BILL ANALYSIS
H.B. 2731
By: Craddick (Bivins)
Finance
05-19-95
Senate Committee Report (Unamended)
BACKGROUND
The largest source of oil in Texas is the unrecovered oil left in
place when wellbores are plugged and abandoned. Current law
requires the Texas Railroad Commission to plug all abandoned wells
regardless of their condition or potential use in the future.
Operators cannot afford to keep non-producing wells open
indefinitely. There is no legal mechanism for maintaining
environmentally and mechanically sound wells.
PURPOSE
As proposed, H.B. 2731 creates the Texas Experimental Research and
Recovery Activity program (TERRA) for maintaining non-producing,
but environmentally and mechanically sound wells under the
stewardship of the Texas Railroad Commission (commission). The
TERRA program will provide operators and research organizations
with a pool of sound wellbores, to which access may be granted
through the commission without the usual oil and gas lease.
RULEMAKING AUTHORITY
It is the committee's opinion that rulemaking authority is granted
under SECTIONS 2 (Sections 93.003 and 93.037(b), Natural Resources
Code) and 5 (Sec. 202.059, Tax Code) of this bill.
SECTION BY SECTION ANALYSIS
SECTION 1. (a) Sets forth the findings of the Legislature
regarding unrecovered hydrocarbons.
SECTION 2. Amends Title 3b, Natural Resources Code, by adding
Chapter 93, as follows:
CHAPTER 93. TEXAS EXPERIMENTAL RESEARCH AND RECOVERY ACTIVITY
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 93.001. DEFINITIONS. Defines "commission," "license
holder," "mineral interest owner," "operator," "present
possessory mineral interest," "production test," "responsible
person," "TERRA," "tract," "wellbore," and "wellsite
equipment."
Sec. 93.002. TEXAS EXPERIMENTAL RESEARCH AND RECOVERY
ACTIVITY. (a) Establishes the Texas Experimental Research
and Recovery Activity (TERRA) in the Texas Railroad Commission
(commission).
(b) Sets forth the purpose of TERRA.
Sec. 93.003. COMMISSION POWERS. Authorizes the commission
to adopt and enforce any appropriate rules or orders that the
commission finds necessary to administer this chapter.
Sec. 93.004. TERRA FUND; CERTIFICATION. (a) Creates the
TERRA fund in the state treasury.
(b) Requires the commission to send to the comptroller, or
notify the comptroller of certain amounts of money to be
transferred, for credit to the TERRA fund.
(c) Requires interest earned on the TERRA fund to be
credited to the fund.
(d) Authorizes money in the TERRA fund to be used by the
commission for certain purposes and administrative and
program costs.
(e) Prohibits money in the TERRA fund from being used or
pledged for a purpose described by Subsection (d)(2) unless
the unobligated money in the TERRA fund exceeds the total
estimated plugging cost of all unplugged TERRA wellbores.
Sec. 93.005. USE OF OIL-FIELD CLEANUP FUND. Prohibits a
TERRA wellbore from being plugged with money from the oil-field cleanup fund.
SUBCHAPTER B. TERRA AGREEMENT
Sec. 93.011. AGREEMENT BETWEEN COMMISSION AND MINERAL
INTEREST OWNERS. (a) Authorizes a mineral interest owner by
agreement to designate the Texas Railroad Commission
(commission) as its agent and grant to the commission an
easement for the sole purpose of maintaining and licensing a
wellbore in TERRA.
(b) Authorizes the commission to accept a grant of an
easement from, and become the agent of, a mineral interest
owner.
(c) Provides that an easement granted to the commission
under this chapter is public property held and used on
behalf of the public solely for the purposes of TERRA as
provided by this chapter and is not subject to taxation.
(d) Requires the commission to prepare a form for the
agreement. Sets forth the guidelines of the agreement.
(e) Authorizes the agreement to incorporate by reference
any provision of this chapter.
(f) Requires the agreement to contain certain information.
(g) Provides that the consideration for the granting of the
easement and the use of any wellsite equipment is
forbearance by the commission in requiring the mineral
interest owner's compliance with otherwise applicable rules
regarding maintenance and plugging of inactive wells, and
the possibility that participation in TERRA may lead to the
recovery of hydrocarbons that otherwise would not have been
recovered for the benefit of the mineral interest owner.
