ETF – Oil and Gas Tract, May 6, 2014

1. GROUNDWATER AUTHORITY AND REQUIREMENTS ETF – Oil and Gas Tract, May 6, 2014

2. Disclaimer Groundwater Protection Policy Texas Groundwater Protection Committee Texas Department of Licensing & Regulation Groundwater Management Groundwater Conservation Districts Water well registration & permits Exempt wells Provisions for exempt rig supply wells Production fees? Summary Overview

3. Groundwater Protection • 1989 • Texas Legislature established the state’s groundwater protection policy • set non-degradation of existing quality of groundwater as goal for all state programs • established that the goal of non-degradation does not mean zero-contaminant discharge

4. Groundwater Protection • The groundwater protection policy recognizes: • the variability of the state’s aquifers • the importance of maintaining water quality for existing and potential uses • the environment and the public health and welfare must be protected • the long-term economic health of the state must be maintained and enhanced

5. Groundwater Protection • When groundwater has been impacted by regulated activities, the groundwater protection policy states that the quality of groundwater is to be restored if feasible

6. Groundwater Protection • In law, the Legislature recognized the important role of the use of the best professional judgment of the responsible state agencies in attaining the groundwater goal and policy of this state • This section of the Texas Water Code also created the Texas Groundwater Protection Committee

7. Texas Groundwater Protection Committee • The Committee is the primary mechanism to achieve the state’s groundwater protection goal and implement the state’s groundwater protection policy

8. Texas Groundwater Protection Committee • Texas Commission on Environmental Quality (Chair) • Texas Water Development Board (Vice-Chair) • Railroad Commission of Texas • Texas Department of Agriculture • Department of State Health Services • Texas State Soil and Water Conservation Board • Texas Alliance of Groundwater Districts • Texas Department of Licensing and Regulation • Texas AgriLife Research • Bureau of Economic Geology, University of Texas at Austin

9. Texas Groundwater Protection Committee • Coordinate groundwater protection and information exchange activities among the state’s regulatory and research actions • Prepare the state’s Groundwater Protection Strategy • Prepare an annual Joint Groundwater Monitoring and Contamination Report that documents all known groundwater contamination cases in the state • Assist in preparation of Pesticide Management Plans • Prepare a biennial report to the Legislature on groundwater protection activities in the state

10. Texas Groundwater Protection Committee • Through these Committee activities, Texas groundwater quality is protected and restored • The bulk of these efforts are through existing water and waste programs at the Texas Commission on Environmental Quality and the oil and gas and surface mining programs at the Railroad Commission of Texas

11. Texas Department of Licensing and Regulation • Water Well Drillers and Pump Installers Program – state rules for drilling and completion of water wells • Licensed driller required • Well siting and set-back requirements • Well completion and construction standards

12. Groundwater Management • In Texas, the preferred method of groundwater quantity management is through the rules and regulations of groundwater conservation districts • No state agency is authorized to regulate the withdrawal, production, or use of groundwater

13. Groundwater Management • Because they are units of local government, the state agencies have limited oversight of groundwater conservation district operations • State agency oversight is generally tied to groundwater conservation district planning functions

14. Groundwater Conservation Districts • State law requires groundwater conservation districts (‘districts’) to register and permit the drilling, equipping, operating, or completing of water wells

15. Districts • Under state law, exempt* water wells include • those exempted specifically by a district’s rules • domestic, livestock, poultry / <25,000 gpd / > 10 acres • used solely to supply water for a rig that is actively engaged in drilling or exploration operations for an oil or gas well / well is located on same lease or field associated with the drilling rig (‘exempt rig supply well’) • drilling of well authorized by the Railroad Commission of Texas for surface mining purposes, or for production from such a well to the extent the withdrawals are required for mining activities regardless of any subsequent use of the water • * ‘exempt’ from district permit requirements

16. Districts • State law provides that a district may require an exempt rig supply well to be permitted and to comply with all district rules if the purpose of the well is no longer solely to supply water for a rig that is actively engaged in drilling or exploration operations for an oil or gas well permitted by the Railroad Commission of Texas

17. Districts • State law provides that a district may not deny an application for a permit to drill and produce water for hydrocarbon production activities if the application meets all applicable district rules

18. Districts • State law provides that an exempt rig supply well shall be registered in accordance with district’s rules and be equipped and maintained to conform to the district's rules requiring installation of casing, pipe, and fittings to prevent the escape of groundwater and to prevent the pollution or harmful alteration of the character of the groundwater

19. Districts • State law provides that the driller of an exempt rig supply well shall file the drilling log with the district

20. Districts • State law provides that a district may adopt rules that require an owner or operator of an exempt rig supply well to report groundwater withdrawals using reasonable and appropriate reporting methods and frequency

21. Districts • State law provides that a district may assess a production fee for any water produced by an exempt rig supply well if that water is subsequently sold to another person • $1/acre-foot/year for agricultural use • $10/acre-foot/year for any other purpose

22. Districts • Some new districts are authorized by state law to assess production fees on otherwise exempt rig supply wells – 30 cents/1,000 gallons • Prairielands GCD • Red River GCD • Southern Trinity GCD • Upper Trinity GCD

23. Where?

24. Major and Minor Aquifers of Texas

25. The map shows confirmed and unconfirmed groundwater conservation districts in Texas in gray and green respectively.

26. The map shows groundwater conservation districts over the major and minor aquifers of Texas.

27. The map shows selected groundwater conservation districts with special fee authority for drilling or exploration rig supply wells. They include the Prairielands, Red River, Southern Trinity, and Upper Trinity GCDs.

28. Summary • State agencies – • groundwater quality protection • Groundwater conservation districts – • groundwater quantity management

29. Summary • The use of groundwater • from a rig supply well • for active oil and gas drilling or exploration operations • on the same lease as the oil or gas well • is exempt from district permitting requirements • The use of groundwater for hydrocarbon production activities is not an exempt use and should be subject to the same district rules as any other permitted water well

30. Summary • A district may, by rule, require the amount of groundwater used by an exempt rig supply well to be reported • A district may assess production fees on exempt rig supply wells if the water is sold to someone else • Production fees may be assessed on exempt rig supply wells in some new districts

31. Cary L. Betz, P.G. Peggy G Hunka, P.G. Texas Commission on Environmental Quality Telephone:  (512) 239-2789 FAX: (512) 239-4450 E-mail: Peggy.Hunka@tceq.texas.gov • Texas Commission on Environmental Quality • Telephone:  • (512) 239-4506 • FAX: • (512) 239-4450 • E-mail: • Cary.Betz@tceq.texas.gov