Part 1.
RAILROAD COMMISSION OF TEXAS
Chapter 3.
OIL AND GAS DIVISION
16 TAC §3.80
The Railroad Commission of Texas proposes to amend §3.80,
relating to Commission Forms, Applications and Filing Requirements, to add
three new Railroad Commission Oil and Gas Division Forms to Table 1. The new
forms are Form OW-1, entitled "Application for Authority to Conduct a Surface
Inspection of Orphaned Oil or Gas Wells"; Form OW-2, entitled "Application
for Certificate of Designation as the Operator of Orphaned Oil or Gas Wells";
and Form OW-3, entitled "Application for Payment for Reactivating or Plugging
an Orphaned Oil or Gas Well." The Commission also proposes to delete from
Table 1 the entries for Forms P-1 and P-2, Producer's Monthly Report of Oil
Wells and Producer's Monthly Report of Gas Wells, respectively.
The Commission has designed the proposed new forms proposed to be added
to Table 1 of §3.80(a) to meet the requirements established by those
sections of House Bill (HB) 2161, enacted by the 79th Texas Legislature (Regular
Session, 2005), relating to the Orphan Well Reduction Program and plugging
of orphaned wells by surface estate owners. HB 2161, among other things, added
to Chapter 89 of the Texas Natural Resources Code a new §89.047, relating
to the Orphaned Well Reduction Program. This new section includes procedures,
requirements, and incentives for a person to assume operatorship and regulatory
responsibility for orphaned oil or gas wells. The new statutory provision
requires that the Commission establish a program to allow approval of applications
for authorization that would allow an operator to perform an inspection of
a well site for consideration of assuming operatorship of an orphan well,
to provide for payments from the state's Oil-Field Cleanup Fund (OFCUF) to
"adopters" of orphaned wells, and to provide for the certification of a well
as "orphan" for the purpose of a severance tax exemption and exemption from
Oil-Field Cleanup Regulatory fees on production from "adopted" orphaned wells.
This program became effective on January 1, 2006.
HB 2161 also added to Chapter 89 of the Texas Natural Resources Code new §89.048,
which authorizes the Commission to reimburse from the Oil-Field Cleanup Fund
a portion of costs incurred by surface estate owners who plug orphaned wells
on their property. This new section also became effective on January 1, 2006.
New §89.048 of the Texas Natural Resources Code defines an "orphaned
well" as a well for which the Commission has issued a permit, for which production
of oil or gas or another activity under Commission jurisdiction has not been
reported to the Commission for the preceding 12 months, and whose operator's
Commission-approved P-5 Organizational Report has lapsed.
The Commission proposes new Form OW-1, Application for Authority to Conduct
a Surface Inspection of Orphaned Oil or Gas Wells, which is designed to ensure
that the eligibility and other requirements of Texas Natural Resources Code, §89.047(b),
(c), (d), and (e) are met. The Commission proposes that a person considering
assumption of operatorship and regulatory responsibility for orphaned wells
would file Form OW-1 and any required attachments in order to nominate the
wells and apply for authority to conduct a surface inspection to determine
whether he/she wishes to be designated as the operator of the wells. Proposed
Form OW-1 would require that the applicant and the wells proposed for nomination
meet the eligibility and other requirements of §89.047. If the wells
have not been nominated already and the operator applying for well nomination
meets all eligibility requirements, the Commission would accept the nomination
and issue confirmation of authority to conduct a surface inspection of the
nominated wells. The authority would expire 30 calendar days from the date
of Commission approval. Statutory conditions of the authority include compliance
with certain notice requirements and limitations of this authority. At least
three days before the date of the surface inspection, the applicant must deliver
written notice to the owner of record of the surface estate and any occupant
of the tract on which the well is located.
The Commission proposes also to request that such notice be given to the
appropriate Commission District Office. As required by Texas Natural Resources
Code, §89.047(d), Form OW-1 states that the notice must include a copy
of Commission-approved confirmation of authority to conduct a surface inspection;
identify the orphaned wells; state the name, address, and telephone number
of the operator; state the date the person intends to conduct the surface
inspection; state the name of at least one representative of the person who
will participate in the surface inspection; and state that the person intends
to inspect the orphaned well in accordance with this section for the purpose
of assessing the current status and viability of the well. These requirements
would be satisfied by providing a copy of the completed and approved Form
OW-1.
