Part 1.
RAILROAD COMMISSION OF TEXAS
Chapter 3.
OIL AND GAS DIVISION
16 TAC §3.78
The Railroad Commission of Texas proposes amendments to §3.78,
relating to Fees, Performance Bonds and Alternate Forms of Financial Security
Required To Be Filed.
The Commission proposes the amendments to §3.78 pursuant to the provisions
of Texas Natural Resources Code, §91.1041 and §91.1042, which require
the Commission to adopt rules setting a reasonable amount of financial security
for each bay or offshore well above the base amount of financial security
required to be submitted by each operator.
The proposed amendments to §3.78 will strengthen and promote the efficient
use of the state's Oil Field Clean Up Fund ("OFCUF"). Broadened financial
security requirements will ensure that operators of bay and offshore wells
possess sufficient financial security to fund clean-up and plugging operations.
The proposed expanded financial security requirements will allow the Commission
to more effectively use the resources of the OFCUF.
Based on state-funded plugging operations managed by the Commission for
bay wells from 2000 through 2003, Commission staff has determined that the
minimum average cost to plug an abandoned bay well is approximately $60,000.
This estimate reflects the use of specialized equipment, mobilization costs,
and access issues created by the location of bay wells. Based on state- funded
plugging operations managed by the Commission for offshore wells in 2003 and
information provided by industry regarding actual plugging costs, Commission
staff has determined that the minimum average cost to plug an abandoned offshore
well is approximately $100,000. As with bay wells, the estimated minimum cost
to plug an abandoned offshore well reflects the use of specialized equipment,
mobilization costs, and access issues created by the location of offshore
wells. Based on this information, the Commission presumes for the purpose
of the proposed additional financial security requirements for bay and offshore
wells that the minimum average cost to plug a bay well is $60,000 and the
minimum average cost to plug an offshore well is $100,000. The proposed amendments
revise the definition of "bay well" in subsection (a)(7) to specifically reflect
the additional plugging costs associated with the use of specialized equipment,
mobilization costs, and access issues created by the location of bay wells.
Commission records show that 138 operators operate 768 bay wells and 298
offshore wells. For 96 of the 138 operators, the current provisions of §3.78
require the posting of $50,000 or less in financial assurance. When compared
to the Commission staff determinations of the minimum average costs to plug
abandoned bay and offshore wells, the estimated cost to plug a single well
exceeds the total amount of financial assurance currently required for the
majority of bay and offshore well operators. Additionally, Commission records
show that 24 of the 138 operators do not have active organization reports
on file with the Commission and did not post any financial assurance with
the Commission, opting instead to pay an annual cash fee. These 24 delinquent
operators are responsible for 59 abandoned bay wells and 18 abandoned offshore
wells with a total estimated minimum plugging cost of $5,340,000. Review of
Commission records also indicates that 11 of the 24 delinquent operators acquired
inactive bay or offshore wells that were never restored to production. The
abandonment of these wells without any financial security to pay for plugging
costs illustrates the most compelling rationale for the proposed amendments
expanding the financial assurance requirements for bay and offshore wells.
The proposed financial assurance requirements were developed by Commission
staff following suggestions received from industry at the public meeting held
on March 8, 2003, in Houston, Texas. Additionally, Commission staff solicited
comments from interested persons from November 2003 through January 2004 by
posting a draft of the proposed amendments on its website. Commission staff
also mailed copies of the proposed amendments to each operator of bay and
offshore wells. The Commission received written comments from 14 operators
and one organization, the Texas Oil and Gas Association ("TxOGA"), during
the informal comment period. The majority of the comments received from operators
suggested that the Commission had not properly characterized specific wells
as bay wells because the wells' surface locations are on land. The Commission
has reviewed and revised its classification process for bay wells to address
this issue, but because the classification process is not part of §3.78,
there is no need to amend the rule proposal on the basis of these comments.
