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78S40603 MI/AJA-F
By: West H.B. No. 52
A BILL TO BE ENTITLED
AN ACT
relating to the provision of financial assurance for plugging
certain oil and gas wells.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subchapter E, Chapter 21, Insurance Code, is
amended by adding Article 21.51 to read as follows:
Art. 21.51. TEXAS WELL-PLUGGING SURETY BOND ASSOCIATION
Sec. 1. DEFINITIONS. In this article:
(1) "Association" means the Texas Well-Plugging
Surety Bond Association established by this article.
(2) "Authorized insurer" means a surety company
authorized to write surety bonds in this state and that writes
surety bonds under Sections 91.104 and 91.1042, Natural Resources
Code.
(3) "Plan of operation" means the plan for operating
the association to assign to an authorized insurer the issuance of a
surety bond to a person eligible under this article.
(4) "Surety bond" means a bond written to cover the
cost of plugging and abandoning all wells and controlling, abating,
and cleaning up pollution associated with the failure of an oil and
gas operator to maintain the operator's oil and gas wells in
accordance with the laws of this state and the rules and orders of
the Railroad Commission of Texas.
Sec. 2. ASSOCIATION ESTABLISHED. (a) The Texas
Well-Plugging Surety Bond Association is established. The
association is a nonprofit corporation composed of all authorized
insurers. Each authorized insurer must be a member of the
association as long as the association exists as a condition of the
insurer's authority to write surety bonds under Sections 91.104 and
91.1042, Natural Resources Code.
(b) The association is administered by a governing
committee composed of the following members appointed by the
commissioner:
(1) one member who represents the interests of
landowners and mineral owners;
(2) one member who is a petroleum engineer;
(3) one member who represents the interests of the oil
and gas lending community;
(4) one member who is an authorized insurer writing
surety bonds under Sections 91.104 and 91.1042, Natural Resources
Code; and
(5) one member who represents the interests of the
well-servicing industry.
(c) The commissioner or a department employee designated by
the commissioner shall serve as an ex officio member of the
governing committee.
(d) Appointed members of the governing committee serve
two-year terms.
Sec. 3. OPERATION OF ASSOCIATION. (a) The governing
committee shall administer the association in accordance with the
plan of operation.
(b) The association may assess the member insurers to obtain
money to operate the association. An assessment on a member insurer
must be proportionate to the portion of surety bond business in this
state written by the insurer. If an assessment made on a member
insurer is not paid within a reasonable time, the association may
bring an action to collect the assessment. The association may
report the failure to pay to the commissioner, who may impose
sanctions as described by Chapter 82 of this code.
(c) The association has the powers granted to nonprofit
corporations under the Texas Non-Profit Corporation Act (Article
1396-1.01 et seq., Vernon's Texas Civil Statutes).
(d) The plan of operation must:
(1) be approved by the commissioner; and
(2) provide for the efficient, economical, fair, and
nondiscriminatory administration of the association.
(e) The plan of operation may:
(1) contain underwriting standards set by the
association for determining the issuance of surety bonds under this
article; and
(2) include eligibility requirements in addition to
the eligibility requirements provided by Section 5 of this article.
(f) The governing committee may amend the plan of operation,
subject to the commissioner's approval. The governing committee
shall amend the plan of operation as required by the commissioner.
(g) If the commissioner determines that any part of the plan
of operation does not conform to the purposes of the Natural
Resources Code that relate to the plan, the commissioner shall
notify the governing committee of that determination in writing.
On receiving the notice, the governing committee shall take action
to conform the plan of operation to the purposes of the Natural
Resources Code that relate to the plan.
(h) The plan of operation must contain incentive programs to
encourage member insurers to write surety bonds on a voluntary
basis and to minimize the use of the association as a means to
obtain surety bonds. The incentive programs are effective on
approval by the commissioner.
(i) The plan of operation must include a voluntary,
competitive limited assignment distribution plan that allows each
member insurer to contract directly with a servicing carrier to
accept assignments to that carrier by the association. A servicing
carrier must be an insurer authorized under this code to write
surety bonds. After notice and hearing, the commissioner may
prohibit an insurer from acting as a servicing carrier. The terms
of the contract between a servicing carrier and an insurer,
including the buy-out fee, shall be determined by negotiation
between the parties. The governing committee may adopt reasonable
rules for the conduct of business under the contract and may
establish reasonable standards of eligibility for servicing
carriers.
