Articles Posted in Texas Railroad Commission

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Ryan Sitton is interviewed by Evan Smith of The Texas Tribune. And endorses Donald Trump. And questions the human causes of climate change.  Watch the interview here.

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The draft Sunset Commission report on the Texas Railroad Commission makes recommendations for legislative changes to the bonding requirements for oil and gas wells. Landowners should be familiar with how the RRC’s bonding system works, and how it could affect operations on their property.

Operators of oil and gas wells in Texas must have a permit to operate. In order to obtain that permit, the operator must provide financial security in the form of cash, a bond, or a letter of credit to provide financial assurance that it will plug any wells it operates. The amount of financial security required is set by statute and was last revised in 1991. Most operators comply with the bonding requirement by furnishing “blanket” bonds. The amount of the bond depends on the number of wells operated by the operator:

  • Operators with 1-10 wells must have a $25,000 blanket bond.
  • Operators with 11-99 wells must have a $50,000 blanket bond.
  • Operators with 100 or more wells must have a $250,000 blanket bond.

The theory is that, if an operator becomes insolvent and is unable to plug its wells, the RRC can call on the bonding company to provide the money to plug the wells. But in reality, bonds provide only about 16% of the cost of plugging abandoned wells. In FY 2015, the RRC collected $4.288 million on bonds from 94 operators who abandoned 1,584 wells – an average of only $2,707 per well. In the same year, the RRC spent $11.722 million plugging 692 wells – an average of $17,012 per well. Continue reading →

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The third issue identified by the Sunset Commission in its draft report on review of Texas Railroad Commission operations was the RRC’s monitoring and enforcement of its regulations. As in previous Sunset reports on the RRC, the Sunset Commission criticized the Commission’s enforcement practices and policies.

RRC field inspections and enforcement are the areas where landowners most often come into contact with RRC operations. The RRC is responsible for enforcing rules related to oil and gas spills and contamination, including contamination of groundwater.

Facts:

The RRC employs 151 oil and gas field inspectors. In FY 2015, the RRC reported that those inspectors conducted 134,484 inspections and cited 61,189 violations. When it finds a rule violation, the RRC can fine the operator, and it can issue a “severance order,” requiring suspension of oil and gas production until the violation is remedied. In FY 2015, the RRC assessed 1,878 administrative penalties and issued 7,936 severance orders.

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The Sunset Advisory Commission staff have issued their draft report on the Texas Railroad Commission. Sunset review of the RRC has been controversial. This is the third time the agency has gone through sunset review since 2010, although most agencies aren’t reviewed by the Sunset Commission more than once every twelve years. Previous sunset review reports, like the current draft, have been critical of some aspects of the RRC’s structure and work. Because the RRC’s principal jurisdiction is over the regulation of oil and gas exploration and production and pipelines, its functioning is important to land and mineral owners, and those owners should be familiar with how the RRC works and what its responsibilities are and should consider weighing in on issues raised by the Sunset Commission Report.

First, a little background on the sunset review process. The Sunset Commission is required by statute to periodically review the performance of all state agencies and make recommendations on whether they should continue to exist and how they could improve their performance. The idea is that all agencies “sunset” — cease to exist — unless the legislature re-authorizes the agency after review by the Sunset Commission. About 130 state agencies are subject to review under the Texas Sunset Act. Agencies typically undergo sunset review every 12 years.

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Republican candidates for the open seat on the Texas Railroad Commission were interviewed by Evan Smith of the Texas Tribune in an open forum yesterday. They were asked about global warming, earthquakes, the EPA, House Bill 40 and municipal regulation of drilling, Sunset Commission review of the Commission in the upcoming legislative session, and the role of the Commission in both regulating and promoting oil and gas development in the state. You can watch the forum here. The Tribune has apparently decided not to hold a similar forum for the Democratic candidates running for the same seat.

My take:

  • With two exceptions, the candidates refused to admit that human activity contributes to global warming, although they did appear to admit that global warming is occurring.
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The Texas Railroad Commission website includes a tool it calls the Public GIS Viewer, that all mineral owners should become familiar with. It can be found at http://wwwgisp.rrc.state.tx.us/GISViewer2/, and it looks like this (click to enlarge):

GIS Viewer
The RRC website also has a page showing you how to use the viewer, found here.

