1. (a) In enacting the Texas Experimental Research and Recovery Activity ("TERRA") Act (Acts 1995, 74th Legislature, Chapter 989, effective January 1, 1996; codified at Texas Natural Resources Code, Chapter 93), the legislature found that:

   1. (1) current oil and gas production practices will leave unrecovered much of the hydrocarbons originally in place under public and private land and that the economic activity flowing from the recovery of a significant portion of those hydrocarbons would be of great benefit to the future well-being of the people of this state;
   2. (2) the incentives and opportunities provided by the TERRA act, codified at Texas Natural Resources Code, Chapter 93, will enhance and encourage development of new technologies needed to identify and recover those hydrocarbons. The development of those technologies within the state would be of benefit to the state's economy;
   3. (3) mechanically sound, nonpolluting wells that would otherwise be plugged and abandoned are a valuable asset useful in the development of previously overlooked hydrocarbon deposits and new recovery technologies that may lead to a return of the wells to commercial production. Mineral interest owners should be encouraged voluntarily to preserve and use wells toward those ends by agreement with the state under the act; and
   4. (4) the activities provided by this act serve a governmental purpose and benefit the people of this state.

2. (b) The purposes of the TERRA program are to:

   1. (1) acquire and hold an inventory of mechanically sound and nonpolluting wellbores to be licensed by the commission for use in gathering data, performing production tests, and developing and testing enhanced or advanced recovery techniques;
   2. (2) enable mineral interest owners to realize any commercial potential that may be found in the wellbores as technology and circumstances change; and
   3. (3) protect the environment by ensuring that TERRA wellbores posing a pollution threat or determined to be without economic value are properly plugged in accordance with state law and rules of the commission.

3. (c) The following words and terms when used in this section shall have the following meanings, unless the context clearly indicates otherwise:

   1. (1) Hydrocarbons--Any oil, gas, condensate, or other liquid hydrocarbons produced from a well.
   2. (2) License holder--A person licensed by the commission to use a TERRA wellbore.
   3. (3) Mineral interest owner--An owner of a present possessory mineral interest or vested mineral interest that may become present and possessory.
   4. (4) Present possessory mineral interest--A mineral interest that includes the present right to use the land surface for exploration and production of minerals.
   5. (5) Production test--A test to determine whether a recovery technique will yield production in paying quantities.
   6. (6) Responsible person--A license holder or a person required by law, commission rules, or order to control or clean up wastes associated with oilfield operations.
   7. (7) Surface owner--An owner of an interest in the surface or top estate.
   8. (8) TERRA--Texas Experimental Research and Recovery Activity.

   9. (9) TERRA agreement--A written agreement between a present possessory mineral interest owner and the commission in which the present possessory mineral interest owner:

      1. (A) grants the commission an easement for wellbore access;
      2. (B) designates the commission as the agent of the present possessory mineral interest owner for the purposes of well maintenance and usage licensing; and
      3. (C) allows use of wellsite equipment for the purposes set forth in subsection (b) of this section.
   10. (10) Tract--The land area covered by either an oil lease or a gas proration unit established under commission rules.
   11. (11) Wellbore--A hole in the ground drilled in connection with the exploration, development, or production of oil, gas, or geothermal resources, including any tubular goods cemented in the well.
   12. (12) Wellsite equipment--Any production-related equipment or materials specific to a wellbore, including but not limited to motors, pumps, pumpjacks, fluid storage tanks, separators, compressors, wellheads, casing, tubing, and rods.

4. (d) The procedures to place a wellbore in the TERRA program are as follows:

   1. (1) A mineral interest owner may apply to place a wellbore in the TERRA program by completing and filing the TERRA application (Form W-8(a)) and attendant TERRA agreement and easement forms approved by the commission. The mineral interest owner thereby designates the commission as its agent and grants to the commission an easement for the sole purpose of maintaining and licensing a wellbore. The commission may also place wells scheduled for plugging with state funds into the TERRA program without first obtaining TERRA agreements, provided, however, that all required agreements are secured from the owners of the mineral interests prior to the issuance of any TERRA license. An application to place a wellbore in TERRA may be accepted by the commission if:

      1. (A) The TERRA agreement and easement is executed by the owner or owners of at least 50% of the present possessory mineral interest in all horizons penetrated by the wellbore;
      2. (B) The well and wellsite are in compliance with commission rules;
      3. (C) The wellbore is free of obstructions to the top most plug depth or total depth, whichever is applicable, and is of sound mechanical integrity.