TxOGA presented one of the few substantive comments, noting general support
for the proposed amendments, but suggesting that the Commission evaluate the
impact of the proposal on the surety bond market. Commission staff performed
an analysis of the impact on the surety marketplace by comparing Commission
records identifying the surety companies which have issued surety bonds accepted
by the Commission in the past 12 months against the United States Department
of the Treasury Listing of Approved Sureties (Department Circular 570: 2003
Revision). The Department of Treasury Listing includes the underwriting limitation
for bonds issued by the identified companies, and also notes that a surety
company can issue bonds in excess of its underwriting limitation as long as
the excess amount is protected by reinsurance, coinsurance, or other specified
methods. Comparison of the Commission list with the most recently published
underwriting limitations in the Department of Treasury circular indicates
that the cumulative potential underwriting limitation, without consideration
of reinsurance, is $4,500,000,000.
The proposed amendments, when applied to the current operators of all currently
recognized bay and offshore wells, will require the posting of financial security
with a maximum cumulative total of $37,520,000. Under the proposed amendments,
the actual cumulative total of additional financial security may be offset
by potential reductions in both the entry level financial assurance and any
inactive well financial assurance required to be posted. When the minimum
average costs to plug abandoned bay and offshore wells are applied to the
current population of bay and offshore wells, the total estimated minimum
cost to plug all bay and offshore wells is $75,880,000. Based on this analysis,
the Commission concludes that the additional financial assurance requirements
under the proposed amendments will not result in a significant impact on the
surety market. The Commission finds that the amounts of additional financial
security required for bay and offshore wells by these proposed amendments
will ensure that operators of bay and offshore wells possess sufficient financial
security to fund any necessary clean-up and plugging operations.
The additional financial assurance requirements in the proposed amendments
to subsection (j) comprise three parts: (1) an entry level financial assurance
requirement applicable to all operators; (2) an inactive well financial assurance
requirement applicable to inactive wells on a well-by-well basis; and (3)
a potential administrative reduction to the inactive well financial assurance
requirement based on the demonstrated net worth of the company.
The entry level financial assurance requirement recognizes the statutory
mandate that all operators of bay and offshore wells post additional financial
assurance to reflect the additional cost of bay and offshore operations. The
proposal requires that all bay well operators post entry level financial assurance
of $60,000, the estimated cost to plug a single bay well, as security for
their bay well operations. Offshore operators, or operators of both bay and
offshore wells, are required to post entry level financial assurance of $100,000,
the estimated cost to plug a single offshore well, as security for their offshore
well operations. The proposal also allows an operator to apply for an administrative
reduction of the entry level financial assurance requirement on a dollar-for-dollar
basis up to the total entry level amount. To obtain this administrative reduction
of the entry level financial assurance requirement, an operator must provide
documentation that it has posted financial assurance with other governmental
entities and that the Commission can either be assigned the proceeds or can
independently call on the financial assurance posted with the other governmental
entity.
The inactive well financial assurance requirement recognizes the increased
likelihood that the Commission will be required to expend state managed funds
to plug a well if the well has been inactive for more than 12 months. To address
this increased likelihood, the proposal requires the posting of $60,000 per
well for every inactive bay well beyond the first inactive bay well and $100,000
per well for every inactive offshore well beyond the first inactive offshore
well. This requirement also applies to bay and offshore wells used for injection
or disposal. The presumed estimated plugging liability associated with these
wells may be challenged at a hearing at which an applicant must show clear
and convincing evidence that the presumed plugging liability should not apply
to a specific well or wells. Additionally, the proposed amendments include
in subsection (a)(13) a definition of "inactive well" consistent with this
requirement.
The proposal also allows for an administrative reduction from the additional
financial assurance required for inactive bay and offshore wells of up to
25% of the operator's net worth where:
(1) the operator has five wells or fewer, or at least half of the operator's
wells are actively producing; (2) the operator provides a certification from
an independent auditor confirming the operator's net worth based on the operator's
financial statement from the most recently completed fiscal year; and (3)
none of the operator's wells or operations have been found to be in violation
of Commission rules resulting in pollution or in any hazard to the health
or safety of the public in the last 12 months.
