Proposed New Railroad Commission Rules

1. Proposed New Railroad Commission Rules Brenda L. Clayton Kelly Hart & Hallman LP December 6, 2012 Austin Bar Association Environmental Law Section

2. Three Rules Packages • Casing and cementing • Reuse and recycling • Disposal and injection wells

4. Casing and cementing • Primary purposes: • Strengthen casing and cementing requirements to protect water quality • Recognize transfer of surface casing program from TCEQ to RRC • First substantive regulations specifically for hydraulic fracturing • Published September 7 • Comment period ended November 20 • Primarily affects Statewide Rule 13, a/k/a 16 Tex. Admin. Code §3.13

5. New Definitions • “Protection depth” – “usable quality water” + brackish water, if hydraulically connected • “Fracture stimulation” – treatment of a well by application of hydraulic fracturing fluid under pressure to initiate or propagate fractures in a target geologic formation • “Productive zone” – Any stratum known to contain oil, gas or geothermal resources or formation fluids or capable of allowing migration of oil, gas or formation fluid up the annulus.

6. “Minimum separation well” Well in which HF treatments will be conducted in which • The vertical distance between the base of usable quality water and the top of the formation to be stimulated is less than 1000 vertical feet, or • That Director has determined contains inadequate separation between the base of usable quality water and the top of the formation, or • That Director has determined is a structurally complex geologic setting with known faults that extend through the intervening zone and are likely to be transmissive.

7. Selected Substantive Requirements For All Wells • (a)(3) –Requires diameter of each section of the wellbore in which casing will be set to be at least 2.5 inches greater than the outside diameter of casing to be installed. • (a)(4) – Requires casing to be cemented across and extend at least 600 feet above all formations permitted for injection under §§3.9 or 3.46 within ¼ mile • (a)(4) – Requires casing to be cemented across and extend 600 feet above all productive zones, abnormal pressure zones, lost circulation zones, or zones with corrosive formation fluids.

8. Selected Substantive Requirements for All Wells • (a)(5) – New ways to test casing. • (a)(6)(C) - Drilling mud requirements • Most requirements relate to maintaining well control to prevent blowouts. • New groundwater protection – • (1) requires that all borehole intervals drilled before reaching the base of protected water to drilled with air, fresh water, or WBDM and • (2) prohibits the use of OBDM until casing has been set and cemented to the protection depth.

9. Special Requirements for HF wells[3.13(a)(7)] • Casing must have pressure rating 1.2 times max pressure • New pressure testing requirements & notify RRC. • Requires operator to monitor pressure in all annuli during stimulation operations. • Operator must stop operations if pressure exceeds certain criteria • Must notify RRC • Can’t continue until it remedies problem.

10. Special Requirements for Minimum Separation Wells Prevents open hole completions or other non-cement completions. Requires cement production casing from the shoe to the surface or bottom of the cellar. Must pressure test the casing string. Must run a radial cement evaluation tool to assess cement integrity and placement in the production casing.

12. Recycling Rules • Primary purposes: • Distinguish between recycling/reuse of water and of solids. • Exempt certain types of noncommercial recycling/reuse from the permitting requirements. • Add semi-mobile facilities; permit terms; provisions for hearing on permit; minimum standards for citing, operations, etc. • Affected sections: Statewide Rule 8, a/k/a 16 Tex. Admin. Code 3.8; 16 TAC Chapter 4, subchapter B • Status: published 9/28/2012; comment period ended 10/29/2012

13. Numerous New or Amended Definitions in Rule 8 • Amends “completion/workover pit” to clarify that pit may contain hydraulic fracturing flowback fluids (HF3). • Amends “fresh makeup water pit” to clarify that pits may contain treated HF3. • Defines “hydraulic fracturing flowback fluid” as the fluid, including spent hydraulic fracturing fluid and produced water, that returns from a well on which a hydraulic fracturing treatment has been performed. • Defines “commercial recycling” as the storage, handling, treatment, and recycling of oil and gas waste from more than one operator for compensation.

