Articles Posted in Texas Railroad Commission

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Struggles over fracking bans have been in the news for some time in Pennsylvania, Colorado, Ohio, New Mexico and other states. The State of New York has had a moratorium on fracking for several years. But until recently, cities and oil and gas companies in Texas had been able to get along. Until, that is, the City of Denton, Texas passed a referendum banning fracking with in its city limits. Since then, as we say in Texas, all hell has broken loose.

The day after Denton’s referendum passed, two suits were filed challenging its ordinance, one by the Texas General Land Office and one by the Texas Oil and Gas Association. In the Legislature, several bills were filed to limit municipal authority to regulate drilling. One bill would require cities to reimburse the state for lost revenue from any drilling ban.  Another would require cities to get approval from the Attorney General before putting any referendum on the ballot.

The two bills that appear to have the most legs are HB 2855, introduced by Drew Darby, and SB 1165, introduced by Troy Fraser. SB 1165 has been favorably reported out of the Senate Natural Resources Committee. HB 2855 remains pending in the House Energy Resources Committee after a lengthy hearing at which representatives of the industry and municipalities testified late into the night.

HB 2855 would prohibit a city from enacting an ordinance that “prohibits or has the effect of prohibiting an operation under the jurisdiction of the” Texas Railroad Commission. And it delegates to the RRC “exclusive jurisdiction to determine whether the adoption or enforcement of an … ordinance … prohibits or has the effect of prohibiting an operation under the jurisdiction of” the RRC.

SB 1165 prohibits ordinances that “ban, limit or otherwise regulate an oil or gas operation” except for ordinances that “regulate only surface activity that is incident to an oil and gas operation, is commercially reasonable, does not effectively prohibit an oil and gas operation, and is not otherwise preempted by state or federal law.”

Cities claim that both bills would effectively eliminate the ordinances that they have carefully crafted, with input from industry, to regulate drilling within their municipal limits.

In 2011, the Texas Supreme Court decided Railroad Commission of Texas and Pioneer Exploration, Ltd. v. Texas Citizens for a Safe Future and Clean Water and James G. Popp, No. 08-0497. It held that the RRC’s authority to issue permits for injection wells, which requires the RRC to find that the permit will be “in the public interest,” does not give the RRC authority to consider traffic safety in deciding whether to grant the permit. The RRC strenuously argued that it had no jurisdiction to consider public safety issues in granting injection well permits. I was reminded of this case in relation to the debate over municipal authority, because, like injection wells, the RRC never considers public safety issues in deciding whether to grant drilling permits. Indeed, I suspect that the RRC would say, as it did in Popp, that it has no jurisdiction to consider such issues when granting a drilling permit. In municipal jurisdictions, issues of public safety are principally delegated to the municipality. City drilling ordinances address those issues – traffic, noise, emissions, etc. The City of Fort Worth’s drilling ordinance, considered a model for other cities, addresses those issues in great detail.

The proposed bills will leave a lot of open questions. When does a municipal ordinance “have the effect of prohibiting an operation”? When is a municipal ordinance “commercially reasonable”? Senate bill 1165 defines “commercially reasonable” as “a condition that permits a reasonably prudent operator to fully, effectively, and economically exploit, develop, produce, process and transport oil and gas.” It appears to me that these bills are licenses for operators to litigate with cities over their ordinances, in expensive litigation that some cities will be unable or unwilling to fight.

These bills were filed in response to Denton’s drilling ban. It seems to me that the most reasonable response, if any is needed, is simply to prohibit cities from enacting a drilling ban. The industry appears to be using the drilling ban as an opportunity to try to severely limit municipal authority over drilling.

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Earthquakes linked to oil and gas activity are in the news.  A recent study in Ohio linked a rash of small earthquakes to fracing of wells in the area. Earthquakes in Oklahoma have increased tenfold since 2009. A swarm of small earthquakes hit the Dallas-Fort Worth area recently. The US Geological Survey is raising its evaluation of earthquake hazard risk in Texas as a result. 

In Texas, the spate of small earthquakes is tentatively tied to injection wells rather than fracing of new wells. The theory is that the injected water lubricates lithologic layers, allowing them to slip and causing quakes.

