Field Operations and State-Managed Plugging Overview Good Morning. My name is Clay Woodul and I am an Engineering Specialist on the Field Operations Technical Staff in Austin. Presenter: Clay Woodul

Presentation Overview Organization Responsibilities Activities Today I hope to provide you with an insight to Field Operations, our Organization, Responsibilities, Activities

The Field Operations section of the Oil and Gas Division is headquartered in Austin and has nine district offices throughout the State. San Antonio, Houston, Corpus Christi, Kilgore, Abilene, San Angelo, Midland, Wichita Falls, and Pampa.

State Managed Plugging Deputy Director District Office District Director Assistant Director Clerical Staff Technical Staff Lead Technician Field Inspectors State Managed Plugging State Managed Cleanup Admin Staff Tech Staff The Field Operations Section is led by the Deputy Director of Oil & Gas, Ramon Fernandez. Austin headquarters includes an Administrative and Technical staff. The staffing at our District Offices differs in the number of employees, but the organization is similar throughout the State. Each office, with the exception of Pampa, includes a District Director, Assistant Director, Clerical or Administrative Staff, Technical Staff, Lead Technician, Lead State Plugger, Cleanup Coordinator, and Field Inspectors.

Field Operations Austin Complaint Monitoring Enforcement Referrals State Managed Plugging Program Regulatory Reports Public and Industry Inquiries Technical Assistance for other Departments One of the primary duties of the Austin staff is to assist and support the district offices. This is done through the monitoring of Complaints, processing Enforcement referrals, assistining in the management of the State Managed Plugging program, issuing various regulatory reports. The staff in Austin also responds to both public and industry inquiries and provides technical assistance for other departments

Form H-15 25-year Inactive Well Program Monthly Listings Fluid Level or Mechanical Integrity Tests 14(b)(2) extension Severance/Seal Extensions The Field Ops staff in Austin is responsible for certain filing requirements such as the H-15 fluid level testing program. SWR 15 requires operators to test any inactive wellbore that is 25 years old or older and has been inactive for more than 12 months. This is done to show that an inactive well does not pose a potential threat of harm to natural resources, including surface and subsurface water, oil and gas. Listings are sent to operators each month identifying the wells which must be tested. The test schedule is based on the annual field-testing schedule for the well’s completion field and there is a three (3) month deadline to run the test. An operator may choose to run either a static fluid level test or a mechanical integrity test. The district office must receive notice at least 72 hours prior to the test. The fluid level test can only be run on wells that have not previously failed a fluid level test. If the well fails the fluid level test, then a MIT test must be run. Fluid level test are filed with the Field Operations H-15 group. If the operator chooses to run a MIT test, the production casing must e tested to a depth of at least 250 feet below the base of usable quality water or 100 fee below the top of cement behind the production casing. The minimum test pressure is 250 psig and is recorded on a chart for 30 minutes. The original and a copy of the test is filed with the appropriate district office. There is a third test that is allowed called the A.D.A test, which may be run as an alternative to the MIT test. Basically, the ADA test is when an inert gas is placed on the casing and the fluid level is displaced to a predetermined depth and the stabilized pressure is recorded on a chart for an hour. These tests are generally approved for 3 years and are almost always witnessed. Failure to provide a test report by the due date will cause the 14(b)(2) extension to be denied and the operator will receive a notice of intent to cancel the P-4. 14(b)(2) extensions are also denied if the test is a failure. The Field Ops staff in Austin may issue an extension to the due date for good cause. Operators should contact the Field Ops staff is additional time is needed or if there is extenuating circumstances why the test cannot be run, such as the well has been plugged and abandoned, or is a low volume producer. Just a couple of notes about the H-15 form---make sure that you fill out the form completely. An incomplete/incorrectly submitted form is the same as a failed test.

Bringing Wells back into Production SWR 15(l)(7) Effective 2010: An operator of an inactive well that is more than 25 years old may not return that inactive well to active operation unless the operator performs either a fluid level test on the well within 12 months prior to the return to activity or a hydraulic pressure test of the well within five years prior to the return to activity. What if I brought my well back into Production? SWR 15(l)(7) requires an operator of an inactive well older than 25 years to perform the fluid level or mechanical integrity test prior to returning the well to production. The fluid level test must be run within 12 months and the MIT test must be run within 5 years of returning the well to production. Failure to conduct the required test could result in a referral for Legal Enforcement action.

