BILL ANALYSIS S.B. 1357 By: Haywood (Holzheauser) May 4, 1995 Committee Report (Amended) BACKGROUND Surface commingling of oil and gas is a production handling method used by operators to reduce operating expenses. Current law authorizes surface commingling of production if working and royalty interests are common or if the production is metered separately before being commingled. For economic reasons, however, it is preferable to meter production at a single point and allocate production to specific tracts or horizons. When interests differ and metering production separately is not preferred, the Texas Railroad Commission requires the operator to obtain 100 percent approval from the working and royalty interest owners. Obtaining this approval can become difficult when the royalty interests are very small, or if recipients of ballots do not return them. Under the current system, a single, small interest owner can prevent the approval of an application by not returning a ballot even though the owner may not be opposed to the action. PURPOSE S.B. 1357 authorizes the Railroad Commission of Texas to permit surface commingling of oil or gas, or oil and gas production from tracts and horizons if the commission determines that such commingling would prevent waste, promote conservation, or protect correlative rights. RULEMAKING AUTHORITY It is the committee's opinion that SECTION 1 of this bill grants broad rulemaking authority to the Railroad Commission of Texas to administer Subsection (c), Section 85.046, Natural Resources Code, as added by this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 85.046, Natural Resources Code, by adding Subsection (c) to authorize the Railroad Commission of Texas, after notice and opportunity for hearing, to permit the commingling of oil or gas or both in production from two or more tracts from the same reservoir or from one or more tracts producing from different reservoirs, if the commission finds that commingling will prevent waste, promote conservation, or protect correlative rights. Authorizes the commission to permit the commingling regardless of whether the tracts or horizons have the same working or royalty interest ownership. Requires that the attributable production amount be determined in a manner consistent with this title. Grants the commission rulemaking authority to administer this subsection. SECTION 2. Effective Date: September 1, 1995. SECTION 3. Emergency Clause. EXPLANATION OF AMENDMENTS Committee Amendment No. 1 changes the word horizon(s) to "commission designated reservoir(s)" because multiple horizons may be included in one reservoir. This clarifies the intent that multiple reservoirs may be permitted to commingle oil or gas or both. SUMMARY OF COMMITTEE ACTION S.B. 1357 was considered by the Energy Resources Committee in a public hearing on May 2, 1995. Elizabeth Bush, Representing ARCO Permian and Texas Mid-Continent Oil and Gas Association, testified in favor of the bill. The committee considered one amendment to the bill. The amendment was adopted without objection. The bill was reported favorably as amended, with the recommendation that it do pass and be printed and be sent to the Committee on Local and Consent Calendars, by a record vote of 7 ayes, 0 nays, 0 PNV, and 2 absent.