The Environmental Protection Agency estimates that there are 144,000 Class II injection wells in the US. The RRC has permitted more than 50,000 Class II injection wells in Texas since the 1930’s. These injection wells are used to dispose of water and waste produced from wells, both that from the fracing process and water produced with oil and gas in the production phase. Many oil wells produce hundreds of barrels of water for each barrel of oil produced. Without injection wells, the Texas oil and gas industry would screech to a halt.

In response to the increased seismic activity in Texas, the Texas Railroad Commission hired its own seismologist
and proposed new rules for those applying for permits to drill disposal
wells. The RRC’s proposed rules originally were drafted to require applications for injection well permits to provide a calculation of the estimated “five pounds per square inch, 10-year pressure front boundary,” as a way to determine whether or not the well would likely cause seismic activity in the area. When water is injected into a formation underground, it increases the pressure in the formation, and that pressure spreads through the formation over time. The five-psi, 10-year pressure front is the distance from the injection well to which pressures will increase by five psi if the well is operated at the permitted rate and pressure over a 10-year period.

The RRC published the proposed rule for comments and received 36 comments, including comments from the Environmental Defense Fund, the Sierra Club, the Texas Alliance of Energy Producers, some groundwater conservation districts, the EPA, the US Geological Survey, and Chevron USA. In response to comments, the RRC changed its proposed rule. Instead of requiring the five-psi, 10-year pressure front study, the RRC will require each applicant to provide copy of a USGS map showing all recorded seismic events within 9 kilometers of the proposed well location (about 6.1 miles).  The pressure-front study will be required “only in certain limited circumstances where additional information is necessary to demonstrate that fluids will be confined if the well is to be located in an area where conditions exist that may increase the risk that fluids will not be confined to the injection interval.”

The original proposed rule also said that the RRC could modify, suspend or terminate a permit “if injection is suspected of or shown to be causing seismic activity.” The final rule modifies this language to read “if injection is likely to be or determined to be causing seismic activity.”

The RRC’s discussion of comments, and the final rule, can be found here. rrc earthquake rule.pdf

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The Colorado Oil and Gas Conservation Commission now allows landowners with complaints against operators to file their complaint online. Go to http://cogcc.state.co.us/ and click on “Complaints” in the left-hand column.If you’re a surface owner with no mineral rights and you have objections to a proposed well location, you can also get the COGCC to inspect the site and consider your objections and require the operator to accommodate your concerns.

The online portal is very user-friendly and a real effort to make it easier for the public to participate in the process. The Texas Railroad Commission should take note.  The COGCC has also significantly increased its oversight staff, increased its collaboration with local governmental entities, sponsored studies on air and water impacts, and adopted policies on health and safety issues.

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The Texas Railroad Commission has adopted amendments to its pipeline permits rule, 16 TAC Sec. 3.70. The amendments require pipeline companies to submit documentation to support their claim that they will operate the line as a common carrier or gas utility.

In Texas, pipelines have the right to condemn pipeline easements for lines that are common-carrier or gas-utility lines. Until the Supreme Court’s decision in Texas Rice Land Partners v. Denbury in 2011, pipelines assumed that all they had to do in order to exercise the right of eminent domain was file a form at the RRC – a Form T-4 – stating that the proposed line would act as a common carrier or gas utility. In Denbury, the court said that filing the form is not enough.

The court in Denbury first held that a pipeline does not acquire condemnation authority merely by obtaining a permit from the Railroad Commission and subjecting itself to that agency’s jurisdiction as a common carrier. The court then held that in order for a pipeline to have condemnation power it must serve a public purpose, and to serve a public purpose, “a reasonable probability must exist, at or before the time common-carrier status is challenged, that the pipeline will serve the public by transporting gas for customers who will either retain ownership of their gas or sell it to parties other than the carrier.” Once a landowner challenges its right to exercise eminent domain, “the burden falls upon the pipeline company to establish its common-carrier bona fides if it wishes to exercise the power of eminent domain.”  The court said that the question of whether the pipeline is dedicated to a “public use” is ultimately a judicial question.

The rule amendments adopted by the RRC last week were proposed by the pipeline industry and were apparently an attempt to address the problems created for them by the Denbury decision. If a pipeline company wants to classify a proposed new line as a common-carrier or gas-utility line, it must include in its permit application a sworn statement “providing the operator’s factual basis supporting the classification and purpose being sought for the pipeline,” and “documentation to provide support for the classification and purpose being sought for the pipeline ….”