(h) Requires the commission to file the agreement in the
office of the clerk of the county in which the wellbore is
located. Requires the clerk to record it in the real
property records without collecting a fee.
Sec. 93.012. TERRA EASEMENTS: EFFECT AND CONDITIONS. (a)
Provides that an easement granted in an agreement under
Section 93.011 runs with the land and is valid under certain
conditions.
(b) Provides that the agreement, including the designation
of the commission as agent of the mineral interest owner,
binds all successors in interest of the mineral interest
owner even though the commission does not have a beneficial
interest in the mineral estate or the wellbores covered by
the agreement.
(c) Provides that a vested mineral or surface interest
existing at the time an agreement under Section 93.011 is
executed is not affected by the agreement unless the owner
of the mineral or surface interest is a party to the
agreement, ratifies the agreement, or consents to the
agreement.
(d) Provides that a mineral interest in a tract on which a
wellbore covered by an agreement is located that is acquired
by a person after the person has signed an agreement
covering the wellbore is bound by the agreement.
Sec. 93.013. ACCEPTANCE OF WELLBORES INTO TERRA. (a)
Authorizes the commission to accept an inactive wellbore used
in connection with the exploration for or production of
hydrocarbons into TERRA under certain conditions.
(b) Requires the commission to return the payment under
Subsection (a)(8) if the wellbore is not accepted into
TERRA.
(c) Authorizes the commission to place an abandoned
wellbore scheduled for plugging with state money under
Chapter 89 in TERRA if it meets the requirements of
Subsections (a)(1)-(5). Requires the commission to transfer
from the oil-field cleanup fund to the TERRA fund the amount
of money equal to the commission's estimated plugging costs
on placement of the wellbore in TERRA. Authorizes the
wellbore to be plugged only with money from the TERRA fund
after the transfer of money and while the wellbore remains
in TERRA. Prohibits the oil-field cleanup fund from being
used to plug a TERRA wellbore.
(d) Requires the amount of money received into the TERRA
fund under Subsection (c) to be transferred back to the oil-field cleanup fund if a wellbore transferred to TERRA under
Subsection (c) is subsequently released.
(e) Provides that the offer of a wellbore to TERRA or its
acceptance by the commission is not an abandonment of the
wellbore or of the lease or the lease purposes by mineral
interest owner.
(f) Prohibits the commission from accepting a wellbore into
TERRA, after September 1, 1999, under Subsection (a)(8)
unless the TERRA fund balance exceeds the total estimated
plugging cost of all TERRA wells.
Sec. 93.014. EFFECT OF ACCEPTANCE OF WELLBORE INTO TERRA.
(a) Requires the commission to assume the well-plugging
duties imposed on the last operator by Chapter 89 until the
wellbore is released from TERRA under Subchapter D on
acceptance of a wellbore into TERRA.
(b) Provides that a license holder or the commission is not
responsible for any discharge or oil and gas waste or other
substances or materials regulated by the commission under
Section 91.101 occurring before the wellbore was accepted
into TERRA.
(c) Authorizes the commission, after notice and opportunity
for a hearing, to order restoration of all plugging and
cleanup responsibility to the mineral interest owner and
require the mineral interest owner to plug the wellbore and
to clean up the wellsite, or plug the wellbore and clean up
the wellsite if a mineral interest owner has materially
misstated the condition of a wellbore or wellsite and its
compliance with Section 93.013(a)(4), (5), or (6) in
connection with the acceptance of the wellbore into TERRA.
(d) Authorizes the commission to retain as an
administrative penalty the payment made under Section
93.013(a)(8) and order reimbursement of any plugging or
cleanup costs incurred by the commission.
(d) Provides that acceptance of a wellbore into TERRA or
transfer of money from the oil-field cleanup fund to the
TERRA fund does not bar the commencement or continuation of
an administrative or judicial proceeding, including a
collection suit, against an operator or other responsible
person for a violation of a commission rule or order or
state law.
(f) Provides that acceptance by the commission of a
wellbore into TERRA creates a rebuttable presumption that
the well was in compliance with commission rules at the time
of acceptance.