Proposed Form OW-1 also advises of the statutory limits placed by Texas
Natural Resources Code, §89.047(e), on the authority to conduct a surface
inspection. In conducting a surface inspection of the orphaned wells, the
person may visually inspect the wells and all related equipment, tanks, and
other facilities and may conduct noninvasive testing such as using a gauge
to determine the pressure present at the wellhead but may not produce oil
or gas from the wells, reenter the wells, pull tubing from or perform any
other type of downhole work on the wells, conduct a salvage operation on the
wells, or remove any tangible item from the well site or lease.
The Commission also proposes to include on Form OW-1 a notice to the applicant
that issuance of the Confirmation to Conduct a Surface Inspection of Orphaned
Wells does not guarantee that the Commission will designate the applicant
as the operator of the referenced wells nor will it prevent transfer of the
wells to an operator who has a good faith claim. The Commission must process
any request for lease or well transfer (Form P-4) as those requests are received.
If after 30 days from the date of Commission approval of the authority
to conduct a surface inspection or if after conducting the surface inspection
the operator does not wish to be designated as the operator of the wells,
the wells again would become eligible for nomination by another operator.
If an operator wishes to be designated as the operator of orphaned oil
or gas wells under the Orphaned Well Reduction Program B whether or not the
operator wishes to conduct a surface inspection of the orphaned wells B the
operator must meet certain eligibility requirements and submit certain information
and forms to the Commission. In order to be designated as the operator of
orphaned wells under the Orphaned Well Reduction Program, the operator must
be an operator in good standing and must have sufficient financial security
in accordance with §3.78, relating to Fees and Financial Security Requirements)
to cover the well or wells for which he wishes to be designated as operator.
An operator in good standing is an operator who has a Commission-approved
organization report; is the designated operator of at least one well within
the Commission's jurisdiction; has filed with the Commission under Texas Natural
Resources Code, §91.104, a bond, letter of credit, or cash deposit in
an amount sufficient to qualify to operate one or more wells; and is not the
subject of a Commission or court order regarding a violation of a Commission
rule with which the operator has not complied or a complaint that has been
docketed by the Commission alleging a violation of a Commission rule. In addition,
if the well is subject to a Commission Final Order requiring plugging, the
Commission must first conduct a hearing and enter a superceding order before
the operator can be designated as the operator of the well.
If the operator meets all of the eligibility requirements, the operator
may apply to the Commission for a Certificate of Designation as the Operator
of Orphaned Oil or Gas Wells. The Commission proposes new Form OW-2, Application
for Certificate of Designation as the Operator of Orphaned Oil or Gas Wells,
for this purpose. The Form OW-2 must be accompanied by a completed and signed
Form P-4, Producer's Transportation Authority and Certificate of Compliance,
in accordance with §3.58, relating to Oil, Gas, or Geothermal Resource
Operator's Reports; if necessary, a completed and signed Form P-6, Request
for Permission to Consolidate/Subdivide Leases, if the operator is not requesting
designation as the operator of all wells on a lease; a factually supported
claim based on a recognized legal theory to a continuing possessory right
in the mineral estate accessed by the well, such as evidence of a current
oil and gas lease or a recorded deed conveying a fee interest in the mineral
estate; and a non-refundable fee in the amount of $250 for each well for which
the operator wishes to be designated as the operator.
If all requirements were met, the Commission would issue the Certificate
of Designation as Operator of an Orphaned Well, in accordance with Texas Natural
Resources Code, §89.047, by approving the Form OW-2.
An operator adopting orphaned wells from January 1, 2006, to December 31,
2007, may be eligible to receive certain benefits, such as a payment from
the Oil-Field Cleanup Fund and/or an exemption from severance taxes (Tax Code, §202.060)
and Oil-Field Cleanup Regulatory fees (Texas Natural Resources Code, §§81.116
and 81.117) on future oil or gas production from the wells.
An operator who is designated as the operator of an orphaned oil or gas
well (an operator who has received a Commission-approved Certificate of Designation
as Operator of an Orphaned Well, in accordance with Texas Natural Resources
Code, §89.047) may be entitled to a severance tax exemption. HB 2161
amended Chapter 202 of the Tax Code to provide a severance tax exemption from
oil or gas produced from a reactivated orphaned well under the Orphaned Well
Reduction Program.