The potential administrative reduction is patterned on guidelines adopted
by the United States Department of the Interior Minerals Management Service
in its rules published in 30 Code of Federal Regulations (CFR) Part 256. Under
the Commission's proposal, an operator would be eligible for a reduction of
any additional financial assurance required for inactive bay and offshore
wells by subtracting the estimated active well plugging liability from 25%
of its net worth as certified by an independent auditor that has employed
generally accepted accounting principles to confirm the operator's stated
net worth based on the most recently completed fiscal year. The certification
standard is the same standard currently used by the Commission in its rules
for evaluating self bonding for businesses engaged in surface coal mining
(§12.309(j) relating to Terms and Conditions of the Bond). The remainder
would be applied to reduce the additional bond required for inactive bay and
offshore wells. The reduction formula can be expressed as:
.25(net worth) - (active well liability) = (amount
of possible reduction)
.
The following example illustrates the application of the formula.
Operator A currently operates 15 offshore wells, six of which are inactive.
The financial assurance under the proposed amendment would be the $100,000
entry level amount plus $500,000 for the inactive wells. To obtain a reduction
in the $500,000 inactive well amount, the operator provides appropriate certification
that the net worth of the company is $5,000,000. Applying the formula, 25%
of the operator's net worth, or $1,250,000, would be measured against the
total active well liability of $900,000, (9 x $100,000 per well). The difference
of $350,000 would allow the operator to be eligible for a reduction of $350,000
against the $500,000 inactive well financial assurance requirement. In this
example, the total bond required from the operator for bay and offshore operations
would be $250,000, (the $100,000 entry level requirement plus the $150,000
reduced inactive well financial assurance requirement) instead of $600,000.
The example is expressed mathematically as follows:
.25(5,000,000 net worth) - 900,000 total active
well liability = 350,000 reduction
500,000 inactive well financial assurance requirement
- 350,000 reduction
= 150,000 reduced financial assurance requirement
150,000 inactive well financial assurance + 100,000
entry level financial assurance
= 250,000 total financial assurance
Under the same example, if the operator's certified net worth totaled $5,600,000
or greater, the formula would have reduced the $500,000 inactive well financial
assurance requirement to zero, leaving only the $100,000 entry level requirement:
.25(5,600,000) - 900,000 = 500,000
In this same example, if the operator's certified net worth totaled $3,600,000
or less, there would be no basis for an administrative reduction of the inactive
well financial assurance requirement, and the operator would be required to
post the full $500,000 inactive well financial assurance requirement:
.25(3,600,000) - 900,000 = 0
If the Commission denies a request for an administrative reduction of the
inactive well financial assurance requirement, the operator may request a
hearing to consider additional evidence on the request. It is anticipated
that allowing an administrative reduction of the inactive well financial assurance
requirement will provide an equivalent guaranty that an operator possesses
sufficient assets to fund any necessary clean-up or plugging expenses associated
with the inactive wells, while limiting the impact of the inactive well financial
assurance requirement on the working capital of operators and the surety bond
market.
Leslie Savage, Planning and Administration, Oil and Gas Division, has determined
that for the first year the amendments will be in effect, there will be no
fiscal implications for state or local governments as a result of enforcing
or administering the amendments.
Texas Government Code, §2006.002, requires a state agency considering
adoption of a rule that would have an adverse economic effect on small businesses
or micro-businesses to reduce the effect if doing so is legal and feasible
considering the purpose of the statutes under which the rule is to be adopted.
Before adopting a rule that would have an adverse economic effect on small
businesses, a state agency must prepare a statement of the effect of the rule
on small businesses, which must include an analysis of the cost of compliance
with the rule for small businesses and a comparison of that cost with the
cost of compliance for the largest businesses affected by the rule, using
cost for each employee, cost for each hour of labor, or cost for each $100
of sales. Because operators are not required to make filings with the Commission
reporting number of employees, labor costs, amount of sales, or gross receipts,
the Commission cannot definitively determine whether a particular operator
may be a small business or a micro-business.
