16 TAC §3.14
The Railroad Commission of Texas proposes to amend §3.14
relating to Plugging. The proposed amendment to §3.14(a)(1) eliminates
current subparagraph (G) defining "individual well bond" and re-letters current
subparagraphs (H)-(O). The proposed amendments to §3.14(b)(2) reorganize
and re-letter the current provisions of subparagraph (A) and make such provisions
applicable to extension of the deadline for plugging inactive wells operated
by unbonded operators regardless of the period of well inactivity. The proposed
amendments to §3.14(b)(2) also eliminate current subparagraph (B) relating
to plugging extensions for wells operated by unbonded operators that have
been inactive for 36 months or longer, including the current requirement of §3.14(b)(2)(B)(i)(II)
that an unbonded operator file an individual well bond in order to obtain
an extension of the deadline for plugging a well that has been inactive for
a period of 36 months or longer and the current provisions of §3.14(b)(2)(B)(ii)
pertaining to standards and procedure to rebut presumed estimated plugging
costs for the purpose of setting the amount of individual well bonds.
The proposed amendment to current §3.14(b)(2)(D)(i), re- lettered
as proposed §3.14(b)(2)(C)(i), eliminates the current provision that
the Commission or its delegate may revoke a plugging extension if the operator
of the well that is the subject of the extension fails to obtain or maintain
a valid individual well bond and provides instead that a plugging extension
may be revoked if the operator fails to obtain or maintain financial security
as required by §3.78 of this title (relating to Fees, Performance Bonds,
and Alternate Forms of Financial Security Required to be Filed).
The proposed amendment to current §3.14(b)(2)(E), re- lettered as
proposed §3.14(b)(2)(D), clarifies that the test required by current §3.14(b)(2)(E)
for wells more than 25 years old and wells for which a plugging extension
is sought must be a successful fluid level or hydraulic pressure test establishing
that the well does not pose a potential threat of harm to natural resources,
including surface and subsurface water, oil, and gas.
The proposed amendments also change clause (v) of current §3.14(b)(2)(E),
re-lettered as §3.14(b)(2)(D), to provide that wells subject to the testing
requirements of current §3.14(b)(2)(E) may not be returned to active
operation unless a fluid level test of the well has been performed within
12 months prior to the return to activity or a mechanical integrity test of
the well has been performed within 60 months prior to the return to activity.
The amendments eliminate the current provision of clause (v) that wells that
are returned to continuous production, as evidenced by three consecutive months
of reported production of at least 10 barrels of oil or 100 mcf of gas per
month, need not be tested.
The amendments to §3.14 eliminate references to individual well bonds
and are proposed to conform §3.14 to amendments currently being proposed
by the Commission to §3.78 of this title eliminating the requirement
that unbonded operators file individual well bonds in order to obtain plugging
extensions for wells that have been inactive for 36 months or more. In addition,
the individual well bond requirements in §3.14(b)(2)(B)(i)(II) and §3.78(m)(1)(A)(2)-(3)
were invalidated by Final Judgment of the 126th District Court of Travis County,
Texas, signed July 15, 2003, in No. GN202946,
Ross
H. Hardwick Oil Company Et Al. v. Railroad Commission of Texas
, based
on the Court's determination that in adopting these requirements, the Commission
failed to comply with Texas Government Code, §2006.002.
The Commission has determined that some operators have had difficulty in
obtaining individual well bonds. In addition, the individual well bond requirement
of §3.14 has made it impractical for some operators to file one of the
alternate forms of financial security authorized by §3.78(d) of this
title and Texas Natural Resources Code, §91.104. In some cases, the total
amount of individual well bonds required under current §3.14 in order
for an unbonded operator to obtain plugging extensions for wells that have
been inactive for 36 months or more has exceeded the amount of individual
or blanket performance bonds, letters of credit, or cash deposits required
as financial security under §3.78 of this title.
Inability to obtain an individual or blanket performance bond, letter of
credit, or cash deposit as financial security, coupled with the inability
to file an alternate form of financial security because of the individual
well bond requirement, has prevented some operators, even those with an acceptable
record of compliance, from renewing their organization reports.
