Organization Report

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Railroad Commission of Texas

• P-5 Financial Assurance Unit
• P-5 Organization Report, Associated Filings,
  Inactive Wells and HB 2259

December 6 7, 2012
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P-5 Financial Assurance Unit
Linda Turk Team Leader
Maria Castro Manager
Sheryl Deleon P-5 Records
Deborah Dismuke Deposits Receipts
Steven London SAD Forms
Lisa Akers W-3C Processor
Sonia Ward P-5 Processor
Roxann Acosta P-5 Processor
Mysti Doshier P-5 Processor
Daniella Bocanegra P-5 Processor
Londa Burford P-5 Processor
Jennifer Gilmore P-5 Processor
512-463-6772 P5_at_rrc.state.tx.us
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Topics

• P-5 Organization Report
• Financial Assurance Requirements
• P-5 Filing Fee and Surcharges
• Inactive Well Plugging Extensions
• HB 2259 and HB 3134
• RRCOnline System Security

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Topics

• P-5 Forms Revisions effective September 2011
• P-5 Filing Fees and Surcharges
• Financial Assurance
• HB 2259
• Affects inactive well extensions and P-5
  renewals. (Discussion later)
• HB 3134
• Enforcement of inactive well requirements.
  (Discussion later)

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P5 ORGANIZATION REPORT

• Requirements
• Oil Gas Pipeline Operators
• Natural Resources Code, Sec. 91.142
• Oil Gas Statewide Rules 1 78
• Master Meter Distribution Systems (Safety
  Division)
• Utilities Code, Sec. 121.201
• Pipeline Safety Rule 51/Oil Gas Rules 1 78

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Supplemental Forms

• P-5O Officer Listing
• P-5A Non-Employee Agent Listing
• P-5PB(1), P-5PB(2), P-5LC Organizational Bond
  and Letter of Credit forms

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Statewide Rule 1 Officers required

• . . . each officer, director, general partner,
  owner of more than 25 ownership interest, or
  trustee . . .

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Questions

• Regarding P-5 Form?

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Financial Requirements

• Most organizations are required to file an
  acceptable form of Financial Assurance.
• In addition to any form of financial assurance,
  the Commission is required to collect a filing
  fee with new filings and annual refilings of
  P-5s.
• (more on these matters later)

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P-5 FINANCIAL ASSURANCE

• Oil Gas Well OperatorsNatural Resources Code
  Sec. 91.103 and 91.104 required.
• Oil Gas Non-Well Operators
• Natural Resources Code Sec. 91.103 and 91.109
  may be required depending on operations
• Master Meter Distribution Systems (Safety
  Division) Not required.

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Oil Gas Non-Well Operators
0 if your only operations are Master Meter
Gas Distribution Systems First Purchaser Gas
Purchaser Survey Company Salt Water
Hauler Well Plugger 25,000 if you have any
other activities
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Financial Assurance Options
Option 1 Individual Performance Bond, Letter of
Credit or Cash Deposit Option 2 Blanket
Performance Bond, Letter of Credit or Cash Deposit
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Option 1

• Individual Performance Bond, Letter of Credit or
  Cash Deposit
• Only available to well operators who have no
  activity (other than wells) that requires
  financial assurance.
• Amount determined by taking the aggregate depth
  of all wells (active, inactive, injection,
  producer, etc.) at 2.00 per foot.

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Option 2

• Blanket Performance Bond, Letter of Credit or
  Cash Deposit
• Available to all operators
• For operators with wells (with or without other
  operations), amount determined by the total
  number of wells (active, inactive, injection,
  producer, etc.) operated, as follows
• 1 to 10 wells 25,000
• 11 to 99 wells 50,000
• 100 wells or more 250,000
• For operators without wells who are required to
  file FA, 25,000.