(g) Provides that a mineral interest owner who has signed
an agreement under Section 93.011 and who is not a license
holder is not a responsible person for a well covered by the
agreement and, except as provided by Subsection (c), is not
responsible under commission rules for plugging, cleaning
up, or remediating a TERRA wellbore or TERRA wellsite.
(h) Prohibits the commission or a license holder from being
held to exercise any fiduciary or similar duty for the
benefit of a mineral interest owner in the tract on which a
TERRA wellbore is located. Provides that an express or
implied lease covenant does not apply to the commission or
a license holder in the use or nonuse of a TERRA wellbore.
SUBCHAPTER C. LICENSES FOR TERRA WELLBORES
Sec. 93.031. LICENSE REQUIRED. Requires a person to have a
license before a person may use a wellbore as provided by this
subchapter.
Sec. 93.032. APPLICATION FOR LICENSE. (a) Requires an
applicant for a license to comply with Subchapters D and E,
Chapter 91, before the commission may issue a license.
(b) Requires a separate application to be submitted for
each oil lease and each gas wellbore.
(c) Requires an application for a license to be on a form
prescribed by the commission.
(d) Authorizes the commission to require an applicant to
provide any information relating to a tract that is the
subject of a license, including a legal description of the
mineral ownership of the tract and identification and
location of wells.
(e) Authorizes the commission to require an applicant to
provide the commission with agreements under Subchapter B
executed by owners of reversionary and other mineral
interests before the license may be issued.
(f) Requires the applicant to request in writing
confidential treatment and clearly mark the documents as
confidential if an applicant intends to claim that any of
the information submitted is confidential under Section
552.110, Government Code, relating to trade secrets or
Section 552.113, Government Code, relating to geological or
geophysical information.
(g) Requires a license to be approved by the commission by
adoption of a final order and may be in the form of a
commission order or in some other form prescribed by the
commission.
(h) Authorizes the commission to hold a hearing on an
application for a license and a proposed use in accordance
with commission rules.
Sec. 93.033. LICENSE FEE. Requires an applicant to submit
to the commission an administrative fee equal to the lesser of
$50 for each wellbore or $500 for each tract. Provides that
the fee is not refundable.
Sec. 93.034. LICENSES UNDER TERRA. (a) Provides that a
license entitles a license holder to use the wellbore named in
the license for the duration of the license solely for the
purposes of TERRA and in accordance with the license, this
chapter, and other applicable state law.
(b) Requires the license holder to comply with all
commission rules governing the licensed use, including rules
that require a permit to be issued or an exception to a
commission rule to be granted.
(c) Provides that a license holder is the responsible
person for the licensed wellbores for the duration of the
license and until any violations of commission rules or
orders committed by the license holder have been corrected.
(d) Requires a license to state certain information.
Sec. 93.035. LICENSE AMENDMENT AND RENEWAL; PRIORITY. (a)
Authorizes a license to be renewed or amended as provided by
commission rules.
(b) Provides that an application for release of a TERRA
wellbore submitted to the commission under Section 93.052 or
93.053 has priority over a new license for a TERRA wellbore
or an amendment or renewal of an existing license.
Sec. 93.036. VIOLATION OF LICENSE. (a) Authorizes the
commission to revoke the license of a license holder who
violates the license or a commission rule or order.
(b) Authorizes the commission to seek reimbursement of its
costs and administrative penalties under Chapter 81 or 85,
proceed against a bond or letter of credit, or pursue both
remedies.
Sec. 93.037. LICENSED USES. (a) Authorizes TERRA wellbores
to be licensed for the collection of data, for production
testing, or for developmental research on recovery techniques,
each of which must have a reasonable potential to increase the
recovery of hydrocarbons from the tract on which the wellbores
are located.
(b) Authorizes the commission, by rule or as part of the
license, to establish terms for licensed uses.
Sec. 93.038. EXPIRATION OF LICENSE. Authorizes the
commission to release a wellbore under the license as provided
by Subchapter D; maintain the wellbore in TERRA; or license
the wellbore to another person.
