shall file a report of the status of such operations for each thirty day period during which they are continued. It shall contain a statement of the depth of said well, the status of any reworking operations at the end of said thirty day period, a general statement of the drilling or reworking operations that have been accomplished during the preceding thirty days, and the fact, if it is a fact, that such operations are bona fide in progress and will be continued. Status reports filed in the office of the commissioner within fifteen days after the close of such a thirty day period shall meet the requirements of the lease. If operations have ceased during any period covered by a status report, such report shall state the date of cessation and the reason therefore, and the date of resumption of operations, if any.

D. Each application and stipulation filed under Subsection B of 19.2.100.56 NMAC shall be signed by the lease owner, if an individual; and if a partnership or corporation, by a responsible official thereof. The application shall be verified under oath and the stipulation shall be acknowledged. Each statement of operations and status report filed under this Rule shall be signed by the lease owner, if an individual, or by a responsible official, if a partnership or corporation, and shall be verified by affidavit of the signer.

E. Operations conducted by any person under the terms of an oil and gas lease issued by the commissioner, including all operations conducted pursuant to this Rule shall be subject to inspection at all reasonable times by representatives of the state land office.

[19.2.100.56 NMAC – Rn, SLO Rule 1, Section 1.058, 12/13/2002]

19.2.100.57 CALCULATING AND REMITTING OIL AND GAS ROYALTIES:

A. Payment of Royalties - Appeal to commissioner: Payment shall be made in the time and in the manner described below:

(1) Each lessee whose average monthly state royalty payment for the twelve months ending with the latest March 31, was twenty-five thousand dollars ($25,000) or less shall pay royalties on or before the twenty-fifth day of the second month following the month for which royalties are due. Unless the remitter elects to pay royalties by means of electronic funds transfer, payment shall be made by check payable to the commissioner of public lands. Payment shall be mailed or delivered to the taxation and revenue department along with any paper report. If the remitter elects to pay royalties by means of electronic funds transfer, payment shall be made in accordance with option 1 or option 2 in Paragraph (4) of Subsection A of 19.2.100.57 NMAC and shall conform with the special instructions on electronic transmission of state royalty payments for separate oil and gas royalty reporting in the ONGARD system.

(2) Unless an election is timely made to pay royalties pursuant to Paragraph (3) of this Subsection, each lessee whose average monthly state royalty payment for the twelve months ending with the latest March 31, was greater than twenty-five thousand dollars ($25,000) shall pay royalties on or before the twentieth day of the month following the month for which the royalties are due. Payment shall be made in accordance with Paragraph (4) of this Subsection.

(3) In lieu of paying royalties within the time specified by Paragraph (2) of this Subsection, a lessee may submit to the lessor, in writing, an election to pay royalties within the time frames specified for state severance taxes. Royalties paid by any lessee making the election under this Paragraph shall be due on the twenty-fifth day of the second month following the month for which the royalties are due. However, on or before the twenty-fifth day of the month in which the election is made and on or before the twenty-fifth day of each month thereafter, the lessee shall also make an advance royalty payment. Beginning with royalties initially paid under this Paragraph and each month thereafter, the previous month's advance royalty payment shall be taken as a credit. The amount of the advance royalty payment shall be adjusted by July 25 of each year and shall equal the average monthly royalty paid during the twelve months ending with the latest March 31. Payment shall be made in accordance with Paragraph (4) of this Subsection.

(4) Lessees remitting royalties under the provisions of Paragraphs (2) and (3) of this Subsection shall make payments in accordance with one of the four options listed below. For payment to be considered timely, the state land office must have access to funds on the due date for royalty remittances. Payment shall be made in accordance with the instructions on special payment procedures. Such payment can only be utilized with the separate oil and gas royalty reporting in the new ONGARD system.

(a) Option 1: automated clearinghouse (ACH) deposit.

(b) Option 2: fedwire transfer.

(c) Option 3: check drawn on any New Mexico financial institution. Payment shall be made in the manner prescribed by the provisions of this Rule.

(d) Option 4: check drawn on any domestic non-New Mexico financial institution. Payment shall be made in the manner prescribed by the provisions of this Rule.

(e) "Financial institution" means any state- or nationally-chartered federally-insured financial institution.

(5) Irrespective of whether a lessee pays royalties pursuant to Paragraph (1), (2) or (3) of this Subsection, all royalty information shall be reported on forms prescribed by the lessor and shall be submitted on or before the twenty-fifth day of the second month following the month for which royalties are due. The lessee shall indicate in the space provided if payment accompanies the report or if payment is made by separate check, fedwire or ACH transfer.

B. Effective Date: The provisions of 19.2.100.57 NMAC shall be used to calculate, report and remit royalties for oil and gas produced on or after January 1, 1990.

[19.2.100.57 NMAC – Rn, SLO Rule 1, Section 1.059, 12/13/2002]

19.2.100.58 O.C.D. REPORTS: The producer or lessee of producing state lands shall file in the New Mexico state land office, Santa Fe, New Mexico, at the time of filing with the New Mexico oil conservation division, reports labeled C-101 through C-105.

[19.2.100.58 NMAC – Rn, SLO Rule 1, Section 1.060, 12/13/2002]

19.2.100.59 WAIVER OF DEVELOPMENT IN POTASH OR OTHER MINERAL AREAS: Application for waiver of compliance with exploratory drilling development or production requirements of a lease, or to extend the term thereof, where exploration and development operations of the oil and gas lease are inconsistent with the exploration and development operations of a state mineral lease, and where waste will occur, must be made in writing and accompanied by a filing and approval fee of seventy-five dollars ($75.00). Such applications must be filed in the state land office at least thirty days before expiration date of the oil and gas lease. No waivers or extension shall be granted by the commissioner for more than five years. Ordinarily, waivers will be granted by the commissioner only as to the legal subdivisions upon which the conflict exists.

[19.2.100.59 NMAC – Rn, SLO Rule 1, Section 1.061, 12/13/2002]

19.2.100.60 WATER WELLS:

A. Water wells drilled on all state oil and gas leases for temporary use on the lease and for purposes directly connected with operations shall be in compliance with the provisions of Sections 72-12-1 through 72-12-21 NMSA 1978, as amended, with the regulations of the state engineer, and with 19.2.12 NMAC.

B. Within thirty days after completion of said well, the lessee shall furnish in writing to the commissioner a report containing the following information:

(1) Location of well.

(2) Depth, log and casing record production data.

[19.2.100.60 NMAC – Rn, SLO Rule 1, Section 1.062, 12/13/2002]

19.2.100.61 SALT WATER DISPOSAL: Lessees are expected to comply with all lawful Rules of the New Mexico oil conservation division pertaining to prevention of waste, which includes disposal of produced salt water or brine. If state lands are needed for a salt water disposal operation, then application for a salt water disposal easement site shall be made to the “oil and gas division” or application for a business lease shall be made to the "land surface division" of the state land office, depending upon whether underground or surface disposal, respectively, is desired. Ordinarily, water produced on lease may be disposed of on lease without the commissioner's permission if the disposal operation otherwise meets the approval of the oil conservation division and is otherwise reasonable and accepted practice in the industry.

[19.2.100.61 NMAC – Rn, SLO Rule 1, Section 1.063, 12/13/2002]

[Applications for a salt water disposal easement or a business lease shall be made to the commercial division of the state land office]

19.2.100.62 ROYALTY PURCHASE - PREFERENCE RIGHT: Requests made by petroleum refineries within the state to the commissioner to purchase state royalty oil as a preference right under the provisions of Sections 19-10-64 through 19-10-70 NMSA 1978 shall be accompanied by an order or ruling of the New Mexico oil conservation division determining that the applicant is qualified and otherwise entitled to such preference. Requests to purchase state royalty oil on a bid basis may be made directly to the commissioner in letter form. In either case, the applicant must identify the wells from which he desires to purchase the royalty oil.

[19.2.100.62 NMAC – Rn, SLO Rule 1, Section 1.064, 12/13/2002]

19.2.100.63 RESERVATION OF RIGHT TO PURCHASE PRODUCTION: The state reserves a continuing option to purchase at any time and from time to time, at the market price prevailing in the area on the date of purchase, all or part of the oil and gas that may be produced from the lands embraced in all leases issued on or after June 11, 1973.

