Railroad Commission of Texas Chairman Barry T. Smitherman Commissioner David J. Porter Commissioner Christi Craddick

1. Railroad Commission of TexasChairman Barry T. SmithermanCommissioner David J. PorterCommissioner Christi Craddick

2. RRC Mission Statement Our mission is to serve Texas by our stewardship of natural resources and the environment, our concern for personal and community safety, and our support of enhanced development and economic vitality for the benefit of Texans.

3. RRC History • Established 1891 • Texas’ oldest regulatory agency • Led by 3 statewide elected officials • 122 year history, including over 90 years regulating the oil and gas industry

4. RRC Jurisdiction • Regulates: • Oil and natural gas industry • Pipeline transporters, natural gas and hazardous liquid pipeline industry • Liquid Propane Gas (LPG), Compressed Natural Gas (CNG), and Liquid Natural Gas (LNG) • Coal and uranium surface mining operations • Natural gas utilities

5. Agency Programs • Energy Resource Development • Gas Utilities Rates and Compliance • Alternative Energy • Pipeline Safety • Oil and Gas Monitoring and Inspections • Site Remediation • Well Plugging • Surface Mining Reclamation • Geographic Information Systems and Well Mapping • Public Information and Services

6. RRC Main Functions • The Railroad Commission’s main functions are to: • Protect the environment, public safety, and correlative rights of mineral interest owners; • Prevent waste of natural resources and promote conservation; • Assure fair and equitable utility rates in natural gas distribution industries. • Applicable to oil, gas and geothermal operations

7. RRC Overview Texas is the number one oil and gas producer with more than 400,000* wells • Stellar environmental and public safety record • conduct 125,000 field inspections annually • perform 700 complaint investigations annually • investigate blowouts – 100% • inspect over 1,500 spills annually • witness over 1,600 surface casings and over 5,200 well pluggings annually • *As of December 2013

8. RRC Service Populations • Approximately 283,400persons are employed in Texas’ oil and gas exploration • The Texas oil and gas industry contributes about $114.43 billion annually to the state's economy. • In Texas there are 225 counties with oil or gas production. • Source: September 2013 RRC Texas Petrofacts

9. RRC Statewide Rules • A few include: • §3.3 – Identification of Properties, Wells & Tanks • §3.8 – Water Protection • §3.9 – Disposal Wells • §3.13 – Casing, Cementing, Drilling & Completion Requirements • §3.14 – Plugging • §3.15 – Surface Equipment Removal Requirements & Inactive Wells • §3.17 – Pressure on Bradenhead

10. RRC Statewide Rules • A few include: • §3.20 – Notification of Fire Breaks, Leaks or Blow Outs • §3.21 – Fire Prevention and Swabbing • §3.22 – Protection of Birds • §3.29 – Hydraulic Fracturing Chemical Disclosure • §3.32 - Gas Well Gas and Casinghead Gas Shall Be Utilized for Legal Purposes • §3.36 – Operating in Hydrogen Sulfide Areas • §3.46 – Fluid Injection into Productive Reservoirs • §3.98 - Standards of Management of Oil and Gas Waste

11. RRC Partnerships • Working with Other Agencies • Texas Commission on Environmental Quality • Texas General Land Office • Public Utility Commission • Department of Public Safety • Texas Dept. of Transportation • Texas Department of State Health Services

12. Federal Regulation • Oil and gas waste regulation: • Clean Air Act • protects and improves the nation's air quality • Clean Water Act • regulates the discharge of pollutants from point sources to waters of the United States • Safe Drinking Water Act • federal law that ensures the quality of American’s drinking water • Oil Pollution Act of 1990 • improved prevention and response to oil spills

17. Barnett Shale • Hydrocarbon-producing geological formation • May have largest producible reserves of any onshore natural gas field in the United States • “Producible” because of technological advances

18. As of Feb. 17, 2012 Oil Wells – GreenGas Wells – RedDrilling Permits - Blue

21. Eagle Ford Shale • Hydrocarbon-producing geological formation • Capable of producing both gas and more oil than other traditional shale plays • Roughly 50 miles wide and 400 miles long • Covers a 23 county area

23. Eagle Ford Shale • EFS contains a high carbonate shale percentage, upwards to 70% • High percentage of carbonate makes it more brittle and “fracable” • Found at a depth of 4,000 to 12,000 feet

28. Please note that the top of the Eagle Ford Shale per the EIA structure map indicates 4000 feet, however, to date no completions have been submitted shallower than about 5300 feet.