Sec. 93.039. WELLSITE EQUIPMENT. (a) Authorizes a license
holder to use, or to remove and safeguard, wellsite equipment
in which it does not have a legal interest. Requires a
license holder to return and properly reinstall all equipment
removed not later than the 30th day after the date the license
of the license holder expires unless the equipment has been
lawfully claimed by a person with an ownership or security
interest in the equipment; or a mineral interest owner or the
owner of the equipment has requested otherwise.
(b) Provides that the license holder is not required to
reinstall any wellsite equipment taken from the wellbore or
wellhead.
(c) Provides that a person who removes wellsite or
production equipment from a licensed or unlicensed TERRA
wellbore is subject to the regulatory jurisdiction of the
commission under Chapter 81C. Requires any reimbursement of
commission costs or administrative penalties assessed or
civil penalties adjudged in an action against the person for
violation of commission rules to be deposited into the TERRA
fund.
Sec. 93.040. RESTORATION OF LAND SURFACE. (a) Requires the
license holder to restore the surface of the land, as nearly
as reasonably possible, to the condition of the land when the
licensed use commenced not later than the 30th day after the
date a license expires.
(b) Provides that this section does not apply if, before
the 30th day after the date the license expires, the license
holder, acting under a lease, obtains release of the
wellbore from TERRA and assumes responsibility for the
wellbore under state law and commission rules.
Sec. 93.041. PRODUCED HYDROCARBONS. (a) Authorizes the
license holder to sell hydrocarbons produced during a
production test from a TERRA wellbore approved by the
commission without complying with Chapter 85E. Provides that
an allowable is not required to produce hydrocarbons, but the
license holder shall report all production in accordance with
commission rules.
(b) Requires proceeds of any hydrocarbons sold by a license
holder that are produced during production from a TERRA
wellbore approved by the commission to be paid unless
otherwise provided by a lease or other legal document.
(c) Requires the license holder to make prompt payment in
accordance with Chapter 91C, unless otherwise provided by a
lease or other legal document.
(d) Provides that a mineral interest owner accepting
payment of a share of the proceeds under this section
ratifies and consents to the terms of and becomes bound by
the agreement under Subchapter B that covers the proceeds.
(e) Provides that the production of a reasonable amount of
hydrocarbons, to be determined by the commission, from a
TERRA wellbore during a production test approved by the
commission is not waste of the corpus or remainder of a
mineral estate, and Section 64.092, Civil Practice and
Remedies Code, does not apply to the production.
(f) Provides that hydrocarbons produced from a TERRA
wellbore during a production test approved by the commission
are ordinary production for purposes of determining whether
a lease requirement that production be continued in paying
quantities has been met.
Sec. 93.042. PREVENTION OF POLLUTION. Provides that this
chapter does not limit the commission's authority under this
title to prevent pollution, plug wells, or control or clean
up oil and gas wastes or other substances or material.
SUBCHAPTER D. RELEASE OF WELLBORES FROM TERRA
Sec. 93.051. PLUGGING OF WELLBORE. (a) Authorizes a
wellbore to be released from TERRA when it is plugged and
abandoned in accordance with commission rules.
(b) Prohibits a person from plugging a TERRA wellbore
without permission of the commission.
Sec. 93.052. REQUEST FOR RELEASE BY MINERAL INTEREST OWNER
BOUND BY TERRA AGREEMENT. (a) Authorizes an owner of a
present possessory mineral interest in the tract on which the
wellbore is located who is bound by an agreement under
Subchapter B relating to the wellbore to file an application
to release the wellbore from TERRA.
(b) Prohibits the commission from approving an application
or releasing a wellbore under this section until the mineral
interest owner fully complies with all applicable state laws
and commission rules relating to oil and gas, including
obtaining all permits or other authorizations required under
commission rules before the wellbore may be operated or
plugged, and submits to the commission an amount of money
that the commission may set, not to exceed twice the
reasonable plugging cost on the date of release and as
estimated by the commission.
(c) Prohibits the payment required under Subsection (b)(2)
from exceeding the reasonable plugging costs on the date of
release and as estimated by the commission if the wellbore
to be released has been in TERRA for one year or less.
(d) Requires the commission to reduce any payment required
under Subsections (b)(2) and (c) by the amount of payment by
a person under Section 93.013(a)(8) under certain
conditions.
