It has been 166 years since Edwin Drake drilled the first true oil well near Titusville, Pennsylvania. Since then, oil and gas production has benefited the modern world and continues to power out lives. However, nearly two centuries of production does not come without some environmental impact. Oil spills and abandoned equipment without proper remediation may occasionally render land useless for generations—if not forever. Seeping petrochemicals and aging production infrastructure over many decades can raise serious (and expensive) questions about whose responsibility it is to clean it up.
Many operators are eminently responsible when it comes to avoiding or remediating any surface contamination, but a few bad (or broke) players can create industry-wide problems. Improperly plugged and abandoned wells, twisted miles of corroded and leaking pipelines, improperly sealed storage tanks, negligent produced water disposal, and abandoned frac pits are just some of the costly issues that plague state lawmakers and good-faith operators alike. State legislatures, regulatory agencies, and courts are often tasked with deciding who will foot the bill for cleanup and remediation of these orphan wells and their associated infrastructure. Shouldering or avoiding liability can have a major economic impact on an operator and the industry at large, particularly since most wells at this stage are past their revenue-generating life.
One of the recurring questions that lawmakers frequently grapple with is how far back in a chain of ownership a state may go to force environmental cleanup. This can determine whether a prior owner, or the state, must fund remediation. One problem is that, as stated by the Court of Appeals of New Mexico in Richard v. Marathon Petro. Corp. Nordic Oil USA 2, “larger oil and gas companies tend to assign their leases to small and less profitable companies, which then reassign the leases of even smaller and less profitable operations.”12025 N.M. App. LEXIS 23 (May 14, 2025), 37. As profits decrease, so do the availability of plugging and abandonment budgets.
The manner in which a state enforces plugging and abandonment operations can have a broad impact on the local oil and gas industry and future capital investment. For example, the so-called “Legacy Lawsuits” in Louisiana arise from oil and gas operations conducted many decades ago that left “an unwanted legacy in the form of actual or alleged contamination.”2Marin v. Exxon Mobil Corp., 09-2368, p. 1 n.1 (La. 10/19/10); 48 So. 3d 234, 238 n.1 (citing Loulan Pitre, Jr., “Legacy Litigation” and Act 312 of 2006, 20 TUL. ENVTL. L.J. 347, 348 (2007). These Louisiana Legacy Lawsuits hold the owner/operator, and all predecessor companies, liable for environmental activities that have occurred at a site over the course of its development history.3Dismukes, David E., Ph.D., The Impact of Legacy Lawsuits on Conventional Oil and Gas Drilling in Louisiana, LSU Center for Energy Studies (February 28, 2012). See also, Corbello v. Iowa Prod., 2002-0826 ( La. 02/25/03), 850 So. 2d 686. This residual liability has caused a great deal of stagnation in South Louisiana’s oil and gas activities. Texas and many other states also wrestle with the issue of whether a current operator of well, a previous operator, or the state is liable for well-plugging, infrastructure and equipment removal, and environmental remediation.
In New Mexico, oil and gas producers may be under renewed siege following a recent decision in Richard v. Marathon, cited above. In Richard, the Court of Appeals of New Mexico was asked to decide whether the successor of an assignor of state oil and gas leases was responsible for the past tortious activities of its predecessor. In this case of first impression, the court held that although the approval of the lease assignment relieved the assignor from “all obligations,” the assignor’s successor-in-interest could still be held liable. From a distance, this case could be read as a shift toward greater “legacy” liability in New Mexico. In many ways, this decision tracks New Mexico’s complicated relationship with the oil and gas industry.
I. Background & trial court decision
In New Mexico, the primary responsibility for plugging and abandoning an oil well rests with the current operator, whether the production took place on fee, state, or federal lands.4 See N.M. ANN. CODE § 19.15.25.1, et seq. (2008). Regarding state trust lands, after the New Mexico Commissioner of Public Lands issues a lease to an operator, that operator is generally free — subject to the Commissioner’s approval — to assign the lease to another operator.5See N.M. STAT. ANN. § 19-10-13 (1951) (“All leases issued under the provisions of this [act] shall be assignable in whole or in part . . . Upon approval by the commissioner of an assignment the assignor shall stand relieved from all obligations to the state with respect to the lands embraced in the assignment…”). Upon such approval, the assignor is purportedly “relieved from all obligations owing to the state with respect to the lands embraced in the assignment…”6See N.M. ANN. CODE § 19.2.100.43 (2016) (“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…”). (emphasis added).
In 1922 and 1932, the Commission issued two now-expired oil and gas leases, being State Lease Nos. X0-0662 and B0-1276, respectively, covering 560 acres of state trust land in McKinley County, New Mexico (the “Leases”). In 1964, the Leases were assigned to Tesoro Petroleum Company (“Tesoro”), who served as the operator until 1988. At some point between 1988 and 1993, Tesoro assigned the Leases to a third-party operator. It was later alleged that during Tesoro’s tenure as operator, the leased state lands were damaged and not properly remediated, and numerous oil spills, unplugged wells, and abandoned infrastructure were left behind.72025 N.M. App. LEXIS 23, 1-4. In 2018, Tesoro was acquired by Marathon Petroleum Corporation (“Marathon”).
In order to address the alleged tortious behavior of Tesoro during its operatorship, the Commissioner filed suit against Marathon as Tesoro’s successor-in-interest. The Commissioner claimed that Marathon was derivatively liable for Tesoro’s damage to the state trust lands. Marathon countered that it was released from liability under the language of the leases, N.M. Stat. Ann. § 19-10-13, and N.M. Ann. Code § 19.2.100.43. The Leases and each statute purported to absolve an assignor from “all obligations.” The district court agreed with Marathon and granted its motion to dismiss the case with prejudice. The State Commissioner appealed.8Id., at 4-5.