The person responsible for paying the tax must apply to the Comptroller
of Public Accounts (Comptroller). The statutes require that an application
for a severance tax exemption include a copy of the certificate of designation
as the operator of an orphaned well issued by the Commission and require that
the Comptroller approve the application if the person demonstrates that the
hydrocarbon production is eligible. The Comptroller may require a person applying
for the tax exemption to provide any relevant information necessary and may
establish procedures to comply with the new law. The exemption takes effect
on the first day of the month following the month in which the Comptroller
approves the application. Because the exemption is non-transferable, if the
person to whom this certificate is issued ceases to be the operator of the
well as shown by Commission records, the Commission will notify the Comptroller
and the exemption will expire on the date the Comptroller receives the notice.
In addition, an operator who is designated as the operator of an orphaned
oil or gas well (an operator who has received a Commission-approved Certificate
of Designation as Operator of an Orphaned Well, in accordance with Texas Natural
Resources Code, §89.047) may be entitled to a payment of $0.50 per foot
of well depth if the operator plugs the well or reactivates the well. If the
operator and the well meet the eligibility requirements, the operator may
apply for payment. A well is considered to be in continuous active operation
for purposes of payment if: (1) the well is a producing well (a well classified
by the Commission as an oil or gas well in accordance with Commission rules)
and the well has produced at least 10 barrels of oil or 100 mcf of gas per
month for at least three consecutive months as shown in Commission records
and as authorized by a permit issued by the Commission; or (2) the well is
a service well and the well has been used for the disposal or injection of
oil and gas wastes or another purpose related to the production of oil or
gas for at least three consecutive months as shown in Commission records and
as authorized by a permit issued by the Commission. The statutes define a
"Service well" as a well for which the Commission has issued a permit that
is not a producing well, including an injection, disposal, or brine mining
well.
The Commission proposes that a designated operator wishing to apply for
the payment authorized under Texas Natural Resources Code, §89.047, would
file with the Commission's Field Operations Section a completed and signed
Form OW-3, Application for Payment for Reactivating or Plugging an Orphaned
Oil or Gas Well, and any required attachments, including a copy of the Commission-approved
certificate of designation as the operator of an orphaned well; and, if the
well was plugged, Form W-3 (Plugging Record); if the well was produced, signed
documentation proving that the well produced at least 10 barrels of oil or
100 mcf of gas per month for at least three consecutive months; or if the
well was used as a service well, a copy of the injection/disposal/other well
permit, a copy of the completion report, and signed documentation proving
that the well was used as an injection or disposal or other service well for
a period of at least three consecutive months.
In accordance with Texas Natural Resources Code, §89.047, the operator
must be designated as the operator of the orphaned well on or after January
1, 2006, and on or before December 31, 2007, in order to be entitled to receive
the payment under the Orphan Well Reduction Program. In addition, the statutes
require that the Commission make payments to operators in the same order the
Commission determines the operators to be entitled to the payments. Further,
the aggregate amount of such payments in a state Fiscal Year (September 1
through August 31) may not exceed $500,000. And, as mentioned before, the
payment is nontransferable; therefore, the Commission may make the payment
only to the operator who was designated as the operator of the orphaned well.
Finally, an operator may not receive more than one payment under that subsection
for the same well or cumulative payments in an amount that exceeds the amount
of the bond, letter of credit, or cash deposit the operator has filed with
the Commission under Texas Natural Resources Code, §91.104.
HB 2161 also provides for civil penalties for filing a false application
for the purpose of receiving a tax exemption and provides the Attorney General
with the authority to recover a penalty.
As noted, HB 2161 also added to Chapter 89 of the Texas Natural Resources
Code new §89.048, which authorizes reimbursement of a portion of the
costs incurred by a surface estate owner for plugging or orphaned wells. The
Commission proposes that a surface estate owner complete and file proposed
new Form OW-3, Application for Payment for Reactivating or Plugging an Orphaned
Oil or Gas Well, when applying for such reimbursement.