[19.2.100.63 NMAC – Rn, SLO Rule 1, Section 1.065, 12/13/2002]

19.2.100.64 APPEALS FROM DECISION OF THE COMMISSIONER: Any party aggrieved by any ruling or decision of the commissioner affecting such party's interest in any oil and gas lease may appeal to the appropriate district court within sixty days after such ruling or decision is rendered pursuant to Section 19-10-23 NMSA 1978.

[19.2.100.64 NMAC – Rn, SLO Rule 1, Section 1.066, 12/13/2002]

[An amendment to Section 19-10-23, effective September 1, 1998, reduced the appeal period to thirty days]

19.2.100.65 FEES:

A. Filing each application for oil and gas lease: thirty dollars ($30.00).

B. Filing each set of lease assignments. (If assignments are over one hundred days old, an additional charge of seventy-five dollars ($75.00) will be made.) (See 19.2.100.40 NMAC): thirty dollars ($30.00).

C. Filing co-operative or unit agreements or expansions, and orders for forced pooling, per section or fraction thereof: thirty dollars ($30.00).

D. Filing of probate and other court papers affecting title, overriding, drilling and side agreements, death certificates and miscellaneous instruments (per instrument): ten dollars ($10.00).

E. Accepting and filing each notice of pendency of suit, on basis of each separate lease involved: ten dollars ($10.00).

F. Copies of records, plats, maps and certificates as true copies: cost

G. Blank forms approved by the land office: no charge

H. Filing of each stipulation form (includes potash stipulation), helium stipulation and amendment of lease): seventy-five dollars ($75.00).

I. Application fee for commingling (additional fee may be charged for investigation and administration at the discretion of the commissioner with the prior approval of the applicant): thirty dollars ($30.00).

J. Off lease storage approval: thirty dollars ($30.00).

[19.2.100.65 NMAC – Rn, SLO Rule 1, Section 1.067, 12/13/2002]

19.2.100.66 SURFACE OPERATIONS ON STATE OIL AND GAS LEASES:

A. Purpose and Application of 19.2.100.66 NMAC: The purpose of 19.2.100.66 NMAC is to establish minimum procedures for protecting the surface affected by operation and development activities on state oil and gas leases. 19.2.100.66 NMAC applies to all operations conducted after its effective date on state oil and gas leases, the surface of which is held in trust by the commissioner of public lands.

B. Operation Requirements:

(1) Surface Trash and Debris: All operators shall remove all surface trash and debris caused by their operations from the lease and shall keep such premises free and clear of such trash and debris. As used in 19.2.100.66 NMAC, "surface trash and debris" means all nonoperational and/or nonessential equipment resulting from the drilling and/or producing operation of oil and gas leases and includes, but is not limited to, garbage, rubbish, junk or scrap.

(2) Pits:

(a) Pits shall not be located in, or hazardously near, water drainages. Pits shall be constructed to prevent contamination of the surface and the subsurface by seepage or flowage; including, if necessary, lining with impermeable materials as provided by Rules and regulations of the oil conservation division. Under no circumstances shall pits be used for disposal, dumping or storage of off-lease fluids. Subject to all applicable state and federal laws, and if the operator agrees to accept all liability therefore; garbage, junk, waste or other inorganic debris may be disposed of in the caliche or burn pit located on the side of the reserve pit when the reserve pit is reclaimed.

(b) All pits shall be fenced. The type of fence used must be specific to the class of livestock in the area. Fencing shall remain in place for the life of the pit and be maintained to keep livestock out. All fences shall be braced or constructed in such a manner as to keep wires tight with no sagging between posts. State land office personnel will inspect and, if necessary, notify operators or lessees of necessary repairs or requirements for maintaining the required condition of all fences associated with leases. Fencing shall comply with all other state and federal requirements.

(c) If a pit is lined, the liner shall be installed and maintained to prevent ingestion by livestock and wildlife.

(d) Drilling fluids and drill cuttings shall be disposed of in a manner to prevent contamination to the surface. Rules of the oil conservation division which relate to the disposal of drilling fluids and drill cuttings shall be complied with.

(3) Site Development:

(a) All access roads shall be built, maintained and reclaimed in accordance with 19.2.20 NMAC.

(b) All trees and/or wood over three inches in diameter removed for site preparation shall be disposed of on site as determined by the state land office.

(c) Where required by the federal Clean Water Act, other applicable federal or state law, or regulations promulgated pursuant thereto, production and storage tanks shall be surrounded with an earthen berm in compliance with such applicable law and regulations. In addition, such a berm may be required by the state land office if a particular tank has a history of repeated leaks.

(4) Spills:

(a) All new spills shall be treated and cleaned up immediately. All surface affected by such spills and leaks shall be reclaimed. Reclamation of the area involved shall be implemented in consultation with the state land office.

(b) All spills shall be reported in accordance with the regulations of the oil conservation division.

(5) Pipelines: If practicable, lines placed on top of the surface shall be placed to take advantage of existing roads and/or alongside other lines already on top of the ground. If regular maintenance and inspection by vehicle is necessary, and a permanent road required, the road shall be constructed and maintained in accordance with 19.2.20 NMAC. All other traffic shall be kept to a minimum.

C. Closeout and Operation Plan:

(1) A reclamation and/or operation plan may be submitted to the state land office for review. If approved, the plan shall substitute for the reclamation and/or operation requirements of 19.2.100.66 NMAC and/or 19.2.100.67 NMAC.

(2) The plan shall consist of reclamation and operation specifics for compliance with the regulations concerning reclamation and operations, with an additional section that sets out the schedule of implementation on a continuing basis during the life of the lease relative to operation, maintenance, spills, leaks, cleanup and revegetation.

D. Review and Inspection:

(1) State land office personnel and/or oil conservation division personnel may, from time to time, recommend actions necessary to comply with reasonable use of the surface and prudent operator standards.

(2) These recommendations shall be made either to state land office administrators and/or the commissioner's office, or to the lessee directly.

E. Exemptions and Appeal Procedure:

(1) The commissioner, or his qualified designated representative, may grant an exemption to any or all of the requirements of this Rule when a lessee provides a state land office approved reclamation and/or operation plan, or demonstrates that compliance would be impracticable or has occurred naturally. Any such exemption granted shall be in writing addressed to the lessee or operator requesting the exemption.

(2) Any lessee or operator aggrieved or adversely affected by a determination or interpretation of the state land office under 19.2.100.66 NMAC may, within sixty days of the receipt of such determination or interpretation, request a hearing before the commissioner of public lands. Within thirty days after receiving such a request, the commissioner shall convene a hearing at which the lessee or operator and the commissioner's staff may present evidence. Within fifteen days of the hearing, the commissioner shall enter his decision on the matter. Any decision of the commissioner may be appealed pursuant to Section 19-10-23 NMSA 1978.

[19.2.100.66 NMAC – Rn, SLO Rule 1, Section 1.068, 12/13/2002]

19.2.100.67 SURFACE RECLAMATION ON STATE OIL AND GAS LEASES:

A. Purpose and Application of 19.2.100.67 NMAC:

(1) The purpose of 19.2.100.67 NMAC is to establish minimum procedures to follow in reclaiming surface disturbances resulting from development and production on state oil and gas leases, the surface of which is held in trust by the commissioner of public lands.

(2) 19.2.100.67 NMAC applies to areas disturbed by operations conducted under all existing and future leases. However, current lessees will not be held responsible for reclaiming areas disturbed under a lease which has previously expired or been terminated and for which the current lessee is not a successor-in-interest. Also, a prudent operator standard will be applied to the reclamation of other conditions existing on the effective date of this Rule. In this regard, lessees are expected to comply with all requirements concerning removal of debris and improvements; however, specific requirements relating to ripping and reseeding will be developed by consultation and planning between the lessee and the state land office, using accepted industry standards such as those established by the bureau of land management.

B. Definitions, as used in 19.2.100.67 NMAC:

(1) "temporary abandonment" occurs if a well is no longer usable for beneficial purposes; has been continuously inactive for more than one year; and has been approved for temporary abandonment by the oil conservation division.

(2) "permanent abandonment" occurs if a well is no longer usable for beneficial purposes; has been continuously inactive for more than one year; and has not been approved for temporary abandonment by the oil conservation division.

C. Reclamation Requirements:

(1) Surface Sites and Off-Lease Storage Areas:

(a) Surface sites and off-lease storage areas, upon temporary or permanent abandonment, shall be cleared of junk and debris and, if necessary, be bermed or water-barred in order to stabilize the site and prevent erosion. Within one year of permanent abandonment, the sites and areas shall be ripped through to the underlying material and reseeded.

