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RRC Issues Inaugural Oil and Gas Monitoring and Enforcement Plan, Seeks to Inspect All Wells in Texas Beginning in FY 2019

V&E Environmental and Natural Resources Update, June 21, 2018

On June 5, 2018, the Texas Railroad Commission (“RRC” or the “Commission”) released the final version of its inaugural Oil and Gas Monitoring and Enforcement Plan (“Annual Plan” or “Plan”). The Annual Plan offers up the RRC’s strategic priorities for monitoring and enforcement activities that it seeks to implement beginning in fiscal year (“FY”) 2019 (that is, October 1, 2018). Chief among these priorities is the inspection of all onshore wells at least once every five years and offshore wells in state waters at least once every two years. The Commission further proposes to increase agency transparency by improving the availability of searchable inspection, compliance and enforcement data on the RRC’s website.

The RRC’s development and publication of the Annual Plan is in direct response to an edict issued by the Texas Legislature in 2017 in connection with the agency’s legislative reauthorization (H.B. 1818, 85th Legislature, Regular Session, 2017). The Commission’s mission statement in establishing the Plan is to assess the most effective use of the RRC’s limited resources to ensure public safety and minimize damage to the environment. This first-ever Annual Plan relies upon existing data collected during FYs 2012 to 2017 and will serve as a benchmark for future Plans.

RRC’s Recent Field Activities, by the Numbers

As a backdrop for its strategic priorities in FY 2019, the RRC provides an interesting array of field activities data collected during FY 2017 (actual) and FY 2018 (estimated). The Commission conducted just under 156,000 oil and gas well and other facility inspections in FY 2017 and expects to increase that number to 170,000 inspections in FY 2018. Surprising is the number of oil and gas wells in the state that were not inspected in FY 2017 or the past five years. In FY 2017, only 22.7% of the more than 400,000 oil and gas wells in the state were inspected during the year and, over the past five years, only 42.6% of all oil and gas wells in Texas have been inspected by the Commission. The number of well inspections during FY 2018 is not expected to increase significantly, as only 30% of the wells in Texas are expected to be inspected; nonetheless, that slight bump in well inspections is expected to reduce the number of wells not inspected over the rolling 5-year period, from 57.4% to 35%.  

Compliance-wise, approximately 13.0% of the inspections conducted during FY 2017 identified environmental violations, consisting of 44,578 statewide rule violations and 75 major statewide rule violations. The RRC currently estimates only 8% of the FY 2018 inspections will result in identified environmental violations, with only 31,000 environmental violations and 60 major violations projected.

With the advent of a written Annual Plan, the RRC seeks to continue to increase the number of investigations in FY 2019.

Monitoring Activities in FY 2019

RRC Review and Assessment of Oil and Gas Operator Information

Regulated oil and gas activities in the state are monitored by the RRC primarily through the review and assessment of data self-reported by oil and gas operators. Operators are required to self-report various data under a range of regulatory programs to the Commission’s central office and nine regional district offices across the state.  Self-reported data is gathered primarily from the following records:

  • Organization reports (included in Form P-5);
  • Certificates of compliance (included in Form P-4);
  • Drilling permits;
  • Completion reports;
  • Production reports;
  • Production tests;
  • Well integrity tests; and
  • Injection monitoring reports.

RRC Field Inspections

The self-reported data is supplemented in large measure by information obtained through active field inspections undertaken by well less than 200 RRC inspectors stationed throughout the oil and gas regions of the state. Field inspections are triggered primarily as a result of public complaints (indicated by the Commission to average about 600 per year, with 560 complaints received in FY 2017 and 570 complaints expected in FY 2018) and the occurrence of incidents (e.g., spills and releases) in the field, in addition to inspections performed in the general course of inspector’s duties, or in performing customary well inspections or witnessing critical operations, such as surface casing jobs, mechanical integrity tests, and well plugging efforts.

Based on RRC records, as of August 31, 2017, there were 434,085 oil and gas wells reported in the state. With the Commission employing fewer than 200 field inspectors, perhaps it is not surprising that 57.4% of the wells in the state — just under 250,000 wells — have not been inspected over the past five years. With so many wells and so few inspectors, field inspections are prioritized, with complaints and field incidents receiving the highest level of priority. The Commission indicates that through aggressive hiring practices, it seeks to maintain a staff of approximately 158 oil and gas field inspectors during the current 2017-2018 biennium to accomplish these field activities. Assuming that the RRC increases the overall number of well inspections in the state and maintains a constant number of inspectors in addition to a continued vigilance over field incidents, some may question whether the agency’s ability to maintain its focus on other regulatory programs will suffer as a result of the increased well inspections.

