87R10225 ANG-F     By: Birdwell S.B. No. 1258       A BILL TO BE ENTITLED   AN ACT   relating to the duty of a lessee or other agent in control of   certain state land to drill an offset well, pay compensatory   royalty, or otherwise protect the land from drainage of oil or gas   by a horizontal drainhole well located on certain land.          BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:          SECTION 1.  Section 66.75, Education Code, is amended by   amending Subsection (a) and adding Subsections (a-1) and (g) to   read as follows:          (a)  In this section:                (1)  "Horizontal drainhole well" means a well with a   horizontal drainhole that may produce oil or gas along at least 100   feet of the drainhole.                (2)  "Take point" means any point in a horizontal   drainhole well where oil and gas can be produced from the reservoir   or field interval recognized by the Railroad Commission of Texas.                (3)  "Unconventional fracture treated field" means an   oil or gas field in which horizontal well development and hydraulic   fracture treatment must be used to recover resources from all or   part of the field.          (a-1)  The lessee shall protect the leased premises from   drainage.  The lease may contain express terms regarding drainage   as the board may adopt.          (g)  Notwithstanding any other provision of this section, a   lease or other agreement relating to university lands may not   require a lessee to drill an offset well, pay compensatory royalty,   or otherwise protect the leased premises or acreage pooled with the   leased premises from drainage by a horizontal drainhole well   located in an unconventional fracture treated field if no take   point of the horizontal drainhole well is located closer to the   leased premises or acreage pooled with the leased premises than the   applicable lease-line spacing distance requirement of the Railroad   Commission of Texas.          SECTION 2.  Section 52.034, Natural Resources Code, is   amended by amending Subsections (a) and (d) and adding Subsections   (a-1) and (a-2) to read as follows:          (a)  In this section:                (1)  "Horizontal drainhole well" means a well with a   horizontal drainhole that may produce oil or gas along at least 100   feet of the drainhole.                (2)  "Take point" means any point in a horizontal   drainhole well where oil and gas can be produced from the reservoir   or field interval recognized by the Railroad Commission of Texas.                (3)  "Unconventional fracture treated field" means an   oil or gas field in which horizontal well development and hydraulic   fracture treatment must be used to recover resources from all or   part of the field.          (a-1)  Except as provided by Subsection (a-2), if [If] oil or   gas is produced in commercial quantities from a well located on a   privately owned area or areas of state land leased at a lesser   royalty and the well is located within 1,000 feet of an area leased   under this subchapter[,] or [in any case where such an area] is   draining an area leased under this subchapter [being drained by   such a well or wells], the lessee of the state area shall begin in   good faith and prosecute diligently the drilling of an offset well   or wells on the area leased from the state within 60 days after the   initial production from the draining well or the well located   within 1,000 feet of the leased state area.          (a-2)  If the well producing oil or gas in commercial   quantities under Subsection (a-1) is a horizontal drainhole well   located in an unconventional fracture treated field, a lessee of a   state area is not required to drill an offset well as provided by   Subsection (a-1) unless any take point in the horizontal drainhole   well is located closer to the leased state area than the minimum   distance established by the applicable lease-line spacing   requirement of the Railroad Commission of Texas.          (d)  At the determination of the commissioner and with the   commissioner's [his] written approval, the payment of a   compensatory royalty shall satisfy the obligation to drill an   offset well or wells required by Subsection (a-1) [Subsection (a)   of this section]. Such compensatory royalty shall be paid at the   royalty rate provided by the state lease issued under this   subchapter and shall be paid on the market value at the well of   production from the [draining] well producing oil or gas in   commercial quantities described by Subsection (a-1) [or the well   located within 1,000 feet of the leased state area].          SECTION 3.  Section 52.173, Natural Resources Code, is   amended by amending Subsections (a) and (d) and adding Subsections   (a-1) and (a-2) to read as follows:          (a)  In this section:                (1)  "Horizontal drainhole well" means a well with a   horizontal drainhole that may produce oil or gas along at least 100   feet of the drainhole.                (2)  "Take point" means any point in a horizontal   drainhole well where oil or gas can be produced from the reservoir   or field interval recognized by the Railroad Commission of Texas.                (3)  "Unconventional fracture treated field" means an   oil or gas field in which horizontal well development and hydraulic   fracture treatment must be used to recover resources from all or   part of the field.          (a-1)  Except as provided by Subsection (a-2), if [If] oil or   [and/or] gas is [should be] produced in commercial quantities   within 1,000 feet of land subject to this subchapter[,] or if   production of oil or gas is draining [in any case where] land   subject to this subchapter, [is being drained by production of oil   or gas] the owner, lessee, sublessee, receiver, or other agent in   control of land subject to this subchapter shall in good faith begin   the drilling of a well or wells upon such state land within 100 days   after the draining well or wells or the well or wells completed   within 1,000 feet of the state land commence to produce in   commercial quantities[,] and shall prosecute such drilling with   diligence to reasonably develop the state land and to protect such   state land against drainage.          (a-2)  If the well producing oil or gas in commercial   quantities under Subsection (a-1) is a horizontal drainhole well   located in an unconventional fracture treated field, the owner,   lessee, sublessee, receiver, or other agent in control of land   subject to this subchapter is not required to drill an offset well   as provided by Subsection (a-1) unless any take point in the   horizontal drainhole well is located closer to the state land than   the minimum distance established by the applicable lease-line   spacing requirement of the Railroad Commission of Texas.          (d)  At the determination of the commissioner and with the   commissioner's [his] written approval, the payment of a   compensatory royalty shall satisfy the obligation to drill an   offset well or wells required by Subsection (a-1). Such   compensatory royalty shall be paid at a royalty rate established by   the commissioner if the land is unleased, or at the royalty rate   provided by the state lease, if the land is leased. Such   compensatory royalty shall be paid on the market value at the well   of production from the [draining] well producing oil or gas in   commercial quantities described by Subsection (a-1) [or the well   located within 1,000 feet of the state land].          SECTION 4.  This Act takes effect September 1, 2021.