(b) Where available, topsoil removed from surface sites shall be stored for use in future reclamation of the site. Pads, within one year of permanent abandonment, shall have all caliche ripped through to the underlying material, any remaining stored topsoil replaced and the site reseeded.

(2) Roads: Roads shall be left in place only if authorized by the state land office. If any road is not needed, then, within one year of permanent abandonment, it shall be ripped, reseeded, bermed (closed) at the entrance, and water bars shall be constructed as directed or approved by the state land office. 19.2.20 NMAC shall be followed for specifics relating to road construction, maintenance and reclamation.

(3) Spills and Leaks: Within one year of permanent abandonment, all surface affected by spills and leaks shall be reclaimed. Reclamation of the area involved shall be implemented in consultation with the state land office.

(4) Pits (Operating/Drilling and Other):

(a) All pits, within one year of permanent abandonment or within a reasonable time of nonuse, shall be dried and leveled to restore as much of the original contour as is practical to minimize erosion. The pits shall be reseeded as required by this Section.

(b) All lining materials (plastics or otherwise) shall be removed from the surrounding area, cut off and permanently buried below the surface or removed from the area.

(5) Pipelines:

(a) Buried pipelines may be left in place and the surface ripped, water-barred and reseeded according to the specifics of the site.

(b) Within one year of permanent abandonment, surface lines shall be removed and the surface reclaimed as specified in Subparagraph (a) of Paragraph (5) of Subsection C of 19.2.100.67 NMAC.

(6) Debris: All oil and gas lease related surface trash and debris shall be removed upon temporary or permanent abandonment or disposed of in the manner permitted in 19.2.100.66 NMAC. As used in 19.2.100.67 NMAC, "surface trash and debris" means all nonoperational and/or nonessential equipment resulting from the drilling and/or producing operation of oil and gas leases and includes, but is not limited to, garbage, rubbish, junk or scrap.

(7) Revegetation:

(a) For all reseeding required by this Section, the state land office will approve seeding rates and seed mixtures, or approve site-specific recommendations. When possible, the state land office will recommend such approved rates and mixtures, but will not require seed varieties in its mixtures which are not in common use in the area.

(b) All required reseeding shall be planned and completed with a goal of revegetation consistent with local natural vegetation density. After a failed attempt to revegetate an area, a second reseeding may be required by the state land office, but in no event shall such second reseeding be required more than two years after the initial one.

(8) Lessee's Improvements: The lessee or operator shall remove all improvements placed or erected on the premises within sixty days after the expiration or termination of an oil and gas lease. Any improvements remaining at the end of such sixty-day period shall be deemed abandoned for the purposes of Sections 19-7-14 and 19-10-28 NMSA 1978 and no payments shall be due for such remaining improvements pursuant to those Sections.

D. Release Upon Permanent Abandonment and Grant of Access: Upon state land office approval and release, a lessee's reclamation responsibilities are terminated. The state land office shall issue a reclamation permit for access to complete reclamation after expiration or termination of an oil and gas lease. The reclamation permit shall be a standard form developed after consultation with interested industry groups.

E. Closeout and Operation Plan:

F. Exemptions and Appeal Procedure:

(1) The commissioner, or his qualified designated representative, may grant an exemption to any or all of the requirements of 19.2.100.67 NMAC when a lessee provides a state land office approved reclamation and/or operation plan, or demonstrates that compliance would be impracticable or has occurred naturally. Any such exemption granted shall be in writing addressed to the lessee or operator requesting the exemption.

(2) Any lessee or operator aggrieved or adversely affected by a determination or interpretation of the state land office under 19.2.100.67 NMAC may, within sixty days of the receipt of such determination or interpretation, request a hearing before the commissioner of public lands. Within thirty days after receiving such a request, the commissioner shall convene a hearing at which the lessee or operator and the commissioner's staff may present evidence. Within fifteen days of the hearing, the commissioner shall enter his decision on the matter. Any decision of the commissioner may be appealed pursuant to Section 19-10-23 NMSA 1978.

G. Temporary Provision -- Phase-In: Lessees or operators of leases which contain conditions existing on the effective date of 19.2.100.67 NMAC, otherwise requiring immediate reclamation under 19.2.100.67 NMAC, shall have five years to complete reclamation of such conditions if they demonstrate steady progress toward such completion pursuant to an approved reclamation plan or the requirements of 19.2.100.67 NMAC.

[19.2.100.67 NMAC – Rn, SLO Rule 1, Section 1.069, 12/13/2002]

19.2.100.68 AMENDMENT OF LEASE TO LOWER ROYALTY RATE FOR OIL WELLS UNDER CERTAIN CONDITIONS:

A. Purpose - Eligibility: The records owner of an oil and gas lease issued by the commissioner of public lands whose lease is maintained in good standing according to the terms and conditions of the lease and all applicable statutes and regulations, may apply to the commissioner for an amendment to the lease for the purpose of changing the royalty rate on oil produced from a specified oil well. Any well that produces on a lease basis or as a communitized or unitized property is eligible for the lower rate. Multiple wells from the same lease, communitization or unit may be submitted for approval under one application. Communitized or unit wells must qualify individually for the lower royalty rate.

B. Application, Requirements, and Information to be Furnished. An application for a change in royalty rate shall be on a form prescribed by the commissioner and shall be accompanied by a forty-dollar ($40.00) application fee. For each oil well, the application shall:

(1) show that the oil well has produced oil attributable to a communitization, unit or lease premises, and:

(a) if the production is from formations shallower than five thousand feet, has produced less than an average of three barrels of oil per day during the preceding twelve months and has not averaged over five barrels per day for any month during the preceding twelve months; or

(b) if the production is from formations five thousand feet deep or deeper, has produced less than an average of six barrels of oil per day during the preceding twelve months and has not averaged over ten barrels of oil per day for any month during the preceding twelve months; and

(2) include a statement that to the best of the applicant's knowledge and experience the well is not capable of sustained production limits specified in Paragraph (1) of this Subsection.

(3) provide data and describe efforts to:

(a) negotiate lower rates paid to other royalty owners and overriding royalty owners in the oil well; and

(b) minimize the costs of operating the well; and

(4) include any other fact which may justify a lower royalty rate.

C. Commissioners Approval. Upon receipt of an application, the commissioner shall review the information submitted as well as other, independent information obtained by the commissioner and shall agree to amend the lease to a lower royalty rate for oil produced from the oil well if, in his sole discretion, he finds that:

(1) the operator has taken reasonable steps to minimize his costs of operating the oil well;

(2) the oil well will likely be plugged and abandoned in the near future, with a resulting loss of reserves, if operating costs are not reduced further;

(3) the oil well will produce for a longer period, and the amount of oil produced will ultimately be larger, if the royalty rate is lowered; and

(4) a lower royalty rate will actually maximize revenue to the trust beneficiaries.

D. Applicable Royalty Rate, Effective Date. The lower royalty rate agreed to under this Section shall be equal to five percent and, except as provided in Subsection G of this Section, shall be valid for a period of three years, after which time the record owner of the oil and gas lease may submit a written request for an extension which, if approved pursuant to Subsection C of this Section, shall be valid for an additional three year term.

E. Accounting and Reporting of Oil Royalties. Production, royalties and taxes for oil produced from any well for which a lower royalty rate has been granted under this Section shall be reported separately from other oil wells, under the PUN-lease business rules of the oil and gas royalty filer's kit utilized by the oil and natural gas administration and revenue database (ONGARD) system.

F. Form of Application. Applications for a lower royalty rate under this Section shall be submitted on a form provided by the commissioner.

G. Termination of Lower Rate. The effective period for a lower royalty rate, approved pursuant to this Section, shall terminate and the royalty rate specified in the lease shall be applicable if the commissioner determines, in his sole discretion, that the oil production has significantly increased through well workover, recompletion or other means, so that the well would no longer qualify on an annual basis for a lower royalty rate.

[19.2.100.68 NMAC – Rn, SLO Rule 1, Section 1.070, 12/13/2002]

19.2.100.69 PAYMENT OF STATE ROYALTIES:

A. Objective and Application:

(1) This Section shall apply to oil and condensate ("oil kind") and natural gas and natural gas products ("gas kind") produced and saved from state oil and gas leases and marketed or utilized in any manner.

