88R7366 ANG-D     By: Goodwin H.B. No. 3839       A BILL TO BE ENTITLED   AN ACT   relating to financial security requirements for operators of oil   and gas wells.          BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:          SECTION 1.  Section 81.067(c), Natural Resources Code, is   amended to read as follows:          (c)  The fund consists of:                (1)  proceeds from bonds and other financial security   required by this chapter and benefits under well-specific plugging   insurance policies described by Section 91.104(c) that are paid to   the state as contingent beneficiary of the policies, subject to the   refund provisions of Section 91.1091, if applicable;                (2)  private contributions, including contributions   made under Section 89.084;                (3)  expenses collected under Section 89.083;                (4)  fees imposed under Section 85.2021;                (5)  costs recovered under Section 91.457 or 91.459;                (6)  proceeds collected under Sections 89.085 and   91.115;                (7)  interest earned on the funds deposited in the   fund;                (8)  oil and gas waste hauler permit application fees   collected under Section 29.015, Water Code;                (9)  costs recovered under Section 91.113(f);                (10)  hazardous oil and gas waste generation fees   collected under Section 91.605;                (11)  oil-field cleanup regulatory fees on oil   collected under Section 81.116;                (12)  oil-field cleanup regulatory fees on gas   collected under Section 81.117;                (13)  fees for a reissued certificate collected under   Section 91.707;                (14)  fees collected under Section 91.1013;                (15)  fees collected under Section 89.088;                (16)  fees collected under Section 91.142;                (17)  fees collected under Section 91.654;                (18)  costs recovered under Sections 91.656 and 91.657;                (19)  fees collected under Section 81.0521;                (20)  fees collected under Sections 89.024 and 89.026;                (21)  legislative appropriations;                (22)  any surcharges collected under Section 81.070;                (23)  fees collected under Section 91.0115;                (24)  fees collected under Subchapter E, Chapter 121,   Utilities Code;                (25)  fees collected under Section 27.0321, Water Code;                (26)  fees collected under Section 81.071; [and]                (27)  money collected under Section 81.021; and                (28)  money transferred from a sinking fund under   Section 91.1045(b)(2).          SECTION 2.  Section 89.023(a), Natural Resources Code, is   amended to read as follows:          (a)  The commission may grant an extension of the deadline   for plugging an inactive well if the operator maintains a current   organization report with the commission as required by Section   91.142 and if, on or before the date of renewal of the operator's   organization report as required by that section, the operator files   with the commission an application for an extension that includes:                (1)  an affirmation that complies with Section 89.029;                (2)  a statement that the operator has, and on request   will provide, evidence of a good faith claim to a continuing right   to operate the well; [and]                (3)  at least one of the following:                      (A)  documentation that since the preceding date   that the operator's organization report was required to be renewed   the operator has plugged, or restored to active operation as   defined by commission rule, a number of inactive wells equal to or   greater than 10 percent of the number of inactive wells operated by   the operator on that date;                      (B)  an abeyance of plugging report on a form   approved by the commission that:                            (i)  is in the form of a certification signed   by a person licensed by the Texas Board of Professional Engineers   and Land Surveyors as an engineer or by the Texas Board of   Professional Geoscientists;                            (ii)  includes:                                  (a)  an affirmation by the licensed   person that the well has:                                        (1)  a reasonable expectation of   economic value in excess of the cost of plugging the well for the   duration of the period covered by the report, based on the cost   calculation for plugging an inactive well; and                                        (2)  a reasonable expectation of   being restored to a beneficial use that will prevent waste of oil or   gas resources that otherwise would not be produced if the well were   plugged; and                                  (b)  appropriate documentation   demonstrating the basis for the affirmation of the well's future   utility; and                            (iii)  specifies the field and the covered   wells within that field in a format prescribed by the commission;                      (C)  a statement that the well is part of an   enhanced oil recovery project;                      (D)  if the operator of the well is not currently   otherwise required by commission rule or order to conduct a fluid   level or hydraulic pressure test of the well, documentation of the   results of a successful fluid level or hydraulic pressure test of   the well conducted in accordance with the commission's rules in   effect at the time the test is