H.B. No. 2259

AN ACT

relating to the plugging of certain inactive oil or gas wells and to standards for electrical power lines serving certain oil and gas facilities.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 89.002(a), Natural Resources Code, is amended by amending Subdivision (7) and adding Subdivisions (9), (10), (11), (12), and (13) to read as follows:

(7) "Delinquent inactive well" means an inactive [unplugged] well [that has had no reported production, disposal, injection, or other permitted activity for a period of greater than 12 months and] for which, after notice and opportunity for a hearing, the commission has not extended the plugging deadline.

(9) "Cost calculation for plugging an inactive well" means the commission's calculated cost for each foot of well depth plugged based on average actual plugging costs for wells reported by the commission for the preceding state fiscal year for the commission oil and gas division district in which the inactive well is located.

(10) "Enhanced oil recovery project":

(A) means:

(i) a commission-approved project that uses any process for the displacement of oil or other hydrocarbons from a reservoir other than primary recovery and includes the use of an immiscible, miscible, chemical, thermal, or biological process;

(ii) a certified project described by Section 202.054, Tax Code; or

(iii) any other project approved by the commission for enhanced oil recovery; and

(B) does not include a water disposal project.

(11) "Good faith claim" means a factually supported claim based on a recognized legal theory to a continuing possessory right in a mineral estate, such as evidence of a currently valid oil and gas lease or a recorded deed conveying a fee interest in the mineral estate.

(12) "Inactive well" means an unplugged well that has had no reported production, disposal, injection, or other permitted activity for a period of greater than 12 months.

(13) "Physically terminated electric service to the well's production site" means that electric service to an inactive well site has been disconnected at a point on the electric service lines most distant from the production site toward the main supply line in a manner that will not interfere with electrical supply to adjacent operations, including cathodic protection units.

SECTION 2. Chapter 89, Natural Resources Code, is amended by adding Subchapter B-1 to read as follows:

SUBCHAPTER B-1. PLUGGING OF CERTAIN INACTIVE WELLS

Sec. 89.021. APPLICABILITY. This subchapter does not apply to a bay or offshore well as defined by commission rules.

Sec. 89.022. PLUGGING OF INACTIVE WELLS REQUIRED. (a) Except as provided by Section 89.023, on or before the date the operator is required to renew the operator's organization report required by Section 91.142, an operator of an inactive well must plug the well in accordance with statutes and commission rules in effect at the time of plugging.

(b) Notwithstanding Subsection (a), a person who assumes responsibility for the physical operation and control of an existing inactive well must satisfy the requirements of Sections 89.023(a)(1) and (4) not later than six months after the date the commission approves the initial form described by Section 89.002(a)(2) and filed with the commission under which the person assumes responsibility for the well.

(c) The commission may not renew or approve the organization report required by Section 91.142 for an operator that fails to comply with the requirements of this subchapter.

Sec. 89.023. EXTENSION OF DEADLINE FOR PLUGGING INACTIVE WELL. (a) The commission may grant an extension of the deadline for plugging an inactive well if the operator maintains a current organization report with the commission as required by Section 91.142 and if, on or before the date of renewal of the operator's organization report as required by that section, the operator files with the commission an application for an extension that includes:

(1) an affirmation that complies with Section 89.029;

(2) a statement that the well and associated facilities are in compliance with all commission rules and orders;

(3) a statement that the operator has, and on request will provide, evidence of a good faith claim to a continuing right to operate the well; and

(4) at least one of the following:

(A) documentation that since the preceding date that the operator's organization report was required to be renewed the operator has plugged, or restored to active operation as defined by commission rule, a number of inactive wells equal to or greater than 10 percent of the number of inactive wells operated by the operator on that date;

(B) an abeyance of plugging report on a form approved by the commission that:

(i) is in the form of a certification signed by a person licensed by the Texas Board of Professional Engineers or the Texas Board of Professional Geoscientists;

(ii) includes:

(a) an affirmation by the licensed person that the well has:

(1) a reasonable expectation of economic value in excess of the cost of plugging the well for the duration of the period covered by the report, based on the cost calculation for plugging an inactive well; and

(2) a reasonable expectation of being restored to a beneficial use that will prevent waste of oil or gas resources that otherwise would not be produced if the well were plugged; and

(b) appropriate documentation demonstrating the basis for the affirmation of the well's future utility; and

(iii) specifies the field and the covered wells within that field in a format prescribed by the commission;

(C) a statement that the well is part of an enhanced oil recovery project;

(D) if the operator of the well is not currently otherwise required by commission rule or order to conduct a fluid level or hydraulic pressure test of the well, documentation of the results of a successful fluid level or hydraulic pressure test of the well conducted in accordance with the commission's rules in effect at the time the test is conducted;

(E) a supplemental bond, letter of credit, or cash deposit sufficient for each well specified in the application that:

