Plugging Extension Requirements

General Requirements

Prior to the passage of HB 2259, the Commission required the following for approval of plugging extensions:

1. that the operator has a current Organization Report;
2. that the operator has, and on request provides evidence of, a good faith claim to a continuing right to operate the well;
3. that the well and associated facilities are otherwise in compliance with all Commission rules and orders; and
4. for wells more than 25 years old, that the operator perform a successful fluid level or hydraulic pressure test.

HB 2259 and the new rules additionally require compliance with the surface equipment cleanup/removal requirements outlined above. (However, because failure to comply with the surface equipment requirements will also result in your P-5 renewal not being approved, the effect of failure on plugging extensions is somewhat secondary. Plugging extensions will be denied for multiple reasons.) Furthermore, HB 2259 and the new rules require that the operator of an inactive well submit to the Commission additional information regarding one of several options in order to gain approval of a plugging extension. The operator must indicate the selected option on Form W-3X, Application for an Extension of Deadline for Plugging an Inactive Well, and provide any necessary documentation and fees associated with the selected option. The options include:

Blanket (Operator-Level) Options -- Compliance with the additional requirement for plugging extensions can be met at an operator-level by doing one of three things:

1. The operator may plug or restore to active operation 10% of the number of inactive wells operated at their last Form P-5 renewal date. If the operator’s Form P-5 annual cycle begins on May 1 of each year, then for the operator’s Form P-5 renewal this year, the operator would count all wells plugged or returned to active operation since May 1 of last year. If the Commission cannot verify that the operator has plugged or returned to active operation the required number of wells, the operator may need to submit additional information identifying those wells.
2. An operator that is a publicly traded entity may file with the Commission a copy of federal documents filed to comply with Financial Accounting Standards Board Statement No. 143, Accounting for Asset Retirement Obligations, and an original executed Uniform Commercial Code Form 1 Financing Statement, filed with the Secretary of State, that names the operator as “debtor” and the Railroad Commission of Texas as “secured creditor” and specifies the funds covered by the documents in the amount of the “cost calculation” (see below) for plugging all inactive wells held by the operator.
3. The operator may file Form P-5PB(2), Blanket Performance Bond, Form P-5LC, Irrevocable Documentary Blanket Letter of Credit, or cash deposit in the amount of the “cost calculation” (see below) for plugging all inactive wells, or $2 million, whichever is less.

If you have fulfilled the requirements of one of these blanket options and wish to use it toward your plugging extensions, file a single Form W-3X form with your Form P-5 renewal.  On the Form W-3X, indicate the option selected and attach any necessary supporting documentation (copies of the relevant documents, original bond/LOC forms, etc.)

Individual (Well-Level) Options -- Compliance with the additional requirement for plugging extensions can be met on a well-by-well level by filing one of five documents:

1. an “abeyance of plugging report” as described in 16 TAC §3.15(j), along with a $100 fee.
2. a statement that the well is part of a Commission-approved Enhanced Oil Recovery (EOR) project.
3. if the well is not otherwise required to be tested, a statement that an approved fluid level or hydraulic pressure test has been performed and submitted on Form H-15, along with a $50 fee. (This option is not available for a well that is more than 25 years old and is required to be tested under the H-15 program, or a well that has an active injection or disposal permit and is required by that permit to undergo periodic H-5 testing.)
4. additional financial security in the amount of the “cost calculation” (see below) for plugging this well; or
5. an escrow fund deposit in an amount no less than 10% of the “cost calculation” (see below) for plugging the well.

Applications for plugging extensions filed under an individual well option may be filed at any time. If the Commission is unable to confirm eligibility (e.g., there is no Commission record of an approved EOR project for #2, no record of an H-15 record on file for #3, no filing fee has been received for #1 or #3, etc.), then your application for extension will be denied until the discrepancy can be resolved.

Cost Calculation

Under 16 TAC §3.15(a)(2), the “cost calculation for plugging an inactive well” is defined as “the cost, calculated by the Commission or its delegate, for each foot of well depth plugged based on average actual plugging costs for wells plugged by the Commission for the preceding state fiscal year for the Commission Oil and Gas Division district in which the inactive well is located.”

The Commission will determine the average per-foot plugging cost for each Commission district based on state-funded plugging operations (excluding plugging of any bay or offshore wells) in that district. The per-foot cost will be multiplied times the depth of the inactive wellbore on Commission records; the result will be the “cost calculation” amount for plugging that well.

Because the district costs vary from year to year, the amount required under certain options (blanket options 2 and 3, and individual options 4 and 5) also may vary from year to year.