American Oil and Gas Reporter - October 2016 - 94

ConventionSection: Permian Basin Petroleum Association
cover only 15.9 percent of the total annual
cost to plug abandoned wells, that insufficient bond requirements divert other
commission funding sources to pay for
plugging, and that the backlog of abandoned wells is on the rise.
The staff's recommended tier structure
includes requiring a $22,500 blanket bond
for 10 or fewer wells, a $40,500 blanket
bond for 11-20 wells, a $74,000 bond
for 21-35 wells, a $128,000 bond for 3660 wells, and a $213,000 bond for 61-99
wells.
"Blanket bond requirements would
decrease for those operating fewer than
21 wells, because under existing requirements, those operators' blanket bonds require a significantly higher per-well bond
and do not pose a significantly higher
risk of abandoning wells," the staff report
states. "This category includes the median
Texas well operator, who operates six
wells. Blanket bond requirements would
remain the same for those operating 100
or more wells because the risk for this
category of operators abandoning their
wells is significantly lower."
Under the staff recommendation, new
companies beginning operations on or
after Sept. 1, 2017, would have to meet
the new financial assurance requirements
immediately. The higher bond amounts
would be phased in for existing operators
by Jan. 1, 2019.
PBPA counters that Texas' current
statutory bonding requirements are meant
to be utilized as a component in financing
the plugging of orphaned wells in the
care of the state. "These financial assurances are part of a larger system at the

RRC to ensure operators remediate their
sites, plug abandoned wells, and that the
RRC has resources to use should operators
orphan their wells," the association comments. "In addition to the bonding requirements, additional financial security
requirements and operator actions are required for inactive wells. Inactive wells
are the precursors to orphaned wells.
PBPA does not believe a change in bonding
requirements is necessary."
Administrative Functions
PBPA takes no exception to a call for
improved oversight of Texas' pipeline infrastructure to enhance public safety or
to create a pipeline fee.
However, the association opposes a
sunset staff proposal to centralize all contract administration functions with respect
to state-funded cleanup and plugging.
"These efforts often require utilizing
small, local contractors with specialized
equipment and/or personnel," PBPA reasons. "Prior attempts to procure these localized services through statewide efforts
were not successful and increased costs
to the commission."
PBPA supports a proposal to direct
the RRC to implement and keep updated
contracting best practices as outlined by
legislation and the state comptroller, and
to have the RRC executive director report
the status of contracting improvements
quarterly to the commissioners at open
meetings.
PBPA opposes applying an acrossthe-board recommendation for alternative
dispute resolution to the Railroad Commission. But the association supports a

proposal to continue requiring the RRC
to submit its report on the Oil and Gas
Regulation and Cleanup Fund to the legislature.
After listening to the testimony offered
at the August hearing, as well as the
questions and comments by the Sunset
Commission members themselves, Shepperd says it appears the RRC review is
moving in the right direction. PBPA will
continue tracking the process as it rolls
forward, and will take opportunities, when
appropriate, to advocate on behalf of its
members, he says.
Allocation Wells
On the subject of drilling horizontal
wells, PBPA continues to support efforts
to develop legislation clarifying operators'
ability to utilize allocation wells when
pooling and production sharing agreements
aren't options for determining production
and revenue distribution, Robertson says.
Several attempts at similar legislation
in 2015 were unsuccessful, with doubts
stemming largely from misunderstandings
about the scope of the legislation, he
says. Supporters worked to present a
stand-alone bill, and then later tried to
amend the provision into other legislation,
Robertson reviews.
"There needed to be some foundation-laying with the various stakeholders
involved about the importance of clarity
on allocation wells and why we were
trying to do what we were doing," he
says. "We need to do a better job of educating all stakeholders about what the
industry hopes to accomplish with such
legislation."
r

Laws, Infrastructure Highlight Agenda
MIDLAND-With oil prices holding
relatively steady in late summer and early
fall, members of the Permian Basin Petroleum Association are headed for PBPA's
annual meeting Oct.26-27 in Midland
with a guarded sense of optimism, suggests
Executive Vice President Stephen Robertson.
But even as a slow recovery progresses,
members find themselves confronted with
infrastructure constraints in portions of
the basin-especially the Delaware Basin-
and face uncertainty over the future of
the Railroad Commission of Texas.
Robertson says those attending the
PBPA's convention should get answers
94 THE AMERICAN OIL & GAS REPORTER

from lawmakers, regulators, company executives, and service companies on conditions and potential solutions.
While PBPA member operators have
had to make adjustments because of price
declines, the region as a whole seems to
be faring better than other oil and gas
areas around the country, Robertson assesses.
"We have benefitted from the fact that
a lot of the activity still going on in the
nation is in the Permian Basin. Because
of that, I would say there is a good bit
more optimism here than perhaps other
places, and more opportunity as well,"
he says. "People are excited to be here

and to talk about what they are doing
and seeing.
"It's not like people are flying back
out to the field, but work at least has stabilized for many, and some companies
even are adding rigs. Although the activity
is not anywhere close to what it was two
years ago, the signs are mostly positive.
I can remember about a year ago when
some were talking about the second half
of 2016 being the time things would pick
up again," Robertson relates.
While prices have improved some,
those with acreage positions, especially
in the Delaware Basin, are getting active,
he says. The conditions mean member

American Oil and Gas Reporter - October 2016

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