Returning Well to Active Status H-15 test must be run as noted in 15(l)(7) W-10 or G-10 Retest Form must be filed Well must produce 10 BO or 100 MCF per month for 3 consecutive months Extensions of time has to be approved In order to return the previously shut-in well to active producing status, the operator must run the H-15 test within the time period on the previous slide. A W-10 or G-10 retest must be filed and the well must produce either 10 barrels of oil per month or 100 mcf of gas per month for three consecutive month. If additional time is needed, an operator should contact Field Ops Austin H-15 group for an extension. If the well is not capable of producing 10 barrels of oil per month or 100 mcf of gas per month for three consecutive month, the well will remain classified as “inactive” by rule and will require another fluid level test when the next cycle comes around. If this happens, an operator should contact Field Ops Austin of the situation.

District Office Responsibility Facilities and activities associated with Oil & Gas Exploration Production Processing Transportation Waste Handling and Disposal The nine district offices are responsible for the inspections and monitoring of all facilities and activities associated with Oil and Gas Exploration, Production, Processing, Transportation, Waste Handling and Disposal. So, how large an order is this?

This gives you an idea of the current and historical producing oil and gas wells, as well as other permitted locations across the State. Currently, this includes over 420,181 wells on schedule, and that doesn’t include all the new wells being drilled.

Which district has the most to look after Which district has the most to look after? Midland district, which includes 08 and 8A, leads the state with a whopping 133,408 wells and coming in a distant second place is Wichita Falls with 56,890 wells.

So, this is what each of our 148 inspectors piece of the pie looks like. This is a large order. If each one of our field inspectors was to average 2 well inspections per hour, that’s 16 wells per day, it would take a minimum of 177 days to inspect each and every well at that rate and that doesn’t include the drive time to those remote locations.

Monitoring & Inspections Monitoring Emergency Incidents Blowouts Fires H2S Incidents Accidents/Injuries/Deaths Spills Witness Industry Operations Surface Casing Jobs P&A Operations Mechanical Integrity Tests Operator Cleanups Drilling rig inspections Commercial Waste and Disposal Facilities Let’s look at some of the regulatory activities that our district offices perform. Top priority are incidents that pose an immediate or imminent threat to the health or safety of the general public. This includes blowouts, fires, H2S incidents, accidents, and spills. When we aren’t responding to Emergency Incidents the we are witnessing industry activities such as Surface Casing Jobs, Plugging Operations, Mechanical Integrity Tests, Operator Cleanups, performing drilling rig inspections and commercial waste and saltwater disposal facilities. The district offices respond to complaints, make pit inspections, perform routine lease inspections, and seal wells in when there are violations that aren’t corrected.

Monitoring & Inspections 125,878 Inspections 55,030 Violations 16,443 Pollution related violations 22 Blowouts 1,943 Surface Casing 14 H2S Incidents 7,346 MITs 27 Fires 2,015 Spills 10 Accidents 791 Complaints 5,250 Industry Pluggings This will give you an idea of our field activities during FY 2013

Compliance & Enforcement Notice of Violation Notice of Intent Legal Referral So what happens after the inspections? Each of those 55,030 violations from the previous slide have to be addressed in the district office. The first course of action is to send the operator a Notice of Violation, letting them know we inspected their lease and found these violations of our Statewide Rules. Typically, we are going to give the operator 30 days to fix the violations and then we’ll go inspect the lease again. If we find the same violations exist, the district office will send a Notice of Intent to Cancel the P-4. Once again, most times they have 30 days to respond, however, both of these letters can have a shorter compliance period depending on the severity of the violations. At the end of the 30 days, the lease will be severed unless those violations are corrected. Once a lease is severed, the district office will look into referring that operator for legal action.

