LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session April 9, 2001 TO: Honorable Ron E. Lewis, Chair, House Committee on Energy Resources FROM: John Keel, Director, Legislative Budget Board IN RE: HB1317 by Farabee (Relating to financial security requirements for certain oil well operators.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * HB1317, As Introduced: 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: ************************************************************************** *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 $(426,000) $(4,000,000) 2.0 * * 2003 10,000 (3,800,000) (1.0) * * 2004 53,000 (3,600,000) (2.0) * * 2005 53,000 (3,500,000) (2.0) * * 2006 53,000 (3,500,000) (2.0) * ************************************************************************** Technology Impact According to the Railroad Commission (RRC), the technological impact to the Commission will be limited to programming. Costs are estimated to be about $384,000 for 3 contract programmers (3,200 hours). This cost involves changing the coding in the mainframe to delete the provisions of the bill that pertain to financial assurance options. Fiscal Analysis The bill would replace current financial security requirements for certain oil well operators, which include various cash options for which operators may be eligible, with higher bond or letter of credit requirements. Section 1 of the bill would require an inactive operator or an operator with land wells to file a minimum financial security of $25,000 for 0-5 wells, with an additional amount of $5,000 per land well for each additional well up to a maximum of $250,000. In addition, operators would be required to file financial security of $60,000 per bay well and $250,000 per offshore well in state waters. Section 2 of the bill would require financial security for all operators involved in activities under Commission jurisdiction other than, or in addition to, operation of wells, including commercial disposal facilities and reclamation plants. These operators would be required to file financial security of $250,000 or a lesser amount based on a demonstration of lesser risk as approved by the RRC after hearing. The financial security required under this section would be in addition to any financial security required for the operations of wells. Methodology Revenue Loss to Oil Field Cleanup Fund (OFCU): According to the RRC, the bill will result in a decrease in the amount of funds coming in with P-5 filings, since all of the options that include payment of a fee have been eliminated and replaced with a bonding or letter of credit requirement. These fees include P-5 Option 3 ($100 per P-5) and P-5 Option 4 (3% of bond amount). In addition, W-1X fees for plugging extensions ($100/well) would be eliminated. According to the RRC, W-1X fees and P-5 financial assurance fees contributed approximately $4.1 million of the $10.9 million OFCU revenue for 1999. However, the RRC adopted new rules in September 2000 that will gradually decrease revenues from these fees in upcoming years because new bonding requirements are being phased in. Therefore, the revenue loss to the OFCU account cannot be estimated solely on past fee collections. According to RRC the bill would result in a decrease of revenue projected with the amount of loss declining each fiscal year until leveling off (e.g. $4.0 million in 2002; $3.8 million in 2003; $3.6 million in 2004; and $3.5 million in 2005, 2006, and 2007. Because some streamlining is anticipated in association with compliance monitoring and processing of P-5's and the elimination of W-1X's, the RRC anticipates that a decrease of two (2) FTEs (2 @ $26,500 benefits included) in Permitting and Production after fiscal year 2002. The Environmental Services Division of RRC anticipates that one additional FTE (Administrative Technician I at a cost of $26,500 benefits included) for a period of about one year would be required to help process initial requests for hearings to reduce financial security amounts for commercial disposal facilities, reclamation plants, and, possibly, waste haulers. There would be an additional FTE required in Field Operations in the first two years at a cost of approximately $43,000 per year benefits included to assist with increased inspections. 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, SK