Bill Summary – FastDemocracy

Enrolled Copy                                                                        S.B. 148
                               OIL AND GAS MODIFICATIONS
                                      2020 GENERAL SESSION
                                           STATE OF UTAH
                                Chief Sponsor: Ralph Okerlund
                                House Sponsor: Carl R. Albrecht
 6
 LONG TITLE
 General Description:
        This bill addresses the regulation of oil and gas activities.
 Highlighted Provisions:
        This bill:
        < modifies definition provisions;
        < requires review of rules made related to bonding requirements;
        < modifies the process for imposing and collecting administrative penalties;
        < creates the Oil and Gas Administrative Penalties Account; and
        < makes technical and conforming changes.
 Money Appropriated in this Bill:
        None
 Other Special Clauses:
        None
 Utah Code Sections Affected:
 AMENDS:
        40-6-2, as last amended by Laws of Utah 2017, Chapter 220
        40-6-5, as last amended by Laws of Utah 2012, Chapter 342
        40-6-9.5, as last amended by Laws of Utah 1989, Chapter 22
        40-6-11, as last amended by Laws of Utah 1987, Chapter 161
        63I-1-263, as last amended by Laws of Utah 2019, Chapters 89, 246, 311, 414, 468,
 469, 482 and last amended by Coordination Clause, Laws of Utah 2019, Chapter
 246
       S.B. 148                                                                         Enrolled Copy
         63I-2-263, as last amended by Laws of Utah 2019, Chapters 182, 240, 246, 325, 370,
 and 483
         63J-1-602.1, as last amended by Laws of Utah 2019, Chapters 89, 136, 213, 215, 244,
 326, 342, and 482
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 Be it enacted by the Legislature of the state of Utah:
         Section 1. Section 40-6-2 is amended to read:
         40-6-2. Definitions.
         For the purpose of this chapter:
         (1) "Board" means the Board of Oil, Gas, and Mining.
         (2) "Correlative rights" means the opportunity of each owner in a pool to produce [his]
 the owner's just and equitable share of the oil and gas in the pool without waste.
         (3) "Condensate" means hydrocarbons, regardless of gravity, that:
         (a) occur naturally in the gaseous phase in the reservoir; and
         (b) are separated from the natural gas as liquids through the process of condensation
 either in the reservoir, in the wellbore, or at the surface in field separators.
         (4) "Consenting owner" means an owner who, in the manner and within the time frame
 established by the board in rule, consents to the drilling and operation of a well and agrees to
 bear the owner's proportionate share of the costs of the drilling and operation of the well.
         (5) "Crude oil" means hydrocarbons, regardless of gravity, that:
         (a) occur naturally in the liquid phase in the reservoir; and
         (b) are produced and recovered at the wellhead in liquid form.
         (6) "Division" means the Division of Oil, Gas, and Mining.
         [(6)] (7) (a) "Gas" means natural gas, as defined in Subsection [(9)] (10), natural gas
 liquids, as defined in Subsection [(10)] (11), other gas, as defined in Subsection [(16)] (17), or
 any mixture of them.
         (b) "Gas" does not include any gaseous or liquid substance processed from coal, oil
 shale, or tar sands.
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         [(7)] (8) "Illegal oil" or "illegal gas" means oil or gas that has been produced from any
 well within the state in violation of this chapter or any rule or order of the board.
         [(8)] (9) "Illegal product" means any product derived in whole or in part from illegal
 oil or illegal gas.
         [(9)] (10) (a) "Natural gas" means hydrocarbons that occur naturally in the gaseous
 phase in the reservoir and are produced and recovered at the wellhead in gaseous form, except
 natural gas liquids as defined in Subsection [(10)] (11) and condensate as defined in Subsection
 (3).
         (b) "Natural gas" includes coalbed methane gas.
         [(10)] (11) "Natural gas liquids" means hydrocarbons, regardless of gravity, that are
 separated from natural gas as liquids in gas processing plants through the process of
 condensation, absorption, adsorption, or other methods.
         [(11)] (12) "Nonconsenting owner" means an owner who does not, after written notice
 and in the manner and within the time frame established by the board in rule, consent to the
 drilling and operation of a well or agree to bear the owner's proportionate share of the costs.
         [(12)] (13) (a) "Oil" means crude oil, as defined in Subsection (5), condensate, as
 defined in Subsection (3), or any mixture of them.
         (b) "Oil" does not include any gaseous or liquid substance processed from coal, oil
 shale, or tar sands.
         [(13)] (14) "Oil and gas operations" means to explore for, develop, or produce oil and
 gas.
