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TITLE 16ECONOMIC REGULATION
PART 1RAILROAD COMMISSION OF TEXAS
CHAPTER 3OIL AND GAS DIVISION
RULE §3.78Fees and Financial Security Requirements

(d) Financial security. Except for those operators exempted under subsection (g)(7) of this section, any person, including any firm, partnership, joint stock association, corporation, or other organization, required by Texas Natural Resources Code, §91.142, to file an organization report with the Commission must also file financial security in one of the following forms:

  (1) an individual performance bond;

  (2) a blanket performance bond; or

  (3) a letter of credit or cash deposit in the same amount as required for an individual performance bond or blanket performance bond.

(e) Forms for financial security and insurance policies. Operators shall submit well-specific plugging insurance policies, bonds and letters of credit on forms prescribed by the Commission.

(f) Filing deadlines for financial security and insurance policies. 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.

(g) Amount of financial security. An operator required to file financial security under subsection (d) of this section shall file financial security described in this subsection.

  (1) Types and amounts of financial security required.

    (A) A person operating one or more wells may file an individual performance bond, letter of credit, or cash deposit in an amount equal to the sum of $2.00 for each foot of total well depth for each well operated, excluding any well bore included in a well-specific plugging insurance policy.

    (B) A person operating one or more wells may file a blanket bond, letter of credit, or cash deposit to cover all wells for which a bond, letter of credit, or cash deposit is required in an amount equal to the sum of the base amount determined by the total number of wells operated excluding any well bores and/or permits issued to drill, recomplete, or reenter wells included in a well-specific plugging insurance policy. A person performing multiple operations shall be required to file only one blanket bond, letter of credit, or cash deposit unless the person is operating a commercial facility, in which case the person also shall comply with the financial security requirements of subsection (l) of this section. The financial security amount shall be at least the base amount determined by the total number of wells operated or $25,000, whichever is greater. After excluding any well bores and/or permits issued to drill, recomplete or reenter wells included in a well-specific plugging insurance policy, the base amount is determined as follows:

      (i) The base amount for a person operating 10 or fewer wells or performs other operations shall be $25,000.

      (ii) The base amount for a person operating more than 10 but fewer than 100 wells shall be $50,000.

      (iii) The base amount for a person operating 100 or more wells shall be $250,000.

  (2) Additional financial security for bay wells.

    (A) All operators of bay wells shall file additional financial security of no less than $60,000 in addition to any other financial security that is required under this section for any other Commission-regulated activities.

    (B) For each bay well that is not currently producing oil or gas and has not produced oil or gas within the past 12 months, including injection and disposal wells, the operator shall file additional financial security of $60,000, unless the well bore is included in a well-specific plugging insurance policy that provides benefits of at least $60,000. An operator shall not be required to file additional financial security in addition to the $60,000 amount set under subparagraph (A) of this paragraph if the operator operates only a single inactive bay well.

    (C) In the case of a bay well that has been inactive for 12 consecutive months or longer and that is not used for disposal or injection, the well shall remain subject to the provisions of subparagraph (B) of this paragraph, regardless of any minimal activity, until the well has reported production of at least 10 barrels of oil for oil wells or 100 mcf of gas for gas wells each month for at least three consecutive months.

  (3) Additional financial security for offshore wells.

    (A) All operators of offshore wells and operators of both bay wells and offshore wells shall file additional financial security of no less than $100,000 in addition to any other financial security that is required under this section for any other Commission regulated activities.

    (B) For each offshore well that is not currently producing oil or gas and has not produced oil or gas within the past 12 months, including injection and disposal wells, the operator shall file an additional amount of financial security of $100,000, unless the well bore is included in a well-specific plugging insurance policy that provides benefits of at least $100,000. An operator shall not be required to file additional financial security in addition to the $100,000 amount set under subparagraph (A) of this paragraph if the operator operates only a single inactive offshore well.

    (C) In the case of an offshore well that has been inactive for 12 consecutive months or longer and that is not used for disposal or injection, the well shall remain classified as inactive for purposes of this section, regardless of any minimal activity, until the well has reported production of at least 10 barrels of oil for oil wells or 100 mcf of gas for gas wells each month for at least three consecutive months.

  (4) Reduction of the additional financial security that is required for bay and/or offshore wells. An operator may request a reduction of either the additional $60,000 in financial security required for all operators of bay wells, or the additional $100,000 in financial security required for all operators of offshore wells and operators of both bay wells and offshore wells.

    (A) The director may administratively approve the reduction if the operator provides documentation that it currently has acceptable financial assurance in place to satisfy any financial assurance requirements established by local authorities. The operator must show that the bond or other form of financial assurance can be called on by or assigned to the Commission under the following circumstances:

      (i) a well is likely to pollute or is polluting any ground or surface water or is allowing the uncontrolled escape of formation fluids from the strata in which they were originally located; or

      (ii) a well is not being maintained in compliance with Commission rules or state law relating to plugging or the prevention or control of pollution; or

      (iii) the operator has failed to renew and maintain an organization report filing as required by §3.1 of this title (relating to Organization Report; Retention of Records; Notice Requirements) and this section.

    (B) If the director administratively denies a requested reduction, the operator may request a hearing to determine whether the reduction should be granted.

  (5) Reduction in additional financial security required for bay and/or offshore wells that are not actively producing oil and natural gas. An operator may request that Commission consider a reduction in any additional financial security requirement for the operation of bay and/or offshore wells that are not actively producing oil and natural gas or that are used for disposal or injection in an amount not to exceed the remainder of 25% of the operator's certified net worth based on the independently audited calculation for the most recently completed fiscal year minus the Commission's estimate of the operator's total plugging liability for all of the operator's active bay and/or offshore wells.

    (A) The director may administratively grant a full or partial reduction if the operator meets the following criteria:

      (i) the operator has either five or fewer bay and offshore wells or at least half of the operator's bay and offshore wells are actively producing oil and natural gas;

      (ii) the operator provides to the Commission certification of its net worth from an independent auditor that has employed generally accepted accounting principles to confirm the operator's stated net worth based on the most recently available and independently audited calculation;

      (iii) the reduction is less than or equal to the remainder of 25% of the operator's certified net worth minus the Commission's estimate of the operator's total plugging liability for all of the operator's active bay and offshore wells;

Cont'd...

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