LEGISLATIVE BUDGET BOARD
                              Austin, Texas
                                     
                    FISCAL NOTE, 77th Regular Session
  
                               May 10, 2001
  
  
          TO:  Honorable J.E. "Buster" Brown, Chair, Senate Committee on
               Natural Resources
  
        FROM:  John Keel, Director, Legislative Budget Board
  
       IN RE:  HB1317  by Farabee (Relating to financial security
               requirements for certain oil well operators.), As
               Engrossed
  
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*  Estimated Two-year Net Impact to General Revenue Related Funds for    *
*  HB1317, As Engrossed:  positive impact of $0 through the biennium     *
*  ending August 31, 2003.                                               *
*                                                                        *
*  The bill would make no appropriation but could provide the legal      *
*  basis for an appropriation of funds to implement the provisions of    *
*  the bill.                                                             *
**************************************************************************
  
General Revenue-Related Funds, Five-Year Impact:
  
          ****************************************************
          *  Fiscal Year  Probable Net Positive/(Negative)   *
          *               Impact to General Revenue Related  *
          *                             Funds                *
          *       2002                                   $0  *
          *       2003                                    0  *
          *       2004                                    0  *
          *       2005                                    0  *
          *       2006                                    0  *
          ****************************************************
  
All Funds, Five-Year Impact:
  
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*Fiscal        Probable         Probable Revenue    Change in Number of  *
* Year    Savings/(Cost) from Gain/(Loss) from Oil State Employees from  *
*          Oil Field Cleanup      Field Cleanup           FY 2001        *
*              Account/             Account/                             *
*            GR-Dedicated         GR-Dedicated                           *
*                0145                 0145                               *
*  2002             $(106,500)            $(40,000)                  1.0 *
*  2003               (43,000)             (25,000)                  1.0 *
*  2004              (427,000)             (15,000)                  1.0 *
*  2005               (85,000)          (4,000,000)                  1.0 *
*  2006               (63,000)          (3,800,000)                  1.0 *
**************************************************************************
  
Technology Impact
  
According to the Railroad Commission (RRC), the technological impact
would be limited to programming.  Costs are estimated to be $36,000 in
FY 2002 to perform the programming changes concerning transfer of active
and inactive wells from one operator to another.  Programming in FY 2004
is estimated at $384,000 to implement changes resulting from universal
bonding.  This estimate includes 3 contract programmers (3200 hours).
  
  
Fiscal Analysis
  
The bill would replace current financial security requirements, which
include various cash options for which operators may be eligible, with
higher bond, letter of credit or cash deposit requirements.  According to
the RRC, the bill would simplify the financial security program for
wells and would eliminate much of the administrative work associated with
all of the current options.  An inactive operator or an operator with
land wells would be required to file a minimum financial security of
$25,000 for 0-10 wells, $50,000 if the person operates at least 11 but
not more than 100 wells; or $250,000 if the person operates more than 100
wells.  In addition, operators would be required to file financial
security in a reasonable amount established by Commission rule for bay or
offshore wells.  New language was added requiring an operator be bonded
before transfer of ownership for active or inactive wells.  Bond, letter
or credit, or cash deposit amounts prescribed by this Section may be used
only for actual well plugging and surface remediation.

The bill also outlines the financial security requirements for commercial
disposal facilities and reclamation plants.

The changes in law made regarding financial security required for
inactive operators, certain active operators and disposal site operators
would require a person to file a bond or alternate financial security on
or after September 1, 2004.  The changes made regarding transfer of
wells would require a person to file a bond, letter or credit or cash
deposit on or after the effective date of this bill.
  
  
Methodology
  
In its methodology, the RRC assumed that all fiscal impacts will be to
the Oil Field Cleanup Dedicated Account (OFCU).

According to the RRC, in FY 2002-04, there would be a decrease in the
amount of funds coming in with W-1X s associated with the transfer of
inactive wells from one operator to another unbonded operator.  RRC
staff estimated the loss of revenue for W-1Xs filed for inactive well
operator-change P-4 s to unbonded operators to be $40,000 in FY 2002 and
$25,000 in FY 2003, and $15,000 in FY2004.

In Field Operations, one Engineering Specialist I, (at a cost of
approximately $43,000 per year, benefits included) a personal computer (
at a cost of $2,500), and a vehicle (at a cost of $25,000) would be
required in FY 2002, FY 2003, and FY2004 to perform additional
inspections associated with operator transfer of inactive wells that must
be bonded as of September 1, 2001.

In FY 2002, RRC staff estimated that $36,000 in programming costs would
be necessary to make the revisions resulting from the bill on top of the
currently underway 14(b)(2) rewrite to adapt the system for non-W-1X
filings of individual bonds (as a result of recent rule amendments
adopted by the commission).

In FY 2004, additional programming, at an estimated cost of $384,000 (3
contract programmers at $120/hour for 3,200 hours), will be necessary to
complete the program modifications to reflect the requirements of the
bill.

In FY 2005 and beyond, the RRC estimates that when the remaining
financial security requirements become effective, the loss to the fund
will be the full $4,000,000 as all wells will be required to have a bond,
Letter of Credit or cash deposit.  RRC staff assumed that no or very few
operators would select the option of a cash deposit.

Beginning in FY 2005, two (2) additional Engineering Specialist I s and
one additional vehicle will be required to perform increased compliance
inspections for inactive wells. However the agency would eliminate two
administrative technicians positions as a result of the provisions of
the bill for a net increase of approximately $20,000 each year.
  
  
Local Government Impact
  
According to the RRC, local government may see some negative fiscal
impact in the way of a reduction in tax revenues from a decreased tax
base as a result of decreased production and closure of other oil and
gas facilities for which the operators cannot obtain the required
financial security.   There should be no administrative cost impact to
local government.
  
  
Source Agencies:   455   Railroad Commission of Texas
LBB Staff:         JK, CL, SD, SK