81R5460 SMH-D

By: Duncan, Averitt S.B. No. 1378

A BILL TO BE ENTITLED

AN ACT

relating to the plugging of inactive oil or gas wells.

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

SECTION 1. Section 89.002, Natural Resources Code, is amended by amending Subdivision (7) and adding Subdivisions (9), (10), and (11) 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 based on average actual costs reported by the commission to the Oil-Field Cleanup Fund Advisory Committee for the preceding year for the commission oil and gas division district in which the inactive well is located.

(10) "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.

(11) "Physical termination of electric lines to an inactive well" means disconnecting electric service to an inactive well site 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 production sites.

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

SUBCHAPTER B-1. PLUGGING OF INACTIVE WELLS

Sec. 89.021. PLUGGING OF INACTIVE WELLS REQUIRED. (a) Except as provided by Section 89.022, 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) A person may not become a new operator of an existing inactive well without first satisfying the requirements of Section 89.022.

(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. 89.022. EXTENSION OF DEADLINE FOR PLUGGING INACTIVE WELL. (a) The commission shall grant an extension of the deadline for plugging an inactive well if, on or before the date of initial approval or renewal of the operator's organization report required by Section 91.142, the operator files with the commission an application for an extension that includes:

(1) an affirmation that complies with Section 89.028; and

(2) one or more of the following:

(A) documentation that the operator has plugged, or otherwise brought into compliance with commission rules, a number of inactive wells such that the number of the operator's inactive wells on the annual renewal date of the operator's organization report required by Section 91.142 is equal to or less than 90 percent of the number of inactive wells operated by the operator on the preceding date that the operator's organization report was required to be renewed;

(B) an abeyance of plugging report 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 a reasonably certain 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

(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;

(C) documentation that the well is part of an enhanced oil recovery project described by Section 202.052(b), Tax Code;

(D) 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 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 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) a copy of the operator's Financial Accounting Standards Board Statement No. 143, Accounting for Asset Retirement Obligations; and

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

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

(b) specifies the funds covered by the statement described by Subparagraph (i) in the amount of the cost calculation for plugging an inactive well for each well specified in the application.

(b) Notwithstanding Subsection (a)(2)(A), an operator may not obtain an extension of the deadline for plugging an inactive well by complying with that section if the plugging of the well is otherwise required by commission rules.

Sec. 89.023. ABEYANCE OF PLUGGING REPORT. (a) An abeyance of plugging report filed under Section 89.022(a)(2)(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. On becoming a new operator of an existing inactive well, an operator must file a new abeyance of plugging report or otherwise comply with the requirements of this subchapter. 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. 89.024. ENHANCED OIL RECOVERY PROJECT. (a) For purposes of Section 89.022(a)(2)(C), an inactive well is considered to be part of an enhanced oil recovery project if the well is associated with the project.

(b) Documentation that an inactive well is part of an enhanced oil recovery project described by Section 202.052(b), Tax Code, may not be transferred to a new operator of an existing inactive well. On becoming a new operator of an existing inactive well, an operator must file new documentation that the well is part of such a project or otherwise comply with the requirements of this subchapter.

Sec. 89.025. MECHANICAL INTEGRITY TEST. (a) Documentation of the results of a successful fluid level or hydraulic pressure test filed under Section 89.022(a)(2)(D) is valid for a period of five years from the date of the test.

(b) 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.

Sec. 89.026. SUPPLEMENTAL FINANCIAL ASSURANCE. (a) A supplemental bond, letter of credit, or cash deposit filed under Section 89.022(a)(2)(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. On becoming a new operator of an existing inactive well, an operator must file a new supplemental bond, letter of credit, or cash deposit or otherwise comply with the requirements of this subchapter.

Sec. 89.027. ESCROW FUNDS. (a) Escrow funds described by Section 89.022(a)(2)(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. 89.028. 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:

(A) if the well has been inactive for at least five years but for less than 10 years as of the date of renewal, that the operator has emptied and purged all related piping, tanks, vessels, and equipment as defined by commission rule; or

(B) if the well has been inactive for at least 10 years as of the date of renewal, that the operator has removed all surface equipment, tank batteries, pump jacks and related lines, junk, and trash as defined by commission rule and has not transferred that material to or allowed it to accumulate on an active lease.

(b) Notwithstanding Subsection (a), an operator is eligible for a temporary extension of the deadline for plugging an inactive well 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.

(c) An operator is eligible for an extension of the deadline for plugging a well without complying with Subsection (a)(2)(B) if the well is part of an enhanced oil recovery project described by Section 202.052(b), Tax Code, 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.

Sec. 89.029. 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.

SECTION 3. 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 Section 89.023; and

(24) legislative appropriations.

SECTION 4. (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 5. This Act takes effect September 1, 2009.