The RRC received many comments to the proposed rule, and its discussion of those comments reveals much about the RRC’s intent in adopting the rule amendments. The RRC’s discussion makes clear that it does not intend to get involved in the Denbury debate:

A T-4 Permit to Operate an intrastate pipeline in Texas is literally and specifically a permit to operate a pipeline. It is not a permit to construct a pipeline, nor is it authorization for a pipeline operator to exercise eminent domain in the acquisition of pipeline right-of-way.

The permitting process does not determine property rights. … Litigation over the rights of a property owner or a pipeline’s easement is not a Commission matter; it is a courthouse matter.

The Commission disagrees with assertions made by [Texas Southern Cattle Raisers Association] and other commenters that the Court in Denbury suggested the Commission should expand its processing of applications for T-4 permits to encompass investigation and adversarial testing of, particularly, the common carrier assertions made by T-4 applicants. In fact, the Court stated, “the parties point to no regulation or enabling legislation directing the Commission to investigate and determine whether a pipeline will in fact serve the public.”

The new permitting process requires a pipeline operator to substantiate the basis for the classification sought. … Property owners will know the basis on which a pipeline operator claims common carrier status much earlier in the permitting process.

The rule amendments, and the RRC’s responses to comments, can be found here:

adopt-amend-3-70-common-carrier-120214-SIG.pdf

Denbury has given landowners the ability to challenge pipeline companies’ assertions of eminent domain authority. That has slowed the process of pipeline right-of-way acquisition and made the process more expensive for pipelines. If pipeline companies intended these rule amendments to address those issues, I’m not sure they succeeded.

 

 

 

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Michael Brick has written an excellent article in the Houston Chronicle about the Texas Railroad Commission’s new seismologist, David Craig Pearson. The article, “Vexed by Earthquakes, Texas Calls In a Scientist,” relates the events leading up to his hiring, his background, and the RRC’s initial foray into addressing the issue by proposing new rules on injection well operators.

Dr. Pearson grew up in McCamey, worked in the oil fields, studied at SMU, and worked at Los Alamos National Laboratory in New Mexico for 13 years. He left in 2006, returning to West Texas and ranching. He inherited some mineral rights in Upton County. When the RRC advertised for a seismologist, he applied and was hired.

So far, Dr. Pearson has published no conclusions, but the RRC has been praised for its new proposed rules. Pearson testified in August before the House Energy Resources Subcommittee on Seismic Activity that he wants to wait for reports from SMU’s study of seismic and injection activity around the town of Azle, in the Barnett Shale, before drawing any conclusions. 

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In a letter to the Texas Railroad Commission commenting on the RRC’s proposed rules on curbing earthquakes caused by high-pressure injection of waste fluids, the Environmental Protection Agency “applauded the RRC’s efforts to ensure it has sufficient regulatory authority to respond to any event of the type where concerns may arise.” Maybe the agencies will kiss and make up? Not likely. But the EPA agrees with proposed rules published by the RRC that would require applicants for disposal well permits to submit information about the area’s risk for earthquakes as part of their application. The rules also strengthen the RRC’s authority to limit or halt injection from existing wells where earthquake events occur.

Initially the RRC was slow to respond to complaints about earthquakes. At one point, citizens from the town of Azle, particularly affected by earthquakes, staged a protest before the RRC at which Azle citizens serenaded the commission with their own composition based on Elvis Presley’s All Shook Up.  The RRC has now hired its own seismologist, and although Commissioners are cautious about connecting earthquakes to oil and gas activity, the proposed rules are a step in the right direction.

Texas now has more than 3,600 active commercial injection wells; it granted 668 permits last year alone. Earthquakes strong enough to damage homes have occurred in the Barnett Shale region. Similar problems have occurred in Oklahoma and other regions. 

The proposed rule can be found here.  Other comments on the proposed rule can be found here. Texas Tribune article on the proposed rules is here. SMU is conducting a study of the quakes around Azle and has installed seismic stations in the area to monitor seismic activity.