         [(14)] (15) (a) "Oil and gas proceeds" means any payment that:
         (i) derives from oil and gas production from any well located in the state;
         (ii) is expressed as a right to a specified interest in the:
         (A) cash proceeds received from the sale of the oil and gas; or
         (B) the cash value of the oil and gas; and
         (iii) is subject to any tax withheld from the payment pursuant to law.
         (b) "Oil and gas proceeds" includes a royalty interest, overriding royalty interest,
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        S.B. 148                                                                          Enrolled Copy
 production payment interest, or working interest.
           (c) "Oil and gas proceeds" does not include a net profits interest or other interest the
 extent of which cannot be determined with reference to a specified share of:
           (i) the cash proceeds received from the sale of the oil and gas; or
           (ii) the cash value of the oil and gas.
           [(15)] (16) "Operator" means a person who has been designated by the owners or the
 board to operate a well or unit.
           [(16)] (17) (a) "Other gas" means nonhydrocarbon gases that:
           (i) occur naturally in the gaseous phase in the reservoir; or
           (ii) are injected into the reservoir in connection with pressure maintenance, gas cycling,
 or other secondary or enhanced recovery projects.
           (b) "Other gas" includes hydrogen sulfide, carbon dioxide, helium, and nitrogen.
           [(17)] (18) "Owner" means a person who has the right:
           (a) to drill into and produce from a reservoir; and
           (b) to appropriate the oil and gas produced for [himself] that person or for [himself]
 that person and others.
           [(18)] (19) "Payor" means the person who undertakes to distribute oil and gas proceeds
 to the persons entitled to them, whether as the first purchaser of that production, as operator of
 the well from which the production was obtained, or as lessee under the lease on which royalty
 is due.
           (20) "Person" means the same as that term is defined in Section 68-3-12.5 and includes
 an operator or owner as used in this chapter.
           [(19)] (21) "Pool" means an underground reservoir containing a common accumulation
 of oil or gas or both. Each zone of a general structure that is completely separated from any
 other zone in the structure is a separate pool. "Common source of supply" and "reservoir" are
 synonymous with "pool."
           [(20)] (22) "Pooling" means the bringing together of separately owned interests for the
 common development and operation of a drilling unit.
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        Enrolled Copy                                                                           S.B. 148
         [(21)] (23) "Producer" means the owner or operator of a well capable of producing oil
 and gas.
         [(22)] (24) "Product" means any commodity made from oil and gas.
         [(23)] (25) "Surface land" means privately owned land:
         (a) overlying privately owned oil and gas resources;
         (b) upon which oil and gas operations are conducted; and
         (c) owned by a surface land owner.
         [(24)] (26) (a) "Surface land owner" means a person who owns, in fee simple absolute,
 all or part of the surface land as shown by the records of the county where the surface land is
 located.
         (b) "Surface land owner" does not include the surface land owner's lessee, renter,
 tenant, or other contractually related person.
         [(25)] (27) "Surface land owner's property" means a surface land owner's:
         (a) surface land;
         (b) crops on the surface land; and
         (c) existing improvements on the surface land.
         [(26)] (28) "Surface use agreement" means an agreement between an owner or operator
 and a surface land owner addressing:
         (a) the use and reclamation of surface land owned by the surface land owner; and
         (b) compensation for damage to the surface land caused by oil and gas operations that
 result in:
         (i) loss of the surface land owner's crops on the surface land;
         (ii) loss of value of existing improvements owned by the surface land owner on the
 surface land; and
         (iii) permanent damage to the surface land.
         [(27)] (29) "Waste" means:
         (a) the inefficient, excessive, or improper use or the unnecessary dissipation of oil or
 gas or reservoir energy;
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        S.B. 148                                                                         Enrolled Copy
        (b) the inefficient storing of oil or gas;
        (c) the locating, drilling, equipping, operating, or producing of any oil or gas well in a
 manner that causes:
        (i) a reduction in the quantity of oil or gas ultimately recoverable from a reservoir
 under prudent and economical operations;
        (ii) unnecessary wells to be drilled; or
        (iii) the loss or destruction of oil or gas either at the surface or subsurface; or
        (d) the production of oil or gas in excess of:
        (i) transportation or storage facilities; or
        (ii) the amount reasonably required to be produced as a result of the proper drilling,
 completing, testing, or operating of a well or otherwise utilized on the lease from which it is
 produced.
        Section 2. Section 40-6-5 is amended to read:
        40-6-5. Jurisdiction of board -- Rules.
        (1) The board has jurisdiction over all persons and property necessary to enforce this
 chapter. The board shall [enact] make rules in accordance with [the] Title 63G, Chapter 3,
 Utah Administrative Rulemaking Act.
        (2) The board shall [adopt] make rules and [make] orders as necessary to administer
 the following provisions:
        (a) Ownership of all facilities for the production, storage, treatment, transportation,
 refining, or processing of oil and gas shall be identified.
