Oil, Gas, and Energy Law
M. Alejandra Salas
The 88th Texas Legislature passed wide-ranging laws that affect various segments of the Texas oil and gas industry and aim to propel the industry’s growth. Below is a high-level summary of these bills.1 All bills are effective September 1, 2023, unless otherwise noted.
Clarifying and Broadening the Authority
of the RRC
HB 332 amends Subtitle A, Title 3 of the Natural Resources Code by adding Chapter 82, prohibiting a state agency, or an employee of a state agency, from assisting a federal agency or official with respect to enforcing federal law that purports to regulate oil and gas operations that is not already in force pursuant to Texas law, thereby emphasizing that the power to regulate oil and gas operations in the state of Texas lies with the Railroad Commission of Texas, or RRC, and Texas Commission on Environmental Quality, or TCEQ, among other state regulators. HB 33 also requires the Texas attorney general to defend a state agency against the federal government for an action or omission taken pursuant to the new law.
HB 28473 amends Section 81.051(a) of the Natural Resources Code by adding subsection (5), granting the RRC jurisdiction over pipeline transportation and underground storage of hydrogen, and Subchapter C, Chapter 81 of the Natural Resources Code, authorizing the RRC to establish a Texas Hydrogen Production Policy Council to review and advise the RRC regarding hydrogen energy development.
SB 785,4 effective June 18, 2023, amends Section 2703.056 of the Insurance Code, allowing title insurance companies to make exceptions from coverage for geothermal energy and associated resources. SB 785 also amends Section 141.003(5) of the Natural Resources Code, which defines “by-product” in the context of geothermal energy and associated resources. Notably, SB 785 clarifies that a mineral, as defined under the Property Code, and oil, gas, or a product of oil or gas are not a “by-product” of “geothermal energy and associated resources.” SB 785 further adds Section 141.004 to the Natural Resources Code, providing that, except as expressly stated, “geothermal energy and associated resources below the surface of land are owned as real property by the landowner,” except that when the mineral and surface estates are severed, the owner of the surface estate owns the geothermal energy and associated resources.
SB 7865 amends Subchapter C, Chapter 27 of the Water Code by adding Section 27.037, granting the RRC jurisdiction over the regulation and permitting of closed-loop geothermal injection wells and the authority to adopt rules to regulate such wells, a role previously assigned to the TCEQ. Section 27.037 further defines a “closed-loop geothermal injection well” and classifies such a well as a Class V well under the underground injection control program administered by the RRC. SB 786 will not affect the validity of permits issued by the TCEQ for closed-loop geothermal injection wells prior to the bill’s effective date. However, the RRC will have 90 days from the effective date of the bill to issue substitute permits under the RRC to persons who hold a valid permit from the TCEQ for such wells. Likewise, the TCEQ will have 90 days to transfer to the RRC all pending applications for closed-loop geothermal injection wells filed before the bill’s effective date.
SB 12106 amends Section 89.047(a) of the Natural Resources Code by adding Subdivisions (1-a) and (1-b), defining “energy conservation well” and “geothermal energy and associated resources.” SB 1210 further amends Section 89.047(f) of the Natural Resources Code, allowing the RRC to designate a geothermal operator as the operator of abandoned oil and gas wells so long as specific requirements are satisfied. As a result, geothermal operators will now be allowed to adopt an orphaned oil and gas well and convert it to generate geothermal electricity.
SB 11867 amends Section 27.036 of the Water Code, defining “brine mining” to include the production of naturally occurring brine (involving Class V injection wells) and brine extracted by the solution of a subsurface salt formation (involving Class III wells) and clarifying that the RRC has jurisdiction over both types of brine mining. SB 1186, effective May 27, 2023, requires all persons to obtain a permit from the RRC before drilling a Class V brine injection well. Finally, under SB 1186, the RRC must seek primacy over Class V brine injection wells in Texas.
HB 4856,8 effective June 18, 2023, amends Section 27.201 of the Water Code by adding Subdivision (1-a), defining “fluid oil and gas waste” consistent with its meaning under the Natural Resources Code, and Section 27.202 of the Water Code, granting the TCEQ “exclusive jurisdiction over the regulation and permitting of recharge injection wells, including recharge injection wells used for the injection of fluid oil and gas waste.” Section 27.202 further prohibits using a recharge injection well to inject fluid oil and gas waste “unless the waste has been treated to meet the standards adopted by the [TCEQ].”
HB 38379 amends Sections 382.003(1-a) and 391.002(b) of the Health and Safety Code, broadening the designation of advanced clean energy projects under the Texas Clean Air Act by classifying facilities that utilize natural gas to create methanol and covert methanol to zero-sulfur transportation fuels as an “advanced clean energy project.”
Clarifying Liability for Certain Operations
HB 45010 amends Title 4 of the Property Code by adding Chapter 31, which creates a cause of action for “a bad faith washout” of an individual’s “overriding royalty interest in an oil and gas lease.” HB 450 provides for a two-year statute of limitations that begins to run on “the date the person obtained actual knowledge that the washout occurred.” Chapter 31 of the Property Code applies only to washout that occurs after the effective date of HB 450.
HB 59111 amends Subchapter B, Chapter 201 of the Tax Code by adding Section 201.061, exempting from the severance tax gas produced from qualifying wells “that is consumed within 1,000 feet of the qualifying well and would otherwise have been lawfully vented or flared.” The well operator may apply to the RRC for certification that a well is a qualifying well and must reapply for certification annually.
SB 50212 amends Section 123.001 of the Natural Resources Code, redefining and expanding the meaning of “drill cuttings” to include “any associated sand, silt, drilling fluid, spent completion fluid, workover fluid, debris, water, brine, oil scum, paraffin, or other materials cleaned out of the wellbore.” Additionally, SB 502, effective May 23, 2023, amends Section 123.003 of the Natural Resources Code, explaining liability for the disposal of drill cuttings once transferred by the generator of the drill cuttings to an unaffiliated third party for disposal or beneficial use. Changes made to Sections 123.001 and 123.003 are prospective.
SB 60413 amends Chapter 954 of the Occupations Code, in part, broadening the protection of landmen from unauthorized practice of law penalties to encompass all work performed by landmen in Section 954.002. SB 604 further amends Section 171.1011(g-11) of the Tax Code, ensuring that the franchise/margin tax exemption afforded to landmen applies to the breadth of work performed by landmen. SB 604 became effective May 24, 2023, except that amendments to Section 171.1011(g-11) of the Tax Code take effect January 1, 2024.
M. ALEJANDRA SALAS is an associate in the Austin office of McGinnis Lochridge. She represents oil and gas exploration and production companies, royalty owners, and mineral owners in a variety of litigation matters. Prior to joining McGinnis Lochridge, Salas served as a judicial law clerk to the Hon. David Counts, of the U.S. District Court for the Western District of Texas, Midland/Odessa and Pecos divisions.