May 2021 Energy News by Railroad Commission of Texas

Energy News MAY 2021

From the Field Photo Santa Elena Canyon / Big Bend National Park Photo by Tim Speer

Contents P.

Public Input Sought for RRC’s Draft Oil and Gas Division Monitoring and Enforcement Plan

Waste Disposal Site in West Texas Cleaned Up Over Four-Year Period

State Managed Well Plugging Program Provides Needed Assurance to Protect Public Safety, Environment in Texas

Protecting Freshwater Resources Most Critical Goal of Plugging Oil and Gas Wells

Online Filing Now Available for RRC’s Flaring Exception Application

Electronic Filing Requirements for Monthly Production Report Effective Sept. 1

Commissioners’ Corner

Upcoming Events RRC Open Meeting

June 8, 2021

Online

Statewide 32 Exception Webinar June 2,2021

Online

V I E W M O R E R RC E V E N T S4

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V I E W O P E N M E E T I N G W E B CA S T S4

Public Input Sought for RRC’s Draft Oil and Gas Division Monitoring and Enforcement Plan The Railroad Commission is seeking comments its draft FY 2022 Oil and Gas Division Monitoring and Enforcement Plan. The Texas Legislature in 2017 directed the RRC to develop an annual plan to assess the most effective use of its limited resources to protect public safety and minimize damage to the environment. The RRC will always strive to strengthen its capabilities to track, measure, and analyze the effectiveness of its oil and gas monitoring and enforcement program. The purpose of the plan is to define and communicate the Oil and Gas Division’s strategic priorities for its monitoring and enforcement efforts. The plan confirms many of the division’s current priorities as well as establishing direction for data collection, stakeholder input, and new priorities for fiscal year 2022. The RRC is required to seek input from stakeholders in the development of this plan. VIEW THE DRAFT PLAN

To submit comments online by 5 p.m. on June 10, complete the survey: SUBMIT COMMENTS VIA SURVEY

Alternatively, send written comments to: Oil and Gas Strategic Plan Comments/Oil and Gas Division Railroad Commission of Texas P.O. Box 12967 Austin, TX 78711-2967 Comments received by mail after June 10 may not be incorporated into the fiscal year 2022 iteration of the plan but will be reviewed.

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Waste Disposal Site in West Texas Cleaned Up Over Four-Year Period RRC’s State Managed Cleanup Program on Pace to Meet Legislative Goal for Fiscal Year

The Railroad Commission has completed all major work in the cleanup of the Wheeler Road Westex Notrees surface waste disposal facility near Odessa in West Texas.

“For state managed cleanup efforts, our objective is to remove all contamination and waste in order to protect public safety and the environment,” said Peter Pope, RRC Site Remediation Manager. “The closure of the abandoned pits near Odessa resolves complaints the agency received over the years. I am proud of the work that our staff and contractors put into achieving this positive result.”

The $9 million remediation effort began in 2017 at the site which operated as a surface waste disposal facility from the early 1990s to 2012 in Ector County. This site included several waste pits. The open pits were emptied and closed using state managed funds generated from industry fees. The final pit was closed in April. Overall, 204,000 cubic yards of oily waste were removed from the five pits. The major portion of the project has been completed; some minor work remains to be done, including the removal of scrap materials, such as wood, plastic piping, empty tanks, and drums.

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The project is one of 168 oil and gas sites that have been cleaned up by the RRC’s State Managed Cleanup Program this fiscal year, which ends in August. The agency remains on track to reach the legislative goal of 230 for the period. The State Managed Cleanup Program is funded through oil and gas industry revenue, including, but not limited to, regulatory fees, permit fees, and financial security.

Abandoned former Westex Notrees surface waste disposal site before RRC oversaw cleanup

RRC State Managed Cleanup nearing completion

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State Managed Well Plugging Program Provides Needed Assurance to Protect Public Safety, Environment in Texas RRC Initiative Has Plugged More Than 42,000 Wells Since 1983 In 1991, RRC sought additional funding and authority to address an increasing number of abandoned wells and oilfield pollution sites created by the collapse of the oil and gas industry in 1986.