(2) In order to ensure that all royalties have been paid, to properly account for all revenues, to promote uniformity of accounting and reporting, to provide for the most efficient management of state oil and gas leases and to comply with the intent and letter of New Mexico law, it is the policy of the state land office that royalties owed under state oil and gas leases be paid monthly on all production deemed to be produced from each state lease during that month.

(a) Gas Kind:

(i) Payment on Entitlement Basis. For leases included in mixed agreements or in units or communitized tracts which do not contain uniform royalty rates or uniform beneficiaries, gas kind royalties shall be paid monthly on the production allocated to each lease under the unit or communitization agreement on the entitlement basis.

(ii) Payment on Takes Basis. For individual producing leases or state leases within one hundred percent state agreements which contain leases with uniform royalty rates and uniform beneficiaries, gas kind royalties shall be paid monthly on all production deemed to be produced from the lease on a takes basis.

(b) Oil Kind: Royalties on oil production are based on each working interest owner's proportionate share of production from the lease, unit or communitization agreement. As a result, no problem exists with regard to the current process for paying such royalties.

(3) As stated above, the purpose of this Section is to ensure that all royalties due under state oil and gas leases are paid and accounted for in a timely manner. Nothing herein relieves any lessee of record, operator, working interest owner or other person of any legal obligation to pay royalties. The commissioner of public lands reserves the right to seek payment of any deficient royalties from any such person.

(4) Effective Date. This policy will become effective six months after the effective date of this Section (the "effective date").

B. Gas Deemed to be Produced from State Leases within Mixed Agreements or Units or Communitized Tracts which do not Contain Uniform Royalty Rates or Uniform Beneficiaries:

(1) For gas deemed to be produced from state leases in mixed agreements or in units or communitized tracts which do not contain uniform royalty rates or uniform beneficiaries, gas kind royalties must be paid on each working interest owner's entitled share of the produced volume from the agreement. If the working interest owner did not take any gas from the agreement, the value of the entitled share of production for royalty purposes shall be the benchmark entitlement value.

(2) Lessees in a unit or communitized tracts may contractually agree to assign reporting and payment responsibility among themselves in any manner which insures that entitled royalty volumes allocable to state leases are reported and paid each month.

C. Gas Deemed to be Produced from Individual Leases and one hundred percent State Agreements which Contain Leases with Uniform Royalty Rates and Uniform Beneficiaries:

(1) For leases producing on an individual basis or on one hundred percent state agreements which contain leases with uniform royalty rates and uniform beneficiaries, royalties are due on all of the natural gas and natural gas products deemed to be produced. Unless notice has been given to the state land office under the following Paragraph, royalties will be paid by each working interest owner on the amount of natural gas and natural gas products actually taken and sold by such owner. Any notices of volume variances shall be sent to the property operator of the lease.

(2) Upon written notification to the state land office by the property operator that all interest owners in the property have elected to pay gas kind royalties on an entitlements basis, notice of volume variances will be sent to those working interest owners who are entitled to the production, as shown by state land office records. If a working interest owner does not sell all of the production to which he or she is entitled, then royalty payments on such untaken but entitled share are to be paid on the benchmark entitlement value. Failure to remit royalties based on benchmark entitlement value will result in assessments being issued and interest charges being assessed for the underpaid amount.

D. Adjustments of Prior Periods:

(1) Adjustments of prior period reports for under-reported or over-reported volumes made necessary by the promulgation of this Section shall be completed within eighteen months from the effective date. Adjustments must be reported by specific time period for each affected property. The state land office may grant specific remitters an extension of this deadline for good cause.

(2) In making adjustments under this Subsection, a remitter shall report the difference between the take and the entitlement basis volumes or vice-versa on a production month basis for each affected property.

(a) For convenience, a remitter may group volume differences on a calendar year basis, at the mid-point of the year, and apply a product valuation to the volume difference which is representative of the weighted average product values for that year. Such volume differences for the past will be reported as detail line entries into the ONGARD system in the PUN-lease format, etc., on forms OGR-1, OGR-2 and OGR-2c.

(b) In the alternative, a remitter may make a one-time cumulative adjustment for all past periods for each affected property by providing to the state land office a valuation proposal which estimates a fair average value of gas under-reported or over-reported for the period during which the imbalance occurred for the affected properties. Upon approval of such valuation proposal, or upon agreement of the remitter and the state land office to utilize different values, the remitter may make adjustments on the basis of such valuations.

(3) Irrespective of any applicable statute of limitations, credits for previously over-reported natural gas volumes may be taken if:

(a) the adjustment is caused by the promulgation of this Section by the state land office;

(b) the adjustment is made within the time period specified in Paragraph 1 of this Subsection; and,

(c) the credit is taken for subsequent royalties owed on the same production unit number (property) for which the volumes were over reported or any other property with the same trust beneficiary as the affected property.

E. Definitions:

(1) "average value received" means the value required by law to be used for the calculation of royalties.

(2) "benchmark entitlement value" means:

(a) An amount equal to the average value received by the working interest owner for production from: the unit or communitized area; or state leases within one hundred percent state units or communitized areas where entitlements are elected under Paragraph (2) of Subsection C of 19.2.100.69 NMAC; or, individual state leases where entitlements are elected Paragraph (2) of Subsection C of 19.2.100.69 NMAC, in which the working interest owner’s production is located during the production month, so long as the working interest owner took at least fifty percent of its entitled share of production for their unprocessed or processed gas. In the event that this Sub-paragraph (a) is not applicable, then the benchmark entitlement value shall be:

(b) In the event that the working interest owner sold less than fifty percent of its entitled share, or sold no gas from: the unit or communitized area; or, state leases within one hundred percent state units or communitized areas where entitlements are elected under Paragraph (2) of Subsection C of 19.2.100.69 NMAC; or, individual state leases where entitlements are elected under Paragraph (2) of Subsection C of 19.2.100.69 NMAC, the value of the untaken but entitled share shall equal the average value received by the working interest owner for like quality gas produced in the same producing basin in that production month for their unprocessed or processed gas. In the event that sub-Paragraphs (a) or (b) do not apply, then the benchmark entitlement value shall be:

(c) In the event that the working interest owner does not take any like quality gas in the same producing basin during a production month, the benchmark entitlement value shall be a valid index price, less a location differential, multiplied by the total mmbtu's produced at the field for unprocessed gas or similar index prices, less a location differential, multiplied by the mmbtu's produced applicable to the residue gas portion, plus a valid index price for natural gas liquids, less an estimated processing deduction for the portion of the processed gas converted to equivalent mmbtu value, and less a location differential, multiplied by the mmbtu's produced applicable to such natural gas liquids portion.

(3) "Like Quality Gas" means gas produced from the same pool, as defined by the New Mexico oil conservation division from time to time.

(4) "Location Differential" shall be equal to the costs incurred by the working interest owner to move gas from the field to the index point in the most recent month of production.

(5) "Valid Index Price" means:

(a) in the case of natural gas, an average of two or more price indices for interstate pipelines transporting natural gas from producing regions that are located entirely or partially within New Mexico, based on acceptable survey techniques, appearing in a publication recognized in the oil and gas industry as a reputable source of such price information (e.g., Inside FERC, Gas Daily, Natural Gas Weekly).

(b) in the case of natural gas liquids, the price for individual products produced from natural gas (e.g. ethane, propane, butanes (iso- and normal), natural gasoline, etc.) based on acceptable survey techniques, appearing in a publication recognized in the oil and gas industry as a reputable source of such price information (e.g., Oil Price Information Service).

[19.2.100.69 NMAC – Rn, SLO Rule 1, Section 1.071, 12/13/2002]

[The effective date of 19.2.100.69 is December 30, 1995]

19.2.100.70 REPORTING AND ROYALTY RENDITION FORMS:

A. Purpose and Application

(1) The purpose of this Section is to adopt forms for the reporting and rendition of oil and gas royalties under the oil and natural gas administration and revenue database (ONGARD) system. Payment of royalties is further described in 19.2.100.57 NMAC.

(2) This Section applies to the reporting and rendition of oil and gas royalties and is enacted pursuant to Sections 19-10-56 through 19-10-59 NMSA 1978.

(3) This Section applies to the reporting and remittance of oil and gas royalties, beginning with the May, 1995 reporting month for the sales month of March, 1995, and any amendments for prior to March, 1995 or to the June, 1995 reporting month for the sales month of April, 1995 and any amendments for sales months prior to April, 1995. Correspondence has been issued to remitting companies instructing them of which sales month such remitters are to begin reporting.