New Texas Natural Resources Code, §89.048, authorizes the Commission
to reimburse the owner for the cost of plugging an orphaned well on the surface
owner's property in an amount not to exceed 50 percent of the lesser of actual
costs or the average cost incurred by Commission in the preceding 24 months
in plugging similar wells. The new section authorizes the Commission to make
such payments from the Oil-Field Cleanup Fund (OFCUF). Under Texas Natural
Resources Code, §89.048, the surface estate owner must contract with
a Commission-approved well plugger to plug an orphaned well on his/her property.
The well plugger under contract must mail to the operator of record at least
30 days before plugging operations a notice of its intent to plug, assume
responsibility for the physical operation and control of the well (file a
one-signature Form P-4, Producer's Transportation Authority and Certificate
of Compliance), file financial security to cover the well, and plug the well
in compliance with Commission rules. Upon successful plugging of the well
by the well plugger, the surface estate owner would submit to the Commission
a completed and signed Form OW-3 and documentation of the plugging costs.
The Commission would then reimburse the surface estate owner from the OFCUF
for the lesser of 50 percent of the documented well-plugging costs or the
average Commission costs for plugging a similar well in the same general area
within the preceding 24 months.
The Commission also proposes to delete from Table 1 the entries for Forms
P-1 and P-2, Producer's Monthly Report of Oil Wells and Producer's Monthly
Report of Gas Wells, respectively. These forms were replaced by Form PR, Monthly
Production Report, on February 11, 2005.
Leslie Savage, Oil and Gas Division planner, has determined that for each
year of the first five years the amendments as proposed would be in effect,
there will be fiscal implications for the state. The Orphaned Well Reduction
Program became effective on January 1, 2006. Only those orphaned wells that
are adopted between January 1, 2006, and December 31, 2007, are eligible for
payments from the OFCUF and exemptions from severance tax and OFCUF regulatory
fees on production. The law limits Commission payments to such operators from
the OFCUF to $500,000, in the aggregate, per fiscal year.
The Orphaned Well Reduction Program will result in a maximum cost to the
OFCUF (Fund 145) of $500,000 for each fiscal year from Fiscal Year 2006 through
Fiscal Year 2010. The Commission estimates the cost to modify its computer
systems to track any change of ownership of "adopted" wells to be approximately
$21,300 in FY 2006. The $250 per well fee to adopt an orphaned well will offset
those costs, as will the potential reduction in liability to the state's OFCUF.
In addition, the Commission believes that the bill would result in a positive
fiscal impact to the State associated with the increased production, but staff
is unable to estimate this impact.
In Fiscal Year 2004, 743 wells were taken over by a new operator for which
the P-5 Organization Report was delinquent for one year or longer. However,
the new statutory provisions limit the maximum "pay-out" to operators who
adopt orphan wells to $500,000, in the aggregate, per fiscal year. That maximum
of $500,000 would cover 1,000,000 feet of well depth at $0.50 per foot. Assuming
that the Commission's average plugging cost is about $3.00 per foot, the liability
removed from the OFCUF would be $2.50/foot ($3.00 - $0.50), on the condition
that the wells are put back in operations or plugged within three years. Although
the Commission would pay out a maximum of $500,000 each fiscal year from the
OFCUF, the liability to the OFCUF could be reduced by a maximum of $2,500,000
each fiscal year as a result of HB 2161. The average depth of all orphaned
wells is 2841 feet. Using the 1,000,000-foot number noted above, up to 352
wells could be taken out of the orphaned well population annually.
There will be no fiscal implications for local governments.
Ms. Savage has estimated that the cost of compliance with the proposed
amendments to §3.80 for individuals, small businesses, or micro-businesses
will be negligible. Participation in the program is voluntary; nothing in
the statutes requires an operator to take over wells under the Orphaned Well
Reduction Program, so the cost to any one operator of taking over an orphaned
well would not increase. Furthermore, the costs that would be born by any
operator who wishes to "adopt" an orphaned well under the Program would be
offset by the benefits available through the Program.