Ms. Savage has estimated that the cost of compliance with the proposed
amendments for the individual, small business, or micro- business producer
will be an additional business expense for the premium for the bond obtained.
Operators may also incur an additional business expense for the certification
of net worth by an independent auditor if the operator has inactive or injection
wells and seeks an administrative reduction of the inactive well financial
assurance requirement. Additionally, operators who request a hearing may incur
costs associated with preparing for and attending the hearing, including but
not limited to costs for hiring legal counsel and other experts, preparing
documents and other evidence, and traveling to Austin for the hearing.
Ms. Savage has also determined that under Texas Government Code, §2006.002(c)(2),
the additional financial security required under the proposed amendments does
not show a disproportionate economic impact on small businesses or micro-
businesses because the Commission finds that the operators of bay and offshore
wells are not likely to fall within the definitions of these terms in Texas
Government Code, §2006.001. This determination is consistent with the
findings published in the
Federal Register
in
the preamble to rules and regulations adopted by the United States Department
of the Interior Minerals Management Service related to surety bond provisions
for offshore leases in 30 Code of Federal Regulations Part 256 (See 62
Additionally, with respect to the impact on small businesses as defined
under Texas Government Code, §2006.002(c)(2), Texas Natural Resources
Code, §§91.1041 and 91.1042 mandate that additional financial security
be posted for each bay and offshore well operated. The statutes do not distinguish
between the size of an organization and the number of bay and offshore wells
the organization operates, and the Commission has no authority to exempt small
business or micro-business operators of bay and offshore wells, from the requirements
of Texas Natural Resources Code, §§91.1041 and 91.1042. Additionally,
the Commission does not require operators to identify the number of persons
employed or the hourly wage of employees and therefore cannot make a comparison
which utilizes either of those standards which are identified under Texas
Government Code, §2006.002(c)(2), assuming that any such entities are
engaged in the active operation of bay and offshore wells.
As previously noted, because operators are not required to make filings
with the Commission reporting number of employees, labor costs, amount of
sales, or gross receipts, the Commission cannot definitively determine whether
a particular operator may be a small business or a micro-business. However,
for the purpose of performing the comparison mandated by Texas Government
Code, §2006.002(c)(2), the Commission has analyzed the estimated maximum
impact of the proposed amendments on two hypothetical bay and offshore well
operators. One of the operators would be characterized as a small business
under Texas Government Code, §2006.001(2), based on imputed annual sales
revenue of less than $1 million. The other hypothetical operator would be
characterized as one of the largest businesses under Texas Government Code, §2006.001(2),
based on imputed annual sales revenue of more than $1 million.
The hypothetical businesses are based on the number of active and inactive
bay and offshore wells and the total number of wells operated. The comparison
also calculates the cost of the additional financial assurance requirement
by using the annual fee of 12.5% of the minimum financial assurance required,
which an operator may opt to pay under §3.78(d)(4), even though the fees
and premiums associated with letters of credit and surety bonds may in fact
be less costly than the 12.5% rate. Because the Commission does not have annual
gross receipts information from its operators, the Commission used a substitute:
for both hypothetical operators, the Commission calculated an imputed annual
sales revenue amount using 2003 production reported to the Commission and
the 2003 average domestic first purchase price of $27.45 per barrel of crude
oil or condensate and average wellhead price of $5.09 per mcf of natural gas,
as reported by the Energy Information Administration through November 2003
for crude oil and through September 2003 for natural gas.
The hypothetical small business operator has one active bay well and therefore
would be required to file minimum additional financial security of $60,000
under the proposed amendments. As noted above, the Commission estimates the
cost of obtaining the additional financial security to be 12.5% of $60,000
or $7,500. This hypothetical operator reported production in 2003 of 14,088
barrels of crude oil and 43,533 mcf of natural gas from its wells for an imputed
sales revenue amount of $608,298.57. The estimated maximum cost of compliance
for this hypothetical small business operator would be $1.23 for each $100
in imputed sales revenue.
