Gloria LealAttorney & Government Affairs Consultant

GLeaLLaw@sbcglobal.net512-426-1568

Laws effective September 1, 2015 – Role of Government Affairs

The purpose of the Alliance is mainly threefold: education and advocacy on behalf of the oil and gas industry and serving the needs of its members.

In the legislative and regulatory arena, the Alliance promotes its goals primarily through Government Affairs team.

Education: Throughout the year, the Alliance engages in outreach to educate legislators, state leaders and the public about the positive economic impact of our industry.

Advocacy: The Alliance represents its 3,300 strong membership in the Texas Legislature and the U.S. House & Senate and with regulatory entities.  

The Alliance maintains a strong relationship with the Railroad Commission of Texas and other state and federal agencies with jurisdiction over other aspects of the industry. State level: Texas Commission of Environmental Quality (TCEQ); Texas Water Development Board (TWDB); Texas Department of Transportation, State Comptroller’s Office. Federal level: Environmental Protection Agency, U.S. Fish and Wildlife., etc.

The Alliance’s effectiveness relies upon speaking with one, unified voice.

Laws effective September 1, 2015 – an overview

On September 1, most of the laws passed by the 2015 Legislature took effect with some notable exceptions. These 658+ new laws reflect new priorities with some designed to be far reaching while others will have a modest or indirect impact on the oil and gas industry.

More than 100 of the new laws will affect the Department of Health and Human Services and the Department of Family and Protective Services responsible for investigation of the abuse of children and vulnerable adults.

Increases in overall state funding, appropriations, changes in policy or reform legislation also have an impact on how operators and businesses conduct their business, manage operations and workforce activities.

Key bills related to oil and gas production in Texas –Regulation of oil and gas and local control

H.B. 40 (effective immediately): House author: Darby, Drew | Keffer | King, Phil | Thompson, Senfronia | Oliveira ; Senate sponsor: Fraser, Troy:

Relating to the express preemption of regulation of oil and gas operations and the exclusive jurisdiction of those operations by the state.

The bill provides for ‘exclusive jurisdiction and expressed pre-emption’ of oil and gas operations by the state and provides that municipal ordinances must be deemed to be ‘commercially reasonable’. A municipality may enact, amend, or enforce an ordinance or other measure that regulates only aboveground activity related to an oil and gas operation that occurs at or above the surface of the ground, including a regulation governing fire and emergency response, traffic, lights, or noise, or imposing notice or reasonable setback requirements. The ordinance must meet the reasonably prudent operator standard, must be commercially reasonable, may not effectively prohibit oil and gas operations and must not be pre-empted by state or federal law. A “safe harbor” provision is included for qualifying, existing municipal ordinances. Signed by Governor, effective May 18, 2015.

Legal update: This month, Denton District judge dismissed lawsuit filed by TXOGA against the city of Denton over the November moratorium referendum.

Fiscal note: Depending upon the number of political subdivisions that could be affected by a ban on oil and gas regulation, there could be an indeterminate fiscal impact to the state.

Key bills continued –regulation of groundwater and groundwater conservation districts

H.B. 200: House author: Keffer, Jim/Lucio, Eddie III Senate: Perry, Charles: Relating to the regulation of groundwater.

Bill establishes the framework for uniform regulation of groundwater districts and desired future conditions; clarifies vested property rights in the ownership of groundwater, ensures “loser pay” provisions apply to suits challenging groundwater districts, establishes “best available science” as the determining factor for establishing a desired future condition, establishes an appeals process for challenging same within the TWDB , provides a mediation period for agreement before the administrative process and develops an administrative hearing process for parties in order to develop findings of fact and conclusions of law. Effective date September 1, 2015.

H.B. 2767: House author: Keffer, Jim Senate: Perry, Charles: Relating to the powers, duties, and administration of groundwater conservation districts; amending provisions that authorize fees.

Bill amends the definition of “operating permit” in the Water Code and permit a groundwater conservation district to impose fees for water exportation, administration and production under certain circumstances. Provides that a county could pay costs and expenses occurred in the creation and organization of a district and the TWDB can allocate funds to a district under certain circumstances. Effective immediately.

Note: Preservation of exemption under Chapter 134, Natural Resources Code a priority

Other industry related bills

H.B. 1331: House author: King, Phil Senate sponsor: Fraser, Troy: Relating to the treatment and recycling for beneficial use of certain waste arising out of or incidental to the drilling for or production of oil or gas.