B. Forms and Instructions:

(1) The reporting and remittance of state oil and gas royalties shall be made on forms OGR-1, OGR-2 and OGR-2c. Each payment must be accompanied by an original OGR-1 remittance document. Copies of such forms and instructions are attached to and made a part of this Rule.

(2) Claims for refund shall be made on either form OGRCR-1 (for distributed royalty payments) or on form OGRCR-2 (for non-distributed royalty payments). Copies of such forms and instructions are attached to and made a part of this Rule.

(3) The application for lease credits (greater than $25,000) of distributed funds regarding the erroneous payment of oil and gas royalties will be handled by special form OGRLC-1. Reference is made to Section 19-7-59 NMSA 1978. Copies of such forms and instructions are attached to and made a part of this Rule.

(4) Property product disposition data for lease communitization or unitization properties and the entitlement versus take reporting method for natural gas on lease properties shall be submitted on form OGR-PD-1. Such data will be requested as needed. Copies of such form and instructions are attached to and made a part of this Rule.

(5) Special form (schedule 1) and a letter request will be utilized for the product classification (intermediate/sweet or sour) as it applies to oil and condensate from state trust lands. Such data will be requested as needed. Copies of such form and request are attached to and made a part of this Rule.

C. Under the prior (pre-ONGARD) combined production tax and state royalty reporting system, any person obligated to pay royalties pursuant to a producing oil and gas lease shall continue to make reports and remittance of state oil and gas royalties through the New Mexico taxation and revenue department (TRD), as agent for the commissioner of public lands and the state land office on TRD forms O-1 and O-2 or P-1 and P-2. Such reporting and remittance will continue until ONGARD reporting is implemented as stated in Paragraph (3) of Subsection A of 19.2.100.70 NMAC above. In connection with outstanding billings (debits and credits) or suspense amounts generated by the combined system, such items will be accounted for separately in the old combined system by filing appropriate TRD forms O-1 and O-2 or P-1 and P-2 subsequent to the implementation of ONGARD. As a result, reports and remittance will continue to be made on TRD forms O-1 and O-2 or P-1 and P-2 to resolve old outstanding items only.

[19.2.100.70 NMAC – Rn, SLO Rule 1, Section 1.072, 12/13/2002]

19.2.100.71 SLO FORM: OGR-1 REV: 03/95

NEW MEXICO STATE LAND OFFICE

OIL & GAS ROYALTY REMITTANCE REPORT (OGR-1)

1. Date Submitted (Month/Day/Year): .……......................................….......….......	/ /

2. Ogrid Number: .....................................................................…..........…....

3. Final Return (“Yes” or “No”): .….....….......……....................................….....

4. Remitted Return ( “Yes” or “No”): ..….……...............................................…...

5. Accelerated Royalty Payment: Sale Month/Year:	/

Amount:

6. Total Oil/Gas Royalties: (Total of 'State Royalty' Column in OGR-2): ……………………....

7. Total Oil/Gas Interest: (Total of 'Interest' Column in OGR-2C): ……………………….….

8. Total Assessments Paid (Attach Assessment Remittance Documents): …………..……….…

9. Total Royalty and Interest Reported: ………………………………………………..

10. Total Regular Credit Taken (Attach Invoice Remittance Documents):

11. Total Lease Credit Taken: (Total of 'Lease Credit Amount Used' Column in OGR-2C) ………..

12. Use Accelerated Royalty Sale Month/Year:	/

Payment Previously Remitted: Amount:

13. Total Credit Taken: …………………………………………………………………..

14. Net advance payment or (credit) – See instructions
15. Total Remittance: ……………………………………………………………………

16. Type of Payment (Check box below):

(1) Fedwire (2) ACH Credit (3) ACH Debit (4) Check (5) Cash

FOR OFFICE USE ONLY

                      \          \

Postmark Date:

                \           \

                                                        Validated Remittance Amount:

                \           \

                \           \

Receipt Date:                                                             In\Out State Check:

                \           \

                \           \

                \           \

                \           \

                \           \

                \           \

                \           \

                \           \

This Report Submitted By:

Company Name: ____________________________Telephone Number (_____) ___________________________

Address: ____________________________________________________________________________________

City: _______________________________ State: ___________________Zip Code: ______________________

This Report, for the month(s) of 19 through 19 consisting of _________ OGR-2 pages, has been examined by me and to the best of my knowledge and belief it is true, complete and pursuant to law and regulation.

Name Title Date __________

Signature _________________________________________________________________________________

Rev. 02/95

NEW MEXICO STATE LAND OFFICE

GENERAL INSTRUCTIONS

Oil & Gas Royalty Remittance Report-OGR-1

WHO MUST REPORT AND REMIT STATE ROYALTY:

Each responsible royalty remitter, by express or implied agreement with the operator or the lessee of record, must report monthly on OGR-1 and OGR-2 Forms, as long as the property (lease, communitization, or unitization) continues to produce. The OGR-1 and OGR-2 forms will also be used to submit amended line entries. The OGR-1 Form is to be used to summarize the royalty remittance detail line entries shown on the OGR-2 (detail) Form, and to identify other remittance such as: Accelerated Royalty Payments, Interest Payments, Assessments Paid, Credit(s) Taken and Advance Payment. Each filer is required to submit a Royalty Remittance Document identifying total payment submitted by check or cash remittances.

DUE DATE OF THE REPORT AND REMITTANCE:

The oil and gas royalty remittance reports and accompanying remittances are due as follows:

Payment and accompanying remittance OGR-1 and OGR-2 Forms are due on or before the 25th of the second month succeeding the month of production (55th day) for small producers or large producers who have elected the advance payment method. For large producers who have elected the accelerated royalty payment method, the payment and accompanying remittance report is due on or before the 20th day of the first month succeeding the month of production. The accelerated royalty remitter shall submit the required OGR-2 detailed forms on or before the 25th day of the second month succeeding the month of production (55th day).

WHERE TO FILE: EDI - ONGARD NETWORK PROVIDER

PAPER REPORT - must be mailed to: New Mexico State Land Office

C/O New Mexico Taxation and Revenue Department

P.O.Box 2308

Santa Fe, New Mexico 87504-2308

INTEREST: Interest on past due state royalty payments will be computed at the rate of one and one-quarter percent (1.25%) per month or any fraction thereof. Reference is made to New Mexico Statute -56-8-3 NMSA 1978 as amended.

DETAIL INSTRUCTIONS -OGR-1

ITEM 1 DATE SUBMITTED (Month/Day/Year): Enter the date this form (OGR-1) is submitted.

ITEM 2 OGRID NUMBER: Enter your assigned Oil and Gas Remittance Identification Number.

ITEM 3 FINAL RETURN (Yes or No): Enter Yes if this is your FINAL Return; NO, if this is not your final return, if this Line remains blank, the default is NO.

ITEM 4 REMITTED RETURN (Yes or No):

YES, if remittance is due.

No, if no remittance is due. Non-remittance will involve the submission of OGR-1 and OGR-2, when the whole stream accounting entries portion, which do not give rise to royalty payments are submitted under Rule 1.059.

ITEM 5 ACCELERATED ROYALTY PAYMENT (No OGR-2 required for this item): SALE MONTH/YEAR: Enter the Sale month and year (sale month/year the product is produced and sold/entitled) for which the Accelerated Royalty Payment is being reported.

AMOUNT: Enter the total Accelerated Royalty Payment amount submitted.

ITEM 6 TOTAL OIL/GAS ROYALTIES: Enter the Grand Total of the State Royalty Column on the last page of the OGR-2 Form.

ITEM 7 TOTAL OIL/GAS INTEREST: Enter the Grand Total of the Interest Column on the last page of the OGR-2C Form.

ITEM 8 TOTAL ASSESSMENTS PAID: Enter the total amount paid on the attached Assessments Remittance Documents. Identify the allocation of cash to the detail line entries of the assessment if a partial payment is made.

ITEM 9 TOTAL ROYALTY AND INTEREST REPORTED: Enter the amount total of lines 5, 6, 7 and 8.

ITEM 10 TOTAL REGULAR CREDIT TAKEN: Enter the total amount of all attached Regular Credit(s) taken.

ITEM 11 TOTAL LEASE CREDIT(s) TAKEN: Enter the total of the Lease Credit Amount Used Column in the OGR-2C Form. An established lease credit invoice number must be associated with each credit taken.

ITEM 12 ACCELERATED ROYALTY APPLIED:

SALE MONTH/YEAR: Enter the Sale Month and Year for the previously submitted accelerated royalty payment.