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Bay Offshore Wells
By statute, the Commission shall set the Option 1
and Option 2 amounts at a higher amount for
operators of bay and/or offshore
wells. Amendments to Rule 78 implementing Bay
Offshore Well bonding became effective 9/1/04.
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Bay Offshore Wells

• Base amount Bonding as calculated under Option 1
  (if available) or Option 2.
• Entry Level amount additional amount equal to
  the presumed plugging cost of one bay or offshore
  well (whichever applies to this operator).
• Non-Producing amount for each non-producing
  well, add the presumed plugging cost for that
  well.
• NOTE The Total non-producing amount is offset
  by the amount put up as the Entry Level amount.

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Bay Offshore Wells
Example Operator A has 15 wells, of which 8 are
in bay waters. 4 of the bay wells are
non-producing. Base 50,000 Entry
Level 60,000 Non-Producing amount
180,000 Total 290,000
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Bay Offshore Wells

• Presumed Plugging costs
• Bay or Inland Waterway wells 60,000
• Offshore wells 100,000
• Possible mechanisms to reduce those requirements
• Bonds posted with other local jurisdictions
• Reduction in non-producing based on net worth of
  organization.

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Drilling Permits
Statewide Rule 78(f) Operators shall submit
required financial security or well-specific
plugging insurance policies at the time of filing
an initial organization report, as a condition of
the issuance of a permit to drill, recomplete or
reenter, upon yearly renewal, or as otherwise
required under this section. (Effective 12/19/05)
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Drilling Permits

• Permits cannot be issued to unbonded operators.
  
• Amount required
• Option 1 Total Depth at 2/foot
• Option 2 25,000.
• Operator must maintain financial security on file
  until
• Well is plugged as a dry hole and W-3 filed
• Well is completed and placed on proration
  schedule
• Permit expires (drilling never started)
• Permit is cancelled at applicants request.

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Well Plugging Insurance
Tex. Nat. Res. Code 91.104 / Rule 78(a)(11)
(effective 2005) Concept Filing of policy
excludes that well from the computation of
financial assurance. Does not equate to Bonds,
LOCs and Cash Deposits. Rather than fulfilling
the requirement, this affects the basis of the
calculation by removing the insured wells from
consideration. Bonding is still required for
wells and/or operations not covered by
insurance. Currently, the Commission is unaware
of any insurers who are issuing these policies.
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Questions

• Regarding Financial Assurance?

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P-5 Filing Fee and Surcharges

• Required of all operators, regardless of and in
  addition to any financial assurance requirement
  or option.
• Changes to Statewide Rule 78 amended by the 82nd
  Legislature, First Called Session, 2011, to
  impose surcharges to certain fees and became
  effective May 1, 2012.
• A Notice to operators on the surcharges with a
  table listing the affected fees was sent out
  February 2012 and is included in the P-5 renewal
  packets.

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P-5 Filing Fee
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P-5 Filing Fee

• Amount based on the following four components
• Number of wells operated
• 1 25 wells (300 450) 750
• 26 100 wells (500 750) 1,250
• 101 wells or more (1,000 1,500) 2,500
• Natural Gas Pipelines (one or more)
• (225 337.50) 562.50
• Pipelines other than Natural Gas (one or more)
• (625 937.50) 1,562.50
• Facilities and/or Service Activities 750 to
  1,250
• (One single fee regardless of quantity
  or variety)

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Facilities Service Activities

• Oil Gas Regulated activities other than
  pipelines or wells.
• 750 if the activities include only
• Pollution Cleanup Contractor, (CLENUP)
• Directional Surveyor, (DIRSUR)
• Approved Cementer for plugging wells, and/or
  (PLUGGR)
• Moving/Storing Crude or Condensate. (TRANSP)
• 1,250 if the operator has any other
  Commission-regulated facilities or service
  activities, including (but not limited to)
• Commercial Facility, (COMFAC)
• Gas Plant, (GASPLT)
• Reclamation Plant, (RECLPL)
• Refinery, (REFINE)
• Saltwater Disposal P18 authority, and/or
  (SWDP18)
• Waste Hauler authority. (WHAUL)

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P-5 Filing Fee

• Amount calculated for each component is totaled
  to determine the filing fee.
• For an operator of wells, the combined filing fee
  and surcharge, have a cap of 2,812.50 for
  operators with operations other than wells, the
  combined fee may be up to 3,375.
• By statute, the combined filing fee for an
  operator with no activity (e.g., a new filer) is
  750.

