The Railroad Commission of Texas adopts the repeal of existing §3.56 and adopts new §3.56 with the same title. New §3.56 is adopted with changes to the proposed text as published in the October 1, 1999, issue of the Texas Register (24 TexReg 8402). The repeal and new rule are adopted to remove an unnecessary burden on the operation of gas plants.

In adopting the new rule, the Commission recognizes that it is not necessary to allocate back to individual hydrocarbon producing properties unidentified recovered and retained oil scrubbed at the inlet of a gas plant because that oil has already been accounted for in accordance with §3.27 of this title (relating to gas to be measured and surface commingling of gas).

The Commission has made two changes to the proposed rule based on comments received. The first change adds language to §3.56(b)(1) to specify that an accepted Form R-3 shall be the authority for the movement of accumulated hydrocarbons to beneficial disposition. The second change rearranges the language of §3.56(b)(2)(A)-(E) to distinguish the differences in allocation between single operator and multiple operator systems, and inserts minor clarifying language.

The Texas Oil & Gas Association (TXOGA) filed comments generally supporting the repeal and adoption but also suggested changes. TXOGA suggested adding language to §3.56(b)(1) which would make an accepted Form R-3 the authority for the movement and disposition of accumulated hydrocarbons. The Commission agrees to this change. TXOGA also suggests reordering the paragraphs in §3.56(b)(2)(A)-(E) to clarify the differences in allocation for single operator and multiple operator systems. The Commission generally agrees with TXOGA's suggested re-arrangement, but declines to place the allocation requirements for single operator and multiple operator disposal systems in the same paragraph. In the new arrangement of §3.56(b)(2)(A)-(E), the first sentence of proposed §3.56(b)(2)(A), less the opening phrase "Except as provided in subparagraph (E) of this paragraph," becomes adopted §3.56(b)(2)(A). Proposed §3.56(b)(2)(B) remains unchanged. The second sentence of proposed §3.56(b)(2)(A), less the opening word "Such," becomes adopted §3.56(b)(2)(C). Proposed §3.56(b)(2)(E) is deleted and replaced with the language "Unidentifiable liquid hydrocarbons recovered by a multiple operator produced water disposal system, in excess of a tolerance ratio of one barrel of liquid hydrocarbons for each 2,000 barrels of produced water received, shall be allocated to each producing property in the proportion that the volume of water received from the producing property bears to the total volume of water received by the system during a reporting period" as the first sentence of adopted §3.56(b)(2)(D). Proposed §3.56(b)(2)(C) becomes the second sentence of adopted §3.56(b)(2)(D). Proposed §3.56(b)(2)(D), less the words "skimmed and" after the word "hydrocarbons," becomes adopted §3.56(b)(2)(E).

Additionally, in the first sentence of §3.56(b)(2)(A), after the word "operator", the Commission has added the words "or multiple operator" to clarify that both single and multiple operator systems must report the volume of unidentifiable hydrocarbons recovered on Form P-18. In the first sentence of §3.56(b)(2)(C), after the word "hydrocarbons," the Commission has added the phrase "recovered by a single operator produced water disposal system" to clarify the type of disposal system to which the paragraph applies. In the first sentence of §3.56(b)(2)(E), after the word "volume," the Commission has added the words "of liquid hydrocarbons" to clarify the nature of the volume that must be reported as production.

The following groups or associations filed comments supporting the repeal and adoption: the General Land Office, Phillips Petroleum Company, GPM Gas Corporation, and the Permian Basin Petroleum Association.

Issued in Austin, Texas on December 21, 1999.

The Commission adopts new §3.56 pursuant to Texas Natural Resources Code, §§81.051 and 81.052, which provide the Commission with jurisdiction over all persons owning or engaged in drilling or operating oil or gas wells in Texas and with the authority to adopt all necessary rules for governing and regulating persons and their operations under the jurisdiction of the Commission. Further, §85.202(a)(1) authorizes the Commission to promulgate rules to prevent the waste of oil and gas in its storage, piping and distribution and, under §88.011, to adopt rules to provide for the method of measuring oil and gas produced from any well in this state. The Commission is also authorized under §91.101(4) to promulgate rules relating to the reclamation of oil, condensate and gas.

The Texas Natural Resources Code, §§81.051, 81.052, 85.202(a)(1), 88.011, and 91.101(4) are affected by the new section.

§3.56. Scrubber Oil and Skim Hydrocarbons.

