By: Birdwell S.B. No. 1258     (Goldman)           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 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 greater of:                (1)  the minimum distance established by the applicable   lease-line spacing requirement of the Railroad Commission of Texas;   or                (2)  a perpendicular distance of 330 feet.          (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 2.  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 greater of:                (1)  the minimum distance established by the applicable   lease-line spacing requirement of the Railroad Commission of Texas;   or                (2)  a perpendicular distance of 330 feet.          (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 3.  Notwithstanding Section 4 of this Act, the   changes in law made by this Act apply only to a lease or other   agreement or an amendment to a lease or other agreement entered into   on or after the effective date of this Act. A lease or other   agreement or an amendment to a lease or other agreement entered into   before the effective date of this Act is governed by the law in   effect on the date the lease or other agreement or amendment to the   lease or other agreement is entered into, and that law is continued   in effect for that purpose.          SECTION 4.  The parties to a lease or other agreement entered   into before the effective date of this Act pertaining to land   subject to Subchapter B or F, Chapter 52, Natural Resources Code,   may:                (1)  contractually agree to amend the lease or other   agreement to bring the lease or other agreement into conformity   with the changes in law made by this Act; or                (2)  after reviewing pertinent data, contractually   agree that a horizontal drainhole well in an unconventional   fracture treated field is incapable of draining the land subject to   the lease or other agreement.          SECTION 5.  This Act takes effect September 1, 2021.