The Commission has determined that the individual well bond requirement
of §3.14 can be eliminated without posing a significant risk to the Oil
Field Clean Up Fund (OFCUF), particularly since under Texas Natural Resources
Code, §91.104, effective September 1, 2004, all operators will be required
to file an individual or blanket performance bond, letter of credit, or cash
deposit as financial security covering all operations, and current individual
well bond requirements for unbonded operators will be moot.
In the interim period prior to September 1, 2004, elimination of the individual
well bond requirement will enable some operators that have had difficulty
in filing financial security to elect to file one of the alternate forms of
financial security permitted by §3.78(d) of this title in order to renew
their organization reports. This will have the beneficial effect of allowing
these operators to continue operations while preparing to meet the more stringent
financial security requirements which will take effect September 1, 2004.
The Commission has determined that elimination of the individual well bond
requirement of §3.14 for the short time that remains prior to September
1, 2004, will not pose a significant threat to the OFCUF or to surface or
subsurface usable quality water because under §3.14, the Commission will
not grant a plugging extension for an inactive well operated by an unbonded
operator unless the well and associated facilities are in compliance with
all laws and Commission rules; the operator's organization report is current
and active; the operator has, and upon request provides evidence of, a good
faith claim to a continuing right to operate the well; the operator has paid
the proper fee provided by §3.78 of this title for obtaining the plugging
extension; and the operator has tested the well in accordance with §3.14(b)(2)(E)
and files with the application for the plugging extension a fluid level test
conducted within 90 days prior to the application demonstrating that any fluid
in the wellbore is at least 250 feet below the base of the deepest usable
quality water stratum, or a hydraulic pressure test conducted during the period
the well has been inactive and not more than four years prior to the date
of the application demonstrating the mechanical integrity of the well.
The proposed amendment to current §3.14(b)(2)(E), re- lettered as §3.14(b)(2)(D),
is simply a clarifying amendment and does not change current Commission policy
and practice.
The proposed amendment eliminating clause (v) of current §3.14(b)(2)(E),
re-lettered as §3.14(b)(2)(D), is necessary in the interest of ensuring
that wells more than 25 years old that become inactive or wells for which
a plugging extension is sought do not pose a threat of harm to natural resources,
including surface and subsurface water, oil, and gas. The Commission has determined
that once the testing requirements of §3.14(b)(2)(E) have attached, a
well should not be returned to active operation unless a fluid level test
has been performed within 12 months prior to the return to activity or a mechanical
integrity test has been performed within 60 months prior to the return to
activity.
Leslie Savage, Administrative Planner, Planning and Administration, Oil
and Gas Division has determined that for the first year of the first five
years the proposed amendments will be in effect, there will be no net negative
fiscal implications for state government as a result of enforcing or administering
the amendments. The changes in individual well bond requirements proposed
in these amendments will have effect for approximately one year (fiscal year
2004). Effective September 1, 2004, Texas Natural Resources Code, §91.104,
requires that operators file an individual or blanket performance bond, letter
of credit or cash deposit as financial security to cover all operations.
For the first year that the proposed amendments would be in effect, the
Commission anticipates that the proposed amendments may result in a certain
percentage of operators not currently active returning to active status by
filing financial security in the form of a nonrefundable annual fee of $1,000
and paying a $300 filing fee for each inactive well in order to obtain plugging
extensions. The Commission estimates that approximately 15 percent, or about
322 of the currently inactive operators, having approximately 1,148 inactive
wells, would return to active status as a result of the proposed amendments
eliminating individual well bond requirements. This would result in an estimated
$666,400 in additional revenue, which would be deposited to the OFCUF. The
increased revenue to the OFCUF will be used to cover the cost of plugging
additional abandoned wells and for the cleanup of pollution.
During the first year of implementation of the proposed amendments (fiscal
year 2004), the Commission will expend money from the increased revenues for
relatively minor document revision, process analysis and computer programming
to implement the proposed changes to individual well bond requirements. Commission
staff estimates that the computer programming will cost approximately $6,200.
Any incremental increase in expenditures by the Commission for the first year
of implementation will be funded through the OFCUF.
There will be no fiscal implications for local governments.