(a)

Definitions. The following words and terms, when used in this section, shall have the following meanings unless the context clearly indicates otherwise:

(1)

Identifiable liquid hydrocarbons--Volume of scrubber oil/skim hydrocarbons that is received at a gas plant/produced water disposal facility where the origin of such liquid hydrocarbons can be clearly identified.

(2)

Producing property--A location from which hydrocarbons are being produced that has been assigned a lease identification number by the Commission and which is used in reporting production.

(3)

Scrubber oil--Liquid hydrocarbons which accumulate in lines that are transporting casinghead gas and which are captured at the inlet to a gas processing plant.

(4)

Skim hydrocarbons--Oil and condensate which accumulate during produced water disposal operations.

(5)

Tolerance--The amount of skim hydrocarbons that may be recovered before the produced water disposal system operator must allocate to the producing property.

(6)

Unidentifiable liquid hydrocarbons--Scrubber oil/skim hydrocarbons received at a gas plant/produced water disposal facility where the origin of such liquid hydrocarbons cannot be identified.

(b)

Disposition of scrubber oil, skim hydrocarbons, and identifiable liquid hydrocarbon volumes.

(1)

Scrubber oil. Any scrubber oil that has not been returned to a producing property by the end of a monthly report period shall be reported by the operator of the gas plant on the monthly plant report, Form R-3 (Monthly Report for Gas Processing Plants). The unidentifiable liquid hydrocarbons recovered and reported on Form R-3 may be disposed of at the point of accumulation. The accepted Form R-3 shall be the authority for the movement of the hydrocarbons to beneficial disposition.

(2)

Skim hydrocarbons.

(A)

All unidentifiable liquid hydrocarbons recovered by a single operator or multiple operator produced water disposal system shall be reported on the Form P-18 (Skim Oil/Condensate Report) for each reporting period.

(B)

The unidentifiable liquid hydrocarbons recovered and reported on Form P-18 may be disposed of at the point of accumulation. The accepted Form P-18 shall be the authority for the movement of the hydrocarbons to beneficial disposition.

(C)

Unidentifiable liquid hydrocarbons recovered by a single operator produced water disposal system shall be allocated to each producing property in the proportion that the volume of water received from the producing property bears to the total volume of water received by the system during a reporting period.

(D)

Unidentifiable liquid hydrocarbons recovered by a multiple operator produced water disposal system in excess of a tolerance ratio of one barrel of liquid hydrocarbons for each 2,000 barrels of produced water received shall be allocated to each producing property in the proportion that the volume of water received from the producing property bears to the total volume of water received by the system during a reporting period. The produced water disposal system operator shall notify the operator of each producing property of any allocations to that property by furnishing a copy of the allocations as shown on Form P-18 (Skim Oil/Condensate Report).

(E)

The operator of each producing property shall report the volume of liquid hydrocarbons allocated to the producing property as production from the property on either Form P-1 (Producer's Monthly Report of Oil Wells) or Form P-2 (Producer's Monthly Report of Gas Wells). The volume allocated back shall be shown as skim oil or skim condensate on the appropriate form.

(3)

Identifiable liquid hydrocarbon volumes.

(A)

Identifiable liquid hydrocarbon volumes returned to the producing property during the reporting period in which the volume is received at the gas plant/produced water disposal facility shall not be reported to the Commission by the gas plant/facility operator. The gas plant/produced water disposal facility operator shall notify the appropriate Commission district office by telephone prior to the return of such volumes. The movement of these volumes back to the producing property shall comply with §3.72 of this title (relating to manifest to accompany each transport of liquid hydrocarbons by vehicle), commonly referred to as Statewide Rule 85.

(B)

Identifiable volumes not returned to the producing property shall be reported to the Commission and to the operator of the producing property on Form R-3 or Form P-18 as prescribed in paragraph (1) or (2) of this subsection. Volumes shall be specifically credited to the appropriate producing property. The operator of the producing property shall report the disposition of such identifiable volumes as either skim hydrocarbons or scrubber oil on the appropriate production report.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 21, 1999.

TRD-9908928

Mary Ross McDonald

Deputy General Counsel

Railroad Commission of Texas

Effective date: January 10, 2000

Proposal publication date: October 1, 1999

For further information, please call: (512) 936-7308

Subchapter R. PROVISIONS RELATING TO MUNICIPAL REGULATION AND RIGHTS-OF-WAY MANAGEMENT