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