        (b) Well logs, directional surveys, and reports on well location, drilling, and production
 shall be made and filed with the division. Logs of wells marked "confidential" shall be kept
 confidential for one year after the date on which the log is required to be filed, unless the
 operator gives written permission to release the log at an earlier date. Production reports shall
 be:
        (i) filed monthly;
        (ii) accurate; and
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        Enrolled Copy                                                                           S.B. 148
        (iii) in a form that reasonably serves the needs of state agencies and private fee owners.
        (c) Monthly reports from gas processing plants shall be filed with the division.
        (d) Wells shall be drilled, cased, cemented, operated, and plugged in such manner as to
 prevent:
        (i) the escape of oil, gas, or water out of the reservoir in which they are found into
 another formation;
        (ii) the detrimental intrusion of water into an oil or gas reservoir;
        (iii) the pollution of fresh water supplies by oil, gas, or salt water;
        (iv) blowouts;
        (v) cavings;
        (vi) seepages;
        (vii) fires; and
        (viii) unreasonable:
        (A) loss of a surface land owner's crops on surface land;
        (B) loss of value of existing improvements owned by a surface land owner on surface
 land; and
        (C) permanent damage to surface land.
        (e) The drilling of wells [shall] may not commence without an adequate and approved
 supply of water as required by Title 73, Chapter 3, Appropriation. This [provision] Subsection
 (2)(e) is not intended to impose [any] additional legal requirements, but to assure that existing
 legal requirements concerning the use of water have been met [prior to] before the
 commencement of drilling.
        (f) [The] Subject to Subsection (9), an operator shall furnish a reasonable performance
 bond or other good and sufficient surety, conditioned for the performance of the duty to:
        (i) plug each dry or abandoned well;
        (ii) repair each well causing waste or pollution;
        (iii) maintain and restore the well site; and
        (iv) except as provided in Subsection (8), protect a surface land owner against
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        S.B. 148                                                                        Enrolled Copy
 unreasonable:
         (A) loss of a surface land owner's crops on surface land;
         (B) loss of value of existing improvements owned by a surface land owner on surface
 land; and
         (C) permanent damage to surface land.
         (g) Production from wells shall be separated into oil and gas and measured by means
 and upon standards that [will be] are prescribed by the board and [will] reflect current industry
 standards.
         (h) Crude oil obtained from any reserve pit, disposal pond or pit, or similar facility, and
 any accumulation of nonmerchantable waste crude oil shall be treated and processed, as
 prescribed by the board.
         (i) Any person who produces, sells, purchases, acquires, stores, transports, refines, or
 processes oil or gas or injects fluids for cycling, pressure maintenance, secondary or enhanced
 recovery, or salt water disposal in this state shall maintain complete and accurate records of the
 quantities produced, sold, purchased, acquired, stored, transported, refined, processed, or
 injected for a period of at least six years. The records shall be available for examination by the
 board or [its] the board's agents at any reasonable time. Rules enacted to administer this
 [subsection] Subsection (2)(i) shall be consistent with applicable federal requirements.
         (j) Any person with an interest in a lease shall be notified when all or part of that
 interest in the lease is sold or transferred.
         (k) The assessment and collection of administrative penalties is consistent with Section
 40-6-11.
         (3) The board has the authority to regulate:
         (a) all operations for and related to the production of oil or gas including:
         (i) drilling, testing, equipping, completing, operating, producing, and plugging of
 wells; and
         (ii) reclamation of sites;
         (b) the spacing and location of wells;
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        Enrolled Copy                                                                           S.B. 148
        (c) operations to increase ultimate recovery, such as:
        (i) cycling of gas;
        (ii) the maintenance of pressure; and
        (iii) the introduction of gas, water, or other substances into a reservoir;
        (d) the disposal of salt water and oil-field wastes;
        (e) the underground and surface storage of oil, gas, or products; and
        (f) the flaring of gas from an oil well.
        (4) For the purposes of administering this chapter, the board may designate:
        (a) wells as:
        (i) oil wells; or
        (ii) gas wells; and
        (b) pools as:
        (i) oil pools; or
        (ii) gas pools.
        (5) The board has exclusive jurisdiction over:
        (a) class II injection wells, as defined by the federal Environmental Protection Agency
 or [any] a successor agency; and
        (b) pits and ponds in relation to these injection wells.
        (6) The board has jurisdiction:
        (a) to hear [any] questions regarding multiple mineral development conflicts with oil
 and gas operations if there:
        (i) is potential injury to other mineral deposits on the same lands; or
        (ii) are simultaneous or concurrent operations conducted by other mineral owners or
 lessees affecting the same lands; and
        (b) to enter [its] the board's order or rule with respect to those questions.
        (7) The board has enforcement powers with respect to operators of minerals other than