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                                                                  H.B. No. 380




AN ACT
relating to oil and gas well plugging insurance policies. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: SECTION 1. Section 91.104, Natural Resources Code, is amended to read as follows: Sec. 91.104. BONDS, LETTERS OF CREDIT, [AND] CASH DEPOSITS, AND WELL-SPECIFIC PLUGGING INSURANCE POLICIES. (a) The commission shall require a bond, letter of credit, or cash deposit to be filed with the commission as provided by Subsection (b) [of this section]. (b) A person required to file a bond, letter of credit, or cash deposit under Section 91.103 who is an inactive operator or who operates one or more wells must, at the time of filing or renewing an organization report required by Section 91.142, file: (1) an individual bond as provided under Section 91.1041; (2) a blanket bond as provided under Section 91.1042; or (3) a letter of credit or cash deposit in the same amount as required for an individual bond under Section 91.1041 or a blanket bond under Section 91.1042. (c) A person required to file a bond, letter of credit, or cash deposit under Section 91.103 who operates one or more wells is considered to have met that requirement for a well if the well bore is included in a well-specific plugging insurance policy that: (1) is approved by the Texas Department of Insurance; (2) names this state as the owner and contingent beneficiary of the policy; (3) names a primary beneficiary who agrees to plug the specified well bore; (4) is fully prepaid and cannot be canceled or surrendered; (5) provides that the policy continues in effect until the specified well bore has been plugged; (6) provides that benefits will be paid when, but not before, the specified well bore has been plugged in accordance with commission rules in effect at the time of plugging; and (7) provides benefits that equal the greatest of: (A) an amount equal to $2 for each foot of well depth, as determined in the manner specified by the commission, for the specified well; (B) if the specified well is a bay well and regardless of whether the well is producing oil or gas, the amount required under commission rules for a bay well that is not producing oil or gas; (C) if the specified well is an offshore well and regardless of whether the well is producing oil or gas, the amount required under commission rules for an offshore well that is not producing oil or gas; or (D) the payment otherwise due under the policy for plugging the well bore. SECTION 2. Section 91.1041, Natural Resources Code, is amended by adding Subsections (c) and (d) to read as follows: (c) When calculating under Subsection (a) the amount of the bond a person who operates one or more wells is required to file, the commission shall exclude a well if the well bore is included in a well-specific plugging insurance policy described by Section 91.104(c). (d) If the inclusion of a bay or offshore well whose well bore is included in a well-specific plugging insurance policy described by Section 91.104(c) in the calculation under Subsection (b) of the amount of the bond an operator of one or more bay or offshore wells is required to file would result in an increase in the amount of the bond that would otherwise be required, the rules must provide for the exclusion of the well from the calculation. SECTION 3. Section 91.1042, Natural Resources Code, is amended by adding Subsections (c) and (d) to read as follows: (c) When calculating the number of an operator's wells for purposes of Subsection (a), the commission shall exclude a well if the well bore is included in a well-specific plugging insurance policy described by Section 91.104(c). (d) If the inclusion of a bay or offshore well whose well bore is included in a well-specific plugging insurance policy described by Section 91.104(c) in the calculation under Subsection (b) of the amount of the bond an operator of bay or offshore wells is required to file would result in an increase in the amount of the bond that would otherwise be required, the rules must provide for the exclusion of the well from the calculation. SECTION 4. Section 91.105, Natural Resources Code, is amended to read as follows: Sec. 91.105. BOND CONDITIONS. Each bond required by Section 91.103 [of this code] shall be conditioned that the operator will plug and abandon all wells and control, abate, and clean up pollution associated with an operator's oil and gas activities covered under the bond in accordance with the law of the state and the permits, rules, and orders of the commission. This section does not apply to a well-specific plugging insurance policy described by Section 91.104(c). SECTION 5. Sections 91.107, 91.108, and 91.1091, Natural Resources Code, are amended to read as follows: Sec. 91.107. NEW BOND, LETTER OF CREDIT, OR CASH DEPOSIT. If an active or inactive well is transferred, sold, or assigned by its operator, the commission shall