The hypothetical largest business has 18 inactive offshore wells and 21
active offshore wells. This operator would be required to file additional
financial assurance of $1,800,000. In 2003, this operator reported production
of 56,051 barrels of crude oil and 2,461,809 mcf of natural gas, for total
imputed total sales revenue of $14,069,206. As noted above, the Commission
estimates the cost of obtaining the additional financial security to be 12.5%
of $1,800,000 or $225,000. The estimated maximum cost of compliance for this
hypothetical operator would be $1.59 for each $100 in imputed sales revenue.
The Commission recognizes that the hypothetical small business operator
used in this comparison might not strictly meet the definition of "small business"
in Texas Government Code, §2006.001(2). Because the Commission does not
have any information on operators' annual gross receipts, and because the
imputed sales revenue is calculated to be less than $1 million, the Commission
finds that this comparison substantially complies with the requirement of
Texas Government Code, §§2006.002 and 2001.024(a)(8). Further, in
an attempt to disclose the actual impact of the proposed amendments under
Texas Government Code, §2006.002(c)(2), the Commission has calculated
the estimated maximum potential additional financial assurance required for
every affected operator, as shown in Figure 1.
Figure: 16 TAC Chapter 3--Preamble
Additionally, as previously outlined, operators may be eligible for a reduced
financial assurance amount either administratively or after a hearing if an
administrative reduction is denied. Finally, under the proposed amendments,
operators can reduce the amount of additional financial assurance required
for inactive wells by restoring any shut-in wells to active production.
Mark Helmueller, Hearings Examiner, Hearings Section, Office of General
Counsel, has determined that for each year of the first five years that the
amendments will be in effect, the primary public benefit will be the implementation
of the additional financial security required by the Legislature for bay and
offshore wells. This additional financial security should reduce the amount
of funds required from the OFCUF to plug abandoned bay and offshore wells.
Funds from the OFCUF will then be available for clean-up and plugging operations
in the areas of greatest need.
The Commission proposes that the amendments will become effective on September
1, 2004. This proposed effective date is consistent with the effective date
for all operators to post financial assurance in the form of a surety bond,
letter of credit, or cash deposit under the Texas Natural Resources Code.
Comments on the proposal 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
; comments should refer to Docket No. 20-0228899. The
Commission encourages all interested persons to submit comments no later than
the deadline. The Commission cannot guarantee that comments submitted after
the deadline will be considered. For further information, call Mark Helmueller
at (512) 463-6802. The status of Commission rulemakings in progress is available
at www.rrc.state.tx.us/rules/proposed.html.
The Commission proposes the amendments to §3.78 pursuant to subsection
(b) of Texas Government Code, §2001.006, which authorizes the Commission
to adopt rules in preparation for the implementation of legislation that has
become law but has not taken effect; and 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 the authority to adopt all necessary rules for governing
and regulating persons and their operations under the jurisdiction of the
Commission, and under the provisions of Texas Natural Resources Code, §§91.1041,
91.1042 which require the Commission to adopt rules setting a reasonable amount
of financial security for each bay or offshore well above the base amount
of financial security required to be submitted by each operator.
Texas Natural Resources Code, §§81.051, 81.052, 81.0521, 81.0522,
85.202, 85.2021, 88.011, 91.101, 91.1013, 91.103, 91.104, 91.1041, 91.1042,
91.105-91.108, 91.1091, 91.111-91.113, and 91.142, are affected by the proposed
amendments.
Statutory authority: Texas Government Code, §2001.006, and
Texas Natural Resources Code, §§81.051, 81.052, 81.0521, 81.0522,
85.202, 85.2021, 88.011, 91.101, 91.1013, 91.103, 91.104, 91.1041, 91.1042,
91.105-91.108, 91.1091, 91.111-91.113, and 91.142.
