The increased activity in the Northern Delaware Basin has put New Mexico water law front and center in the development of oil and gas resources. New Mexico follows the doctrine of “prior appropriation” and “beneficial use,” which is rooted in the civil law of Spain, and its use of “acequias.” As the dreaded Facebook status reports: “it’s complicated.”
Unlike Texas, all water in New Mexico is owned by the public, as regulated by the State Engineer, who grants water rights and manages the prior appropriation system. It is important to note that a water right does not grant ownership of the water, but rather grants the permittee the right to use the water for a beneficial purpose. This concept is akin to a mineral servitude in Louisiana, which only conveys the right to explore for and capture oil and gas and does not convey the oil and gas in place.
The doctrine of prior appropriation developed from the Spanish civil law concept of “acequias,”[1] or community-managed water distribution systems. Conceptually, the acequia includes public ownership of water and local management for the benefit of the community. These concepts are the genesis of the current water regime in New Mexico.
Prior appropriation is a “first in time, first in right” system based mainly on Western mining law. A prior appropriation is established and exercised by beneficial use, which forms the basis, the measure, and the limit of the right to use water. The 1891 Supreme Court case, Trumbley v. Luterman, identified prior appropriation as the law of New Mexico, which was codified in the Water Code of 1907, and later adopted when New Mexico became a state in 1912. New Mexico subsequently applied this system to groundwater in 1931.
Beneficial use is a “use it, or lose it proposition.” In New Mexico, it is a crime to waste water (e.g. non-beneficial use) or to use water without a permit. Upon application and administrative approval, the State Engineer will grant a water right for a specific beneficial use, including irrigation, domestic, commercial and industrial, game and fish, and endangered species uses. A water right holder will lose their right if they cease to use it for the beneficial purpose for which the right was granted, or if they abandon the right through non-use for a period of four (4) years.
The State Engineer enforces the prior appropriation system. In times of drought, senior water right holders are entitled to their full share of water, with junior water right holders being reduced in reverse order by date of approval of their right.
Water rights are determined under state law, not federal. Accordingly, water use on Federal lands is also regulated by the State Engineer, except where water rights have been reserved by or adjudicated to the BLM.
A common method for Operators to obtain the necessary water for their operations is to enter into a Surface Use Agreement with the surface owners of fee land, or to buy the surface outright. Once ownership rights are established, the Operator may then apply for a water right with the State Engineer. Once a water well is drilled, the State Engineer will conduct tests to determine its effect on senior water right holders and whether its use will waste water. The Operator must then use its allotted acre-feet for the beneficial use designated in the water permit. The water right will vest in the Operator only after it uses the water for its designated beneficial purpose.
Finally, the disposition of produced water[2] is not regulated by the State Engineer. Rather, the disposition of produced water is regulated by the New Mexico Oil Conservation Division (NMOCD). A permit, however, is not required for such disposition, but permits are required for reinjection as well as secondary recovery uses. The appropriation of produced water is regulated by the State Engineer. Oil and gas producers may use a short form, truncated process to appropriate produced water for industrial purposes by giving notice to the State Engineer and providing notice by publication for three weeks. The regular process to appropriate produced water, roughly described above, is utilized for other uses.
[1] For an in-depth understanding of Native American water culture and traditions, as well as the Spanish legal history surrounding water rights, see Water in the Hispanic Southwest, Michael C. Meyer, Tucson: University of Arizona Press. 1984.; For an in-depth understanding of modern water conflicts in New Mexico, see One Hundred Years of Water Wars in New Mexico 1912-2012,New Mexico Water Resources Research Institute, edited by Katherine T. Orteg Klett, Santa Fe: Sunstone Press.2012.
[2] For everything you ever wanted to know about water in New Mexico, including produced water, see the excellent The Regulatory Framework of Produced Water in New Mexico and Why N.M. Stat. Ann 720-12-24(B)(1)(2009) Should be Amended, Scott Woody, 58 Nat Resources J. 2 (Summer 2018).