Pursuant to Texas Government Code, §2006.002, the Commission has determined
that the proposed amendments to §3.14 will not have a net adverse economic
effect on small businesses or micro- businesses. For small business and micro-business
operators, there will be no cost of compliance with the proposed amendments
eliminating individual well bond requirements.
The individual well bond requirements of current §3.14 have a disproportionate
impact on small business and micro-business operators because large operators
tend to be bonded operators not required to file individual well bonds. The
proposed amendments will eliminate for small business and micro-business operators
the cost of compliance with the individual well bond requirements of current §3.14.
Savings in the cost of the annual premium for individual well bonds may be
significant for some small business and micro-business operators.
In addition, the Commission has determined that eliminating the individual
well bond requirements of §3.14 will make it more practical for some
small business and micro-business operators who have been unable to obtain
a bond or letter of credit for filing as financial security to file one of
the alternate forms of financial security provided by §3.78(d) of this
title and Texas Natural Resources Code, §91.104. For some small business
and micro-business operators, the ability to file an alternate form of financial
security may make the difference in being able to renew their organization
reports and continue in business during the interim period prior to September
1, 2004, when more stringent financial security requirements take effect.
For others, it may mean savings in costs associated with cash or other collateral
required to be posted in order to obtain a performance bond or letter of credit.
In either event, the effect on small businesses and micro-businesses should
be beneficial rather than adverse.
There will be no cost to small business or micro-business operators of
compliance with the proposed amendment to current §3.14(b)(2)(E), re-lettered
as §3.14(b)(2)(D), clarifying that the test required by this subparagraph
must be a successful fluid level or hydraulic pressure test establishing that
a well does not pose a potential threat of harm to natural resources, including
surface and subsurface water, oil, and gas. Testing is required by current §3.14(b)(2)(E),
and the proposed amendment simply clarifies what the testing must establish.
This amendment does not make any change in current Commission policy and practice.
The proposed amendment to clause (v) of current §3.14(b)(2)(E), re-lettered
as §3.14(b)(2)(D), potentially will impact only those operators who have
sought to avoid the inactive well testing requirements of current §3.14(b)(2)(E)
by restoring a well to activity without performing one of the required tests.
It is not likely that any significant number of small or micro-business operators
will be affected by the change made by this proposed amendment.
In the event a small or micro-business operator were required to meet testing
requirements of current §3.14(b)(2)(E) for a particular well that hypothetically
might be avoided under current clause (v) of this subparagraph, the operator
would incur cost of about $200 for one average fluid level test. Any needed
fluid level tests on additional wells performed at the same time and location
would incur a cost per well of only about $25. The Commission does not have
information as to the number of employees, hours of labor, or sales of small
and micro-business operators. However, the per employee cost of conducting
one average fluid level test for a small or micro-business operator with one
employee would be $200, for an operator with 20 employees $10, and for an
operator with 99 employees $2.02. For comparison, the per employee cost for
one average fluid level test to a large business operator with 500 employees
would be $0.40, or for a large business operator with 1,000 employees $0.20.
The potential impact on small or micro-business operators of the proposed
amendment to clause (v) of current §3.14(b)(2)(E) will be more than offset
by cost savings to such operators resulting from the other proposed amendments
which eliminate individual well bond requirements.
James M. Doherty, Hearings Examiner, Oil and Gas Section, Office of General
Counsel, has determined that for each year of the first five years that the
amended section will be in effect, the public benefit will be that operators
who might otherwise be forced out of business by their inability to become
bonded operators or to obtain individual well bonds may be able to continue
to produce oil and gas to the public's benefit. The public will also benefit
from the proposed amendments to current §3.14(b)(2)(E), re-lettered as §3.14(b)(2)(D),
which will help ensure that wells that have become inactive do not pose a
threat to natural resources, including surface and subsurface water, oil,
and gas.
Comments may be submitted to Rules Coordinator, Office of General Counsel,
Railroad Commission of Texas, P. O. Box 12967, Austin, Texas 78711-2967; online
at www.rrc.state.tx.us/rules/commentform.html; or by electronic mail to rulescoordinator@rrc.state,tx.us.
The Commission will accept comments for 60 days after publication in the Texas Register
. For further information, call James
M. Doherty at (512) 463-7152. The status of Commission rulemakings in progress
is available at www.rrc.state.tx.us/rules/proposed.html.