Cross-reference to statute: Texas Government Code, §2001.006, and
Texas Natural Resources Code, §§81.051, 81.052, 81.0521, 81.0522,
85.202, 85.2021, 88.011, 91.101, 91.1013, 91.103, 91.104, 91.1041, 91.1042,
91.105-91.108, 91.1091, 91.111-91.113, and 91.142.
Issued in Austin, Texas on March 11, 2004.
§3.78.Fees, Performance Bonds and Alternate Forms of Financial Security Required To Be Filed.
(a)
Definitions. The following words and terms, when used in
this section, shall have the following meanings, unless the context clearly
indicates otherwise:
(1) - (6)
(No change.)
(7)
Bay well--Any well under the jurisdiction of the Commission
for which the surface location is either:
(A)
located in or on a lake, river, stream, canal, estuary,
bayou, or other inland [
(B)
located on state lands seaward of the mean high tide line
of the Gulf of Mexico in water of a depth at mean high tide of not more than
100 feet that is sheltered from the direct action of the open seas of the
Gulf of Mexico.
(8) - (12)
(No change.)
(13)
Inactive well--An unplugged
well that has not reported production of hydrocarbons for at least 12 months.
(14)
Director--The director of
the Commission's Oil and Gas Division or the director's delegate.
(b) - (i)
(No change.)
(j)
Amount of bond, letter of credit,
or cash deposit. A person operating one or more wells shall file a form of
financial assurance described in paragraph (1) of this subsection. Financial
security amounts specified in this subsection are the minimum amounts required
to be filed. An operator may file a greater amount. All operators of bay and/or
offshore wells shall post additional financial security as described in paragraphs
(2) and (3) of this subsection.
(1)
Types and amounts of bonds required.
(A)
Individual bond based on total well depth. A
person operating one or more wells may file an individual performance bond,
letter of credit, or cash deposit in an amount equal to the sum of $2.00 for
each foot of total well depth for each well operated.
(B)
Blanket bond, letter of credit, or cash deposit.
A person operating one or more wells may file a blanket bond, letter of credit,
or cash deposit to cover all wells for which a bond, letter of credit, or
cash deposit is required in an amount equal to the sum of the base amount
determined by the total number of wells operated. A person performing multiple
operations shall be required to file only one blanket bond, letter of credit,
or cash deposit unless the person is operating a commercial facility, in which
case the person shall also comply with the financial security requirements
of subsection (o) of this section. The blanket bond amount shall be at least
the base amount determined by the total number of wells operated or $25,000,
whichever is greater. The base amount is determined as follows:
(i)
The base amount for a person operating 10 or
fewer wells or performs other operations shall be $25,000.
(ii)
The base amount for a person operating more
than 10 but fewer than 100 wells shall be $50,000.
(iii)
The base amount for a person operating 100
or more wells shall be $250,000.
(2)
Additional financial security for bay wells.
(A)
All operators of bay wells shall post additional
financial security of no less than $60,000 in addition to any other financial
security that is required under this section for any other Commission regulated
activities.
(B)
For each bay well that is not currently producing
oil or gas and has not produced oil or gas within the past 12 months, including
injection and disposal wells, the operator shall post an additional amount
of financial security of $60,000. An operator shall not be required to post
additional financial security in addition to the $60,000 amount set under
subparagraph (A) of this paragraph if the operator operates only a single
inactive bay well.
(C)
In the case of a bay well that has been inactive
for 12 consecutive months or longer and that is not used for disposal or injection,
the well shall remain classified as inactive for purposes of this section,
regardless of any minimal activity, until the well has reported production
of at least 10 barrels of oil for oil wells or 100 mcf of gas for gas wells
each month for at least three consecutive months.
(D)
Beginning with the Form P-5 Organization Report
renewals due on or after September 1, 2004, operators shall post any additional
financial security for any currently operated bay well or wells before the
Commission will renew the Organization Report.
(3)
Additional financial security for offshore wells.