AMOUNT: Enter the previously submitted accelerated royalty payment.

ITEM 13 TOTAL CREDIT TAKEN: Enter the sum of Items 10, 11, and 12.

ITEM 14 ADVANCE PAYMENT (OR CREDIT):

Enter the Advance Payment amount, a credit applied or adjustment as required.

Generally, the advance payment amount will be adjusted in July of each year, based on royalty payments made in the 12 consecutive months ending March 31 of that year under the advance payment method.

ITEM 15 TOTAL REMITTANCE: Enter the remainder between the amount in item 9 less the amount in item 13 less or add amount in item 14.

ITEM 16 TYPE OF PAYMENT: Check the appropriate Item, which identifies the type of Payment being submitted. Only one type of payment is acceptable per return.

**ALL CHECKS MUST BE MADE PAYABLE TO: THE COMMISSIONER OF PUBLIC LANDS**

FOR OFFICE USE ONLY: This section should be left blank.

THIS REPORT SUBMITTED BY: Complete this section as requested.

[19.2.100.71 NMAC, Rn, SLO Rule 1, Section 1.072, 12/13/2002]

19.2.100.72 SLO FORM OGR-2 Rev: 02/95

NEW MEXICO STATE LAND OFFICE

OIL & GAS ROYALTY DETAIL REPORT (OGR-2)

Company Name: ____________________________ Page ______ of _____

OGRID Number: ____________________________ Sale Mo./Yr ____/____

Line

PUN

Lease

No.

Product

Code

Txn

Arms

Length

Volume

BBL/

MCF

NGL

Gallons

BTU

Content

Of Gas

Gross

Proceeds

Transport

Deductions

Gas

Marketing

Prep/

Other

Gas

Processing

Deductions

State R

Page

Total

Grand

Total

NOTE: Round the dollar amounts to nearest whole dollar. DO NOT use commas to designate thousands. Oil / Condensate to the nearest barrel. Gas / Gas Products to the nearest MCF (15.025 P.S.I.A). NGL to nearest Gallon.

Rev. 02/95

NEW MEXICO STATE LAND OFFICE

INSTRUCTIONS FOR OIL AND GAS ROYALTY DETAIL REPORT - OGR-2 FORM

COMPANY NAME, PAGE NUMBER:

Enter your company name and page number.

Number pages in sequence by sale month.

OGRID NUMBER: Enter your assigned Oil and Gas Remittance Identification Number.

SALE MONTH AND YEAR:

Enter the sale month and year the product is produced and sold/entitled. You must submit a separate OGR-2 (2-C) form for each sale month reported.

PRODUCTION UNIT NUMBER (PUN), AND LEASE NUMBER COLUMNS:

Each line entry on the report must show the related number as assigned by the State of New Mexico.

PRODUCT CODE: Enter the product code assigned by the State to indicate the type of hydrocarbon being sold.

TRANSACTION CODE: Enter the transaction code as assigned by the State.

ARMS LENGTH TRANSACTION:

Enter:

Y if the reported sale is an Arm's Length Transaction (if left blank, the transaction will default to Y) as defined by State Land Office Regulation.

N if the reported sale was a Non-Arm's Length Transaction.

VOLUME-BBL/MCF:

Report Oil and Condensate to the nearest whole barrel. Report Natural Gas to the nearest MCF metered at the wellhead at 15.025 psia at 60 degree Fahrenheit for unprocessed gas transaction. Report to the nearest MCF for Residue Gas and the equivalent MCF of the reported Natural Gas Liquids for processed gas.

NGL-GALLONS: Report the Natural Gas Liquids (all component products in total) to the nearest gallon.

BTU Content of Gas:

Report the BTU (settled basis-15.025 psia) content of Residue Natural Gas (after processing) for Non-Arms Length Transactions Only. In addition, report BTU content of Residue Natural Gas (after processing) for Arms length transactions, other than percent of proceeds (POP) contracts.

GROSS PROCEEDS:

Enter to the nearest whole dollar the value/actual price received for products from the production unit (property) before deductions.

TRANSPORT DEDUCTIONS:

Enter to the nearest whole dollar those cost(s), incurred to transport:

a) oil or condensate or

b) natural gas, gas plant products or residue gas to market. Natural Gas mainline transportation deductions are limited to mainline charges incurred from the tailgate of the gas plant or mainline entry connection point to the point of sale.

GAS MARKETING PREPARATION/OTHER TRANSPORTATION DEDUCTIONS:

Enter to the nearest whole dollar those cost(s) incurred in non-field activities by the lessee to prepare produced Natural Gas, Gas Plant Products, or Residue Gas for market, including such cost incurred under an arm's length contract or allowable cost deductions for non-arm's length transactions . Other Transportation Deductions shall be cost(s) (to the nearest whole dollar) incurred from the boundary of the field to the mainline connection point or the processing plant.

GAS PROCESSING DEDUCTIONS:

Enter to the nearest whole dollar those costs incurred under an arm's length processing contract or those costs (imposed or approved by the lessor) incurred under non-arm's length contract, under Section F of Rule 1.059, and which are incurred to remove gas plant products from natural gas. This does not include costs incurred to physically separate liquid hydrocarbons from natural gas at or near the wellhead or costs normally incurred within the field.

STATE ROYALTY:

From the amount shown in the GROSS PROCEEDS column deduct any amounts shown in the deduction columns, and add the amount from the Natural Gas Liquid (NGL) Credit addition column (OGR-2C Form), and multiply the remainder by the applicable royalty rate.

PAGE TOTAL : Enter the required page totals for the last five columns of each OGR-2 Form page.

GRAND TOTAL: Enter the grand total of all pages on last page of report and transfer to applicable line on OGR-1 Form

[19.2.100.72, Rn, SLO Rule 1, Section 1.072, 12/13/2002]

19.2.100.73 SLO FORM: OGR-2C Rev: 02/95

NEW MEXICO STATE LAND OFFICE

OIL & GAS ROYALTY DETAILED REPORT

CONTINUATION SHEET (OGR-2C)

Company Name: ________________________________ Page _______ of OGR-2

OGRID Number: ________________________________ Sale Mo/Yr ____ / ____

Line No. From OGR-2	Interest	NGL Credit Additions	Lease Credit No.	Lease Credit Amount Used	Reporter’s Use Only







Page
Total
Grand
Total

NOTE: Round the dollar amounts to nearest whole dollar. DO NOT use comas to designate thousands.

Rev. 07/98

NEW MEXICO STATE LAND OFFICE

Instructions for Oil & Gas Royalty Remittance Report - OGR-2C FORM

COMPANY NAME, PAGE NUMBER:

Enter your company name and page number.

Number pages in sequence by sale month.

OGRID NUMBER:

Enter your assigned Oil and Gas Remittance Identification Number.

SALE MONTH AND YEAR:

Enter the sale month and year the product is produced and sold/entitled.

INTEREST:

Enter the interest amount calculated for this detailed line entry and remitted with this report. Enter the grand total amount on OGR-1 Form.

NGL CREDIT ADDITIONS:

Enter any Natural Gas Liquid Credit amount issued to your company by the natural gas gatherer or transporter.

LEASE CREDIT NUMBER:

Enter the Lease Credit Invoice Number assigned by the state which you are applying to your detail line entries on this Form.

LEASE CREDIT AMOUNT USED:

Enter the Lease Credit Invoice Amount which you are applying to your detail line entries on this Form. This amount must be applied to a state lease with the same beneficiary.

REPORTER'S USE ONLY:

This column is for the Reporter's use when the Royalty Remittance Detail Form(s) are submitted by electronic media or paper returns. The remitter should report its matching company property number to the reported Pun/lease number.

PAGE TOTAL: Enter the required page totals for the OGR-2C FORM.

GRAND TOTAL: Enter the grand total of all pages on last page of report and transfer to applicable line on OGR-1 Form.

[19.2.100.73 NMAC, Rn, SLO Rule 1, Section 1.072, 12/13/2002]

19.2.100.74 OGRCR-1 08/94

New Mexico State Land Office

Royalty Management Division

Claim for Refund

Oil and Gas Royalties - Erroneous Payment

Distributed Funds

Commissioner of Public Lands

New Mexico State Land Office

P. O. Box 1148

Santa Fe, New Mexico 87504-1148

Dear Sir:

Whereas, Dollars ($_____) were erroneously paid for oil and/or gas royalties by OGRID NO. to the Commissioner of Public Lands on account of Lease No._________ and PUN .