Thanks in part to abundant volumes of oil and gas flowing from its wells, Texas and its residents have overwhelmingly benefited from a powerful economic engine, but that does not mean there have not been challenges, especially when operators have not met their commitments.

The Texas Legislature enacted Senate Bill 1103, which replaced the original Well Plugging Fund with the larger, more comprehensive Oil Field Cleanup Fund. The Legislature’s action created new sources of revenue for the fund, which is supported entirely by industry fees.

It has been up to the Railroad Commission to ensure that oil and gas resources are not wasted and do not threaten public safety and the environment. The vast majority of oil and gas operators, though, plug their own wells when production ceases. In fact, 83% of wells plugged in Fiscal Year 2020 was attributable to responsible operators.

The size of the fund grew, allowing the RRC to plug even more abandoned wells. The bill also authorized the RRC to use the funds to remediate abandoned oilfield pollution sites via the State Managed Cleanup Program.

Yet, difficult circumstances do befall some in the sometimes-up-and-down oil and gas industry for a variety of reasons. In those cases, operators can’t or won’t plug their own wells and abandon them.

It is not just a bust that poses potential challenges to the well plugging program. A massive boom in the oil and gas industry from 2011 to 2017 resulted in a decline in the number of wells being plugged.

For the resulting orphaned wells, RRC utilizes its rigorous State Managed Well Plugging Program, which formally began on Sept. 1, 1983, thanks to the Texas Legislature’s creation of the Well Plugging Fund.

“The majority of plugging contractors were working for industry, and we had a very hard time getting plugging companies to work for us,” said Clay Woodul, Director of RRC Field Operations.

Wells plugged with state funds are in violation of RRC’s well plugging rule or are leaking. The operators of these wells are either unidentified, inactive or delinquent, in default of a RRC order requiring compliance, or have failed or merely refused to bring the well in compliance.

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In more recent years, though, the pace of state-funded plugging has significantly picked up with the RRC exceeding legislative targets for the last four years and being on track to surpass that goal again this fiscal year.

One of the improvements that the State Managed Well Plugging Program made in 2016 was a streamlined process that allowed the RRC to award contract amounts to well plugging contractors rather than needing to seek a bid for each project. “The process now enables us to issue a contract for an entire year for a lot more value, and we simply issue workorders, as needed, to keep contractors busy,” Woodul said. Orphaned wells are prioritized with the State Managed Plugging Program based on the level of risk to public safety and the environment. Since it started on Sept. 1, 1983, the well plugging program has plugged more than 42,000 orphan wells. Since 2003, the well plugging program has grown from 23 plugging inspectors to 35 today. Before the creation of the State Managed Plugging Program, the RRC received limited funding since the early 1960s for the purpose of plugging leaking wells. The more common method of plugging orphaned wells before 1984 was for RRC representatives to obtain assistance from major producers in an area, said Nick Nichols, who has been with the agency for 45 years and is the lead inspector in the Wichita Falls District.

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Protecting Freshwater Resources Most Critical Goal of Plugging Oil and Gas Wells It is not enough to simply pour cement down the casing. To ensure that each plug is doing what is supposed to, the pluggers will use a perforating gun to pierce 360 degrees of holes in the steel casing in order to squeeze cement to its outside.

Plugging an oil or gas well is more complicated than it might sound to the layperson. It’s not simply a matter of putting a cap on the top and covering it with dirt. The Earth’s geology is like a layered cake, which oil or gas wells have to go through, often down thousands of feet. Different sweet elements or geological features fall in different zones. In much of Texas, there are often freshwater aquifers and other features that may contain oil and gas resources, salt water, and more.