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With increasing frequency, my landowner clients have complained about gas flaring, especially in the Eagle Ford Shale.  Landowners are beginning to insist that their leases require royalty payments on flared gas. Landowners also complain of the odors and noise from gas flares.

The San Antonio Express News has recently published a four-part series, Up in Flames,  on flaring in the Eagle Ford, after a year-long investigation. Among its findings:

  • Since 2009, flaring and venting of natural gas in Texas has surged by 400 percent to 33 billion cubic feet in 2012. Nearly 2/3 of the gas flared in 2012 came from the Eagle Ford.
  • Gas flared in the Eagle Ford resulted in more than 15,000 tons of volatile organic compounds and other contaminants into the atmosphere in 2012 — more than was emitted by the six oil refineries in Corpus Christi.

Part Three of the Express News report focuses on the role played by the Texas Railroad Commission in regulation of gas flaring. Under RRC regulations, a company can flare gas for 10 days after a well is completed; after that, the company must apply for a permit if it flares more than 50,000 cubic feet of gas per day from the lease.  The Express News asked the RRC for records showing the 20 leases in the Eagle Ford with the most gas flared and vented in 2012, and for the permits allowing those companies to flare that gas. It turned out that seven of the 20 leases lacked the necessary flaring permits — a fact that the RRC apparently had not noticed until the newspaper asked for the information.

The RRC’s lack of enforcement of its own rules was a subject of criticism of the agency in the last Sunset Commission review of the RRC. The Sunset Commission report said that the RRC “pursues enforcement action in a very small percentage of the thousands of violations its inspectors identify each year.  Part of the reason for the large number of violations is that the commission’s enforcement process is not structured to deter repeat violations. The commission also struggles to present a clear picture of its enforcement activities, frustrating the public.”

RRC rules provide for a fine of up to $10,000 per day for flaring without a permit. After the Express News pointed out that seven of the 20 highest flaring leases in the Eagle Ford had no flaring permit, the RRC fined two of the companies more than $60,000 and is considering action against the others.

According to the report, the RRC could not point to a single instance when it denied a permit to flare gas — sometimes for more than 180 days.

Most of the Eagle Ford production is oil — some natural gas is produced with the oil, but with high oil prices and low gas prices, companies don’t want to shut in wells until pipelines can be laid to gather the relatively small amounts of gas produced with the oil. So, the companies flare the gas. Burning the gas produces carbon dioxide, a greenhouse gas. If the gas is not burned completely, or if it is vented, methane and volatile organic compounds are released into the atmosphere.

Last year the RRC appointed an Eagle Ford Shale Task Force to identify and make recommendations to address issues resulting from exploration and production activities in the Eagle Ford play. One of its recommendations was to modernize state regulations, reduce waste of natural gas, and make flaring an “option of last resort.” One of the commissioners, David Porter, said that he had “directed commission staff to apply a higher level of scrutiny to applications for flaring and venting operations and to shorten time frames for compliance when violations are reported.”  No word yet from the Commission on how that “higher level of scrutiny” has affected flaring in the Eagle Ford.

Bottom line: operators will continue to flare gas as long as it is to their economic benefit to do so. The Railroad Commission will not deny permits to flare the gas. If landowners are able to require royalty payments on flared gas, the lessee’s economic incentive to flare the gas will be reduced. Eventually, gas prices will rise, gathering lines will be installed, and flaring will decrease. Until then, flares continue to light up the night sky in South Texas.

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Jimmy McAllen’s battle against Forest Oil has moved one step closer to conclusion. Last week the Corpus Christi Court of Appeals affirmed an arbitration award of more than $20 million against Forest Oil for environmental and other damages to the McAllen Ranch and personal injuries to Mr. McAllen.

The fight began in 2004, when McAllen sued Forest. He claimed that Forest had buried mercury-contaminated iron sponge wood chips on the 27,000-acre McAllen Ranch. The wood chips are waste from Forest’s gas plant on the Ranch. He also claimed that he had contracted cancer from pipe containing naturally occurring radioactive material (NORM) that Forest had given him to build pens on his Santillana Ranch.  The pens were built to house endangered rhinoceroses.  McAllen contracted cancer that required amputation of his leg.