Sec. 4. DUTIES AND FUNCTIONS OF ASSOCIATION. The
association shall provide a means by which the issuance of a surety
bond to an eligible person may be assigned to an authorized insurer.
Sec. 5. ELIGIBILITY FOR ISSUANCE OF BOND. (a) Any firm,
partnership, joint stock association, corporation, or other
organization that is required to file an organization report under
Section 91.142, Natural Resources Code, may apply for the issuance
of a surety bond under this article.
(b) An applicant for a surety bond must demonstrate to the
association that the applicant:
(1) has an acceptable record of compliance with each
applicable rule, order, license, permit, and certificate of the
Railroad Commission of Texas that relates to safety or the
prevention or control of pollution for the 48 months preceding the
application date;
(2) is not currently violating any applicable rule,
order, license, permit, or certificate;
(3) has paid any administrative, civil, or criminal
penalty relating to a violation of a rule, order, license, permit,
or certificate; and
(4) has reimbursed the railroad commission for any
costs and expenses incurred by the commission in connection with
the applicant's violation of a rule, order, license, permit, or
certificate.
Sec. 6. RATES FOR SURETY BONDS; HEARING. (a) The
commissioner shall set appropriate rates for surety bonds written
under this article. The rates must be:
(1) just, reasonable, adequate, not excessive, not
confiscatory, and not unfairly discriminatory for the risks to
which they apply; and
(2) set in an amount sufficient to carry all claims to
maturity and to meet the expenses incurred in the writing and
servicing of the business.
(b) In setting rates under this section, the commissioner
shall consider the reports of aggregate premiums earned and losses
and expenses incurred in the writing of surety bonds through the
association.
(c) The commissioner may adopt reasonable rules and
statistical plans to be used by each authorized insurer to record
and report:
(1) the insurer's premium, loss, and expense
experience, which must be reported separately for business assigned
to the insurer; and
(2) other data required by the commissioner for the
purposes of this article.
(d) The association shall file annually with the department
for approval by the commissioner rates to be charged for surety
bonds provided through the association. The association may not
make such a filing more than once in any 12-month period.
(e) Subchapter B, Chapter 40, of this code does not apply to
the filing or setting of rates under this section or a department
action with respect to the filing or setting of rates under this
section.
(f) Before approving, disapproving, or modifying a filing
made under Subsection (d) of this section, the commissioner shall
provide all interested persons a reasonable opportunity to:
(1) review the filing;
(2) obtain copies of the filing on payment of any
legally required copying cost; and
(3) submit to the commissioner written comments,
analyses, or information related to the filing.
(g) Not later than the 45th day after the date on which the
department receives the filing required under Subsection (d) of
this section, the commissioner shall schedule a hearing at which
interested persons may present written or oral comments relating to
the filing. A hearing under this subsection is not a contested case
hearing under Chapter 2001, Government Code. The association or
any other interested person or entity that has submitted proposed
changes or actuarial analyses may ask questions of any person
testifying at the hearing.
(h) Not later than the seventh day after the date the filing
is received by the department, the department shall file in the
Texas Register notice that a filing has been made under Subsection
(d) of this section. The notice must include information relating
to:
(1) the availability of the filing for public
inspection at the department during regular business hours and the
procedures for obtaining copies of the filing;
(2) procedures for making written comments related to
the filing; and
(3) the time, place, and date of the hearing scheduled
under Subsection (g) of this section.
(i) After the conclusion of the hearing, the commissioner
shall approve, disapprove, or modify the filing in writing. If the
commissioner disapproves a filing, the commissioner shall state in
writing the reasons for the disapproval and the criteria to be met
by the association to obtain approval. The association may file
with the commissioner, not later than the 10th day after the date
the association receives the commissioner's written disapproval,
an amended filing to comply with the commissioner's comments.
(j) Before approving or disapproving an amended filing, the
commissioner shall provide all interested persons a reasonable
opportunity to review the amended filing, obtain copies of the
amended filing on payment of any legally required copying cost, and
submit to the commissioner written comments or information related
to the amended filing in the manner provided by Subsection (f) of
this section, and may hold a hearing in the manner provided by
Subsection (g) of this section not later than the 20th day after the
date the department receives the amended filing. Not later than the
10th day after the date a hearing on the amended filing is
concluded, the commissioner shall approve or disapprove the amended
filing. If the commissioner does not approve the amended filing on
or before the 30th day after the date the amended filing is received
by the department, the amended filing is considered approved on the
31st day after the date the amended filing is received by the
department. Subsections (h) and (i) of this section apply to a
hearing conducted under this subsection.