You can locate wells and permits, and find permit plats, P-12’s, and other records in the permit file. Spend a little time playing around on the viewer to become familiar with its tools.

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An article by Jim Malewitz in The Texas Tribune, “As Oil Prices Plunge, Questions about Big Tax Credit,” sheds light on an arcane and technical issue not well understood even by most oil and gas lawyers – classification of wells as “oil wells” or “gas wells” by the Texas Railroad Commission. While most wells produce both oil and gas, under RRC rules a well must be either one or the other. Different rules apply depending on well classification. Why does it matter?

For one thing, oil and gas leases traditionally have allowed larger pooled units for gas wells than oil wells – allowing operators to hold more acreage with a single well. This distinction is based on the theory that gas wells drain a larger area than oil wells – probably true in most conventional reservoirs, where oil and gas migrate through the formation as wells withdraw production. Not so true for new unconventional shale formations, which have very low permeability and porosity, and where oil and gas don’t “flow” through the formation but are produced through artificially induced fractures.

But operators recently are rushing to “reclassify” wells as gas wells that were originally classified as oil wells. According to Malewitz, the RRC granted operator applications to reclassify 844 wells from oil to gas this year – nearly six times the number reclassified in 2013. And Devon Energy has asked the RRC to reclassify more than 200 of its wells from oil to gas. The reason? Tax credits. Continue reading →

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Texas Tribune September 24, 2015 – by Ross Ramsey:

What happens when an elected official says “we” is that we think they’re talking about us — the people who elected them. Sometimes, that’s right. In fact, it’s right most of the time.

Not at the Texas Railroad Commission. It’s a three-person state commission elected by Texas voters and seemingly owned and operated by the oil and gas industry it regulates. Go hear one of their speeches at an industry conference sometime and listen for this: Do they call it “your industry” when talking to oil and gas people, or do they call it “our industry.” A recent sampling suggests the latter.

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The Texas Railroad Commission has submitted its “Self-Evaluation Report” to the Texas Sunset Commission, in anticipation of Sunset Commission review of the RRC in the next legislative session in 2017.

Under Texas’ sunset law, every Texas agency must periodically undergo review by the Sunset Commission and be re-authorized by legislative action. The Sunset Commission reviews and recommends changes to legislation governing the agency – or may recommend abolishment of the agency.

Initially reviewed in 2011, the Railroad Commission’s Sunset bill did not pass in the 2011 legislative session. Instead, the 82nd Legislature continued the Railroad Commission under Sunset review for another two years. In 2013, the Sunset Commission again reviewed the RRC and recommended significant changes, including changing the agency’s name, limiting when Commissioners could solicit and receive campaign contributions, and requiring the automatic resignation of a Commissioner running for another elected office. The Sunset Commission also recommended several funding changes, including eliminating the statutory cap on the Oil and Gas Regulation and Cleanup Fund and creating a new pipeline permit fee to help support the agency’s pipeline safety program.

The Sunset recommendations were incorporated into Senate Bill 212. The Senate passed this bill in 2013, but ultimately the bill was left pending in the House Energy Resources Committee. The only significant legislation that did pass was a requirement that commissioners resign to run for another office – a bill vetoed by the Governor. The legislature required the RRC to undergo sunset review again in 2017.

The RRC’s Self-Evaluation Report, required by the Sunset Commission, can be found here. Largely self-laudatory, it does contain lots of data about RRC activities. Excerpts: Continue reading →

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Representative Drew Darby, Chair of the Texas House Committee on Energy Resources, wrote the members of the committee to ask their input on issues that should be addressed by the committee during the interim between legislative sessions. A copy of the letter can be viewed here: Darby letter.

Of the 33 energy-related bills referred to the committee, it reported 22 favorably, nine were passed by the legislature, and two of those were vetoed by the governor – so seven became law. They are described in Darby’s letter.

Darby mentions two issues he believes should be suggested to the Speaker of the House as “Interim Charges” for the committee to study:  allocation wells and oil equipment theft. The legislature passed House Bill 3291, which would have increased penalties for oil-field theft, but the governor vetoed it, declaring it “overly broad.” Darby also reminds the committee that the Texas Sunset Commission will be reviewing the Texas Railroad Commission during the interim, and he expects the Sunset report to be a “significant focus of the Committee next session.”

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