Enduro Operating, LLC v. Echo Production, Inc., 413 P.3d 866, 2018-NMSC-016 (2/15/2018)
In Enduro v. Echo, the New Mexico Supreme Court reinstated its permissive commencement of operations standard, overruling the Appellate Court’s attempt to narrow the definition from “any activity.” The Supreme Court concluded that “a party may prove that it has actually commenced drilling operations with evidence that it committed resources, whether on-site or off-site, that demonstrate its present good-faith intent to diligently carry on drilling activities until completion.” Thus, “any activity” made in preparation of a good-faith intent to diligently carry on drilling activities until completion will satisfy the Court’s commencement of operations standard.
The Court provided the following guidelines:
(1) actual drilling is conclusive proof, but is not necessary
(2) obtaining a permit is not essential
(3) activities such as leveling the well location, digging a slush pit, or other good-faith commitment of resources at the drilling site will suffice as evidence of the parties’ present intent to diligently carry on drilling activities until completion
(4) the off-site commitment of resources, such as entering into an enforceable drilling contract requiring the diligent completion of the well, will also suffice as evidence that the operator actually commenced drilling operations.
See below for our discussion of the Appellate Court’s decision.