Prior to the Texas Legislature’s passage of House Bill 2259, an operator could leave an inactive well unplugged indefinitely, as long as the oil and gas lease on which the well is located remains in effect, by simply filing an annual form. House Bill 2259, effective September 1, 2009, imposes additional requirements on operators desiring to delay plugging of the well.
An operator may not operate wells in Texas unless its annual Organization Report, form P-5, has been filed and accepted by the RRC. When filing the P-5, the operator must provide a form of financial assurance that it has the ability to properly plug all wells for which it is the designated operator.
The additional requirements imposed by H.B. 2259 require an operator to file certain forms each time the operator files its annual Organization Report, Form P-5, with the Texas Railroad Commission (RRC). The new forms related to inactive wells operated by the operator. An “inactive well” is a well that has had no activity for 12 consecutive months.
H.B. 2259 amends Chapters 98 and 91 of Texas Natural Resources Code. The new law provides that, if an operator has any inactive wells at the time its Organization Report is due, it must file an “Application for Extension” requesting that it not be required to plug those inactive wells. In order to be granted the extension, the operator must do each of the following four things:
1. affirm in writing that the inactive wells are in compliance with all RRC rules and orders.
2. affirm in writing that the operator has a good faith claim that it still has a right to operate the well (in other words, that it still has an oil and gas lease on the land where the well is located).
3. provide an “affirmation regarding surface requirements.” This affirmation must state that each inactive well meets the requirements of Section 89.029. Those requirements are that the operator has terminated electric service to the well, and:
(a) if the well has been inactive for at least five years but less than ten years, that the operator has purged all piping, tanks, vessels and equipment of all fluids; or
(b) if the well has been inactive for at least ten years, that the operator “has removed all surface process equipment and related piping, tanks, tank batteries, pump jacks, headers, and fences, as well as junk and trash as defined by commission rule, associated with and exclusive to the well.”
(The above requirements were inserted to satisfy complaints from landowners that the surface equipment associated with inactive wells was being left on their land for inordinate periods of time. The statute also provides that “the commission shall adopt rules regulating the transfer of [surface equipment] and restricting its accumulation on an active lease.” The statute also contains a “transition provision” that provides for the phase-in of the duty to remove surface equipment over a five-year period beginning September 1, 2010. Under that provision, the commission will require one-fifth of the wells subject to surface removal requirements to satisfy the requirements each year during the phase-in period.)
4. show that the operator has satisfied one of the following five requirements:
(a) prove that, since the operator’s previous Organization Report filing, the operator has plugged or restored to active operation at least ten percent of the inactive wells for which the operator was responsible as of the date of the previous Organization Report; or
(b) submit an “abeyance of plugging report” certified by a petroleum engineer showing that each inactive well has a value in excess of the cost to plug the well and a reasonable expectation of being restored to a beneficial use, with “appropriate documentation demonstrating the basis for the affirmation of the well’s future utility”, together with a fee of $100 for each inactive well; or
(c) provide a statement that the well is part of a commission-approved “enhanced oil recovery project”; or
(d) provide documentation of the results of a successful fluid level or hydraulic pressure test of the well conducted in accordance with RRC rules. If the operator provides test results, a successful fluid level test is good for one year, and a successful hydraulic pressure test is good for five years (these tests are intended to prove that the casing in the well is intact and not leaking or at risk of contaminating groundwater); or
(e) provide additional financial assurance to assure that the well will be plugged, in the form of either (i) a supplemental bond, letter of credit or cash deposit equal to the cost of plugging all inactive wells, or (ii) escrow funds deposited with the RRC equaling at least 10 percent of the total cost for plugging all inactive wells, or (iii) for public companies, a blanket bond of $2 million or a financing statement granting the RRC a security interest in the operators’ accounts to secure the cost of plugging the inactive wells.
This is another bill in the Legislature’s continuing effort address the problem of inactive unplugged wells in Texas. It appears to mostly impose additional paper-work requirements on operators. Some landowners with wells that have been inactive for more than ten years may eventually be able to require their operators to at least remove old abandoned equipment on those wells.