(k) On or before the 30th day after the date of the
commissioner's decision under this section, a person aggrieved by
the decision may appeal the decision in accordance with Subchapter
D, Chapter 36, of this code.
Sec. 7. IMMUNITY FROM LIABILITY. (a) The association, a
member of the governing committee, or any employee of the
association is not personally liable for any act performed in good
faith within the scope of the person's authority as determined
under this article or the plan of operation or for damages arising
from the person's official acts or omissions, other than an act or
omission that is corrupt or malicious. The association shall
provide counsel to defend any action brought against a member of the
governing committee or employee of the association that is based on
the person's official act or omission regardless of whether the
defendant has terminated service with the association before the
action is filed.
(b) This section is cumulative with and does not affect or
modify any common law or statutory privilege or immunity.
Sec. 8. SUNSET PROVISION. This article is subject to
Chapter 325, Government Code (Texas Sunset Act). Unless continued
in existence as provided by that chapter, this article is abolished
September 1, 2009. Any association funds remaining at the time this
article is abolished shall be transferred to the oil-field cleanup
fund.
SECTION 2. Section 91.104, Natural Resources Code, as
effective September 1, 2004, is amended to read as follows:
Sec. 91.104. BONDS, LETTERS OF CREDIT, [AND] CASH DEPOSITS,
AND WELL-SPECIFIC PLUGGING INSURANCE POLICIES. (a) The commission
shall require a bond, letter of credit, or cash deposit to be filed
with the commission as provided by Subsection (b) of this section.
(b) A person required to file a bond, letter of credit, or
cash deposit under Section 91.103 who is an inactive operator or who
operates one or more wells must, at the time of filing or renewing
an organization report required by Section 91.142, file:
(1) an individual bond as provided under Section
91.1041;
(2) a blanket bond as provided under Section 91.1042;
or
(3) a letter of credit or cash deposit in the same
amount as required for an individual bond under Section 91.1041 or a
blanket bond under Section 91.1042.
(c) A person required to file a bond, letter of credit, or
cash deposit under Section 91.103 who operates one or more wells is
considered to have met that requirement for a well if the wellbore
is included in a well-specific plugging insurance policy that:
(1) is approved by the Texas Department of Insurance;
(2) names this state as the owner and contingent
beneficiary of the policy;
(3) is fully prepaid and cannot be canceled or
surrendered;
(4) provides that benefits may not be paid until the
specified wellbore has been plugged in accordance with commission
rules in effect at the time of plugging; and
(5) provides benefits that equal the greater of:
(A) the actual payment under the policy for
plugging the wellbore; or
(B) an amount equal to $2 for each foot of well
depth for the specified well.
SECTION 3. Section 91.1042, Natural Resources Code, as
effective September 1, 2004, is amended by adding a new Subsection
(b) and relettering existing Subsection (b) as Subsection (c), to
read as follows:
(b) When calculating the number of an operator's wells for
purposes of Subsection (a), the commission shall exclude a well if
the wellbore is included in a well-specific plugging insurance
policy described by Section 91.104(c).
(c) Notwithstanding Subsection (a), the commission by rule
shall set the amount of the bond for an operator of bay or offshore
wells at a reasonable amount that exceeds the amount provided by
Subsection (a)(1), (2), or (3), as applicable.
SECTION 4. Section 91.107, Natural Resources Code, as
effective September 1, 2004, is amended to read as follows:
Sec. 91.107. NEW BOND, LETTER OF CREDIT, OR CASH DEPOSIT.
(a) Notwithstanding Section 91.104, if an active or inactive well
is transferred, sold, or assigned by its operator to another
operator whose average daily oil and gas production from the total
of all active and inactive wells for the six months preceding the
transfer, sale, or assignment is not less than one barrel of oil
equivalent, the commission shall require the party acquiring the
well to file a new bond, letter of credit, or cash deposit as
provided by Section 91.104(b)(1), (2), or (3).