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Questions

• Regarding the P-5 Filing Fee?

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Inactive Well Plugging Extensions(HB 2259)
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History

• 2007 Legislative Session 2 Failed Bills

• HB 1904 (Crownover) Increased Financial
  Security
• for Cost to Plug Inactive Wells
• SB 1574 (Duncan) Surface Equipment Removal
• Sparked by Panhandle Fires

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History

• Following 2007 Session
• Crownover creates Inactive Well Study Group
  (IWSG) a task force to study both inactive
  wells and surface equipment issues.
• O G Industry Associations (TIPRO, TXOGA, TAEP,
  PBPA and PPROA)
• Landowner Associations (TLMA)

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History

• 2009 Legislative Session (2009)
• HB 2259 (Crownover) relating to the plugging of
  certain inactive oil or gas wells and to
  standards for electrical power lines serving
  certain oil and gas facilities.
• Rulemaking
• Informal Comment, January - March 2010
• Formal Comment, June August 2010
• Rules adopted, effective September 13, 2010

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Inactive Well Plugging Extensions

• Rule 14 Plugging operations on each dry or
  inactive well shall be commenced within a period
  of one year after drilling or operations cease .
  . . unless the Commission or its delegate
  approves a plugging extension under Rule 15.

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Inactive Well Plugging Extensions

• Rule 1 The Commission or its delegate may
  approve the organization report for an operator
  of an inactive well if the Commission or its
  delegate has approved an extension of the
  deadline for plugging the inactive well.

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Inactive Well Extension Requirements

• Operator has a current organization report.
• Well in compliance with RRC rules and orders.
• Operator has a good faith claim to a continuing
  right to operate the well.
• For Inactive Land Wells (Bay/Offshore wells are
  excluded)
• Completion of required surface equipment
  cleanup/removal and certification on Form W-3C
• Application for plugging extension and
  qualification on Form W-3X

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Inactive Well Extension Requirements

• Operator has a current organization report.
• Rule 15 provides for simultaneous approval of
  P-5 renewals and plugging extensions but all
  requirements must be met before that can happen.

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Inactive Well Extension Requirements

• Well in compliance with RRC rules and orders.
• Extensions can be (and often are) canceled if
  the well is not maintained in compliance with RRC
  Rules.

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Extension Denial Codes
Operator Level O P5 Delinquency Lease
Level F Field Ops E Enforcement Plug
Order P Enforcement Pollution R Lack of
Good Faith Claim K, M, T State Funded
Operations Holds Well Level X, V H15 issues
(delinquency, failure) H UIC Mechanical
Integrity issue Q Field Ops/District Other
Violation issue
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Inactive Well Extension Requirements

• Operator has a good faith claim to a continuing
  right to operate the well.
• (Operator must provide evidence of their claim
  on request. Please provide ONLY if requested.)

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Inactive Well Extension Requirements

• 4) For Inactive Land Wells
• Completion of required surface equipment
  cleanup/removal and certification on Form W-3C

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Surface Equipment Cleanup/Removal Requirements
Based on length of inactivity at P5 renewal
time Inactive at least 12 months must
physically terminate electrical service to the
wells production site. Inactive at least 5
years but less than 10 years must empty or
purge of production fluids all piping, tanks,
vessels and equipment. Inactive at least 10
years must remove all surface equipment and
related piping, tanks, tank batteries, pump
jacks, headers, fences and firewalls close all
open pits and remove all junk and trash.
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Surface Equipment Cleanup/Removal Requirements
Exceptions If the operator owns the surface
where the well is located, then the operator is
not required to empty/purge all fluids (5-year
requirement), nor to remove surface equipment
(10-year requirement). (Still need to disconnect
electricity.)
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Surface Equipment Cleanup/Removal Requirements
Exceptions If the well is part of a Commission
approved EOR project AND the equipment is
associated with current and future operations of
the project, then the operator is not required
to remove such surface equipment (10-year
requirement). (Still need to disconnect
electricity purge lines/vessels.)
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Surface Equipment Cleanup/Removal Requirements
Exceptions If surface removal requirements
cannot be met due to safety concerns or required
maintenance of the well site, then the operator
may request an exception on that basis. (NOT
automatic. Fee applies.)
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Surface Equipment Cleanup/Removal Requirements