   2. (2) At the time of application the applicant shall conduct a fluid level test and wireline gauge ring run. If the wellbore is at least 25 years old and has been inactive at least 10 years, a mechanical integrity test (MIT) must be conducted in accordance with the procedures specified on commission form H-15. The MIT shall be substituted for the fluid level test. The commission may require an MIT on any well listed in a TERRA application. In lieu of current tests, the commission may accept a successful MIT test conducted within the previous five years, or two consecutive successful fluid level tests, the most recent of which must have been conducted within the previous year, provided the results are on file with the commission. Any current test conducted to satisfy these conditions requires:

      1. (A) 24-hour prior notice to the commission's district office in the district in which the well is located;
      2. (B) a commission witness in attendance;
      3. (C) the test results properly documented on an applicable form;
      4. (D) all tubing and rods have been removed from the well and all annuli not circulated to ground surface with cement are plumbed to the ground surface and equipped with two-inch operable valves;
      5. (E) the applicant to file with his application copies of all wellbore records in his possession together with such records of the last operator of record;
      6. (F) the applicant to file with his application documentation demonstrating that the wellsite equipment and leasehold are free of any outstanding charges, liens, or obligations; and
      7. (G) the applicant to deposit with his application an amount equal to 75% of the current estimated plugging cost as calculated from the TERRA Estimated Plugging Cost Tables published by the commission.

   3. (3) The commission may consider factors for the approval or disapproval of a TERRA application, including but not limited to the following factors:

      1. (A) geographical location of wellsite or wellbore;
      2. (B) wellsite or wellbore accessibility; and
      3. (C) historical production problems inherent to the area.

   4. (4) The commission shall notify the applicant by written notice within 10 days of the date the application is received in the commission's Austin, Texas office, stating:

      1. (A) the application is complete and is accepted for filing; or
      2. (B) the application is incomplete and more information is needed; or
      3. (C) the application has been denied according to criteria as described in subsection (d)(3).
5. (e) While a well is in the TERRA program, the commission shall assume all well plugging duties for the well and, with the exception of the compliance requirements of a valid TERRA license holder, all pollution prevention and control responsibilities. The commission shall conduct annual inspections and appropriate tests to ensure the continuing integrity of the wellbore. The commission shall retain the necessary records to prove compliance with this requirement.
6. (f) No person or entity shall conduct operations for the purposes of data collection, production testing, or research and recovery technique development on a TERRA wellbore without first obtaining a TERRA license, as described in this section, prior to the initiation of operations. The license holder shall conduct only those operations specifically approved and addressed in a valid license. All persons or entities applying for such a license shall possess a valid commission organization report of good standing and comply with all commission rules pertaining to pollution prevention and control.

7. (g) A separate license application shall be submitted to the commission's Austin office for each oil lease or gas wellbore. The application shall be on a fully completed Form W-8(b) and shall include the lesser of $50 per well or $500 per tract. At the discretion of the commission, additional information and/or material may be required of the applicant.

   1. (1) Upon approval of the application, the commission shall issue a license setting forth the items listed in §93.034(d) of the Natural Resources Code. The license will not be granted unless the applicant is in full compliance with all applicable commission rules. The license holder shall be considered the responsible person for the licensed wellbores for the duration of the license and until such time as any violations of commission rules or orders committed by the license holder during the term of the license are corrected.
   2. (2) The commission shall hold a hearing on a proposed use in accordance with commission rules, such as §3.37 of this title (relating to Statewide Spacing Rule) and §3.38 of this title (relating to Well Densities). Such a hearing shall be conducted as a contested case pursuant to commission rules.
   3. (3) Applications to renew existing licenses shall be filed at the commission's Austin office at least 15 days before the expiration date of the current license. Renewal application shall be filed on Form W-8(b) and shall be accompanied by the fees required in §93.033 of the Texas Natural Resources Code for licenses.
   4. (4) All licenses shall expire 60 days from the date of approval unless properly renewed. Unless awaiting renewal application approval, all operations governed by the license shall terminate upon license expiration.
   5. (5) After notice and opportunity for hearing, the commission may revoke the license of any license holder who violates any provisions of the license or a commission rule or order. The commission may seek administrative penalties and reimbursement of any costs incurred as a result of actions initiated to gain compliance.
   6. (6) Prior to production under a TERRA license, the license holder shall conduct a potential test on any licensed wellbores and submit a letter of request and completed well status report form for oil or gas, whichever is applicable, to the commission's Austin office within 15 days of test completion. Potential tests conducted to satisfy this requirement shall be initiated within 48 hours of initial production and conducted in accordance with standard commission test procedures.
   7. (7) A license holder may use, or may remove and safeguard, wellsite equipment in which it does not have a legal interest. Any person who is not a TERRA license holder and who removes wellsite equipment from a TERRA wellbore shall be subject to the regulatory jurisdiction of the Commission.
   8. (8) Each license filed with the commission shall be considered public information and shall be available for public viewing during regular business hours. Pursuant to the Public Information Act, Texas Government Code, Chapter 552, and Texas Natural Resources Code §93.032(f).
   9. (9) Prior to the movement of produced oil, gas, or condensate from the lease, the license holder shall file an application for movement authority with and secure the required authorization from the commission. All hydrocarbons produced during the license period may be sold without the filing of a Producer's Certificate of Compliance and Authorization to Transport Oil or Gas From Lease form provided the production is properly reported on all appropriate commission forms.
   10. (10) Unless otherwise provided by a lease or other legal document, the license holder may retain one-half of the proceeds from the sale of production and shall apportion the remainder of the proceeds to the mineral interest ownership. Payments shall be promptly distributed as required under Texas Natural Resources Code, Chapter 91, Subchapter J. Acceptance of the proceeds by a mineral interest owner not bound by a TERRA agreement serves as a ratification and consent of the agreement and binds that owner to and for the remainder of the agreement.

