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Notices to Industry, Publications and Statewide Rules

CHANGES IN FEES, FINANCIAL ASSURANCE REQUIREMENTS, AND WELL TRANSFERS
PURSUANT TO STATUTORY AMENDMENTS APPROVED IN SENATE BILL 310 77TH LEGISLATURE (2001), EFFECTIVE 9/1/01

Through Senate Bill 310 (SB 310), the 77th Legislature (2001) amended various provisions of the Texas Natural Resources Code that pertain to fees required to be collected by the Railroad Commission. SB 310 also affects the financial security requirements associated with Form P-5 Organization Report filings and Form P-4 operator transfers. These amendments become effective September 1, 2001. The Commission will implement procedures to collect the amended fees and financial security on that date or as soon as possible after the effective date.

I Changes in Fees

SB 310 did not affect all fees collected by the Commission. The fees modified or implemented under SB 310 are as follows:

1) With each application for exception to any Commission rule(s), the Commission must collect a fee of $150 (an increase from the $50 fee previously collected for rule exceptions). If an exception is not requested but a Commission review determines that a Rule 37 and/or Rule 38 exception is required, a single fee of $200 will be collected.

2) With each application for a well category determination under the Natural Gas Policy Act (15 U.S.C. 3301-3432), the Commission will collect a fee of $150 (an increase from the $50 fee previously collected for applications).

3) With each application or materially amended application for a permit to drill, deepen, plug back, or reenter a well (Form W-1), the Commission must collect a fee based upon the total depth of the well (an increase of $100 for each depth range), as follows:
a) $200 if the total depth of the well is 2,000 feet or less;
b) $225 if the total depth is greater than 2,000 feet but less than or equal to 4,000 feet;
c) $250 if the total depth is greater than 4,000 feet but less than or equal to 9,000 feet;
d) $300 if the total depth of the well is greater than 9,000 feet.

Additionally, the Commission must collect a fee of $150 when an applicant requests the Commission to expedite an application for a permit to drill, deepen, plug back, or reenter a well. This expedite fee is an increase from the $50 expedite fee previously collected.

4) With each Application for Future Re-Entry of Inactive Well Bore and 14(b)(2) Extension Permit (Form W-1X), the Commission must collect a fee of $300 per well (an increase from the $100 per well fee previously collected for 14(b)(2) extension permits under the W-1X program).

5) With each application for a fluid injection well permit, the Commission must collect a fee of $200 (an increase from the $100 fee previously collected).

6) With each application to discharge to surface water, the Commission must collect a fee of $300 (an increase from the $200 fee previously collected).

7) With each annual Organization Report filing, the Commission will collect a P5 Filing Fee separate and apart from any form of financial assurance. The filing fee will in no case be more than $1,000. Following implementation and necessary program modifications, the amount of an organization's P5 filing fee will be calculated as follows:

a) For an operator of wells, the following amount based upon the number of wells operated:
(i) $300 for operators of 1 to 25 wells;
(ii) $500 for operators of 26 to 100 wells;
(iii) $1,000 for operators of 101 wells or more.

b) For an operator of one or more natural gas pipelines who have no other activities for which a P5 filing fee will be charged, $100.

c) For an operator of one or more service activities or facilities, including liquids pipelines as classified by the Commission, who does not operate any wells, a fee between $300 and $500. Based on the Commission's proposed rules, this provision would be implemented as follows:
(i) a single fee of $300, if the operator is one or more of the following: a pollution cleanup contractor, directional surveyor, approved cementer for plugging wells, or an operator physically moving or storing crude or condensate;
(ii) a single fee of $500, if the operator has any other type of service activity or facility (including operators with commercial facilities, gas plants, refineries, waste hauler authority, reclamation plants, salt water disposal (P-18) authority, and liquids pipelines).

d) For an operator of one or more service activities or facilities, including liquids pipelines as classified by the Commission, who also operates one or more wells, an amount based on the sum of the amounts provided by a) and c) above, but not less than $300 nor more than $1,000.

e) For an operator filing an annual organization report who has no Commission regulated activity, a fee of $300.

II P-5 Financial Security

SB 310 also made extensive changes to the financial security required with an operator's annual Organization Report filing. Following implementation of Commission programming modifications, only the following financial assurance options will be available:

1) Option 1: Individual performance bond, letter of credit, or cash deposit. This is only available to organizations that have no activities other than operating oil and gas wells. The amount to be filed under this option is calculated by multiplying the depth of all wells by $2.00 per foot.

2) Option 2: Blanket performance bond, letter of credit, or cash deposit. This is available to all organizations. The amount to be filed under this option is calculated based upon the total number of wells operated, as follows:
a) 0 to 10 wells, $25,000
b) 11 to 99 wells, $50,000
c) 100 wells or more, $250,000

3) Option 3*: Cash Option of $1,000. This is available to organizations who meet the following criteria:
a) have an acceptable record of compliance for the previous 48 months; and
b) show at a hearing called for that purpose that bonds under Option 1 or 2 are not available at a reasonable price.

4) Option 4*: Cash Option of 12.5% of the bond that would otherwise be required under Option 1 or 2 above. This option is available to all organizations.

* Note: Organizations filing Financial Security under Options 3 and 4 are considered "Unbonded Operators" under Commission rules and must also file W-1Xs for any inactive wells along with any Individual Well Bonds that may be required by Statewide Rule 14.

In addition to the above, SB 310 requires increased bond amounts under Options 1 and 2 for operators who have bay and/or offshore wells as defined by Commission rules.

III Well Transfers

When any well (active or inactive) is transferred to a new operator, SB 310 requires that the acquiring operator be a "Bonded Operator" by filing financial security under Options 1 or 2 above. This requirement will apply to all operators. Financial security sufficient to cover both current wells and those to be acquired must be on file before the P-4 changing the operator can be approved. Both acquiring and selling operators should take note of this new requirement.

If you have any questions, please contact the Permitting & Production Services Section of the Oil and Gas Division by email at p&p@rrc.state.tx.usor by phone at (512) 463-6838.

Austin, Texas

September, 2001