Enforcement Activities

The RRC has the authority to assess administrative penalties and may use non-monetary enforcement tools. The Annual Plan notes that most violations are resolved at the district level but, depending on the severity of the infraction or the recalcitrance of the oil and gas operator to comply, the matter may be referred to the Legal Enforcement Section of the Office of General Counsel and an order seeking administrative penalties or other enforcement actions may be pursued through a Commission Order.

The RRC has an established enforcement process to compel compliance with regulations. These mechanisms may be used individually or in combination, sequentially or simultaneously, as appropriate to achieve a timely resolution of the matter.

  • Notice of Violation: A district office may notify the operator of a violation in writing and specify a deadline for compliance.  After the deadline, the inspector will return to the location to verify compliance.

  • Sealing a Well/Issuing a Pipeline Severance: A designated operator of a well must file a P-4 Certificate of Compliance, certifying as to the lease’s compliance with applicable RRC requirements. If a lease violation is found, the RRC may cancel the P-4 after providing notice of the violation and allowing the operator at least 10 days to achieve compliance or request a hearing. Once a certificate of compliance is cancelled, the operator must cease lease operations and may not produce or sell any hydrocarbons.

  • Permit Actions: The RRC may modify, suspend or terminate a permit, including a drilling permit or injection or disposal well permit, based on violations of agency requirements. These actions typically require notice and an opportunity for a hearing.

  • Administrative Penalties: The RRC may assess penalties for agency violations related to safety or the prevention or control of pollution, of up to $10,000 per day per violation.

  • Revocation of Authority to Operate: The RRC may refuse to accept a P-5 or P-4 report or permit application, or may revoke a P-5 or P-4 report or permit if the business has an outstanding order finding a violation related to safety or the prevention or control of pollution, or if a person who owns or controls a business has, within the preceding 7 years, held a position of ownership or control of another business that has such an outstanding order.

RRC’s Goals and Action Items for FY 2019

Consistent with the mandate established by the Texas Legislature, the RRC sets two specific goals and five underlying action items in its FY 2019 Annual Plan. The RRC reports that the agency has received an appropriation of $22.189 million for FY 2019 to implement its oil and gas monitoring and enforcement programs.

Goal 1: Ensuring Public Safety and Protecting the Environment

Action 1. Inspect all Wells in the State of Texas

Over the past 10 fiscal years (i.e., FYs 2008-2017), RRC field inspectors have averaged more than 123,000 inspections of oil and gas operations (where, for a given set of operations, one or more wells and other facilities may be located), each year. With an expected full complement of 158 inspectors, the Commission expects this number to grow to 130,000 inspections of such operations in FY 2019. Perhaps reflecting on the RRC’s having inspected only 42.6% of the oil and gas wells in the state over the past five years, the Texas Legislature included in the Commission’s appropriation within the General Appropriations Act (S.B. 1, 85th Legislature, Regulator Session, 2017) a rider mandating that the RRC inspect all onshore wells in the state at least once every five years and offshore wells in state waters at least once every two years. Accordingly, the RRC has established performance targets of inspecting approximately 100,000 oil and gas wells each year of the current FY 2018-2019 biennium to meet those targets.

Action 2. Plug 1,500 Wells each Year

For the FY 2018-2019 biennium, the RRC has received $38.2 million from the Economic Stabilization Fund to supplement $28.8 million from the State Oil and Gas Regulation and Cleanup Fund for the state-managed orphan (abandoned) well plugging program. The revenue for both funds comes from assessments on the oil and gas industry. As reported in the Plan, as of August 31, 2017, there were 5,687 wells in the RRC’s inventory of orphaned wells. Accordingly, the RRC has established performance targets of plugging 1,500 wells each year of the current FY 2018-2019 biennium.

Action 3. Improve the Inspection/Enforcement Tracking and Reporting System

The RRC currently is pursuing a modernization program for its Inspection/Enforcement Tracking and Reporting System that is designed to improve the ability to track enforcement processes and contested cases. For the FY 2018-2019 biennium, the Commission has received a capital appropriation to continue the modernization program.  