• Surface equipment removal requirements for wells
  that were 10 years inactive (or more) as of
  September 1, 2010, will be phased in over a
  5-year period. 20 of those wells must be
  brought into compliance each of the five years.
• Transfers of wells to other operators are not a
  method of compliance.
• First check (for 20 compliance) began with your
  first renewal date on or after 9/1/2011.
• Wells reaching 10 years of inactivity after
  9/1/2010 must be brought into compliance
  immediately.
• Phase-in does NOT apply to disconnection of
  electricity.

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Surface Equipment Cleanup/Removal Requirements
W-3C certification must be made by someone with
personal knowledge of the physical condition of
the inactive well. For further info on W-3C
requirements, see the instructions on Form W-3C
and Statewide Rule 15.
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Inactive Well Extension Requirements

• 5) For Inactive Land Wells
• Application for plugging extension and
  qualification on Form W-3X

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Application for Plugging Extension
Operator of an inactive land well must apply for
a plugging extension by filing Form W-3X.
Operator must qualify for an extension under one
of several options. - Three Blanket options -
Five Individual Well options
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Cost Calculation
Cost Calculation Estimated plugging cost
based on the average per-foot cost, by district,
for state funded plugging operations in the
previous fiscal year. Multiply that per-foot
cost times the well depth according to Commission
records. http//www.rrc.state.tx.us/compliance/hb
2259/HB2259-CostCalculation.pdf
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Application for Plugging Extension

• Blanket options
• Operator has plugged or returned to active
  operation 10 of the number of inactive wells
  they held at last years P5 renewal date.
• Operator may file additional financial security
  (Cost Calculation or 2 million, whichever is
  less).
• If publically traded, operator may file documents
  naming RRC as a secured creditor.

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Application for Plugging Extension

• Individual Well options
• Abeyance of Plugging Report covering the inactive
  well plus 250 fee.
• Inactive well is part of Commission approved EOR
  project.
• If not otherwise required, a well test (on Form
  H-15) covering the inactive well plus 125 fee.
• Additional financial security for the well (in
  the amount of the Cost Calculation).
• 10 of Cost Calculation for the inactive well
  paid into an escrow account.

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Application for Plugging Extension
For further info on W-3X requirements (including
requirements for Abeyance of Plugging Report),
see the instructions on Form W-3X and Statewide
Rule 15.
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(W-3X)
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Inactive WellAging Report (IWAR)

• Online system with information needed to comply
  with Inactive Well (Rule 15) requirements.
  Includes
• Shut-in date
• Depth
• Cost Calculation Amount
• Current extension status
• Downloadable data
• (Part of the Expanded Web Access query system at
  http//webapps2.rrc.state.tx.us/EWA/organizationQu
  eryAction.do)

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P-5 Renewal Status Query

• Online system that provides information on the
  renewal process.
• Specifically includes only the inactive wells in
  your
• P-5 renewal.
• Shows status of W-3Cs and W-3Xs filed on those
  wells.
• (Part of the Expanded Web Access query system at
  http//webapps2.rrc.state.tx.us/EWA/organizationQu
  eryAction.do)

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Well Transfers

• If an inactive well is transferred to a new
  operator, the acquiring operator will have six
  months to bring the well into compliance (by
  plugging, returning to active operation, or
  obtaining a plugging extension).
• Failure to bring the well into compliance will
  prevent approval of P-5 renewals and may result
  in revocation of the current P-5.
• Until the well is brought into compliance, it
  cannot be transferred to another operator.

