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Oilfield Cleanup Fund Advisory Committee Meets

By Kelly Walne,

Austin, TX –

The Oilfield Cleanup Fund Advisory Committee met today to discuss the success of the Oilfield Cleanup Fund and to hear testimony from officials of the Texas Railroad Commission and others. The meeting was an effort to conjure up and compile any possible revisions in order to pass any necessary legislation during the current legislative session.

Rep. Buddy West (R-Odessa) currently chairs the committee while Sen. Ken Armbrister (D-Victoria) serves as the vice chairman. Other committee members include: Jack Miller, appointed by the Governor; Dr. Scott Tinker, appointed by the Lieutenant Governor; Rusty Howell, appointed by the Speaker of the House; Julie Moore, a representative of the Texas Oil and Gas Association; Wayne Hughes, representative of PPROA; Mike Elyea from the TAEP; and Doug Robison and Kirk Edwards, both members of the Permian Basin Petroleum Association.

The meeting began with a report from the Railroad Commission (RRC) that gave the fourth quarter activities and financial standing of the Oilfield Cleanup Fund, since it is at the RRC's disposal as deemed by the state. Kathy Pyka, a representative of the RRC, testified that, "The RRC is on track with the projected fiscal goals so far this year."

Currently, the fund is designed to clean up oil wells which have been abandoned by the operators or oilfields that are considered hazardous to the environment, especially to the ground and surface waters. For the most part, the maintenance involves plugging oil wells and cleaning up well sites. Since the advent of this fund, there were 17,000 commercial wells that were considered by the RRC as being orphaned, having an unbonded operator and abandoned, and eligible to be plugged by the RRC. Today, there are fewer than 15,000 wells that currently require plugging; even though, more wells are added each day.

Rich Varela, another representative of the RRC, testified that the RRC is currently beating the targeted performance measure for plugging a well, 75 days, by averaging 49 days. They have accomplished this by bundling wells that are geographically close to each other, and then asking prospective bidders to bid on a group instead of individual wells. Ron Kitchens, executive director of the RRC, later gave a review of the bonding status in his testimony. He explained that the number of unbonded operators in the oil industry must decrease in order for the effects of this fund to be seen in the near future. Currently, there are 2,326 unbonded operators; however, 83 percent of them are operating active wells. In order for the Oilfield Cleanup Fund to be responsible, the operator must be unbonded and the well be inactive - an orphaned well. Although the situation allows for the fund to continue making progress, it remains dangerous.

Kitchens gave some optimistic words by saying, "There is a steady increase in bonded operators, which is a positive sign." However, he later added that the fund would continue to be used until the market is saturated with bonded operators.

John Tintera, another representative of the RRC, testified on the major surface cleanup operations around the state. In 2004, the RRC performed 313 plugs on abandoned well sites at the cost of $4.1 million. Fifty-five percent of the funding came from the Oilfield Cleanup Fund while the other 45 percent came from outside sources such as the Environmental Protection Agency. In 2005, the RRC has predicted that they will conduct 302 cleanups for roughly the same amount. However, Tintera stressed that pursuing additional grants is pertinent to making progress on the original 17,000 wells designated by the RRC. He also described five locations throughout the sate that were considered extremely hazardous and would require a large sum of money to ensure proper maintenance and disposal.

Afterwards, an Attorney General's opinion was read to the committee members. It briefly stated that the fund was specifically designed to clean up the number of abandoned well sites around the state in order to prevent hazardous accidents. Therefore, in the opinion of the Attorney General, there is no reason to revise the fund.

Chairman West then asked the members to state their opinions or give any thoughts. Edwards remarked on the importance for the state to plug wells rather than clean up a small number of very hazardous sites. Moore, however, said, "The fund has a responsibility to clean up any mess that is a product of an oil or gas well." From his perspective, that means plugging wells and cleaning hazardous areas are equally important. Elyea exclaimed that he would like to see the fund be used to exclusively plug wells while separate legislation can be passed devising an additional fund that will exclusively deal with hazardous waste sites. Robison's thoughts were similar to those of Moore. He believes that the real goal of the fund is to protect the ground and surface water resources, which require the careful maintenance of both abandoned well sites and those hazardous waste areas.

After each opinion was given, Jeff Willard introduced HB 380. The bill proposes that oil wells have insurance policies similar to human burial policies. Each well has its own respective policy, which is paid up front and is permanent. The policy is "non-surrenderable and non-cancelable." The policy transfers from one operator to the next over the course of a transaction. Therefore, the money is paid up front for the well to be plugged once it is abandoned or dry.

Members of the committee were quite impressed by the simplicity of the bill and how many problems it could possibly eliminate. Therefore, the bill was supported unanimously to go forward for more deliberation.

Next, Edwards proposed a draft concerning threshold bonding. This idea replaced the current model of having a bonded operator with a model that bonds the well instead. Tinker and Elyea thought that a bill that would consider that sort of bonding may be a little "rushed." Elyea explained that he wants "the temper of legislation to address the intent and good will of a company to plug their own wells." Overall, the committee thought it was a good idea but needed to be honed a bit more.

Lastly, Kitchens ended the meeting by proposing an idea that seemed agreeable to most of the members. The proposal would allow the RRC to pay bonded operators to take on orphaned wells since they could possibly be profitable. Howell added that the RRC should judge which wells should be eligible for adoption.

Although there was some question as to whether this could form another facet of competition within the oil industry, Chairman West decided to adjourn the meeting for the day with the group to convene at a later date.