Whereas, to the best of the knowledge of such applicant, such payment is not carried in any suspense fund by the State Land Office or its agent (if any) but has been distributed to the state permanent fund.

Applicant states that the reasons why such payment was erroneously made are, as follows: ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ Now, therefore, the undersigned makes a claim for refund of said payment(s) from that part of the State Lands Maintenance Fund distributable to the fund into which such payment(s) was (were) erroneously made.

Claimant petitions the Commissioner of Public Lands to investigate the facts herein and endorse his approval of this claim and take action thereon, as provided by Section 19-7-59 et seq, NMSA 1978, as amended.

____________________________________

Applicant/Claimant

________________________________ (Applicant) being duly sworn states that the foregoing claim is made in good faith and the facts stated herein are true.

Subscribed and sworn to before me this day of ____________________ 199 ____.

My commission expires: _________________________ ___________________________________

Notary Public

SEAL

Approved ( )

Disapproved ( ) this the ______ day of _______________________, 199___.

___________________________________

Commissioner of Public Lands

OGRCR-1 08/94

New Mexico State Land Office

Royalty Management Division

Claim for Refund

Oil and Gas Royalties - Erroneous Payment

Distributed Funds

Instructions

Purposes:

This form is to be used for applying for a refund from the New Mexico State Land Office for oil and gas royalties which have been paid and distributed to a permanent fund.

Amended Data:

If you are changing any information for prior reporting periods (sales months, by product), you must submit an amended report for each period affected. Note: Failure to submit the required amended report(s) will prevent the processing of your application and will result in a delay of your oil and gas royalty claim for refund.

Letter of Explanation:

Attach a letter of explanation if the space provided for reason for an erroneous payment is insufficient.

Signature:

This form must be signed by the oil or gas royalty payor or an authorized agent.

State District Court Involvement:

If this claim for refund exceeds $2,000, approval or disapproval must also be obtained from the State District Court for Santa Fe County by the Commissioner of Public Lands, prior to any disbursement of state funds.

Authority - Claimant Time Limitation:

Section 37-1-23 (NMSA, 1978, as amended) Contractual Liability; statute of limitations provides that an action must be based on a valid written contract (e.g. oil and gas lease) and each claim permitted by this section shall be barred forever unless brought within two years from the time of accrual. Such accrual time relates to the time the erroneous payment was made.

Lease credits previously established through the Section 37-1-23 process can later be subject a claim for refund, without a time limit.

Presumption of Distribution:

If the remitter has not received notification from SLO of suspended funds within one month of the payment for which the credit is requested, the applicant can assume such payment(s) is/are not carried in a suspense account.

Subject to Audit

Refunds are still subject to audit at the discretion of the Commissioner of Public Lands.

Registered Notification - Time Limitation:

If the Commissioner of Public Lands discovers an erroneous payment, notice is to be given, by registered mail, to the last recorded address of the person making such erroneous payment. All claims for refund of money shall be filed within ninety days after notice. All claims for refund not filed with the Commissioner of Public Lands within the time prescribed shall be forever barred. (Section 19-7-60).

PUN/Lease - Report Line Entries:

The applicant should submit separate PUN/Lease - Report Line Entries by a separate report so that the ONGARD system can validate the line entries.

The claim for refund application will then be verified by the Royalty Management Division of the State Land Office to the above processed data, as a part of the approval process.

[19.2.100.74 NMAC – Rn, SLO Rule 1, Section 1.072, 12/13/2002]

19.2.100.75 OGRCR-2 08/94

New Mexico State Land Office

Royalty Management Division

Claim for Refund

Oil and Gas Royalties - Erroneous Payment

Non-Distributed Funds

Commissioner of Public Lands

New Mexico State Land Office

P. O. Box 1148

Santa Fe, New Mexico 87504-1148

Dear Sir:

Whereas, Dollars ($ ) were erroneously paid for oil and gas royalties by (OGRID NO.) to the Commissioner of Public Lands on account of Lease No. __________ and PUN__________ , or such amounts are represented by Credit Invoice No. for suspended cash

, suspended detail or other (describe) .

Whereas, such payment is carried in an oil and gas royalty suspense fund by the State Land Office or its agent (if any) but has not been distributed to the state permanent fund.

Now, therefore, the undersigned makes a claim for refund of said payment from the oil and gas royalty suspense fund into which such payment was erroneously made.

Claimant petitions the Commissioner of Public Lands to investigate the facts herein and endorse his approval of this claim and take action thereon.

__________________________________________

Applicant/Claimant

_________________________________ (Applicant) being duly sworn states that the foregoing claim is made in good faith and the facts stated herein are true.

Subscribed and sworn to before me this ___________________________ day of of 199 .

SEAL

My Commission Expires: __________ ___________________________________

Notary Public

Approved ( )

Disapproved ( ) this the day of , 199____.

___________________________________

Commissioner of Public Lands

OGRCR-2 08/94

New Mexico State Land Office

Royalty Management Division

Claim for Refund

Oil and Gas Royalties - Erroneous Payment

Non-Distributed Funds

Instructions

Purposes:

This form is to be used for applying for a refund from the New Mexico State Land Office for oil and gas royalties which have been paid but not distributed to a permanent fund. State notifications of such suspense fund payments should be in the possession of the applicant.

Amended Data:

Letter of Explanation:

Attach a letter of explanation if the space provided for reason for an erroneous payment is insufficient.

Signature

This form must be signed by the oil or gas royalty payor or an authorized agent.

Authority - Claimant Time Limitation:

Subject to Audit:

Refunds are still subject to audit at the discretion of the Commissioner of Public Lands.

Registered Notification - Time Limitation:

[19.2.100.75 NMAC – Rn, SLO Rule 1.072, 12/13/2002]

19.2.100.76 OGRLC-1 08/94

New Mexico State Land Office

Royalty Management Division

Application for Lease Credit

(greater than $25,000)

Oil and Gas Royalties - Erroneous Payment

Distributed Funds

Commissioner of Public Lands

New Mexico State Land Office

P. 0. Box 1148

Santa Fe, New Mexico 87504-1148

Dear Sir:

Whereas, ________________________________________________ Dollars $ _____________ were erroneously paid for oil and/or gas royalties by ____________(OGRID NO.)______________________________ to the Commissioner of Public Lands on account of Lease No. _____________________ and PUN ____________.

Whereas, to the best of the knowledge of such applicant, such payment(s) is/are not carried in any suspense account by the State Land Office or its agent (if any) but has been distributed to the state permanent fund.

Applicant states that the reason(s) why such payment was/were erroneously made are, as follows: ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Now, therefore, the undersigned makes application for a Lease Credit (greater than $25,000.00). It is understood that upon approval of the Commissioner, the applicant will plan to recoup such money by deducting up to an equivalent amount from subsequent royalty payments due for the same lease.

Applicant petitions the Commissioner of Public Lands to investigate the facts herein and endorse his approval of this application for Lease Credit and take action thereon, as provided by Section 19-7-59 et seq, NMSA 1978, as amended.

_______________________________________

Applicant

Approved ( )

Disapproved ( ) this the day of , 199____.

___________________________________

Commissioner of Public Lands

OGRLC-1 08/94

New Mexico State Land Office

Royalty Management Division

Application for Lease Credit
(greater than $25,000)

Oil and Gas Royalties - Erroneous Payment

Distributed Funds

Instructions

Purposes:

This form is to be used for applying for an oil and gas royalty lease credit (greater than $25,000), which must be approved in advance by the Commissioner of Public Lands.

Authority:

Reference is made to Section 19-7-59. Prepayment of money erroneously paid on lease or purchase contract after distribution. Such statute reads as follows:

“A. Any money erroneously paid on account of any lease or sale of state lands, which money is not carried in any suspense fund but has been distributed to the proper income or permanent fund, shall be repaid in the manner prescribed in this section.

B. If the money erroneously paid was for royalty due under any lease, then, subject to subsequent audit by the commissioner of public lands or his agent, the money may be recouped by deducting an equivalent amount from subsequent royalty payments due for the same lease; provided that, if the amount to be recouped under this paragraph is greater than twenty-five thousand dollars ($25,000) for any lease, then no deduction from subsequent payments shall be made without the prior approval of commissioner of public lands.”

Presumption of Distribution - If the remitter has not received notification from SLO of suspended funds within one month of the payment for which the credit is requested, the applicant can assume such payment(s) is/are not carried in a suspense account.