(A)
All operators of offshore wells and operators
of both bay wells and offshore wells shall post additional financial security
of no less than $100,000 in addition to any other financial security that
is required under this section for any other Commission regulated activities.
(B)
For each offshore well that is not currently
producing oil or gas and has not produced oil or gas within the past 12 months,
including injection and disposal wells, the operator shall post an additional
amount of financial security of $100,000. An operator shall not be required
to post additional financial security in addition to the $100,000 amount set
under subparagraph (A) of this paragraph if the operator operates only a single
inactive offshore well.
(C)
In the case of an offshore well that has been
inactive for 12 consecutive months or longer and that is not used for disposal
or injection, the well shall remain classified as inactive for purposes of
this section, regardless of any minimal activity, until the well has reported
production of at least 10 barrels of oil for oil wells or 100 mcf of gas for
gas wells each month for at least three consecutive months.
(D)
Beginning with the Form P-5 Organization Report
renewals due on or after September 1, 2004, operators shall post any additional
financial security for any currently operated offshore well or wells before
the Commission will renew the Organization Report.
(4)
Transfer of wells to operators with bay and/or
offshore wells. If an operator requests to be designated as the operator of
additional wells of any type (i.e., through a Form P-4 transfer), the Commission
shall not approve the transfer of any existing well until the operator posts:
(A)
all required financial security amounts for
any wells currently operated;
(B)
all required financial security amounts for
any other Commission regulated operations; and
(C)
all required financial security amounts for
the operation of any bay and/or offshore wells that are the subjects of the
Form P-4 transfer.
(5)
Reduction in additional financial security required
for bay and/or offshore wells. An operator may request a reduction of either
the additional $60,000 in financial security required for all operators of
bay wells, or the additional $100,000 in financial security required for all
operators of offshore wells and operators of both bay wells and offshore wells.
(A)
After an administrative review, the director
may approve the reduction if the operator provides documentation that it currently
has a bond or other form of financial assurance in place to satisfy any financial
assurance requirements established by local authorities. The operator must
show that the bond or other form of financial assurance can be called on by
or assigned to the Commission under the following circumstances:
(i)
a well is likely to pollute or is polluting
any ground or surface water or is allowing the uncontrolled escape of formation
fluids from the strata in which they were originally located; or
(ii)
a well is not being maintained in compliance
with Commission rules or state law relating to plugging or the prevention
or control of pollution; or
(iii)
the operator has failed to maintain current
operator status.
(B)
If the director administratively denies the
requested reduction, an operator may request a hearing to determine whether
the reduction should be granted.
(6)
Reduction in additional bay and offshore financial
security required for bay and offshore wells that are not actively producing
oil and natural gas. An operator may request that the Commission consider
a reduction in any additional financial assurance requirement for the operation
of bay and offshore wells that are not actively producing oil and natural
gas or that are used for disposal or injection in an amount not to exceed
the remainder of 25% based on the independently audited calculation of the
operator's net worth for the most recently completed fiscal year minus the
Commission's estimate of the operator's total plugging liability for all of
the operator's active bay and offshore wells.
(A)
After an administrative review, the director
may grant a full or partial reduction if the operator meets the following
criteria:
(i)
the operator has either five or fewer bay and
offshore wells or at least half of the operator's bay and offshore wells are
actively producing oil and natural gas;
(ii)
the operator provides certification of its
net worth from an independent auditor that has employed generally accepted
accounting principles to confirm the operator's stated net worth based on
the most recently available and independently audited calculation;
(iii)
the reduction is less than or equal to the
remainder of 25% of the operator's certified net worth minus the Commission's
estimate of the operator's total plugging liability for all of the operator's
active bay and offshore wells;
(iv)
none of the operator's wells or operations,
including any land-based wells, have been found by Commission staff to be
in violating or to have violated any Commission rule that resulted in pollution
or in any hazard to the health or safety of the public in the last 12 months.
(B)
If the director administratively denies the
requested reduction, an operator may request a hearing to determine if a full
or partial reduction should be granted.