conducted;                      (E)  [a supplemental bond, letter of credit, or   cash deposit sufficient for each well specified in the application   that:                            [(i)  complies with the requirements of   Chapter 91; and                            [(ii)  is of an amount at least equal to the   cost calculation for plugging an inactive well for each well   specified in the application;                      [(F)]  documentation of the deposit with the   commission each time the operator files an application of an amount   of escrow funds as prescribed by commission rule that equal at least   10 percent of the total cost calculation for plugging an inactive   well for each well specified in the application; or                      (F) [(G)]  if the operator is a publicly traded   entity, [:                            [(i)]  the following documents:                            (i) [(a)]  a copy of the operator's federal   documents filed to comply with Financial Accounting Standards Board   Statement No. 143, Accounting for Asset Retirement Obligations;   and                            (ii) [(b)]  an original, executed Uniform   Commercial Code Form 1 Financing Statement, filed with the   secretary of state, that:                                  (a) [(1)]  names the operator as the   "debtor" and the Railroad Commission of Texas as the "secured   creditor"; and                                  (b) [(2)]  specifies the funds covered   by the documents described by Subparagraph (i) [Sub-subparagraph   (a)] in the amount at least equal to the applicable decommissioning   cost estimate established by the commission under Section   91.1041(b) for each well specified in the application; and                 (4)  a supplemental bond, letter of credit, or cash   deposit sufficient for each well specified in the application that:                      (A)  complies with the requirements of Chapter 91;   and                      (B)  is of an amount at least equal to the   applicable decommissioning cost estimate established by the   commission under Section 91.1041(b) for each well specified in the   application [of the cost calculation for plugging an inactive well   for each well specified in the application; or                            [(ii)  a blanket bond in the amount of the   lesser of:                                  [(a)  the cost calculation for   plugging any inactive wells; or                                  [(b)  $2 million].          SECTION 3.  Section 89.027(a), Natural Resources Code, is   amended to read as follows:          (a)  A supplemental bond, letter of credit, or cash deposit   filed under Section 89.023(a)(4) [89.023(a)(3)(E)] is in addition   to any other financial assurance otherwise required of the operator   or for the well.          SECTION 4.  Section 89.028(a), Natural Resources Code, is   amended to read as follows:          (a)  Escrow funds described by Section 89.023(a)(3)(E)   [89.023(a)(3)(F)] must be deposited with the commission each time   an operator files an application for an extension of the deadline   for plugging an inactive well.          SECTION 5.  Sections 91.104(b) and (c), Natural Resources   Code, are amended to read as follows:          (b)  A person required to file a bond, letter of credit, or   cash deposit under Section 91.103 who is an inactive operator or who   operates one or more wells must, at the time of filing or renewing   an organization report required by Section 91.142, file:                (1)  an individual bond as provided under Section   91.1041; or                (2)  [a blanket bond as provided under Section 91.1042;   or                [(3)]  a letter of credit or cash deposit in the same   amount as required for an individual bond under Section 91.1041 [or   a blanket bond under Section 91.1042].          (c)  A person required to file a bond, letter of credit, or   cash deposit under Section 91.103 who operates one or more wells is   considered to have met that requirement for a well if the well bore   is included in a well-specific plugging insurance policy that:                (1)  is approved by the Texas Department of Insurance;                (2)  names this state as the owner and contingent   beneficiary of the policy;                (3)  names a primary beneficiary who agrees to plug the   specified well bore;                (4)  is fully prepaid and cannot be canceled or   surrendered;                (5)  provides that the policy continues in effect until   the specified well bore has been plugged;                (6)  provides that benefits will be paid when, but not   before, the specified well bore has been plugged in accordance with   commission rules in effect at the time of plugging; and                (7)  provides benefits that equal the greatest of:                      (A)  the [an] amount established by the commission   based on the decommissioning cost estimate established under   Section 91.1041(b) for the applicable region [equal to $2 for each   foot of well depth, as determined in the manner specified by the   commission, for the specified well];                      (B)  if the specified well is a bay well and   regardless of whether the well is producing oil or gas, the amount   required under commission rules for a bay well that is not producing   oil or gas;                      (C)  if the specified well is an offshore well and   regardless of whether the well is producing oil or gas, the amount   required under commission rules for an offshore well that is not   producing oil or gas; or                      (D)  the payment otherwise due under the policy   for plugging the well bore.          