Compliance & Enforcement §81.0531 – Administrative Penalty If a person violates provisions of this title which pertain to safety or the prevention or control of pollution or the provisions of a rule, order, license, permit, or certificate which pertain to safety or the prevention or control of pollution and are issued under this title, the person may be assessed a civil penalty by the commission. (b) The penalty may not exceed $10,000 a day for each violation. Each day a violation continues may be considered a separate violation for purposes of penalty assessments. Section 81 of the Texas Natural Resources Code----

Compliance & Enforcement Enforcement Recommendations Plug Hearings Non-Compliance with SWR 14(b)(2) Penalty Action Hearings Non-Compliance with Commission Rules When an operator fails to bring their wells or leases into compliance with Commissions rules, the district office may refer those violations to Austin, which can end up in the Commissions’ Legal Enforcement section. There are two types of Enforcement referrals, Plug Hearings and Penalty Hearings. The difference between the two is that Plug cases involve wells that are in violation of SWR 14(b)(2). Penalty cases do not. During FY 2013, 356 cases were referred to Field Ops Austin, 194 of these were Plug cases and 162 cases were for violations of Safety and/or Pollution rules.

Enforcement Referrals Plug Hearings Violation of SWR 14(b)(2) Has not produced in > 12 months Does not have an approved 14(b)(2) Extension Does not have “Good Faith Claim” to operate May include violations of other Commission Rules Show Cause Plug Hearings involves wells that have not produced in greater than 12 months and do not have an approved plugging extension under SWR 15. In some cases, it may mean that the operator has failed to provide proof that they have a Good Faith Claim to operate the well(s). Often times, the Plug cases will include violations of other Commissions rules.

Enforcement Referrals Rule 3—Signs Rule 8—Leaks, spill, pits Rule 9/46-Delinquent H-5, pressure on annulus Rule 13—Open or leaking wellheads Rule 17—Pressure on bradenhead Rule 36—H2S violations Examples of common rule violations that could be included with Plug cases or may be the basis of the Penalty case.

Enforcement Referrals SWR 5—Drilling Permits All wells require a permit to be drilled, deepened, reentered, or plugged back. Operations may not commence until the permit has been issue. Failure to notify prior to setting Surface, Intermediate, or Production casing. Failure to notify of plugging a dry hole Examples of other rule violations referred to Enforcement are SWR 5. Violations could include not having a drilling permit, started drilling before the permit was issued. Violations of permit conditions may include failing to notify the Commission a minimum of eight (8) hours prior to setting Surface, Intermediate, or Production casing, or four (4) hours when plugging a dry hole

Enforcement Referrals SWR 14—Plugging rule Failure to file plugging forms (W3A & W3) Failure to notify Failure to properly plug Failure to remove equipment SWR 14 –requires that an operator provide notice when planning to plug a well through the filing of a Form W3A (14(a)(2)). It also requires that a form W3 be filed within 30 days after plugging operations are completed (14(b)(1)). 14(a)(3) requires that an operator notify the district office at least four hours before commencing plugging operations. Failure to remove all equipment after plugging (14(d)(12))

Enforcement Referrals SWR 20—Notification of Fires, Leaks, Blowout Requires immediate notification of Fires Blowouts and loss of well control Leaks, spills, or breaks Another example of a rule violation that might be referred to Enforcement immediately would be SWR 20

Field Operations Activities Complaint Process Investigate all complaints Coordinate inspections Complaint Coordinator Monitors Progress Complainant kept informed Refer to State Managed Plugging & Cleanup Another activity our district offices have is responding to Complaints. The Commission received 791 complaints during FY 2013 across the state and we respond to each one these. Often times this means coordinating inspections of the problem with the complainant to ensure we get a full understanding of their concerns. Each District office has a Complaint Coordinator who is responsible for monitoring and tracking their complaints and making sure that we keep the complainant informed of any progress. Not every complaint filed with the Commission is within our jurisdiction and often times the complaint is against an operator who is no longer in business, cannot be found. Active pollutions cases like this are referred to Site Cleanup and abandoned unplugged wells are referred to State Managed Plugging.

Field Operations Activities State Managed Plugging Program Another activity that our district offices are responsible for is the plugging of orphan wells. This program is known as the State Managed Plugging Program. This is a program that has an annual budget of approximately $14 million dollars and is the subject of my next presentation.

Questions? This is all I have for Field Operations, I’d be happy to answer any questions, if you have any.