(b) Notwithstanding Section 91.104, if an active or
inactive well is transferred, sold, or assigned by its operator to
another operator whose average daily oil and gas production from
the total of all active and inactive wells for the six months
preceding the transfer, sale, or assignment is less than one barrel
of oil equivalent, the commission shall require the party acquiring
the well to file and maintain a new bond, letter of credit, or cash
deposit in an amount equal to $2 for each foot of well depth for that
well. A bond, letter of credit, or cash deposit required under this
subsection is in addition to any other bond, letter of credit, or
cash deposit required of the new operator under Section 91.104
before the operator acquired the well subject to this subsection.
(c) Notwithstanding Section 91.104, if an operator whose
average daily oil and gas production from the total of all active
and inactive wells for the six months preceding a proposed
transfer, sale, or assignment of active producing wells is at least
one barrel of oil equivalent and the transfer, sale, or assignment
of active producing wells would cause the six-month average daily
oil and gas production for the total of the operator's remaining
active and inactive wells to drop below one barrel of oil
equivalent, the commission shall require the operator to provide
additional financial assurance in an amount equal to $2 for each
foot of well depth for a sufficient number of the operator's
remaining wells so that the six-month average daily oil and gas
production for the total of the remaining active and inactive wells
to be covered by a blanket bond, letter of credit, or cash deposit
under Section 91.1042 plus the additional financial assurance under
this subsection will be not less than one barrel of oil equivalent.
(d) A well for which financial assurance is provided under
Subsection (b) or (c) is not included in the operator's well count
for determination of the amount of a bond, letter of credit, or cash
deposit under Section 91.1041 or 91.1042.
(e) A financial assurance requirement for a well for which
additional financial assurance is required by Subsection (b) or (c)
may not be satisfied by the operator's blanket bond, letter of
credit, or cash deposit determined under Section 91.1042 until the
operator's average daily oil and gas production from the total of
all active and inactive wells for six consecutive months is at least
three barrels of oil equivalent.
(f) The [, and the] financial security of the prior operator
shall continue to be required and to remain in effect, and the
commission may not approve the transfer of operatorship, until the
new bond, letter of credit, or cash deposit is provided or the
commission determines that the bond, letter of credit, or cash
deposit previously submitted to the commission by the person
acquiring the well complies with this subchapter. A transfer of a
well from one entity to another entity under common ownership is a
transfer for purposes of this section.
SECTION 5. Section 91.111(c), Natural Resources Code, is
amended to read as follows:
(c) The fund consists of:
(1) penalties imposed under Section 85.381 for
violation of a law, order, or rule relating to well plugging
requirements;
(2) proceeds from bonds, insurance, and other
financial assurances required by this chapter, subject to the
refund provisions of Section 91.1091;
(3) private contributions, including contributions
made under Section 89.084;
(4) expenses collected under Section 89.083;
(5) fees imposed under Section 85.2021;
(6) civil penalties collected for violations of
Chapter 89 or of rules or orders relating to plugging that are
adopted under this code;
(7) proceeds collected under Sections 89.085 and
91.115;
(8) interest earned on the funds deposited in the
fund;
(9) fees collected under Section 91.104;
(10) civil penalties or costs recovered under Section
91.457 or 91.459;
(11) oil and gas waste hauler permit application fees
collected under Section 29.015, Water Code;
(12) costs recovered under Section 91.113(f);
(13) hazardous oil and gas waste generation fees
collected under Section 91.605;
(14) oil-field cleanup regulatory fees on oil
collected under Section 81.116;
(15) oil-field cleanup regulatory fees on gas
collected under Section 81.117;
(16) fees for a reissued certificate collected under
Section 85.167;
(17) fees collected under Section 91.1013;
(18) fees collected under Section 89.088;
(19) penalties collected under Section 81.0531;
(20) fees collected under Section 91.142;
(21) fees collected under Section 91.654;
(22) costs recovered under Sections 91.656 and 91.657;
(23) two-thirds of the fees collected under Section
81.0521; and
(24) legislative appropriations.
SECTION 6. The Texas Department of Insurance shall
implement the changes in law required by Article 21.51, Insurance
Code, as added by Section 1 of this Act, not later than December 1,
2004.
SECTION 7. The changes in law made by Sections 2 through 5
of this Act apply only to a person required to file a bond or
alternate form of financial security under Section 91.103, Natural
Resources Code, on or after the effective date of this Act. A
person required to file a bond or alternate form of financial
security under Section 91.103, Natural Resources Code, before the
effective date of this Act is governed by the law as it existed
immediately before the effective date of this Act, and that law is
continued in effect for that purpose.
SECTION 8. This Act takes effect September 1, 2004.