(C)
The operator may also request a hearing to challenge
the Commission's presumed estimate of the operator's plugging liability for
bay and offshore wells as applied to any additional financial assurance required
for any inactive bay and offshore wells. The operator shall present clear
and convincing evidence that the estimated plugging liability is less than
the amount estimated by the Commission. Notice of the hearing shall be provided
by the Commission to the owners of the surface estate and the owners of the
mineral estate for any well that is a subject of the requested hearing, and
all other affected persons.
[
[
[
[
[
[
[
[
[
(7)
[
(8)
[
(9)
[
[
(k) - (n)
(No change.)
(o)
Financial security for commercial facilities. The provisions
of this subsection shall apply to the holder of any permit for a commercial
facility.
(1) - (3)
(No change.)
(4)
Amount.
(A)
(No change.)
(B)
The owner or operator of one or more commercial facilities
may reduce the amount of financial security required under this subsection
for one such facility by the amount, if any, it filed as financial assurance
under subsection
(j)(7)
[
(C) - (E)
(No change.)
(5)
(No change.)
(p)
(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 March 12, 2004.
TRD-200401863
Mary Ross McDonald
Managing Director
Railroad Commission of Texas
Earliest possible date of adoption: April 25, 2004
For further information, please call: (512) 475-1295
navigable
] waters of the state
and
which requires plugging by means other than conventional land- based methods,
including, but not limited to, use of a barge, use of a boat, dredging, or
building a causeway or other access road to bring in the necessary equipment
to plug the well
; or,
(j)
Amount of bond, letter of credit, or cash
deposit.]
(1)
A person who operates one
or more wells may file an individual performance bond, letter of credit or
cash deposit in an amount equal to $2.00 for each foot of total well depth
for each well, plus an additional amount to be determined by the Commission
in a subsequent rulemaking for each bay and offshore well operated.]
(2)
A person operating wells may
file a blanket bond, letter of credit or cash deposit to cover all wells for
which a bond, letter of credit or cash deposit is required in an amount equal
to the sum of:]
(A)
A base amount determined by the total number
of wells operated, as follows:]
(i)
a person who operates 10 or fewer wells shall
have a base amount of $25,000;]
(ii)
a person who operates more than 10 but fewer
than 100 wells shall have a base amount of $50,000; and]
(iii)
a person who operates 100 or more wells shall
have a base amount of $250,000, plus;]
(B)
an additional amount, to be determined by the
Commission in a subsequent rulemaking, for each bay well operated, plus]
(C)
an additional amount, to be determined by the
Commission in a subsequent rulemaking, for each offshore well operated.]
(3)
] A person performing other
operations who is not an operator of wells and who is not a person whose only
activity is as a first purchaser, survey company, salt water hauler, gas nominator,
gas purchaser or well plugger choosing to cover all operations by a blanket
performance bond, letter of credit or cash deposit shall file a bond, letter
of credit or cash deposit in the amount of $25,000.
(4)
] No bond, letter of credit,
cash deposit or alternate form of financial security is required of a person
who is not an operator of wells if the person's only activity is as a first
purchaser, survey company, salt water hauler, gas nominator, gas purchaser
and/or well plugger.
(5)
] A person who engages in more
than one activity or operation, including well operation, for which a bond
or alternate form of financial security is required is not required to file
a separate bond or alternate form of financial security for each activity
or operation in which the person is engaged. The person is required to file
a bond or alternate form of financial security only in the amount required
for the activity or operation in which the person engages for which a bond
or alternate form of financial security in the greatest amount is required.
The bond or alternate form of financial security filed covers all of the activities
and operations for which a bond or alternate form of financial security is
required. The provisions of this paragraph do not exempt a person from the
financial security required under subsection (o) of this section.
(6)
Financial security amounts
are the minimum amounts required by this section to be filed. A person may
file a greater amount if desired.]
(j)(3)
] of this section. The
full amount of financial security required under subparagraph (A) of this
paragraph shall be required for the remaining commercial facilities.