The Commission proposes the amendments to §3.14 pursuant
to Texas Natural Resources Code, §§81.051, 81.052, 85.042, 85.201,
85.202, 86.041, 86.042, 91.101, 141.011, and 141.012 which provide the Commission
with jurisdiction over all persons owning or engaged in drilling or operating
oil, gas or geothermal wells and the authority to adopt all necessary rules
for governing and regulating persons and their operations under the jurisdiction
of the Commission.
Texas Natural Resources Code, §§81.051, 81.052, 85.042, , 85.201,
85.202, 86.041, 86.042, 91.101, 91.103, 91.104, 91.111, 91.112, 91.113, 141.011,
and 141.012 are affected by the proposed amendments.
Statutory authority: Texas Natural Resources Code, §§81.051,
81.052, 85.042, 85.201, 85.202, 86.041, 86.042, 91.101, 141.011, and 141.012.
Cross-reference to statute: Texas Natural Resources Code, Chapters 81,
85, 86, 91, and 141.
Issued in Austin, Texas on August 5, 2003.
§3.14.Plugging.
(a)
Definitions and application to plug.
(1)
The following words and terms, when used in this section,
shall have the following meanings, unless the context clearly indicates otherwise:
(A)-(F)
(No change.)
[
(G)
Individual well bond--A bond or letter
of credit issued:
]
[
(i)
on a Commission-approved form;
]
[
(ii)
by a third party surety, insurance company,
or financial institution approved by the Commission; and
]
[
(iii)
to secure the timely and proper plugging
of a specified well and remediation of the wellsite in accordance with Commission
rules.
]
(G)
[
(H)
] Operator designation form--A
certificate of
compliance and
transportation authority [
and
compliance
] or an application to drill, deepen, recomplete, plug back,
or reenter which has been completed, signed and filed with the Commission.
(H)
[
(I)
] Productive horizon--Any stratum
known to contain oil, gas, or geothermal resources in producible quantities
in the vicinity of an unplugged well.
(I)
[
(J)
] Related piping--The surface
piping and subsurface piping that is less than three feet beneath the ground
surface between pieces of equipment located at any collection or treatment
facility. Such piping would include piping between and among headers, manifolds,
separators, storage tanks, gun barrels, heater treaters, dehydrators, and
any other equipment located at a collection or treatment facility. The term
is not intended to refer to lines, such as flowlines, gathering lines, and
injection lines that lead up to and away from any such collection or treatment
facility.
(J)
[
(K)
] Reported production--Production
of oil or gas, excluding production attributable to well tests, accurately
reported to the Commission on a monthly producer's report.
(K)
[
(L)
] To serve notice on the surface
owner or resident--To hand deliver a written notice identifying the well or
wells to be plugged and the projected date the well or wells will be plugged
to the surface owner
,
or resident if the owner is absent
,
at least three days prior to the day of plugging or to mail the notice
by first class mail, postage pre- paid, to the last known address of the surface
owner or resident at least seven days prior to the day of plugging.
(L)
[
(M)
] Unbonded operator--An operator
that has a current and active organization report on file with the Commission
but that does not have a current individual performance bond, blanket performance
bond, letter of credit, or cash deposit as its financial security under §3.78
of this title (relating to Fees, Performance Bonds, and Alternate Forms of
Financial Security Required to be Filed
)
(Statewide Rule 78).
(M)
[
(N)
] Usable quality water strata--All
strata determined by the Texas Commission on Environmental Quality or its
successor agencies to contain usable quality water.
(N)
[
(O)
] Written notice--Notice actually
received by the intended recipient in tangible or retrievable form, including
notice set out on paper and hand-delivered, facsimile transmissions, and electronic
mail transmissions.
(2)-(5)
(No change.)
(b)
Commencement of plugging operations and extensions.
(1)
(No change.)
(2)
Plugging operations on each dry or inactive well shall
be commenced within a period of one year after drilling or operations cease
and shall proceed with due diligence until completed. Plugging operations
on delinquent inactive wells shall be commenced immediately unless the well
is restored to active operation. For good cause, a reasonable extension of
time in which to start the plugging operations may be granted pursuant to
the following procedures.