14. Other New or Amended Definitions in Rule 8 “Noncommercial on-lease produced water and/or hydraulic fracturing flowback fluid recycling”: the recycling of produced water and/or HF3 by the generator of the waste or by generator’s contractor on the lease or unit on which the waste was generated.

15. Numerous New or Amended Definitions in Rule 8 “Noncommercial centralized produced water and/or hydraulic fracturing flowback fluid recycling”: same except it is recycled “at a centralized facility operated and controlled by the generator of the waste” “Recycle”: to process and/or use or re-use oil and gas wastes as a product for which there is a legitimate commercial use and the actual use of the recyclable product for the purposes authorized in the rule or a permit.

16. Pit Rules Revised – Use [3.8(d)(4)] • As proposed: • May maintain and use certain pits for enumerated purposes, without a permit • Including on-lease produced water or HF3 pits • TXOGA’s suggestion: • Doesn’t distinguish between “produced water” and HF3 since all fluid is produced once you produce the well and all fluid is commingled. • Can maintain and use certain pits without a permit, including “non-commercial on-lease produced water” pits

17. Need permit for centralized facility [3.8(d)(2)] • However, a centralized produced water and/or HF3 recycling pit must be permitted.

18. Standard for on-lease produced water and HF3 pits [3.8(d)(4)(G)] • Produced water or HF3 must have been generated on lease. • Large enough with sufficient freeboard to prevent spillage (at least 2 feet). • Must be lined – either synthetic or natural. • Operator must take care not to damage liner. • Operator periodically inspect pit.

19. No permit for noncommercial on-lease recycling [3.8(d)(7)(B)] • Noncommercial on-lease produced water recycling is authorized without a permit: • If treated produced water or HF3 is recycled as makeup water for HF fluid treatment or other oilfield fluid to be used in the wellbore of an oil, gas, geothermal, or service well. • If the water is treated to the national drinking water standards, the operator may use or dispose of the treated water in way other than discharge to surface water or irrigation of edible crops.

20. Need minor permit to operate noncommercial centralized recycling [3.8(d)(7)(C)] • Centralized noncommercial produced water or HF3 recycling is authorized with a minor permit: • If treated produced water or HF3 is recycled as makeup water for HF fluid treatment or other oilfield fluid to be used in the wellbore of an oil, gas, geothermal, or service well. • If the water is treated to the national drinking water standards, the operator may use or dispose of the treated water in way other than irrigating edible crops or discharging it to surface waters.

21. Disposal of pit contents3.8(d)(3)(F) • May, without permit, dispose of untreated HF3 pit waste by burial in pit if • pit is dewatered • waste was generated on-site. • May, without a permit, dispose of produced water OR HF3 pit waste that is a recyclable product by burial in pit if • pit is dewatered, and • pit is noncommercial, on-lease pit.

22. Pit rules revised- TXOGA’s • May without a permit, dispose of non-commercial on-lease produced water pit waste by burial, if • pit is dewatered, and • waste is disposed on lease where it was generated.

23. Commercial recycling requires permit under Chapter 4 • Three types of Chapter 4 facilities: • Existing: mobile and permanent • Proposed: semi-mobile • Sham recycling prohibited. • Administrative approvals formalized; opportunity for contested case hearing on permit application, as well. • Minimum information required: engineering and geologic information, design and construction information, operating information, monitoring information, closure information

25. Disposal and Injection Wells • Primary purposes: • Strengthen rule to protect groundwater • Tighten notice requirements • Status: • Commission has circulated draft and received some public input. • Commission staff will host a workshop to receive public input and consider informal comments on Wednesday, December 12.

26. Notice • Requires that notice be published no more than 30 days before the application is filed. • Requires mailed notice not be sent more than 30 days before date application is filed. • Prescribes the wording of the mailed notice. • Requires mailed notice sent by regular mail and certified mail.

27. Substantive Protections: AOR • Cannot approve application if there are orphaned wells within ¼ mile • Applicant must show that all wells within ¼ mile are cemented across the injection interval to prevent movement of fluids into USDW. • Imposes minimum separation requirements between disposal interval and usable quality water and USDW • Imposes secondary containment requirements.

28. Miscellaneous Provisions • Unless otherwise provided, permit expires 3 years after issuance if not used.