(e) Prohibits the commission from requiring a payment under
this section if the applicant agrees to plug the wellbore
and complies with all commission plugging rules.
(f) Authorizes the commission to approve the application
for release, effective not earlier than the day after the
date the license expires unless the applicant submits a
written release from the license holder that allows for an
earlier release date.
(g) Provides that a person to whom a wellbore is released
assumes responsibility for plugging of the wellbore and
cleanup of the site, including all associated costs in
accordance with state law and commission rules, but the
license must comply with Sections 93.039 and 93.040.
Sec. 93.053. REQUEST FOR RELEASE BY MINERAL INTEREST OWNER
NOT BOUND BY TERRA AGREEMENT. (a) Authorizes an owner of a
present possessory mineral interest in the tract on which the
wellbore is located who is not bound by an agreement under
Subchapter B on the wellbore to request that the wellbore be
released from TERRA.
(b) Prohibits the commission from releasing a wellbore
under this section until the mineral interest owner is in
full compliance with all applicable state laws and
commission rules relating to oil and gas and has obtained
all permits or other authorization required under commission
rules before the wellbore may be operated or plugged.
(c) Authorizes the commission to approve the application
for release, effective not earlier than the day after the
date the license expires unless the applicant submits a
written release from the license holder that allows for an
earlier release date.
(d) Makes conforming changes.
Sec. 93.054. RELEASE OF TERRA EASEMENTS. (a) Requires the
commission to file a release of all TERRA easements on the
tract in the office of the clerk of the county in which the
tract is located.
(b) Requires the release to contain certain information.
(c) Provides that the release does not have to be
acknowledged.
(d) Requires the clerk to record the release in the real
property records without collecting a fee.
Sec. 93.055. REQUEST FOR RELEASE BY SURFACE OWNER. (a)
Authorizes the owner or owners of at least 50 percent of the
surface interest in the land on which a TERRA wellbore is
located to file with the commission a written request to plug
the wellbore if it has been in TERRA for more than seven
years.
(b) Requires the commission to notify all persons who have
signed the TERRA agreement pertaining to the wellbore and
any licenses of the wellbore under Section 93.037 of the
request for commission plugging. Requires the notice to
also state that the wellbore will be plugged unless a
mineral owner obtains release of the wellbore from TERRA
under Section 93.052 or 93.053 within 90 days, or at the
expiration of an existing TERRA license, whichever occurs
later.
(c) Requires the commission to schedule the wellbore to be
plugged at the end of any existing licensed use if the
wellbore is not released from TERRA under Subsection (b).
(d) Authorizes the commission to require surface owners
requesting plugging of a TERRA wellbore to provide a copy,
certified by the clerk of the county in which the land is
located, of the deed or other instrument under which they
claim title to the surface estate.
SUBCHAPTER E. ADMINISTRATIVE PROCEDURE; LIABILITY
Sec. 93.071. APPLICABILITY OF ADMINISTRATIVE PROCEDURE ACT.
(a) Provides that Chapter 2001, Government Code, applies to
a proceeding to revoke a TERRA license and to assess an
administrative penalty against or require reimbursement from
a license holder; a proceeding under Section 93.014(c); and a
hearing required by commission rules on proposed uses.
(b) Provides that Chapter 2001, Government Code, does not
apply to a decision by the commission under this chapter on
acceptance or refusal to accept a wellbore into TERRA; on
the amount of payment required under Section 93.013(a)(8);
on the issuance of a license under this chapter; and on the
conditions of a license.
Sec. 93.072. JUDICIAL REVIEW. Provides that a judicial
decision described by Section 93.071(b) is not subject to
judicial review.
Sec. 93.073. LIABILITY OF STATE, COMMISSION, AND LICENSE
HOLDERS. (a) Sets forth the persons or persons who are
immune from suit and from liability under any cause of action
alleging certain actions.
(b) Provides that the commission and an employee or agent
of the commission are immune from suit and from liability
under any cause of action arising from the participation of
a wellbore in TERRA and alleging wrongful death or injury or
harm to persons, property, or interests caused by or
suffered by a license holder.
