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Notices to Industry, Publications and Statewide Rules

CHANGES IN STATEWIDE RULE 14(B)(2) EXTENSION PERMIT REQUIREMENTS (FORM W-1X): INDIVIDUAL WELL BONDS; H-15 TESTING; RESTORING A WELL TO ACTIVE STATUS

Effective November 1, 2000, requirements for obtaining Rule 14(b)(2) extension permits through the filing of Form W-1X (Application for Future Re-Entry of Inactive Well Bore and 14(b)(2) Extension Permit) have been changed. Statewide Rule 14, Plugging, and Statewide Rule 78, Fees, Performance Bonds and Alternate Forms of Financial Security Required to be Filed, have been amended to require the filing of a bond for the estimated plugging cost of any well that has been inactive for 36 months or more, or for any well that has been inactive for 12 months or more and is being transferred to a new operator. H-15 testing will be required for all W-1X applications. Additionally under the revised rule, before a well can be restored to production and exempted from H-15 and W-1X requirements, the well must demonstrate non-minimal production for three consecutive months. Note: These changes will not affect operators who have an Individual Performance Bond or Letter of Credit, or a Blanket Performance Bond or Letter of Credit on file with the Commission as their Financial Assurance in connection with their Organization Report (Form P-5).

These changes are the result of the Railroad Commission's review of regulatory policies and administrative procedures regarding orphaned wells being abandoned into the State's Well Plugging Fund.

Under the revised rule, an operator who files Form W-1X to obtain a 14(b)(2) extension for a well which has been inactive for 36 months or longer, or who files a Form W-1X in connection with an operator change Form P-4 in order to become operator of a well which has been inactive for 12 months or longer, will be required to put up an Individual Well Bond for the estimated plugging cost of the well, and to conduct an H-15 test on the well, before an extension may be granted. These requirements are in addition to the other current requirements of compliance with all Commission rules, having a good faith claim to the right to produce the well (and, upon request, providing evidence of such right), and the $100 filing fee associated with the W-1X application.

Estimated Plugging Costs. The estimated plugging cost for a well will be determined based upon the location and the depth of the well. If the well is classified as an offshore well (see below), the estimated plugging cost will be set at $250,000. If the well is a bay or inland waterway well (see below), the estimated plugging cost will be set at $60,000. If the well is a land well, the estimated plugging cost will be calculated based upon the total depth of the well multiplied by $3.00 per foot of depth. These estimated plugging costs may be modified at a hearing called for that purpose where evidence is presented establishing a higher or lower estimated plugging cost. A hearing of this type may be called by the operator, Commission staff, or the surface or mineral estate owner where the well is located.

For purposes of this rule, a bay well is defined to include both bay and inland waterway wells: a well for which the surface location is either 1) in or on a lake, river, stream, canal, estuary, bayou or other inland navigable waters of the state; or 2) on state lands seaward of the mean high tide line of the Gulf of Mexico in a depth at mean high tide of not more than 100 feet that is sheltered from the direct action of the open seas of the Gulf of Mexico. An offshore well is a well for which the surface location is on state lands in or on the Gulf of Mexico that is not a bay well. A land well is a well that does not meet the definition of a bay/inland waterway well or an offshore well.

H-15 Testing Requirements. H-15 testing will be required for all Form W-1X applications. Generally, a fluid level test demonstrating sufficient separation between the base of usable quality water and the fluid in the wellbore will be sufficient. Fluid Level tests filed in connection with a Form W-1X must have been performed within 90 days prior to filing the Form W-1X. Fluid level tests must be performed annually. The requirement for annual testing is a change from the previous requirement of biennial testing.

If a fluid level test fails to demonstrate sufficient separation, or if the operator elects to do so in place of a fluid level test, the operator may satisfy the H-15 testing requirements by performing a hydraulic pressure test that demonstrates the mechanical integrity of the well. To satisfy the H-15 testing requirement, this test must be performed during the current period of inactivity for the well and not more than four years prior to the date of the Form W-1X application. Hydraulic pressure tests will normally satisfy H-15 testing requirements for five years.

Changing from Inactive to Active Well Status. Under the revised rule, a producing well which has become inactive and subject to the provisions of Rule 14(b)(2) will be returned to an active status only upon the filing and approval of a Form W-10/G-10 retest and the filing of Forms P-1 or P-2 showing three consecutive months of non-minimal production. For oil wells, non-minimal production means that the well has produced at least 10 barrels of oil for each of those three months; for gas wells, 100 MCF of gas must be produced each month. An injection well which has become inactive and subject to the provisions of Rule 14(b)(2) will be returned to active status upon the filing of a current completion report (Form W-2/G-1) giving the newest effective date of injection or a current Form H-10 showing volumes injected for the indicated cycle year.

Operator Change P-4 Transfers to Operators Without an Individual Performance Bond or Letter of Credit, or a Blanket Performance Bond or Letter of Credit on file. When a Form P-4, Producer's Transportation Authority and Certificate of Compliance, is submitted to change the operator of a lease containing one or more inactive wells subject to Statewide Rule 14(b)(2), and the organization seeking to become the operator of those wells does not have an Individual Performance Bond, Blanket Performance Bond, or Letter of Credit as its form of financial assurance under Statewide Rule 78, Commission staff will verify that one of the following has been filed and approved for each non?compliant well before approving the operator change:

1) Form W-1X, $100 fee, an individual well bond covering the estimated costs of plugging the well, and an H-15 test (if required by Rule 14), if the well is shut-in and subject to Statewide Rule 14(b)(2); or

2) Form W-3, if the well has been plugged & abandoned; or

3) Well tests showing the well producing and production reports verifying three consecutive months of no less than 100 MCF per month for gas wells or 10 barrels per month for oil wells, if the well is producing.

4) A current completion report (Form W-2 or G-1) giving the newest effective date of injection or a current Form H-10 showing volumes injected for the indicated cycle year, if the well is an injection/disposal well in current use.

If there is insufficient financial assurance on file for wells being transferred, both operators will be notified that the Form P-4 will not be approved until adequate financial assurance or other evidence of compliance is submitted and approved.

Changing Organizational Financial Assurance Option. An operator may choose to replace their organizational financial assurance with an Individual Performance Bond or Letter of Credit, or a Blanket Performance Bond or Letter of Credit meeting the requirements of Statewide Rules 1 and 78. Upon approval of appropriate replacement organizational financial assurance, the operator may qualify for 14(b)(2) extensions for their inactive wells under the provisions of Rule 14 dealing with bonded operators, thereby avoiding the necessity of obtaining individual well bonds.

Austin, Texas
November, 2000