SECTION 6.  Subchapter D, Chapter 91, Natural Resources   Code, is amended by amending Section 91.1041 and adding Section   91.1045 to read as follows:          Sec. 91.1041.  INDIVIDUAL BOND. (a)  A person required to   file a bond, letter of credit, or cash deposit under Section 91.103   who operates one or more wells may file a bond in an amount   established by the commission. The commission shall establish the   bond amount based on the decommissioning cost estimate established   under Subsection (b) for the applicable region [equal to $2 for each   foot of well depth for each well].          (b)  Based on the information provided to the commission   under [Notwithstanding] Subsection (c) [(a)], the commission [by   rule] shall establish decommissioning cost estimates for each oil   and gas producing region of the state, as determined by the   commission, annually and post the estimates on the commission's   publicly accessible Internet website [set the amount of the bond   for an operator of one or more bay or offshore wells at a reasonable   amount that exceeds the amount provided by Subsection (a)].          (c)  The commission shall require each operator to provide   decommissioning cost information to the commission on an annual   basis, including, for each well site:                (1)  the depth of the well;                (2)  the age of the well bore;                (3)  a summary explaining factors or complications   related to the well or well site that may influence the cost of   plugging or cleanup at the well site;                (4)  an estimated cost of materials and equipment   necessary to plug the well bore and clean up the well site;                (5)  an estimated cost of labor necessary to plug the   well bore, clean up the well site, and remove any equipment;                (6)  overhead expenses; and                (7)  whether the well bore or site has undergone   reworking operations during the preceding year.          (d)  When calculating under Subsection (a) the amount of the   bond a person who operates one or more wells is required to file,   the commission shall exclude a well if the well bore is included in   a well-specific plugging insurance policy described by Section   91.104(c).          (e) [(d)]  If the inclusion of a bay or offshore well whose   well bore is included in a well-specific plugging insurance policy   described by Section 91.104(c) in the calculation under Subsection   (b) of the amount of the bond an operator of one or more bay or   offshore wells is required to file would result in an increase in   the amount of the bond that would otherwise be required, the rules   must provide for the exclusion of the well from the calculation.          Sec. 91.1045.  PAYMENT TO AND USE OF SINKING FUND. (a) A   person who files a bond under Section 91.1041 shall pay into a   sinking fund established by the commission an amount equal to the   full cost of decommissioning the well for which the bond was filed,   as determined by the commission under Section 91.1041(b), divided   into equal annual payments to be completed by the earlier of:                (1)  15 years; or                 (2)  the estimated number of years the well is expected   to be productive based on the projected production decline curve of   the well.          (b)  Money in the sinking fund may be used by the operator or   the commission to pay the costs of plugging the well bore and   remediating the well site. Any amount remaining in the sinking fund   after the plugging and remediation is complete shall be transferred   to:                (1)  the operator, if the operator plugs the well and   remediates the well site to commission standards; or                 (2)  the oil and gas regulation and cleanup fund   established under Section 81.067, if, after the operator is given   the opportunity to complete the plugging and remediation, the   commission plugs the well and remediates the well site to   commission standards.          (c)  This section does not apply to an operator whose   operation results in the completion of a well as a dry hole. An   operator described by this subsection must plug the well in   accordance with the inactive well plugging requirements   established under Chapter 81.          SECTION 7.  Section 91.1042, Natural Resources Code, is   repealed.          SECTION 8.  (a) The changes in law made by this Act apply   only to a person required to file a bond, letter of credit, or cash   deposit under Section 89.023 or 91.103, Natural Resources Code, on   or after the effective date of this Act. A person required to file a   bond, letter of credit, or cash deposit under Section 89.023 or   91.103, Natural Resources Code, before the effective date of this   Act is governed by the law as it existed immediately before the   effective date of this Act, and that law is continued in effect for   that purpose.          (b)  Notwithstanding Subsection (a), an operator of a well in   existence on the effective date of this Act is not required to hold   an individual bond that meets the requirements of Section 91.1041,   Natural Resources Code, as amended by this Act, until September 1,   2028, and the law as it existed immediately before the effective   date of this Act is continued in effect for that purpose.          SECTION 9.  This Act takes effect September 1, 2023.