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 or micro-businesses, a state agency must prepare a statement of
the effect of the rule on small businesses and micro-businesses. This statement
must include an analysis of the cost of compliance with the rule for small
businesses and micro-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 entities required to file an organization report and affiliates
of such entities performing operations within the jurisdiction of the Commission
are not required to make filings with the Commission reporting number of employees,
labor costs, amount of sales, or gross receipts, the Commission cannot determine
whether a particular entity required to comply with the proposed amendments
to §3.80 may be a small business or a micro-business. However, the Commission
has determined that it is likely that some operators would meet the definitions
of these terms in Texas Government Code, §2006.001. The Commission assumes
further that, during a given year, at least one entity desiring to adopt an
orphaned well under the Orphaned Well Reduction Program would be an individual,
small business, or micro-business. Application under the Orphaned Well Reduction
Program, including filing of proposed Form OW-1, Form OW-2, Form OW-3 and
required attachments is discretionary and, therefore, involve no additional
costs. Furthermore, the requirements, prerequisites, and fees for receiving
authority to conduct a surface inspection, designation as the operator of
an orphaned oil or gas well, and payment for eligible adopted orphaned wells
are the same requirements imposed by statute. The Commission has no discretion
to change such requirements.
The Commission believes that adoption of proposed Forms OW-1, OW-2, and
OW-3 would aid operators wishing to reap the benefits available under the
Orphaned Well Reduction Program by clarifying the requirements, thereby reducing
the possible compliance costs.
For the purpose of making the comparison required by Texas Government Code, §2006.002(c),
the Commission assumes that, during a given year, at least one entity applying
for authority to conduct a surface inspection of orphaned oil or gas wells
by filing Form OW-1 with the Commission in accordance with §3.80 would
be an individual, small business, or micro-business and that the that the
cost of writing, typing, copying, and mailing the Form OW-1 and attachments
would be $50. Therefore, the cost of complying with §3.80, as amended,
would be $50 per employee if the entity has one employee, $2.50 if the entity
has 20 employees, and $0.50 per employee if the entity has 99 employees. Comparable
cost per employee of electronic filing for the largest businesses affected
by the proposed amendment would be $0.10 for an employer of 500 persons and
$0.05 for an employer of $1,000 persons.
Ms. Savage also has determined that for each year of the first five years
that the amendments would be in effect, the primary public benefit would be
increased production or other activities that support production for those
orphaned wells that are reactivated and a reduction in the possibility of
pollution of surface or subsurface water for those orphaned wells that are
plugged.
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 specifically
requests comments and information on the proposed form changes that are part
of this rulemaking. The Commission will accept comments for 30 days after
publication in the
Texas Register
, and 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 Ms. Savage (512) 463-7308. The
status of Commission rulemakings in progress is available at www.rrc.state.tx.us/rules/proposed.html.
The Commission proposes the amendments to §3.80 pursuant to Texas
Natural Resources Code, §81.051 and §81.052, which give the Commission
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 Commission jurisdiction;
and Texas Natural Resources Code, §§89.047 and 89.048, which establish
the Orphaned Well Reduction Program, and which, with Texas Natural Resources
Code, §91.112, authorize the Commission to make payments to surface estate
owners who plug orphaned oil or gas wells on their property.
Statutory authority: Texas Natural Resources Code, §§81.051,
81.052, 89.047, 89.048, and 91.112.
Cross-reference to statute: Texas Natural Resources Code, §§81.051,
81.052, 89.047, 89.048, and 91.112.
Issued in Austin, Texas on January 10, 2006.
§3.80.Commission Oil and Gas Forms, Applications, and Filing Requirements.
(a)
Forms. Forms required to be filed at the Commission shall
be those prescribed by the Commission as listed in Table 1 of this subsection.
A complete set of all Commission forms listed on Table 1 required to be filed
at the Commission shall be kept by the Commission secretary and posted on
the Commission's web site. Notice of any new or amended forms shall be issued
by the Commission. For any required or discretionary filing, an organization
may either file the prescribed form on paper or use any electronic filing
process in accordance with subsections (e) or (f) of this section, as applicable.
The Commission may at its discretion accept an earlier version of a prescribed
form, provided that it contains all required information and meets the requirements
of subsection (e)(3) of this section.
(b) - (f) (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 January 10, 2006.
TRD-200600144
Mary Ross McDonald
Managing Director
Railroad Commission of Texas
Earliest possible date of adoption: February 26, 2006
For further information, please call: (512) 475-1295
Chapter 25.
SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS
Subchapter J. COSTS, RATES AND TARIFFS
Part 2.
PUBLIC UTILITY COMMISSION OF TEXAS