Well operators interested in recycling have had concerns about liability associated with the cuttings once recycled and used for another purpose. The bill amends current law and provides that when drill cuttings are transferred to a permit holder, the transferred material is considered to be the property of the permit holder and when the permit holder transfers possession of the treated product to another person, ownership and tort liability associated with the permitted use is also transferred. Effective September 1, 2015.

H.B. 2207 House author: Keffer, Jim Senate sponsor: Eltife, Kevin: Relating to the foreclosure sale of property subject to oil or gas lease.

The bill protects an oil and gas lessee of the unsevered minerals from a foreclosure of a mortgage on the surface. Provides that an oil and gas lease, if not already recorded prior to the mortgage, and if executed and recorded before the foreclosure sale will survive the foreclosure but with the loss of surface rights.  Royalties payable to the lessor become payable to the purchaser at the foreclosure sale and no agreement between the mortgagor and mortgagee can modify the statute.  Effective September 1, 2015.

S.B. 1985: Senate author: Uresti, Carlos House sponsor: Bonnen, Dennis: Relating to the appraisal for ad valorem tax purposes of a real property interest in oil or gas in place.

To accommodate timely posting of ad valorem tax data, bill provides that the chief appraiser shall use the projected current and preceding calendar year spot price of West Texas Intermediate crude oil in nominal dollars per barrel or the spot price of natural gas at the Henry Hub in nominal dollars per million British thermal units as stated in the Short-Term Energy Outlook report published in January of the current calendar year by the United States Energy Information Administration in the price adjustment factor calculations – rather than relying on estimates from the Comptroller’s Office. Signed by Governor, earliest effective date.

Water injection/disposal well legislation

H.B. 655: House author: Larson, Lyle Senate sponsor: Perry, Charles: Relating to the storage and recovery of water in aquifers, authorizing fees and surcharges; adding provisions subject to a criminal penalty. 

Allows permitting of Aquifer Storage and Recovery (ASR) injection wells as Class V wells by the TCEQ; also allows for water recovery wells, identifies native groundwater, and defines parameters for permits. Requires ASR operator to provide monthly reports.  Signed by Governor; effective immediately.

 

H.B. 2230: House author: Larson, Lyle Senate sponsor: Estes, Craig Relating to the authority of the TCEQ to authorize an injection well used for oil and gas waste disposal to be used for the disposal of non-hazardous brine produced by desalinization operations or non-hazardous drinking water treatment residuals. 

Allows the dual authorization of class II (oil and gas) injection wells to inject brine from desalinization or water treatment residuals when non-hazardous. Requires the RRC and TCEQ to enter into a memorandum of understanding.  Effective September 1, 2015 .

Permitting/Legal

S.B. 709 Senate author: Fraser, Troy House sponsor: Morrison, Geanie: Relating to environmental permitting procedures for applications filed with the Texas Commission on Environmental Quality.

Streamlines and speeds up decision making involving certain contested case hearings challenging a permit at the TCEQ. Provides that the proposal for decision must be issued no later than 180 days . The draft permit prepared by the executive director of the commission and supporting documentation establishes a prima facie demonstration of state and federal legal and technical compliance. Also, provides the criteria for a group or association designation as affected party. Effective Sept 1, 2015.

H.B. 1794: House author: Geren, Charlie Senate sponsor: Hancock, Kelly :Relating to suits brought by local governments for violations of certain laws under the jurisdiction of, or rules adopted or orders or permits issued by, the Texas Commission on Environmental Quality; affecting civil penalties.

The bill amends current law relating to suits brought by local governments for violations of certain environmental laws under the jurisdiction of the TCEQ such as illegal dumping of pollutants and unpermitted waste sites. Current law allows such actions to supplement the enforcement activities of the TCEQ. The genesis for the bill was a ruling in a lawsuit in Harris County where penalties were assessed against a company for the release of pollutants into Texas waters and the award of attorney fees which might have set a precedent for environmental enforcement in Texas and by extension, the economic competitiveness of the state. The bill identifies factors to be considered in determining the amount of civil penalty and provides for division of the penalties between the local government and the state. Effective September 1, 2015; application of the act is prospective.

Legal update: Lawsuit filed in Harris Co challenging the constitutionality of statute.

H.B. 1692: House author: Sheets, Kenneth Senate sponsor: Huffman, Joan: Relating to the doctrine of forum non conveniens.

The bill amends the doctrine to preserve Texas courts for Texas residents by requiring non-residents to establish that claims arising in another state or country have a significant connection to Texas. Under Texas law a “legal resident” can bring a lawsuit in Texas courts. The definition of “legal resident” was considered overly broad and interpreted to allow resident intervenors or derivative plaintiffs to bring a case from non-residents into the state for ex. involving an accident in Mexico. Effective September 1, 2015; application of the act is prospective.