(i) complies with the requirements of Chapter 91; and

(ii) is of an amount at least equal to the cost calculation for plugging an inactive well for each well specified in the application;

(F) documentation of the deposit with the commission each time the operator files an application of an amount of escrow funds as prescribed by commission rule that equal at least 10 percent of the total cost calculation for plugging an inactive well for each well specified in the application; or

(G) if the operator is a publicly traded entity:

(i) the following documents:

(a) a copy of the operator's federal documents filed to comply with Financial Accounting Standards Board Statement No. 143, Accounting for Asset Retirement Obligations; and

(b) an original, executed Uniform Commercial Code Form 1 Financing Statement, filed with the secretary of state, that:

(1) names the operator as the "debtor" and the Railroad Commission of Texas as the "secured creditor"; and

(2) specifies the funds covered by the documents described by Sub-subparagraph (a) in the amount of the cost calculation for plugging an inactive well for each well specified in the application; or

(ii) a blanket bond in the amount of the lesser of:

(a) the cost calculation for plugging any inactive wells; or

(b) $2 million.

(b) Notwithstanding Subsection (a), an operator may not obtain an extension of the deadline for plugging an inactive well by complying with that subsection if the plugging of the well is otherwise required by commission rules or orders.

Sec. 89.024. ABEYANCE OF PLUGGING REPORT. (a) An abeyance of plugging report filed under Section 89.023(a)(4)(B) is valid for a period of not more than five years.

(b) An abeyance of plugging report may cover more than one well in a field but may not cover more than one field.

(c) An abeyance of plugging report may not be transferred to a new operator of an existing inactive well. A new operator of an existing inactive well must file a new abeyance of plugging report or otherwise comply with the requirements of this subchapter on or before the deadline provided by Section 89.022(b). This subsection does not prohibit the transfer of an abeyance of plugging report in the event of a change of name of an operator.

(d) An operator who files an abeyance of plugging report must pay an annual fee of $100 for each well covered by the report. A fee collected under this section shall be deposited in the oil-field cleanup fund.

Sec. 89.025. ENHANCED OIL RECOVERY PROJECT. (a) For purposes of Section 89.023(a)(4)(C), an inactive well is considered to be part of an enhanced oil recovery project if the well is located on a unit or lease or in a field associated with such a project.

(b) A statement that an inactive well is part of an enhanced oil recovery project may not be transferred to a new operator of an existing inactive well. A new operator of an existing inactive well must file a new statement that the well is part of such a project or otherwise comply with the requirements of this subchapter on or before the deadline provided by Section 89.022(b). This subsection does not prohibit the transfer of a statement that a well is part of an enhanced oil recovery project in the event of a change of name of an operator.

Sec. 89.026. FLUID LEVEL OR HYDRAULIC PRESSURE TEST. (a) Documentation filed under Section 89.023(a)(4)(D) of the results of a successful fluid level test is valid for a period of one year from the date of the test. Documentation filed under that section of the results of a successful hydraulic pressure test is valid for a period of not more than five years from the date of the test.

(b) The operator must notify the office of the commission oil and gas division district in which an inactive well is located at least three days before the date the operator conducts a fluid level or hydraulic pressure test of the well and may not conduct the test without the approval of the office. The commission may require that a test be witnessed by a commission employee.

(c) Documentation of the results of a successful fluid level or hydraulic pressure test may be transferred to a new operator of an existing inactive well.

(d) An operator who files documentation described by Subsection (a) must pay an annual fee of $50 for each well covered by the documentation. A fee collected under this section shall be deposited in the oil-field cleanup fund.

Sec. 89.027. SUPPLEMENTAL FINANCIAL ASSURANCE. (a) A supplemental bond, letter of credit, or cash deposit filed under Section 89.023(a)(4)(E) is in addition to any other financial assurance otherwise required of the operator or for the well.

(b) A supplemental bond, letter of credit, or cash deposit may not be transferred to a new operator of an existing inactive well. A new operator of an existing inactive well must file a new supplemental bond, letter of credit, or cash deposit or otherwise comply with the requirements of this subchapter by the deadline provided by Section 89.022(b).

Sec. 89.028. ESCROW FUNDS. (a) Escrow funds described by Section 89.023(a)(4)(F) must be deposited with the commission each time an operator files an application for an extension of the deadline for plugging an inactive well.

(b) Escrow funds deposited with the commission may be released only with the approval of the commission as prescribed by commission rule.