(A)
Plugging of inactive wells operated by unbonded operators.
The Commission or its delegate may administratively grant an extension of
up to one year of the deadline for plugging an inactive well that is operated
by an unbonded operator if the following criteria are met:
[
Wells
that have been inactive for less than 36 months.
]
[
(i)
The Commission or its delegate may administratively
grant an extension of up to one year of the deadline for plugging a well that
is operated by an unbonded operator and has been inactive, without a return
to active operation, for a period of less than 36 months if the following
criteria are met:
]
(i)
[
(I)
] The well and associated facilities
are in compliance with all other laws and Commission rules;
(ii)
[
(II)
] The operator's organization
report is current and active;
(iii)
[
(III)
] The operator has, and upon
request provides evidence of, a good faith claim to a continuing right to
operate the well;
(iv)
[
(IV)
] The operator has paid the
proper fee as provided in §3.78 of this title (relating to Fees, Performance
Bonds, and
Alternate
[
Alternative
] Forms of Financial
Security Required To Be Filed) (Statewide Rule 78);
and
(v)
[
(V)
] The operator has tested the
well in accordance with the provisions of subparagraph
(D)
[
(E)
] of this paragraph and files with its application proof of either:
(I)
[
(-a-)
] a fluid level test conducted
within 90 days prior to the application for a plugging extension demonstrating
that any fluid in the wellbore is at least 250 feet below the base of the
deepest usable quality water
stratum
[
strata
]; or,
(II)
[
(-b-)
] a hydraulic pressure test
conducted during the period the well has been inactive
and not more than
four years prior to the date of application
demonstrating the mechanical
integrity of the well
.
[
; and,
]
[
(VI)
The requested plugging extension will
not extend beyond the thirty-sixth month of inactivity.
]
[
(ii)
A plugging extension granted under this
subparagraph may not extend the period of inactivity beyond 36 months.
]
[
(B)
Wells that have been inactive for 36 months
or longer.
]
[
(i)
The Commission or its delegate may administratively
grant an extension of up to one year of the deadline for plugging a well that
is operated by an unbonded operator and has been inactive, without a return
to active operation, for a period of 36 months or longer if the criteria set
out in subclauses (I)-(IV) of subsection (b)(2)(A)(i) of this section are
met, and, in addition:
]
[
(I)
The operator has tested the well in accordance
with the provisions of subparagraph (E) of this paragraph and files with its
application proof of either:
]
[
(-a-)
a fluid level test conducted within
90 days prior to the application for a plugging extension demonstrating that
any fluid in the wellbore is at least 250 feet below the base of the deepest
usable quality water strata, or,
]
[
(-b-)
a hydraulic pressure test conducted
during the period the well has been inactive and not more than four years
prior to the date of application demonstrating the mechanical integrity of
the well; and,
]
[
(II)
The operator files an individual well
bond in the amount provided for in §3.78(m) of this title (relating to
Fees, Performance Bonds, and Alternative Forms of Financial Security Required
To Be Filed) (Statewide Rule 78).
]
[
(ii)
An operator may rebut the presumed estimated
plugging costs for a specific well for which a plugging extension is sought
at hearing by clear and convincing evidence establishing a higher or lower
prospective plugging cost for the well. The operator, Commission staff, or
any owner of the surface or mineral estate on which the well is located may
initiate a hearing on the prospective plugging cost for a well for the purpose
of setting the amount of an individual well bond by filing a request for hearing.
]
(B)
[
(C)
] Plugging of inactive wells
operated by bonded operators. An operator that maintains valid, Commission-approved
financial security in the form of an individual performance bond, blanket
performance bond, letter of credit, or cash deposit as provided in §3.78
of this title (relating to Fees, Performance Bonds, and Alternate Forms of
Financial Security Required to be Filed) (Statewide Rule 78) will be granted
a one-year plugging extension for each well it operates that has been inactive
for 12 months or more at the time its annual organizational report is approved
by the Commission if the following criteria are met:
(i)
The well and associated facilities are in compliance with
all laws and Commission rules; and,
(ii)
The operator has, and upon request provides evidence
of, a good faith claim to a continuing right to operate the well.
(C)
[
(D)
] Revocation or denial of plugging
extension.