Forest responded that McAllen was bound by a prior settlement agreement that required him to arbitrate any claims arising out of Forest’s operations on his ranch.  McAllen opposed arbitration. The trial court denied Forest’s motion to require arbitration, and the Corpus Christi Court of Appeals affirmed. Forest appealed to the Texas Supreme Court, which held that McAllen was bound by the arbitration agreement. Forest Oil v. McAllen, 268 S.W.3d 51 (Tex. 2008).

So the parties arbitrated McAllen’s claims before three arbitrators, one chosen by McAllen, one by Forest, and the third chosen by the other two.  Forest chose Daryl Bristow, McAllen chose Donato Ramos, and the third arbitrator was Clayton Hoover. The arbitration hearing lasted for 17 days.  The arbitrators issued a split decision, with Bristow dissenting. The arbitration award gave $15 million to McAllen for the reduced value of the McAllen Ranch resulting from Forest’s contamination of the ranch, and $500,000 to Jimmy McAllen for his personal injuries. The panel also awarded $500,000 in exemplary damages and $5 million in attorneys’ fees. Bristow dissented, based on his conclusion that the award interfered with the Texas Railroad Commission’s jurisdiction to regulate remediation of hazardous waste associated with oil and gas production.

McAllen filed a motion in the trial court to confirm the arbitration award, which the trial court granted. Forest then appealed to the Court of Appeals in Corpus Christi.

Texas courts favor arbitration of disputes, so it is difficult to overturn an arbitration award. A court’s review of arbitration awards is very limited.

The Court of Appeals first held that the award did not interfere with the Railroad Commission’s jurisdiction over oil field contamination. The court made reference to sections 85.321 and 322 of Texas Natural Resources Code, the first of which expressly grants a private cause of action for damages for violation of Texas conservation laws, and the second of which provides that nothing in the law governing Railroad Commission jurisdiction “shall impair or abridge or delay a cause of action for damages or other relief that an owner of land …. may have or assert against any party violating any rule or order of the commission or any judgment under this chapter.”

Forest also argued that the award should be vacated because of the “evident partiality” of Donato Ramos, the arbitrator chosen by McAllen. An arbitration award may be overturned if an arbitrator fails to disclose to the parties known facts that “might, to an objective observer, create a reasonable impression of the arbitrator’s partiality.” In other words, it is not the partiality per se that is objectionable, but the arbitrator’s failure to disclose facts that might show his partiality. Forest said that Ramos failed to disclose that McAllen had proposed Ramos as a mediator in another suit brought by McAllen against Chevron. Evidence in the case indicated that Ramos was never told that he had been proposed as a mediator in that other litigation.  Because there was evidence that Ramos never knew he was being proposed as a mediator, the Court of Appeals held that Forest had not shown grounds for overturning the arbitration — Ramos could not fail to disclose something that he never knew. The Court of Appeals distinguished a recent Texas Supreme Court case that did overturn an arbitration award on the same grounds, Tenaska Energy v. Ponderosa Pine Energy,  2014 WL 2139215. In that case, the arbitrator failed to disclose the full extent of his business relationship with a party’s attorneys in the case.

There is some irony in Forest’s complaints about the arbitration award in light of its insistence that McAllen’s claims had to be resolved by arbitration. One of Forest’s arguments for overturning the award was that McAllen’s expert-testimony evidence of damages to the ranch would not have been admissible testimony in a trial court. The Court of Appeals cited the Texas Supreme Court’s conclusion that an arbitration award need not be based on admissible evidence. “For efficiency’s sake, arbitration proceedings are often informal; procedural rules are relaxed, rules of evidence are not followed, and no record is made.” Nafta Traders v. Quinn, 339 S.W.3d 84, 101 (Texas 2011).

Forest is sure to seek review by the Texas Supreme Court. So Jimmy McAllen’s ten-year fight with Forest is not quite over yet. 

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The Texas Railroad Commission has published a proposed rule that will change how pipelines are classified as “common carriers” and “gas utilities.” That classification determines whether pipelines can exercise the power of eminent domain — the power to condemn rights-of-way for pipelines.