“After we set the bottom plug, we wait at least three to four hours and pressure test the casing to see if there are any holes in the casing and try to plug any holes off,” Barth said. There can be any number of additional plugs for each well, based on the number and depths of the freshwater zones, productive zones, and disposal/ injection zones in proximity to a given well. The final plug will be from at least 150 feet to the top. The wellbore is cut off at least three feet below the ground’s surface, and once the well is fully plugged, it is covered with the topsoil.

“Our primary goal is to protect the freshwater zones,” said Matthew Barth, the lead well plugging coordinator for RRC’s Kilgore District. Another issue with an unplugged well is the potential for it to contaminate other productive zones by allowing different geological layers to communicate via an open wellbore. For example, that could allow hydrogen sulfide from a sour productive zone to migrate to a sweet crude zone and turning it sour and dangerous, or perhaps causing the productive zone to shift, which would affect other producers in the same field.

In Kilgore, much of the city used to be where oilfields were, and many of the buildings have been built over plugged wells. To make sure that there are no problems with the plugging of orphan wells, an RRC plugging inspector will oversee each operation. Also, before a plugging operator can get approval to plug wells in the state, a lead plugger will supervise one of their operations to make sure that they know what they are doing and understand and follow RRC expectations and Statewide Rule 14.

Plugging an oil or gas well generally consists of having a workover rig, cement mixing unit and pump, and a couple of storage tanks for water. Setting a plug consists of running a steel or poly tubing into a well’s casing to a given depth, figuring out how much cement is needed for the plug based on the size of the well’s casing, pumping cement down the tubing and displacing it down to where it needs to be, and then pulling the tubing out of the well, leaving the cement in place.

Much of what Barth does, as the leader plugger in his area, is to ensure that funds are utilized as efficiently as possible. One of the major costs of plugging is the transportation of bulky plugging equipment to the various sites.

Different plugs will be placed at different locations in the well to protect resources, Barth said.

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Barth tries to group as many wells together as a packaged project. He might even make

the contractor’s next project to be a nearby location, thus limiting transportation costs and maximizing actual plugging. “I’m working on a nine-well package here in Gregg County in the East Texas Field,” he said. “I will award it to one of the contractors we are using now, based on the movement rates they give.” Thanks to a streamlined process, personnel in Austin award plugging contractors maximum budgets for a year. Lead pluggers in the different RRC districts select projects for each of the approved pluggers in their district up to the total amount of the contract. “I have four contractors right now,” Barth said. “I have to figure out where to best spend that, and I try to spend all of the money they have been awarded.” In order for each contractor to provide an accurate estimate for how much each well will cost to plug, Barth has to research everything he can on the history of the well, including completion reports, and information from the groundwater conservation district, so all of the well’s features and geological zones that it crosses are understood as best as possible. “The estimate is just a starting point,” Barth said. “We want to be at or below our estimate, but we are not going to cut any corners. We are going to do it right, the way it should be done.” One of the cheaper parts of the project is the cement for plugging. This allows Barth the leeway to require at least an extra 10% for each plug. “It doesn’t hurt to add a little to it,” he said.

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Online Filing Now Available for RRC’s Flaring Exception Application Operators are encouraged to use RRC’s new online system to file Form R-32, Application for Exception to Statewide Rule 32.

VISIT THE RRC ONLINE SYSTEM The new SWR 32 online filing system implements the recently adopted Form R-32. To obtain an exception to Statewide Rule (SWR) 32, the Form R-32 must be filed with the RRC by the end of the next full business day following the first 24 hours of the release unless the deadline is extended by the RRC or the RRC’s delegate. To access the online Form R-32, an organization’s designated Security Administrator must add the “External R-32 Filer” filing right to each user’s RRC online system account. If your company needs to set up security administrator rights to file online, view the instructions on the RRC website. Once the form is submitted online, the RRC online system will generate a print-friendly PDF. All reports will be available to view in the system after being reviewed by the RRC. When filing online, payment of the fees must be made through the online payment portal. While the RRC will continue to accept hard copy filings of the Form R-32, operators are strongly encouraged to file online for efficient and timely filing. Hard copy filings of the new Form R-32 will continue to be accepted when: (1) e-mailed with proof of payment to the RRC at EngUnit@rrc.texas.gov, or (2) mailed with payment to the RRC’s Oil and Gas Division in Austin. The form can be downloaded for hard copy filings from the RRC website. The old Statewide Rule 32 Exception Data Sheet will no longer be accepted. For more information on flaring see the Flaring Regulations FAQ available on the RRC website. An informational video on flaring is also available on the RRC’s YouTube channel. If you have questions regarding this notice, contact the Engineering Unit of the RRC’s Oil and Gas Division at EngUnit@rrc.texas.gov or 512-463-1126.