require the party acquiring the well to file a new bond, letter of credit, or cash deposit as provided by Section 91.104(b), and the financial security of the prior operator shall continue to be required and to remain in effect, and the commission may not approve the transfer of operatorship, until the new bond, letter of credit, or cash deposit is provided or the commission determines that the bond, letter of credit, or cash deposit previously submitted to the commission by the person acquiring the well complies with this subchapter. A transfer of a well from one entity to another entity under common ownership is a transfer for purposes of this section. This section does not apply to a well bore that is included in a well-specific plugging insurance policy described by Section 91.104(c). Sec. 91.108. DEPOSIT AND USE OF FUNDS. Subject to the refund provisions of Section 91.1091, if applicable, proceeds from bonds and other financial security required pursuant to this chapter and benefits under well-specific plugging insurance policies described by Section 91.104(c) that are paid to the state as contingent beneficiary of the policies shall be deposited in the oil-field cleanup fund and, notwithstanding Sections 91.112 and 91.113, may be used only for actual well plugging and surface remediation. Sec. 91.1091. REFUND. The commission shall refund the proceeds from a bond, letter of credit, or cash deposit [or other form of security] required under this subchapter if: (1) the conditions that caused the proceeds to be collected are corrected; (2) all administrative, civil, and criminal penalties relating to those conditions are paid; and (3) the commission has been reimbursed for all costs and expenses incurred by the commission in relation to those conditions. SECTION 6. Section 91.111(c), Natural Resources Code, is amended to read as follows: (c) The fund consists of: (1) penalties imposed under Section 85.381 for violation of a law, order, or rule relating to well plugging requirements; (2) proceeds from bonds and other financial security [assurances] required by this chapter and benefits under well-specific plugging insurance policies described by Section 91.104(c) that are paid to the state as contingent beneficiary of the policies, subject to the refund provisions of Section 91.1091, if applicable; (3) private contributions, including contributions made under Section 89.084; (4) expenses collected under Section 89.083; (5) fees imposed under Section 85.2021; (6) civil penalties collected for violations of Chapter 89 or of rules or orders relating to plugging that are adopted under this code; (7) proceeds collected under Sections 89.085 and 91.115; (8) interest earned on the funds deposited in the fund; (9) [fees collected under Section 91.104; [(10)] civil penalties or costs recovered under Section 91.457 or 91.459; (10) [(11)] oil and gas waste hauler permit application fees collected under Section 29.015, Water Code; (11) [(12)] costs recovered under Section 91.113(f); (12) [(13)] hazardous oil and gas waste generation fees collected under Section 91.605; (13) [(14)] oil-field cleanup regulatory fees on oil collected under Section 81.116; (14) [(15)] oil-field cleanup regulatory fees on gas collected under Section 81.117; (15) [(16)] fees for a reissued certificate collected under Section 85.167; (16) [(17)] fees collected under Section 91.1013; (17) [(18)] fees collected under Section 89.088; (18) [(19)] penalties collected under Section 81.0531; (19) [(20)] fees collected under Section 91.142; (20) [(21)] fees collected under Section 91.654; (21) [(22)] costs recovered under Sections 91.656 and 91.657; (22) [(23)] two-thirds of the fees collected under Section 81.0521; and (23) [(24)] legislative appropriations. SECTION 7. The changes in law made by this Act apply only to a person required to file a bond, letter of credit, or cash deposit under Section 91.103, Natural Resources Code, on or after the effective date of this Act. A person required to file a bond, letter of credit, or cash deposit under Section 91.103, Natural Resources Code, before the effective date of this Act is governed by the law as it existed immediately before the effective date of this Act, and that law is continued in effect for that purpose. SECTION 8. This Act takes effect immediately if it receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for immediate effect, this Act takes effect September 1, 2005. ______________________________ ______________________________ President of the Senate Speaker of the House I certify that H.B. No. 380 was passed by the House on March 3, 2005, by the following vote: Yeas 135, Nays 0, 1 present, not voting. ______________________________ Chief Clerk of the House I certify that H.B. No. 380 was passed by the Senate on May 20, 2005, by the following vote: Yeas 30, Nays 0, 1 present, not voting. ______________________________ Secretary of the Senate APPROVED: _____________________ Date _____________________ Governor