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Bringing Wells back into Production
An inactive well will not be considered Active
for Commission purposes until the well has
reported greater than minimal production for at
least three consecutive months. (Note does not
apply to injection or other service wells.)
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Minimal Production for removal of Inactive
Well status
Oil wells 10 barrels per month for three
consecutive months. Gas wells 100 MCF per month
for three consecutive months Note This minimum
production requirement is for removal of
inactive well status. For wells that are not
considered inactive (i.e., 12 months without any
activity), there is no minimum production
required.
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Compliance Timeline
Compliance with these requirements is required
before your P-5 renewal can be completed.
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Compliance Timeline
If you file everything needed for your P-5
renewal EXCEPT for compliance with your inactive
wells, then you will gain a 90-day extension to
complete that compliance. Extension runs from the
date your P-5 would have expired. P-5 placed in
Active-Ext status.
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Compliance Timeline
If you are still non-compliant at the end of the
90-day extension a second notice of
non-compliance will be sent. You will have 30
days from the date of this notice to respond.
You may request a hearing, but will be required
to pay the cost for the hearing, which is a
non-refundable fee of 4,500.00. P-5 will be
placed in Active-Hrg status.
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Enforcement of the Inactive Well Plugging
Extension (HB 3134)

• Failure to respond within the 30 day period will
  begin the process to
• Deny the P-5.
• Commence the severance process
• And issue collection against the current
  financial security on file.

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FAQIve just started producing a well but
havent met the 3-month requirement yet. Do I
have to disconnect the electricity?
W-3C Option D to request exception to surface
cleanup requirements (375 fee) W-3X must still
be filed.
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FAQI have a marginal well that just wont make
enough production to meet the 3-month minimums.
Do I have to disconnect the electricity?
W-3C Option D to request exception to surface
cleanup requirements (375 fee) W-3X must still
be filed.
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FAQIve disconnected the electricity. Do I
have to remove the lines and poles?
No the requirement is for disconnection of the
electricity removal of the lines and poles isnt
addressed.
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Questions

• Regarding Inactive Well Plugging Extensions?

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RRC Website

• Railroad Commission Website
• http//www.rrc.state.tx.us
• Expanded Website Access (EWA) P5 Query
• http//webapps2.rrc.state.tx.us/EWA/organizati
  onQueryAction.do
• (data updated nightly)
• Oil Gas Directory
• http//www.rrc.state.tx.us/data/operators/ogdi
  rectory/index.php
• (data updated monthly)
• HB 2259 Information (Inactive Well requirements)
• http//www.rrc.state.tx.us/compliance/hb2259/inde
  x.php

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RRC Online System

• Oil Gas Division
• Form PR Production Reports
• Form W-1 Drilling Permit Application
• Form H-10 Disposal/Injection well Monitoring
  Report
• Completion Papers
• Directional Surveys
• Pipeline Safety
• PS-80 (Plastic Pipe Failure)
• PS-81 (Plastic Pipe Inventory)
• PS-87 (Proximity to Public Schools)
• PS-89 (Risk Management)
• PS-95 (Semi-Annual Leak Report)
• Texas Damage Reporting Form

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RRC Online System

• Two types of accounts
• Security Administrator Accounts
• Filer Accounts

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(SAD Form)
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RRC Online System
After processing, notification sent by email.
(Includes step-by-step instructions for creating
and maintaining filer accounts. Security
Administrator creates filer accounts for all
users (no RRC approval or processing needed for
filer accounts).
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RRC Online System
An organization may have more than 1 Security
Administrator. It is NOT necessary for filers to
also have Security Administrator access.
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RRC Online System
Website Notes Security Administrator example
screens http//www.rrc.state.tx.us/formpr/secadmi
nscreenshots.pdf Lost UserID and Password
Help https//webapps.rrc.state.tx.us/security/log
inHelpAction.do?methodInitialize
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Questions

• Regarding the SAD form
• or Security Administration?
• RRCOnline-Security_at_rrc.state.tx.us

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Questions

• About anything?
• (Hopefully questions that I might know the answer
  to)

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Please contact us

• With any questions you may have.
• [phone]
• P5_at_rrc.state.tx.us