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Electronic Filing Requirements for Monthly Production Report Effective Sept. 1 The Railroad Commission on Feb. 23 adopted revisions to the instructions to Form PR, Monthly Production Report. The revisions support the RRC’s regulation of flaring and venting of produced natural gas. The proposed revisions are to the Form PR instructions and how operators need to complete the form, not to the structure of the form itself. Details about the revisions are available on the RRC website. The RRC is delaying implementation of the revised Form PR to provide operators and the RRC time to make changes to their production reporting systems. Operators will continue to use the existing Form PR until the phased implementation. • On Sept. 1, Disposition Code 4 will no longer be accepted. Gas that is flared must be allocated to Disposition Code 10 and gas that is vented must be allocated to Disposition Code 11. • On Jan. 1, operators must report the applicable two-letter authorization codes in the “REMARKS” field on the form. To assist operators who file the Form PR via electronic data interchange (EDI), RRC staff has revised the EDI filing requirements document which can be downloaded from the RRC website. If you have questions about this notice or the Form PR, contact the Production Audit Unit of the RRC’s Oil and Gas Division at 512-463-6726 or productionreporting-info@rrc.texas.gov.

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Chairman Craddick CO M M I S S I O N E R S’ CO R N E R

As May comes to a close, all eyes are set on the Texas Legislature. In the final days of this legislative session, Chairman Christi Craddick and the Railroad Commission continue to provide information, data, and resources to legislators as they make their finishing touches on important pieces of legislation. Most notably, Chairman Craddick’s participation with bills related to the state’s Winter Storm Uri response continues after days of testimony earlier in the session. The agency will continue monitoring these bills as they make their way through the conference committee process and on to the Governor’s desk. The Railroad Commission is poised to carry out the will of the legislature and provide regulatory certainty to the energy industry to keep Texas’ economy thriving. Additionally, Chairman Craddick appreciates the work of the Senate Finance and House Appropriations Committees to provide necessary funding for the agency to carry out our important mission.

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Commissioner Christian CO M M I S S I O N E R S’ CO R N E R

Commissioner Christian currently serves as Vice-Chairman of the Interstate Oil and Gas Compact Commission (IOGCC) under Chairman Kevin Stitt (Governor, Oklahoma). Christian has held a number of leadership roles in the organization since he was first appointed to the IOGCC by Governor Greg Abbott in 2017. At the May 18 business meeting, Christian served as emcee of the virtual conference and passed three resolutions to preserve states’ rights, protect consumers, and encourage technological innovation in the oil and gas industry. Resolution 21.052 - Opposition to the CLEAN Future Act: This resolution co-sponsored by Texas and North Dakota asks the Biden Administration and Congress to oppose the CLEAN Future Act and other similar pieces of legislation on behalf of oil and gas producing states. Resolution 21.054 - Reigning in ESG-style Investing: This resolution asks the federal government to formulate and enforce regulations relating to Environmental, Social, and Governance Funds (ESG). This style of investing has been utilized by activists to force divestment in oil and gas without regard to the rate of return for beneficiaries. Resolution 21.055 - Encouraging Carbon Capture and Technological Innovation: This resolution acknowledges the key role technological innovation, including carbon capture, has played in our nation’s environmental progress and encourages the federal government to act in a bipartisan manner to continue encouraging this progress.