(i)
The Commission or its delegate may revoke a plugging extension
if the operator of the well that is the subject of the extension fails to
maintain the well and all associated facilities in compliance with Commission
rules; fails to maintain a current and accurate organizational report on file
with the Commission; fails to provide the Commission, upon request, with evidence
of a continuing good faith claim to operate the well; or fails to obtain or
maintain
financial security as required by §3.78 of this title (relating
to Fees, Performance Bonds, and Alternate Forms of Financial Security Required
to be Filed) (Statewide Rule 78)
[
a valid individual well bond
or organizational bond or letter of credit as required by this subsection
].
(ii)
If the Commission or its delegate declines to grant or
continue a plugging extension or revokes a previously granted extension, the
operator shall either return the well to active operation or, within 30 days,
plug the well or request a hearing on the matter.
(D)
[
(E)
] The operator of any well more
than 25 years old that becomes inactive and subject to the provisions of this
paragraph or the operator of any well for which a plugging extension is sought
under the terms of subparagraph (A) [
or (B)
] of this paragraph
shall plug
the well or successfully conduct a fluid level or hydraulic
pressure test establishing that the well does not pose
[
or test
such well to determine whether the well poses
] a potential threat of
harm to natural resources, including surface and subsurface water, oil and
gas.
(i)
In general, a fluid level test is a sufficient test for
purposes of this subparagraph. The operator shall give the district office
written notice specifying the date and approximate time it intends to conduct
the fluid level test at least 48 hours prior to conducting the test; however,
upon a showing of undue hardship, the district director or the director's
delegate may grant a written waiver or reduction of the notice requirement
for a specific well test. The director or the director's delegate may require
alternate methods of testing if necessary to ensure the well does not pose
a potential threat of harm to natural resources. Alternate methods of testing
may be approved by the director or the director's delegate by written application
and upon a showing that such a test will provide information sufficient to
determine that the well does not pose a threat to natural resources.
(ii)
No test other than a fluid level test shall be acceptable
without prior approval from the district director or the director's delegate.
The district director or the director's delegate shall be notified at least
48 hours before any test other than a fluid level test is conducted. Mechanical
integrity test results shall be filed with the district office and fluid level
test results shall be filed with the Commission in Austin. Test results shall
be filed on a Commission-approved form, within 30 days of the completion of
the test. Upon request, the operator shall file the actual test data for any
mechanical integrity or fluid level test that it has conducted.
(iii)
Notwithstanding the provisions of clause (ii) of this
subparagraph, a hydraulic pressure test may be conducted without prior approval
from the district director or the director's delegate, provided that the operator
gives the district office written notice specifying the date and approximate
time for the test at least 48 hours prior to the time the test will be conducted,
the production casing is tested to a depth of at least 250 feet below the
base of usable quality water strata, or 100 feet below the top of cement behind
the production casing, whichever is deeper, and the minimum test pressure
is greater than or equal to 250 psig for a period of at least 30 minutes.
(iv)
If the operator performs a hydraulic pressure test in
accordance with the provisions of clause (iii) of this subparagraph, the well
shall be exempt from further testing for five years from the date of the test,
except to the extent compliance with paragraph (2) of subsection (b) of this
section requires more frequent testing. Further, the Commission or its delegate
may require the operator to perform testing more frequently to ensure that
the well does not pose a threat of harm to natural resources. The Commission
or its delegate may approve less frequent well tests under this subparagraph
upon written request and for good cause shown provided that less frequent
testing will not increase the threat of harm to natural resources.
(v)
A well subject to the testing requirements of this
subparagraph shall not be returned to active operation unless a fluid level
test of the well has been performed within 12 months prior to the return to
activity or a mechanical integrity test of the well has been performed within
60 months prior to the return to activity
[
Wells that are returned
to continuous production, as evidenced by three consecutive months of reported
production of at least 10 barrels of oil or 100 mcf of gas per month, need
not be tested
].
(3)-(5)
(No change.)
(c)-(k)
(No change.)
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on August 7, 2003.
TRD-200304877
Mary Ross McDonald
Deputy General Counsel
Railroad Commission of Texas
Earliest possible date of adoption: September 21, 2003
For further information, please call: (512) 463-6684