Letter of Explanation:

Attach a letter of explanation if the space provided for reason for an erroneous payment is insufficient.

Signature

This form must be signed by the oil or gas royalty payor or an authorized agent.

Subject to Audit:

An approval for a lease credit is still subject to audit at the discretion of the Commissioner of Public Lands.

Allowable Credits:

Lease Credits Established in a timely basis (within two years of accrual of such erroneous payment(s), can later be subject to claim for refund through the Section 37-1-23 process, without a time limit.

Authority - Claimant Time Limitation:

PUN/Lease - Report Line Entries:

The applicant should obtain approval prior to the filing of PUN/Lease - Report Line Entries to the ONGARD system.

[19.2.100.76 NMAC – Rn, SLO Rule 1, Section 1.072, 12/13/2002]

19.2.100.77 SLO FORM: OGR-PD-1 REV: 09/94

STATE OF NEW MEXICO

STATE LAND OFFICE

PROPERTY DISPOSITION DATA – OIL AND GAS ROYALTIES

PROPERTY OPERATOR

1. Date Submitted: _______________________________________________________________________

2a. Type of Property: Lease ( ) Unit ( ) Unit-N/P ( ) Com ( )

2b. Reporting Method (Natural Gas Only): Entitlement ( )

Take ( )

3a. OGRID: _____________________________________________________________________________

3b. Operator Name: ______________________________________________________________________

4a. PUN/LEASE: _________________________________________________________________________

4b. Property Name: ________________________________________________________________________

4c. Unit Phase / Expansion No.: ______________________________________________________________

5. Reporting Decimals: Starting (MM/YY) From: _______________________

Continuing To: _______________________

6. Product: ( ) Oil/Condensate ( ) Natural Gas ( ) All Products

Reporters input (option)	Line No.	Lease No.	Unit Tract No. (opt)	OGRID No. (opt)	Gross working interest owner name	GWI Decimal
	1
	2
	3
	4
	5
	6
	7
	8
	9
	10
	11
					TOTAL:

SLO FORM: OGR-PD-1 REV: 02/95

STATE OF NEW MEXICO

STATE LAND OFFICE

PROPERTY DISPOSITION DATA - OIL & GAS ROYALTIES

FORM OGR-PD-1

GENERAL INSTRUCTIONS

PURPOSE:

The purpose of Form OGR-PD-1 is to identify the Gross Working Interest Owners and responsible remitters (if available) by lease for oil and gas royalties due the State of New Mexico under a PUN-Lease.

AUTHORITY:

The authority is contained in NMSA 1978 Section 19-10-11 through Section 19-10-22, and regulations relating thereto, which allows the commissioner to prescribe forms for the reporting of royalties.

WHO MUST REPORT:

Each operator of a producing state oil and gas lease shall submit an OGR-PD-1 Form indicating the Gross Working Interest Owners and responsible remitter or remitters (if available) of royalties due on production from the lease, unless the operator is the sole remitter - no report required.

WHEN IS THE REPORT DUE:

The OGR-PD-1 Form is due by August 25, 1995, and within 30 days of the assignment of a new PUN-Lease number by SLO.

HOW IS DATA REPORTED:

Each operator shall report the decimal interest (.xxxxxxxx) by lease of each Gross Working Interest Owner or responsible royalty remitter for oil condensate and natural gas for each lease he/she operates.

The total decimal interest for each lease shall equal 1.00000000.

An OGR-PD-1 shall be submitted by product if the responsible owners are different or the decimal interests are not the same for all products.

SLO FORM: OGR-PD-1 REV: 02/95

STATE OF NEW MEXICO

STATE LAND OFFICE

PROPERTY DISPOSITION DATA - OIL & GAS ROYALTIES

DETAIL INSTRUCTIONS FOR COMPLETING FORM OGR-PD-1

1. DATE SUBMITTED:

This is the date the form is submitted to the Royalty Management Division of the State Land Office.

2a. TYPE OF PROPERTY AGREEMENT:

This refers to the type of agreement being utilized on the state leases(s).

(a) Lease - Operated as an individual lease.

(b) Unit - Included in a unit and participating in the unit's production.

(d) COMM - Included in a Communitization Agreement with other leases.

2b. REPORTING METHOD:

This refers to the reporting method of natural gas and natural gas products for state royalties on properties operated as individual leases only.

(a) Entitlement

(b) Takes

3a. OGRID:

This is a number that has been assigned by the State ONGARD System. OGRID is the Oil and Gas Reporting I.D.

3b. OPERATOR NAME:

The OGRID name that corresponds to item 3a. above.

4a. PUN/LEASE:

This is an alpha-numeric identifier(s) that has been assigned to the particular property and lease, as assigned by the state.

4b. PROPERTY NAME:

This is the name the operator uses to identify the lease(s), unit(s) or comm(s), as designated by the operator.

4c. UNIT PHASE NO. OR UNIT EXPANSION NO:

This applies to the development phase of the unit at the time the production report or sale/entitlement is settled, or the expansion number (within the developmental phase, if applicable) of the unit.

5. REPORTED DECIMAL STARTING MM/YY:

Enter applicable date(s) the responsible owners were liable for remitting royalties, based on the participation decimal, on the state lease(s) being reported. If ending date is unknown indicate MM/YY.

6. PRODUCT:

This refers to the type of product being produced from specific leases. If the lease produces more than one product, and the responsible owners are different, please submit one form for each product, copies accepted, unless the percentages are the same for all products.

7. LEASE NUMBER:

This is a six digit alpha-numeric number assigned to all state leases, by the state.

8. UNIT TRACT NO. (OPT.):

This column refers to the tract number assigned a state lease(s) that is (are) participating in a reported unit.

If this information is known by the operator, it should be reported to the State.

9. OGRID NUMBER (OPT.):

This is a number that has been assigned by the State ONGARD System. OGRID is the Oil and Gas Reporting I.D.

IF this information is known by the operator, it should be reported to the State.

10. GROSS WORKING INTEREST OWNER NAME:

The name of the Gross Working Interest Owner or responsible royalty remitter (if known) for the lease being reported.

11. GROSS WORKING INTEREST OWNER DECIMAL:

The Gross Working Interest Owner or responsible remitter's decimal portion of lease/tract that they are obligated to report.

12. LEASE/TRACT TOTAL:

This column should equal 1.00000000 for every lease being reported.

[19.2.100.77 NMAC – Rn, SLO Rule 1, Section 1.072, 12/13/2002]

19.2.100.78 Product Classification Request

OGRID NAME:

OGRID ADDRESS:

Dear Ladies and Gentlemen:

This is our request to you, as an operator of oil properties, for certain data regarding crude oil or condensate produced involving State Trust Lands.

The following is our Product Classification Definition:

Production Classification applies to oil and condensate, the designation given by the industry for sales purposes, based on sulphur content:

a. Intermediate/Sweet

b Sour

Identify the sulphur content, by weight, in gravity and state such in percentages (i.e., .5%, or less will be intermediate/sweet crude oil and greater than .5% will be sour crude oil.)

If you have questions call __________________________, of our staff at :_________________________________

Please submit this data to the Royalty Management Division as soon as practical, but no later than 30 days from the receipt of this letter.

Sincerely,

Maurice Lierz, Director

Royalty Management Division

Enclosures

Schedule 1

New Mexico State Land Office

Royalty Management Division

Data Regrading Crude Oil or Condensate

From State Trust Lands

Property Operator

Property Name (Lease, Unitization, Or Communitization)	PUN/Lease	OCD-Point of Disposition Code	Product (Check Intermediate Sweet	Type One) Sour	Sulphur % Content

[19.2.100.78 NM – Rn, SLO Rule 1, Section 1.072, 12/13/2002

HISTORY of 19.2.100 NMAC:

Pre-NMAC History:

Material in this Part was derived from that previously filed with the State Records Center and Archives:

CPL 69-5, Rules and Regulations Concerning the Sale, Lease, and Other Disposition of State Trust Lands, filed 9/2/69.

CPL 71-2, filed 12/16/71.

CPL 77-1, filed 1/7/77.

Rule 1, Relating to Oil and Gas Leases, filed 3/11/81.

SLO Rule 1, Relating to Oil and Gas Leases, filed 1/20/84.

SLO Rule 1, Relating to Oil and Gas Leases, filed 6/24/85.

History of Repealed Material: [Reserved]