SECTION 3. Amends Chapter 201B, Tax Code, by adding Section
201.058, as follows:
Sec. 201.058. TAX EXEMPTIONS. Provides that the exemptions
described by Sections 202.056 and 202.059 apply to the taxes
imposed by this chapter as authorized by and subject to the
certifications and approvals required by those sections.
SECTION 4. Amends Section 202.052(c), Tax Code, to provide that the
exemptions described by Sections 202.056 and 202.059 apply to oil
produced in this state from a well that qualifies under Section
202.056 or 202.059, subject to the certifications and approvals
required by those sections.
SECTION 5. Amends Chapter 202B, Tax Code, by adding Section
202.059, as follows:
Sec. 202.059. EXEMPTION FOR HYDROCARBONS FROM TERRA WELLS.
(a) Provides that hydrocarbons produced from a well subject
to an agreement under Chapter 93, Natural Resources Code, and
under a license issued under that chapter qualify for an
exemption from the taxes imposed by this chapter and Chapter
201 if the comptroller approves the tax exemption under
Subsection (g).
(b) Provides that hydrocarbons produced from a well
formerly subject to an agreement under Chapter 93, Natural
Resources Code, and a license issued under that chapter
resuming production after participation in TERRA for two
years qualify for an exemption from the taxes imposed by
this chapter and Chapter 201 if the comptroller approves the
tax exemption under Subsection (g).
(c) Authorizes the commission to certify a well eligible
for a tax exemption or an application may be made to the
commission for certification under this section. Authorizes
the commission to require an applicant to provide the
commission with any relevant information required to
administer this section. Requires the commission to issue
a certificate to each operator of the well. Requires the
certificate to contain certain information.
(d) Requires the commission to furnish to the comptroller
a copy of a certificate of exemption for each well
qualifying under this section.
(e) Authorizes the commission to revoke a certificate for
a tax exemption if information indicates that a well was not
eligible for that designation at the time of certification
or if a license issued under Chapter 93, Natural Resources
Code, is revoked by the commission. Requires the commission
to notify the operator and the comptroller that a
certificate has been revoked. Provides that a tax exemption
granted under this section is automatically revoked on the
date the certificate is revoked, and hydrocarbons produced
from the well after the date of revocation are not eligible
for the tax exemption.
(f) Authorizes the commission to adopt and enforce any
rules or orders that the commission finds necessary to
administer this section.
(g) Requires the person responsible for paying the tax to
apply to the comptroller for the exemption and include with
the application the certificate issued by the commission
under Subsection (c). Requires the comptroller to approve
the application of a person if the hydrocarbons are eligible
for the tax exemption. Authorizes the comptroller to
require a person applying for the tax exemption to provide
any relevant information necessary to administer this
section. Authorizes the comptroller to establish procedures
to comply with this subsection and Subsection (h).
(h) Entitles the operator to a credit on taxes due under
Chapter 201 or this chapter in the amount equal to the tax
paid during that period if the tax is paid at the full rate
provided by this chapter and Chapter 201 on hydrocarbons
produced on or after the effective date of the tax exemption
but before the date the comptroller approves an application
for the tax exemption. Requires the operator to apply to
the comptroller for the credit not later than one year after
the date the commission certifies the well for a tax
exemption to receive a credit.
(i) Subjects a person to the penalties that may be imposed
under Chapters 85 and 91, Natural Resources Code, if the
person makes and submits to the commission or comptroller an
application, report, or other document used or intended to
be used for a certification, tax exemption, or tax credit
under this section and the person knows that the
application, report, or other document contains a false or
untrue material fact.
(j) Provides that a person is liable to the state for a
civil penalty if the person, after receiving notice from the
commission that the person's tax exemption certificate for
a TERRA well or a former TERRA well has been revoked,
applies or attempts to apply for a tax exemption for
hydrocarbons produced from the well under this revoked
certificate. Prohibits the amount of the penalty from
exceeding a certain sum.
(k) Authorizes the attorney general to recover a penalty
under Subsection (j) in a suit brought on behalf of the
state. Provides that venue for the suit is in Travis
County.
(l) Defines "commission," "hydrocarbons," and "TERRA."
SECTION 6. Effective date: January 1, 1996.
SECTION 7. Emergency clause.