In 2011, the Texas Supreme Court held in Texas Rice Land Partners v. Denbury Green Pipeline-Texas, LLC that the Railroad Commission’s method of classifying pipelines as common carriers and gas utilities was not sufficient to grant them eminent domain authority. The court held that, in order for a pipeline to have condemnation powers, it must serve a “public purpose,” and that in order for a pipeline to serve a public purpose, “a reasonable probability must exist, at or before the time common-carrier status is challenged, that the pipeline will serve the public by transporting gas for customers who will either retain ownership of their gas or sell it to parties other than the carrier.” Once a landowner challenges its status as a common carrier, “the burden falls upon the pipeline company to establish its common-carrier bona fides if it wishes to exercise the power of eminent domain.” The court held that the RRC’s policy of classifying pipelines as common carriers or gas utilities based solely on the pipelines’ checking of a box on a form filed with the RRC was not sufficient to establish the public purpose of the line. 

Since Denbury, the pipeline industry has struggled to find a way to efficiently establish pipelines’ common-carrier status without having to litigate the issue with every landowner it wants to cross over. Initially the industry sought legislation authorizing the RRC to have one hearing to establish that a proposed new line will in fact qualify for common-carrier status. Under the bill, that determination would then be binding on all landowners whose property will be crossed by the pipeline. Those landowners would be given the opportunity to participate in the hearings; notice of the hearings would be given by publication in local newspapers. The Texas Farm Bureau, the forestry industry, and other landowner groups opposed the bill. Most major oil and gas associations favored the bill. The bill never made it out of committee.

The RRC’s proposed rule essentially proposes to do the same thing that the failed bill did, with one big difference. Under the proposed rule, whenever a pipeline wants to build a new line it must file an application for a permit with the RRC. In that application, the pipeline must submit “a sworn statement from the pipeline applicant providing the operator’s factual basis supporting the classification [as a common carrier or gas utility] and purpose being sought for the pipeline,” and “documentation to provide support for the classification and purpose being sought for the pipeline.” Once the application is complete, the RRC has 30 days to grant or deny the permit. If the permit is granted and the requested classification is approved, presumably the pipeline will have established its right to condemn right-of-way. At least that is what the pipeline industry is hoping.

The difference between the failed bill and the proposed rule is that no public notice of the permit application is given. Without public notice, there is no opportunity for those affected by the proposed pipeline to question the evidence submitted by the pipeline for the “public purpose” of the proposed line.

Comments on the rule must be submitted by August 25 to Rules Coordinator, Office of General Counsel, Railroad Commission of Texas, P.O. Box 12967, Austin, Texas 78711-2967.

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In the last legislative session, the Texas Legislature gave the Texas Railroad Commission money to upgrade its website. The RRC’s new GIS Viewer is now available for use.  http://wwwgisp.rrc.state.tx.us/GISViewer2/  This map-based access to RRC information on wells, pipelines and records makes it much easier for the public to access RRC records.

One of its tasks that the RRC does well is provide easy access to its records. It has always been one of the most open and accessible regulatory agencies in the state, and it goes to great lengths to make its records easily available to the public. Its new GIS Viewer greatly enhances this capability.

There is as yet no tutorial on how to use the new Viewer, but if you play with it for a while, you will see how easy it is to use.  When you open it, you see a map of the State, with the RRC’ district boundaries shown.

Viewer 1.JPG

You can select a county from the menu at the top of the page to zoom in on that county.

Viewer 2.JPG

 

Then use your mouse to navigate within the county and find the area you are interested in. When you zoom in far enough, you will see symbols for wells.

Viewer 3.JPG

 

Click on one of the well symbols, and you can access the information available for that well, including permits, completion reports, and well production, and images of all of the filings for that well.

Viewer 4.JPG

 

You can also use a well’s API number to find the well. A well’s API number is a unique number assigned to every oil and gas well in the U.S. A complete API number for the well identified above is 42-177-32136. On the Viewer, the first two numbers are not used, and the dash between 177 and 32136 is not used. To search for this well using its API number, type 17732136 in the search box in the upper right-hand corner of the Viewer.

Viewer 5.JPG

Press enter, and the map zooms to the well.

The map has different layers that can be turned on and off to view particular items. For example, below are the layers showing pipelines and land survey boundaries.

Viewer 6.JPG

 

Hover over a pipeline and you will see its operator and what commodity the pipeline is carrying.

The Viewer is still being enhanced, and additional data will be included.

The Commission is to be congratulated on its work in providing this valuable tool.

 

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