8. (h) Produced hydrocarbons that meet the criteria of this section and gain concurrent certification from the commission and the Texas State Comptroller's Office may qualify for an exemption from the severance tax imposed under Texas Tax Code, Chapter 201. The commission may grant certification administratively or after the acceptance and approval of a proper application.

   1. (1) The hydrocarbon production shall be established from wellbores under an active TERRA agreement and corresponding license, or from wellbores resuming production after formerly participating for a period of two or more years in the TERRA program to qualify for commission certification for severance tax exemption.
   2. (2) An application for a severance tax exemption shall be made only by the operator of a well and shall be submitted to the commission's Austin office. The application shall be in the form of a letter of request and shall include certified copies of all commission production reports verifying the qualifying production periods and any other documents the commission may require for qualification determination.
   3. (3) A commission designee may administratively approve or deny any application for severance tax exemption. If approved, the commission shall issue a certificate to the operator of the well. Such certificates are valid only with Comptroller approval of the exemption. The commission shall provide the Comptroller a copy of each certificate issued for a qualifying well.
   4. (4) A commission designee may administratively revoke any certification based on information attesting to non-eligibility of the well or the revocation of the TERRA license at the time certification is sought.

   5. (5) The commission may impose penalties against a person for:

      1. (A) submitting any document in support of a certificate, tax exemption, or tax credit that the person knows contains a material misstatement; and
      2. (B) submitting an application for tax exemption under a revoked certificate after receiving notice from the commission of the revocation.

9. (i) A wellbore may be released from the TERRA program upon plugging and abandonment, with prior commission permission, or upon application for and commission approval of release.

   1. (1) A present possessory mineral interest owner of the tract in which the wellbore is located may submit a written request with a copy of the TERRA agreement covering the subject well or wells to the commission's Austin office requesting release of the wellbore from the TERRA program. The applicant shall state whether it is bound by a TERRA agreement or not. If approved, the effective date of release shall be no earlier than the day after any current TERRA license expires unless the applicant submits a written release from the license holder approving an earlier release date. An application by a mineral interest owner for release of a wellbore from the TERRA program shall have priority over new, amended, or renewed existing licenses. Such release is contingent upon:

      1. (A) the applicant being in compliance with all commission rules and permits required for the operation or plugging of the subject well;
      2. (B) the applicant assumes all plugging responsibility, including financial, for the well and cleanup of the site with the exception of the equipment reinstallation and land restoration responsibilities required of any valid TERRA license holder; and
      3. (C) if the applicant is a present possessory mineral interest owner bound by a TERRA agreement, the commission may either impose financial obligations not to exceed twice the estimated plugging costs as determined by the commission at the time the release is sought on the applicant to facilitate the release, or if the applicant agrees to plug the well and complies with all commission plugging rules, the commission may not require any payment upon application approval.

   2. (2) The owner or owners of at least 50% of the surface estate of wellbores that have been in the TERRA program in excess of seven years may request in writing that the commission plug the wells. Upon receipt of the request and, if required of the surface owners by the commission, any instrument verifying the legal ownership claimed as the basis of their standing from which to compel the plugging of the wellbore, the commission shall:

      1. (A) notify all license holders and present possessory mineral interest owners who have signed a TERRA agreement of the request and potential commission action; and
      2. (B) if, within the latter of 90 days from the date of notice or the expiration of any existing license, the notified individuals fail to effect a release of the wellbore from the TERRA program, the commission shall schedule the wellbore for plugging.
   3. (3) At such time as the release of the last TERRA wellbore from a tract of land covered by a TERRA agreement, the commission shall file a release of all TERRA easements for that tract in the office of the clerk of the county in which that tract is located.
10. (j) The commission shall estimate the anticipated plugging costs biannually, or at such time as conditions or information warrant adjustment. The costs shall be established using the most current information available from state-funded pluggings, and shall be established on a depth interval per commission district basis. Fees imposed by this section and per these estimated plugging costs shall be based on similar well depths in the corresponding commission district in which the well is located.

Source Note:The provisions of this §3.107 adopted to be effective December 7, 1998, 23 TexReg 12295.