29. Permian Basin • A significant oil-producing area, producing more than 280 million barrels in 2011 • More than 7,000 RRC fields in 59 counties • Roughly 250 miles wide and 300 miles long

30. Permian Basin

31. Permian Basin • Located in West Texas and • southeastern New Mexico • Oil and natural gas production ranging from depths from a few hundred feet to five miles below the surface • Estimated to contain recoverable oil and natural gas resources exceeding what has been produced over the last 90 years

35. Statewide Rule 32 Texas Administrative Code (TAC) Title 16, Part 1, Chapter 3 §3.32 Gas Well Gas and Casinghead Gas Shall Be Utilized for Legal Purposes

36. Statewide Rule 32 Introduction Gas must be used for lease operations or sold if it can be readily measured by devices (meters) routinely used in the operations of oil wells, gas wells, gas gathering systems or gas plants.

37. Statewide Rule 32 Exemptions • Tank vapors from: • crude oil storage tanks • gas well condensate storage tanks • salt water storage tanks • Fugitive emissions of gas • Amine treater, glycol dehydrator flash tank, and/or reboiler emissions

38. Statewide Rule 32 Exemptions • Blowdown gas from: • flow lines • gathering lines • meter runs • pressurized vessels • compressors • other gas handling equipment for construction, maintenance or repair

39. Statewide Rule 32 Exemptions • Gas purged from compressor cylinders or other gas handling equipment for startup • Gas released: • at a well site during drilling operations • prior to the completion date of the well • during air or gas drilling operations • which must be separated from drilling fluids using a mud-gas separator, or mud-degasser

40. Statewide Rule 32 Exemptions • During initial completion; recompletion in another field • Workover operations in the same field: • perforating • stimulating • deepening • cleanout • well maintenance or repair operations • Low pressure separator gas, up to 15 mcfdfor gas wells, 50 mcfd for oil leases

41. Statewide Rule 32 Gas releases to be flared or vented • All gas releases >24 hours duration shall be burned in a flare, if the gas can burn safely • All gas releases of <24 hours duration may be vented to the air if not required to be flared for safety reasons • Notification for gas being flared or vented shall be made to the RRC District Office as soon as possible (telephone, fax or email)

42. Statewide Rule 32 Gas releases to be flared or vented • Venting • approved on a case-by-case basis • shall be authorized by the District Office • Flaring or venting • must be measured or accurately estimated • >24 hour duration requires a Rule 32 exception form • form must be filed with Austin on next business day after initial 24 hours of venting/flaring • file a copy with RRC District Office

43. Statewide Rule 32 Gas releases to be flared or vented • Gas being flared or vented must be measured or accurately estimated • report on Monthly Production Form (Form PR) • Gas releases >24 hours in duration in one continuous event or 72 hours in one calendar month must file a Rule 32 Exception with Austin

44. Statewide Rule 32 Gas releases from drilling and workover operations • Gas being flared or vented up to 10 days: • after initial completion • recompletion • stimulation • well maintenance/repair operations • Notify the District Office • A Rule 32 Exception Form must be filed if continuing for more than 10 days • copy the District Office

45. Statewide Rule 32 Exceptions • After 24 hours continuous event or up to 72 hours in calendar month • May be approved administratively for up to 180 days if 50 mcf/day or greater for a gas well, oil lease, or commingled vent or flare point • Requires RRC Administrative Hearing if 50 mcf/day or greater for duration longer than 180 days

46. Statewide Rule 32 Exceptions • May be indefinitely approved administratively with adequate justification if less than 50 mcf/day • Documentation required for permanent exception <50 mcf/day • cost benefit analysis • map showing nearest pipeline capable of accepting gas • estimate of gas reserves

47. Statewide Rule 32 Exceptions • Fee of $375.00 per gas well, oil lease, or commingled vent/flare point • Exceptions for emergencies not fault of the operator • plant emergencies • plant turnarounds • upsets with pipeline gathering system or maintenance will be granted for the duration of the event

48. Statewide Rule 32 Exceptions • Rule 32 Exception Form may include: • numerous gas wells and oil leases • other facilities • Each must be clearly identified • A spreadsheet attached should include: • name & lease ID# • daily volume • estimated total volume for entire event

49. Statewide Rule 32 Exceptions • If applicable - Rule 32 Exceptions: • if additional time is requested, operator must re-file within 21 days BEFORE the expiration of existing exception. • if re-filed within 21 days, the operator is authorized to continue flaring/venting until final approval or denial of the requested permit extension. • Fee is $375.00

50. Statewide Rule 32 Exceptions • Rule 32 Exceptions are: • not transferable upon a change of operatorship • operator has 90 days to re-file the exception once the P-4 transfer has been approved