HBA-SEP, JLV C.S.H.B. 1317 77(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 1317 By: Farabee Energy Resources 4/25/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE Current law does not require oil well operators to plug inactive or abandoned oil wells, and the Railroad Commission of Texas (commission) is limited in its ability to plug abandoned wells and clean oil field sites. Because state law may not effectively obtain the assurance of oil well operators that the operators will plug their wells, Texas may be liable for resulting pollution and abandoned wells. C.S.H.B. 1317 requires oil well operators and inactive operators to file a bond or other form of financial security at the time of filing or renewing an organization report with the commission. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the Railroad Commission of Texas in SECTION 1 (Section 91.104, Natural Resources Code) of this bill. ANALYSIS C.S.H.B. 1317 amends the Natural Resources Code to provide that a person required to file a bond or alternate form of financial security (bond) who is an inactive operator or oil well operator must file a bond, a letter of credit, or a cash deposit at the time of filing or renewing an organization report required by the Railroad Commission of Texas (commission). The bond, letter of credit, or cash deposit must be in an amount equal to $25,000 if the person operates ten wells or less, $50,000, if the person operates at least eleven but not more than 100 wells, or $250,000 if the person operates more than 100 wells. A person required to file a bond or alternate financial security who operates one or more bay or offshore wells must file the bond, letter of credit, or cash deposit at the time of filing or renewing an organization report. The bond must be in a reasonable amount established by commission rule that exceeds the amount provided by provisions regarding land wells. The bill provides that an operator seeking to assume operatorship of an active or inactive well must file a bond, letter of credit, or cash deposit in the appropriate amount before the commission may approve the transfer. The bill provides that a transfer of a well from one entity to another entity under common operatorship is considered a transfer. The bill also provides that the bond, letter of credit, or cash deposit amounts may be used only for actual well plugging and surface remediation. The bill deletes provisions relating to types of financial security requirements, annual fees, and application fees. The bill provides that a person required to file a bond or alternate form of financial security who is involved in activities other than the operation of wells must file the bond, letter of credit, or cash deposit at the time of filing or renewing an organization report in an amount equal to $250,000 or a lesser amount determined by the commission if the person is able to demonstrate that the risk associated with an operation or group of operations warrants a lesser amount. EFFECTIVE DATE On passage, or if the Act does not receive the necessary vote, the Act takes effect September 1, 2001. Provisions of the Act relating to financial security requirements for active and inactive operators and persons involved in oil and gas waste activities apply on or after September 1, 2004. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 1317 modifies the original to include a letter of credit or a cash deposit as financial securities to be filed with the Railroad Commission of Texas (commission). The substitute provides that the bond, letter of credit, or cash deposit must be in an amount equal to $25,000 if the person operates ten wells or less, $50,000, if the person operates at least eleven but not more than 100 wells, or $250,000 if the person operates more than 100 wells. Whereas, the original bill provides that a bond must be in an amount equal to the lesser of $250,000 or $25,000 for the first five wells a person operates, and $5,000 for each additional well. The substitute provides that a bond or alternative financial security filed by a person who operates one or more bay or offshore wells upon renewing an organization report must be in a reasonable amount established by commission rule, rather than an amount equal to $60,000 for each bay well in certain areas or $250,000 for each offshore well that is subject to the jurisdiction of the commission if the surface location is on state land in or on the Gulf of Mexico and not within certain areas. The substitute no longer requires a person to request a hearing of the commission to be able to file a bond lesser than $250,000 and restores current law relating to disposal site bonds. The substitute sets forth provisions regarding an operator seeking to assume operatorship of a well. The substitute also modifies the effective date.