1. Texas Inactive Well Regulations April 2016

2. Texas Inactive Well Regulations In September 2010, the RRC amended statewide rules 1, 14, 21, and 78 and adopted a new statewide rule 15 to implement House Bill 2259. The new rules require operators to address their inactive wells by 1. restoring the wells to active status, 2. plugging the wells, or 3. obtaining plugging extensions for wells that have future utility.

3. SURFACE EQUIPMENT CLEANUP & RENEWAL surface equipment cleanup and renewal requirements depend on the length of time a well has been inactive. For example, for wells that have been inactive for at least one year but less than five years, operators must terminate electric service to the wells’ production site. If a well has been inactive for at least five years but less than 10 years, an operator must not only terminate electric service, but also empty or purge production fluids from all piping, tanks, vessels, and equipment associated with the well.

4. SURFACE EQUIPMENT CLEANUP & RENEWAL wells that have been inactive for 10 years or more, operators must certify both that electric service has been terminated and either that (1) the operator has removed all surface equipment; or (2) the well is part of a RRC-approved Enhanced Oil Recovery (“EOR”) project, and the remaining equipment is associated with that EOR project. If an operator owns the land where the well is located, the operator is not required to purge the production fluids or remove surface equipment.

5. SURFACE EQUIPMENT CLEANUP & RENEWAL The rules also allowed a phase-in period for removal of surface equipment from wells that were inactive for 10 years or more as of September 1, 2010. Operators must have certified compliance for at least 20% of these wells at the first Organization Report renewal date on or after September 1, 2011. For each year thereafter, the compliance certification increased by 20%. Thus, by renewal dates on or after September 1, 2015, operators must certify that all of their 10-year inactive wells are compliant.

6. Bringing a Well Back into Production SWR 15 : Active Operation- Regular and continuing activities related to the production of oil and gas for which the operator has all necessary permits. Inactive well--An unplugged well that has been spudded or has been equipped with cemented casing and that has had no reported production, disposal, injection, or other permitted activity for a period of greater than 12 months.

7. Bringing a Well Back into Production In the case of a well that has been inactive for 12 consecutive months or longer and that is not permitted as a disposal or injection well, the well remains inactive for purposes of this section, regardless of any minimal activity, until the well has 1. reported production of at least 10 barrels of oil for oil wells 2. or 100 mcf of gas for gas wells each month 3. for at least three consecutive months.

8. Plugging Extensions Unless an operator brings a well back into service or plugs the well, it must obtain a plugging extension. To do that, the operator has several options. As an initial matter, operators must choose whether to seek approval for all of their inactive wells together under 1. “blanket” or “operator-level” options, or 2. to seek approval for individual wells

9. 3 (three) operator-level extension options 1. The operator may plug or restore to active operation 10% of the number of inactive wells at their last Form P-5 renewal date; 2. If the operator is a publicly traded entity, it may file with the RRC a copy of the federal Asset Retirement Obligations accounting documents and file a UCC financing statement with the Texas Secretary of State identifying the RRC as a secured creditor for the amount necessary to plug all inactive wells; or 3. The operator may file a bond, letter of credit, or cash deposit for the amount necessary to plug all inactive wells or $2 million, whichever is less.

10. Extension on a well-level basis, file one of five documents: 1. An “abeyance of plugging” report and a $100 filing fee; 2. A statement that the well is part of a Commission- approved EOR project; 3. For a well not otherwise required by Commission rule or order to be tested, a statement that an approved fluid level test or hydraulic pressure test of the well has been conducted, and the operator has paid the $50 required filing fee (this option is not available for wells older than 25 years); 4. Additional financial security in an amount at least equal to the cost calculation for plugging the inactive land well; or 5. An escrow fund deposit in an amount at least equal to 10% of the total cost calculation for plugging an inactive land well

11. Hearing Operator that it has 90 days from the expiration of its most recently approved organization (P-5) report to comply After the expiration of the 90-day period the Commission delegate shall mail the operator a second written notice of this determination. The operator may request a hearing. The operator must file a written request for hearing and the hearing fee of $4,500

12. TRANSFERRING WELLS Once the RRC has approved a transfer of operatorship, the prior operator is no longer responsible for complying with inactive well requirements. The acquiring operator has six months from the date of approval to bring any inactive wells into compliance by returning the well to operation, plugging the well, or obtaining a plugging extension. Until the acquiring operator has brought the well into compliance, the RRC may not approve any further transfers of the inactive well to a new operator. In addition, if after six months the acquiring operator fails to bring a transferred well into compliance, the RRC may revoke the acquiring operator’s Organizational Report. The RRC created a listing of inactive and associated online query system to assist operators with compliance with the new rules. Updated monthly.

13. Loopholes 1. Abeyance of plugging report.  (A) pay an annual fee of $100 for each inactive land well  (B) use Commission Form W-3X and specify the field and the covered wells within that field; and  (C) for each well, include a certification signed and sealed by a person licensed by the Texas Board of Professional Engineers or the Texas Board of Professional Geoscientists stating:  (i) a reasonable expectation of economic value in excess of the cost of plugging the well for the duration of the period covered by the report, based on the cost calculation for plugging an inactive well;  (ii) a reasonable expectation of being restored to a beneficial use that will prevent waste of oil or gas resources that otherwise would not be produced if the well were plugged; and  (iii) documentation demonstrating the well's future utility.

14. Loopholes Change definition of Active Production? From, 10 BOPM to 5? (for 3 consecutive months) From 100 mcfg/month to 50 ??? (for 3 consecutive months)

15. Texas Inactive Well Regulations