Goal 2: Greater Transparency in Assessing Major Violations and Disclosing Compliance-Related Data to the Public

Action 1. Update the RRC’s Working Definition of “Major Violation”

The RRC seeks to provide its technical staff with an updated working definition of “major violation” so as to provide more consistency in the tracking and communication of major violations. Technical staff in the district offices are responsible for identifying and documenting any major violations upon their review of inspection reports. The Commission has updated its working definition of the term “major violation” by providing additional examples for consideration by the staff so as to more consistently identify what constitutes a major violation. As updated by the RRC, the term “major violation” continues to mean:

a safety or pollution related violation that causes a significant impact to public safety and/or the environment, is accompanied by conditions that indicate a significant impact to public safety and/or the environment is imminent, or is the result of deliberate disregard of Commission rules and regulations related to public safety or environmental protection.

However, examples of what constitutes major violations have been expanded to now include all of the following violations of the RRC’s Oil and Gas Rules, found in Title 16, Chapter 3 of the Texas Administrative Code:

  • Statewide Rule 5(a) — Drilling or reentering a well without a permit. 16 Tex. Admin. Code § 3.5(a).

  • Statewide Rule 8(b) — Surface management of waste without a required permit or in violation of a permit that results in movement of waste or waste constituents that endangers surface or subsurface water or public health or safety. 16 Tex. Admin. Code § 3.8(b).

  • Statewide Rule 8(d)(1) — An unauthorized discharge of oil or gas waste into a sensitive area. A sensitive area is defined by the presence of factors, whether one or more, that make an area vulnerable to pollution. Factors that are characteristic of sensitive areas include the presence of shallow groundwater or pathways for communication with deeper groundwater; proximity to surface water, including lakes, rivers, streams, dry or flowing creeks, irrigation canals, stock tanks, and wetlands; proximity to natural wildlife refuges or parks; or proximity to commercial or residential areas. 16 Tex. Admin. Code § 3.8(d)(1).

  • Statewide Rule 9 or Statewide Rule 46 — Violation of permit conditions where well operates at an injection pressure that exceeds the permitted or authorized injection pressure causing the movement of fluid outside the authorized zone of injection, if such movement may have the potential for endangering an underground source of drinking water. 16 Tex. Admin. Code § 3.9 or 16 Tex. Admin. Code § 3.46.

  • Statewide Rule 9(1) or Statewide Rule 46(a) — Operation of a disposal or fluid injection well without a permit. 16 Tex. Admin. Code § 3.9(1) or 16 Tex. Admin. Code § 3.46.

  • Stateside Rule 9(12)(C) or Statewide Rule 46(j) — Operation of a well without mechanical integrity (failed MIT) which causes the movement of fluid outside the authorized zone of injection, if injection of such fluid may have the potential for endangering an underground source of drinking water. 16 Tex. Admin. Code § 3.9(12)(c) or 16 Tex. Admin. Code § 3.46(j).

  • Statewide Rule 13(a)(6)(B)(i) — Failure to install a blowout preventer system or control head and other connections to keep the well under control at all times as soon as surface casing is set. 16 Tex. Admin. Code § 3.13(a)(6)(B)(i).

  • Statewide Rule 13(b)(1)(B)(i) — Failure to set and cement sufficient surface casing to protect all usable-quality water strata, as defined by the Groundwater Advisory Unit of the Oil and Gas Division. 16 Tex. Admin. Code § 3.13(b)(1)(B)(i).

  • Statewide Rule 14(b)(2) — Failure to properly plug a well when there is endangerment of surface or subsurface water and there is a designated operator responsible for proper plugging. 16 Tex. Admin. Code § 3.14(b)(2).

  • Statewide Rule 36(c)(9) — Engaging in hydrogen sulfide operations without a written contingency plan. 16 Tex. Admin. Code § 3.36(c)(9).

  • Statewide Rule 91(e)(3) — Failure to report to the Commission any spill of crude oil into water immediately upon discovery. 16 Tex. Admin. Code § 3.91(e)(3).

Action 2.  Enhanced Disclosure of Compliance-Related Data to the Public

The RRC seeks to improve the ease of access by the public to RRC data and information. In particular, the Commission seeks to enhance the ability of the public to search inspection, compliance and enforcement data on its website including, for example, the ability to search by operator name and county in which operations are conducted. These improvements are expected to become available in the first quarter of calendar year 2019.

Visit our website to learn more about V&E’s Environmental & Natural Resources practices. For more information, please contact Vinson & Elkins lawyers Larry Nettles, George Wilkinson, or Larry Pechacek.


Key Contacts

+1.713.758.4586
lnettles@velaw.com
+1.713.758.4834
gwilkinson@velaw.com
+1.713.758.2004
lpechacek@velaw.com

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This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.