On May 5, 2020, the Railroad Commission of Texas (the “RRC”) held an open meeting during which it voted 2-1 to dismiss the Pioneer Natural Resources USA Inc. and Parsley Energy Inc. complaint alleging waste and asking the RRC to prorate crude oil production. Chairman Christian and Commissioner Craddick voted to dismiss the complaint, while Commissioner Sitton dissented, not because he favored prorationing, but because he felt the RRC should have determined reasonable market demand as requested in the complaint.

While prior statements by Chairman Christian and Commissioner Craddick had clearly previewed the negative outcome on Pioneer and Parsley’s complaint, the open meeting was nevertheless noteworthy because the RRC also considered - and acted on - the potential waiver or suspension of applicable statutes, rules, final orders, or other regulatory requirements due to the COVID-19 pandemic.

RRC RESPONSE TO THE COVID-19 PANDEMIC

Under agenda item 189, the RRC considered possible action on potential waivers or suspensions of applicable statutes, rules, final orders, or other regulatory requirements due to the COVID-19 pandemic. To begin the discussion, Chairman Christian asked Paul Dubois with the RRC’s Oil and Gas Division to report on storage capacity as requested during the prior open meeting. As context, the Commission has the authority under Texas Natural Resource Code § 85.058 to inquire “into the production, storage, transportation, refining, reclaiming, treating, marketing, and processing of oil and gas, and the reasonable market demand for oil and gas, so that it may determine whether or not waste exists or is imminent . . . .” Dubois stated that as of May 5th, he had received responses from 78% of refineries and 73% of common carriers indicating that, as of April 20th, they had a total of 71.2 million bbls of unfilled (but perhaps contracted) storage capacity. 

Following Dubois’ report on storage capacity, Chairman Christian invited Ed Longanecker, President of the Texas Independent Producers and Royalty Owners Association and member of the RRC’s Blue Ribbon Task Force (“BRTF”), to discuss the BRTF’s recently issued list of recommendations intended to help oil and gas companies survive the current demand crisis. The report, found here, addresses topics such as:

• elimination of well testing requirements;

• increased funding for the orphan well plugging program;

• options for increasing crude oil storage capacity;

• extensions or waivers of operating deadlines;

• regulatory fee and tax relief measures; and

• federal diplomatic efforts to address international market manipulation.

Following Longanecker’s discussion, Chairman Christian asked that the BRTF continue to meet and discuss ways the RRC can reduce and regulate natural gas flaring. Commissioner Craddick echoed the concerns about flaring, signaling potential action by the RRC in the future. Limits on flaring natural gas could have a significant impact on some producers, potentially forcing them to shut in material amounts of associated oil production and slow development of wells.

Chairman Christian then offered two motions.

The first motion sought to waive for the rest of 2020 the fees associated with filing Forms P-17 (Application for Permit Exception to Statewide Rules 26 and/or 27 (commingling)), W-14 (Application to Dispose Oil & Gas Waste by Injection into a Porous Formation not Productive of Oil & Gas), H-1 (Application to Inject Fluid into a Reservoir Productive of Oil & Gas), H-4 (Application to Create, Operate and Maintain an Underground Hydrocarbon Storage Facility), and W-3C (Certification of Surface Equipment Removal for an Inactive Well). After some discussion initiated by Commissioner Sitton, the RRC Commissioners voted unanimously to pass this motion.

The second motion offered an exception to Statewide Rule 95 to allow for an increase in underground storage capacity for crude oil by removing the requirement that such underground storage be exclusively in salt formations. This motion also streamlined the permitting process for unprotested underground storage applications by waiving the hearing requirement and allowing for administrative approval by Commission Staff. Again following discussion initiated by Commissioner Sitton, the Commissioners also voted unanimously to pass this motion.

Finally, Commissioner Craddick proposed four, one-year exceptions to current rules, which were also unanimously approved:

1. an exception to Statewide Rule 8(d)(4)(H) to allow operators with authorized pits to submit a notification to the appropriate district office to have an extension to the deadline to de-water, backfill, and compact authorized pits;

2. an exception to Statewide Rule 13(d) to extend the 180-day limitation on administrative approvals of alternative casing and tubing programs to allow administrative approvals exceeding 180 days;

3. an exception to Statewide Rule 14(b)(2) to extend the one-year deadline to plug wells to two years for wells reporting production in February of 2020 and subsequently shut-in with no reported production from March 1, 2020 to March 1, 2021 (although the exception would not limit the authority of the RRC to require an operator to plug a leaking well that poses a danger to the environment); and

4. an exception to Statewide Rule 107(d) to allow the RRC’s legal enforcement section to exercise discretion to forego penalties for violations of RRC rules occurring between March 1, 2020 and March 1, 2021 that do not implicate health, safety, or environmental concerns.

These four exceptions automatically expire on May 5, 2021, unless earlier terminated or extended.

The Baker Botts team will continue to monitor RRC actions intended to address the COVID-19 pandemic and oil price downturn, particularly any continued discussion of Commission policy on natural gas flaring.

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