Sec. 89.029. AFFIRMATION REGARDING SURFACE REQUIREMENTS. (a) An application for an extension of the deadline for plugging an inactive well must include a written affirmation by the operator:

(1) that the operator has physically terminated electric service to the well's production site; and

(2) stating the following, as applicable, if the operator does not own the surface of the land on which the well is located:

(A) if the well has been inactive for at least five years but for less than 10 years as of the date of renewal of the operator's organization report, that the operator has emptied or purged of production fluids all piping, tanks, vessels, and equipment associated with and exclusive to the well; or

(B) if the well has been inactive for at least 10 years as of the date of renewal of the operator's organization report, that the operator has removed all surface process equipment and related piping, tanks, tank batteries, pump jacks, headers, and fences, as well as junk and trash as defined by commission rule, associated with and exclusive to the well.

(b) An operator of an inactive well shall leave a clearly visible marker at the wellhead of the well.

(c) The commission shall adopt rules regulating the transfer of material described by Subsection (a)(2)(B) and restricting its accumulation on an active lease.

(d) Notwithstanding Subsection (a), an operator may be eligible for a temporary extension of the deadline for plugging an inactive well or a temporary exemption from the requirements of Subsection (a) as provided by commission rule if the operator is unable to comply with the requirements of that subsection because of safety concerns or required maintenance of the well site and the operator includes with the application a written affirmation of the facts regarding the safety concerns or maintenance.

(e) An operator may be eligible for an extension of the deadline for plugging a well without complying with Subsection (a)(2)(B) if the well is located on a unit or lease or in a field associated with an enhanced oil recovery project and the operator includes a statement in the written affirmation that the well is part of such a project. The exemption provided by this subsection applies only to the equipment required for the project.

(f) Notwithstanding the other provisions of this subchapter, the commission shall adopt rules providing for the phase-in of the duty to comply with Subsection (a)(2)(B) over a period of five years beginning September 1, 2010. The rules must require the operators of one-fifth of the wells that are subject to that subsection in each year during the phase-in period to comply with that subsection.

Sec. 89.030. REVOCATION OF EXTENSION OF DEADLINE FOR PLUGGING INACTIVE WELL. The commission may revoke an extension of the deadline for plugging an inactive well granted under this subchapter if the commission determines, after notice and an opportunity for a hearing, that the applicant is ineligible for the extension under the commission's rules or orders.

SECTION 3. Subchapter B, Chapter 91, Natural Resources Code, is amended by adding Section 91.019 to read as follows:

Sec. 91.019. STANDARDS FOR CONSTRUCTION, OPERATION, AND MAINTENANCE OF ELECTRICAL POWER LINES. An operator shall construct, operate, and maintain an electrical power line serving a well site or other surface facility employed in operations incident to oil and gas development and production in accordance with the National Electrical Code published by the National Fire Protection Association and adopted by the Texas Commission of Licensing and Regulation under Chapter 1305, Occupations Code.

SECTION 4. 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 and other financial security required by this chapter and benefits under well-specific plugging insurance policies described by Section 91.104(c) that are paid to the state as contingent beneficiary of the policies, subject to the refund provisions of Section 91.1091, if applicable;

(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) civil penalties or costs recovered under Section 91.457 or 91.459;

(10) oil and gas waste hauler permit application fees collected under Section 29.015, Water Code;

(11) costs recovered under Section 91.113(f);

(12) hazardous oil and gas waste generation fees collected under Section 91.605;

(13) oil-field cleanup regulatory fees on oil collected under Section 81.116;

(14) oil-field cleanup regulatory fees on gas collected under Section 81.117;

(15) fees for a reissued certificate collected under Section 91.707;

(16) fees collected under Section 91.1013;

(17) fees collected under Section 89.088;

(18) penalties collected under Section 81.0531;

(19) fees collected under Section 91.142;

(20) fees collected under Section 91.654;

(21) costs recovered under Sections 91.656 and 91.657;

(22) two-thirds of the fees collected under Section 81.0521; [and]

(23) fees collected under Sections 89.024 and 89.026; and

(24) legislative appropriations.

SECTION 5. (a) Not later than September 1, 2010, the Railroad Commission of Texas shall be prepared to grant extensions of the deadline for plugging an inactive well under Subchapter B-1, Chapter 89, Natural Resources Code, as added by this Act.

(b) The change in law made by this Act applies only to the renewal or approval of an organization report on or after September 1, 2010. The renewal or approval of an organization report before September 1, 2010, 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 6. This Act takes effect September 1, 2009.

______________________________ ______________________________

President of the Senate Speaker of the House

I certify that H.B. No. 2259 was passed by the House on April 29, 2009, by the following vote: Yeas 144, Nays 0, 1 present, not voting; and that the House concurred in Senate amendments to H.B. No. 2259 on May 20, 2009, by the following vote: Yeas 138, Nays 0, 1 present, not voting.

______________________________ Chief Clerk of the House

I certify that H.B. No. 2259 was passed by the Senate, with amendments, on May 18, 2009, by the following vote: Yeas 31, Nays 0.

______________________________ Secretary of the Senate APPROVED: __________________

Date

__________________

Governor