II. The court of appeals reverses
The court of appeals reversed and remanded the district court’s dismissal of the Commission’s claims. It instead held that the Commission’s approval of Tesoro’s assignment did not absolve Tesoro, and therefore Marathon, of its legal liability for damage to the leased lands. In reaching its decision, the court look to the Leases and the language and purpose behind N.M. Stat. Ann. § 19-10-13.
The court first addressed Marathon’s argument that the Leases relieved it of liability. The Leases provided that “[u]pon approval in writing by the lessor of an assignment, the assignor shall stand relieved from all obligations to the lessor with respect to the lands embraced in the assignment and the lessor shall likewise be relieved from all obligations to the assignor as to such tract…”9Id., at 21. The court found the phrase “relieved from all obligations” to be ambiguous. The parties, it reasoned, likely intended for this language to mean all contractual obligations created by the leases. Even if that was not the intent, the lease language was not clear enough to waive any extra-contractual tort liability that may arise under state law.10Id., at 24-25. Thus, Marathon was not relieved under the Leases of its obligation to comply with generally applicable laws, regulations, rules, ordinances, and requirements.
The court found a similar ambiguity in Section 19-10-13’s relief from “all obligations” following an assignment of rights. It first noted that the word “obligations” is not defined by statute, and that its plain meaning is “a legal duty.”11Id., at 29. However, this definition does not clearly reveal whether the Legislature intended the statute to broadly relieve assignors of all legal duties with respect to the leased premises regardless of their source, or whether it intended the statute to relieve assignors only of their contractual obligations under the leases.12Id. In the court’s opinion, a definition relieving assignors of all obligations and any ongoing duty to comply with the law would be “unreasonable and contradictory.”13Id., at 30-31.
Because the court found that the plain language of Section 19-10-13 is ambiguous, it turned to the statute’s purpose. It first noted the general rule that lease assignments, without an explicit release of the lessee by the lessor, do not relieve a lessee of its express covenants.14See Jacob v. Spurlin, 978 P.2d 334 (N.M. Ct. App. 1999). Thus, the Legislature was aware that, absent a clear release, New Mexico courts “could — and likely would — rule that an assignor of an oil and gas lease would retain responsibility for their express contractual obligations post-assignment.”152025 N.M. App. LEXIS 23, at 36. Thus, “all obligations” would likely relieve an assignor of all of their contractual obligations, but not obligations under the common law or statute. Moreover, exoneration from all obligations, of whatever sort, would inevitably force the state to fund a greater amount of remediation. Marathon presented no evidence that the legislature intended to “subsidize the tortious conduct of oil and gas companies at the expense of New Mexico’s taxpayers.”16Id., at 38.
Based on the above, the court held that Section 19-10-13’s release of “all obligations” indicated the Legislature’s intent that an assignor does not retain any contractual obligations under an oil and gas lease once the assignment has been approved. The assignee becomes solely responsible for fulfilling those obligations. However, the assignor is not relieved from extra-contractual obligations or liability for past misconduct. Per the court, “[t]he statute simply does not go that far.”17Id., at 39.
III. Takeaway
Richard v. Marathon is, on its face, a narrow holding regarding the potential obligations of a successor to an oil and gas assignor under and improved assignment of a state lease on trust lands. However, this decision may have broader implications regarding retained liabilities for operators when it comes to plugging, abandonment, and remediation in New Mexico. The state may have an interest in ensuring that wells are properly plugged and land reclaimed without the expectation that these burdens be shouldered by taxpayers. However, the state of New Mexico’s general fund relies heavily on oil and gas revenue, and it should use great caution in stifling activity and investment. These interests must be balanced.
Richard may also stand for the larger proposition that it is difficult to contract around remediation liability created by your predecessor-in-interest—whether by assignment or merger. As a matter of public policy, it seems the state legislature and the courts will likely be unwilling to deter the Oil Conservation Division from holding an operator with “deep pockets” accountable for remediation costs. The availability of recovery for an operator that finds itself on the hook for past malfeasance may lie within the clear and specific wording of the retained liabilities under an assignment, along with any indemnification or exculpatory language in their assignment or purchase and sale agreement. However, if an assignee-operator is insolvent or unavailable, Richard may create an avenue for the Commission to seek payment or reimbursement from its various predecessors-in-interest.
One of the problems with an aggressive stance holding operators responsible for decades-old issues is that, in many instances, the plugging and/or remediation efforts may have been legally performed at the time. Thus, a decision like Richard could expose a current operator to renewed or double liability—”punishing operators today for following the law yesterday.”18Jacob Landry’s Legacy Lawsuit Fix: Ending Decades of Legal Extortion, Citizens for a New Louisiana (May 15, 2025), available at https://www.newlouisiana.org/jacob-landrys-legacy-lawsuit-fix-ending-decades-of-legal-extortion/. The New Mexico legislature may want to look at proposed legislature in Louisiana that limits how far back legacy liability can run—and to “balance property rights with legal sanity.”19Id., at 39.
At the time this article was written, it remains to been seen whether this decision will be appealed to the Supreme Court of New Mexico, or if the legislature will attempt to disambiguate Section 19-10-13. In the meantime, when it comes to plugging and abandonment liability in New Mexico and elsewhere, operators may find it unfortunately true that the deeper the pockets, the bigger the target.
Brad represents clients in connection with upstream energy transactions, complex mineral titles, pooling issues, lease analysis, joint operating agreements, surface use issues, title curative and general oil and gas business matters.