By George Sharpe
Oct 26, 2025
In 2000, Merrion Oil & Gas acquired 20 low producing wells from ConocoPhillips. Today, those wells have generated 25 years of jobs, royalties and tax revenue. However, under a new bonding rule being considered in the state, those wells would have been plugged and lost forever.
New Mexico is considering implementing a new rule dramatically increasing the bonding requirements for oil and gas wells. In particular, marginal wells will each require a separate $150,000 bond. Further, if more than 15% of a company’s well-count is considered marginal, then 100% of the wells operated by that company will require individual $150,000 bonds. Finally, the rule will make it all but impossible for a larger company to sell lower-producing wells to small, independent operators, who can squeeze many years of additional profits from those wells.
This rule is unnecessary and will cost the state in jobs, royalties and taxes. Most operators are reputable, plugging their uneconomic wells on an ongoing basis. Existing rules already address the bad actors who let their wells languish. If Merrion Oil & Gas had to comply with this proposed rule, then virtually all of our wells would require the $150,000 bonding at an annual cost of $15,000 per well. However, because many of our wells may not make more than $15,000 per year in profit, they would be uneconomic and would need to be plugged immediately. Even though those wells don’t make much profit, they still support a lot of jobs, from pumpers to compression companies to water haulers and on and on. Further, they still pay royalties and production taxes that will now go away.
With the rule, there will be no more sales of wells from majors to small independents, similar to Merrion’s purchase of those wells from Conoco so many years ago. Conoco would just have had to plug the wells out. But because Merrion can operate at a lower cost point than Conoco, those wells have produced for over twenty five years, supported many, many jobs and paid hundreds of thousands of dollars in royalties and taxes to local landowners and the state. And unless we are forced to plug them now, they will continue to do so for another twenty years.
The biggest issue with the rule is that when you force small operators who are barely getting by to post $150,000 bonds for all of their wells, many won’t be able to afford an immediate cash outlay of that magnitude, leaving them no choice but to walk away and leave their wells to the state to deal with. They certainly won’t be able to sell the wells to someone else. So rather than protecting the state from the potential cost of orphaned wells, this new rule is going to immediately dump hundreds if not thousands of orphaned wells in the state’s lap to plug.
In closing, the proposed rule is unnecessary, will cost the state millions in lost royalties and taxes, will result in the loss of hundreds if not thousands of jobs and will backfire by significantly, increasing the number of orphaned wells for which the state is responsible. But the nongovernmental operators pushing the rule aren’t really concerned about protecting the state’s interest. Their real objective is to continue to make it harder to produce oil and gas in the state of New Mexico. The new rule will certainly accomplish that. Opponents of this misguided approach have until Nov. 7 to speak out.
Born and raised in Farmington, George Sharpe is the investment manager for Merrion Oil & Gas. He coordinates several education initiatives in the local school district and is an advocate for all types of energy.
