Texas 2021 87th Regular

Texas Senate Bill SB1258 Enrolled / Bill

Filed 05/24/2021

                    S.B. No. 1258


 AN ACT
 relating to the duty of a lessee or other agent in control of
 certain state land to drill an offset well, pay compensatory
 royalty, or otherwise protect the land from drainage of oil or gas
 by a horizontal drainhole well located on certain land.
 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
 SECTION 1.  Section 52.034, Natural Resources Code, is
 amended by amending Subsections (a) and (d) and adding Subsections
 (a-1) and (a-2) to read as follows:
 (a)  In this section:
 (1)  "Horizontal drainhole well" means a well with a
 horizontal drainhole that may produce oil or gas along at least 100
 feet of the drainhole.
 (2)  "Take point" means any point in a horizontal
 drainhole well where oil and gas can be produced from the reservoir
 or field interval recognized by the Railroad Commission of Texas.
 (3)  "Unconventional fracture treated field" means an
 oil or gas field in which horizontal well development and hydraulic
 fracture treatment must be used to recover resources from all or
 part of the field.
 (a-1)  Except as provided by Subsection (a-2), if [If] oil or
 gas is produced in commercial quantities from a well located on a
 privately owned area or areas of state land leased at a lesser
 royalty and the well is located within 1,000 feet of an area leased
 under this subchapter[,] or [in any case where such an area] is
 draining an area leased under this subchapter [being drained by
 such a well or wells], the lessee of the state area shall begin in
 good faith and prosecute diligently the drilling of an offset well
 or wells on the area leased from the state within 60 days after the
 initial production from the draining well or the well located
 within 1,000 feet of the leased state area.
 (a-2)  If the well producing oil or gas in commercial
 quantities under Subsection (a-1) is a horizontal drainhole well
 located in an unconventional fracture treated field, a lessee of a
 state area is not required to drill an offset well as provided by
 Subsection (a-1) unless any take point in the horizontal drainhole
 well is located closer to the leased state area than the greater of:
 (1)  the minimum distance established by the applicable
 lease-line spacing requirement of the Railroad Commission of Texas;
 or
 (2)  a perpendicular distance of 330 feet.
 (d)  At the determination of the commissioner and with the
 commissioner's [his] written approval, the payment of a
 compensatory royalty shall satisfy the obligation to drill an
 offset well or wells required by Subsection (a-1) [Subsection (a)
 of this section]. Such compensatory royalty shall be paid at the
 royalty rate provided by the state lease issued under this
 subchapter and shall be paid on the market value at the well of
 production from the [draining] well producing oil or gas in
 commercial quantities described by Subsection (a-1) [or the well
 located within 1,000 feet of the leased state area].
 SECTION 2.  Section 52.173, Natural Resources Code, is
 amended by amending Subsections (a) and (d) and adding Subsections
 (a-1) and (a-2) to read as follows:
 (a)  In this section:
 (1)  "Horizontal drainhole well" means a well with a
 horizontal drainhole that may produce oil or gas along at least 100
 feet of the drainhole.
 (2)  "Take point" means any point in a horizontal
 drainhole well where oil or gas can be produced from the reservoir
 or field interval recognized by the Railroad Commission of Texas.
 (3)  "Unconventional fracture treated field" means an
 oil or gas field in which horizontal well development and hydraulic
 fracture treatment must be used to recover resources from all or
 part of the field.
 (a-1)  Except as provided by Subsection (a-2), if [If] oil or
 [and/or] gas is [should be] produced in commercial quantities
 within 1,000 feet of land subject to this subchapter[,] or if
 production of oil or gas is draining [in any case where] land
 subject to this subchapter, [is being drained by production of oil
 or gas] the owner, lessee, sublessee, receiver, or other agent in
 control of land subject to this subchapter shall in good faith begin
 the drilling of a well or wells upon such state land within 100 days
 after the draining well or wells or the well or wells completed
 within 1,000 feet of the state land commence to produce in
 commercial quantities[,] and shall prosecute such drilling with
 diligence to reasonably develop the state land and to protect such
 state land against drainage.
 (a-2)  If the well producing oil or gas in commercial
 quantities under Subsection (a-1) is a horizontal drainhole well
 located in an unconventional fracture treated field, the owner,
 lessee, sublessee, receiver, or other agent in control of land
 subject to this subchapter is not required to drill an offset well
 as provided by Subsection (a-1) unless any take point in the
 horizontal drainhole well is located closer to the state land than
 the greater of:
 (1)  the minimum distance established by the applicable
 lease-line spacing requirement of the Railroad Commission of Texas;
 or
 (2)  a perpendicular distance of 330 feet.
 (d)  At the determination of the commissioner and with the
 commissioner's [his] written approval, the payment of a
 compensatory royalty shall satisfy the obligation to drill an
 offset well or wells required by Subsection (a-1). Such
 compensatory royalty shall be paid at a royalty rate established by
 the commissioner if the land is unleased, or at the royalty rate
 provided by the state lease, if the land is leased. Such
 compensatory royalty shall be paid on the market value at the well
 of production from the [draining] well producing oil or gas in
 commercial quantities described by Subsection (a-1) [or the well
 located within 1,000 feet of the state land].
 SECTION 3.  Notwithstanding Section 4 of this Act, the
 changes in law made by this Act apply only to a lease or other
 agreement or an amendment to a lease or other agreement entered into
 on or after the effective date of this Act. A lease or other
 agreement or an amendment to a lease or other agreement entered into
 before the effective date of this Act is governed by the law in
 effect on the date the lease or other agreement or amendment to the
 lease or other agreement is entered into, and that law is continued
 in effect for that purpose.
 SECTION 4.  The parties to a lease or other agreement entered
 into before the effective date of this Act pertaining to land
 subject to Subchapter B or F, Chapter 52, Natural Resources Code,
 may:
 (1)  contractually agree to amend the lease or other
 agreement to bring the lease or other agreement into conformity
 with the changes in law made by this Act; or
 (2)  after reviewing pertinent data, contractually
 agree that a horizontal drainhole well in an unconventional
 fracture treated field is incapable of draining the land subject to
 the lease or other agreement.
 SECTION 5.  This Act takes effect September 1, 2021.
 ______________________________ ______________________________
 President of the Senate Speaker of the House
 I hereby certify that S.B. No. 1258 passed the Senate on
 May 3, 2021, by the following vote:  Yeas 30, Nays 0.
 ______________________________
 Secretary of the Senate
 I hereby certify that S.B. No. 1258 passed the House on
 May 24, 2021, by the following vote:  Yeas 140, Nays 5, one present
 not voting.
 ______________________________
 Chief Clerk of the House
 Approved:
 ______________________________
 Date
 ______________________________
 Governor