Appropriations: funding of government functions

H.B. 1: General appropriations bill; and specific budget riders.• Railroad Commission of Texas: Legislature approved funding for personnel and technology updates to strengthen the agency’s

functions as well as to undergo Sunset Review efforts. Approximately $87 million was appropriated for fiscal years 2016 and 2017; allowing for 820 FTE’s. The funding included the following exceptional items: $2.8 million in addition to the base budget; 20 additional FTE’s to enhance safety inspections; and $150,000 for changes in the central record department. Efforts to delay Sunset review until 2023 were defeated in the final days of the session – currently scheduled for 2017..

• Bureau of Economic Geology at the University of Texas: In a separate rider, the Legislature approved a seismic monitoring program in response to concern about seismic events in North Texas. The appropriation provides funding for research and analysis to identify and monitor seismic prone areas statewide. A technical advisory committee will advise and a report submitted to the next Legislature.

• Texas Department of Transportation: SJR 5: Senate authors: Nichols, Robert/ Nelson, Donna: Proposing a constitutional amendment dedicating a portion of the revenue derived from the state sales and use tax and the tax imposed on the sale, use, or rental of a motor vehicle to the state highway fund.

• Legislature attempted to address the issue of ensuring a predictable funding stream for transportation through a combination of sources including long ending diversions, etc. These boosts in state transportation spending will aid in construction and maintenance of roads across the state but also infrastructure in energy producing areas. Proposition 7 (November ballot) would give TxDOT an additional $2.5 -$3 billion a year in sales taxes and with contributions from the Rainy Day Fund from the 2013 constitutional amendment adds up to close to $5 billion more a year in spending cash than had in 2014.

• State Comptroller’s Office: Appropriations will allow its endangered species oversight function to expand and allows for increased involvement of industry in workgroups for evaluation of species proposed for endangerment listing including: lizard, Sprague Pipit, Monarch Butterfly and freshwater mussel.

• Texas Department of Public Safety: Increased funding for security along the southern border is less measurable and impact harder to discern. .

• /

Tax Relief – up to $4B in overall tax relief

The Legislature also responded to calls to reduce property and business taxes allowing many of the state leaders to fulfill campaign promises.• Property tax relief – negotiated prop tax relief resulted in an increased

homestead exemption to $25,000.• Business tax relief - reduced franchise tax by 25 percent cut .• Occupations: (H.B. 7) eliminated the $200 occupations tax for 16

professions. • School Finance: Future challenges on school finance (and redistricting)

hot-button issues with long-term property tax implications, can now go to a three-judge panel, with two judges chosen from outside Travis County, to open up decision making.

Reform and oversight

Department of Health and Human Services/: Department of Family and Protective Services:

H.B. 200 by House sponsor Price, Four; Senate sponsor, Nelson, Donna / Nelson | Birdwell | Campbell | Hinojosa | Schwertner – Sunset legislation : Relating to the continuation and functions of the Health and Human Services Commission and the provision of health and human services in this state.

The Sunset Commission recommended consolidating five agencies into one, which could result in more efficiency, less overlap and potentially large savings to the state. Previously the five agencies received $34.5 billion combined in public funding in fiscal year 2013 — 58 percent of which was federal funding and 42 percent from the state's general revenue. H.B. 200 incorporated most of the recommendations but ultimately only three agencies combined. In addition more than 100 new laws will affect the newly constituted Department. The Legislature will monitor how HHSC implements these new laws and requirements.

Texas Windstorm Insurance Association (TWIA)

SB 900 by House Bonnen, Greg/ Senate Taylor, Larry: relating to the operation of TWIA.

Referred to as the windstorm reform bill, the bill primarily affects the way TWIA operations is funded, the composition of the Board of Directors composed of coastal and inland representatives (to be appointed by the Texas Department of Insurance) and program to depopulate (or reduce the total amount policies TWIA has ) to ensure it is more solvent and can withstand a 100 year storm season. Total statutory funding is reduced and will rely more on direct assessments of insurance companies and bonds primarily by TWIA policyholders. The bill also allows TWIA policyholders to obtain similar coverage from private insurance companies interested in writing on the Texas coast. (TWIA) is an insurer of last resort for the 14 Texas coastal counties and parts of Harris county. Effective September 1, 2015.

Reforms in state contracting/ state employees

H.B.353 by Nelson, Jane: Relating to state agency contracting. The law strengthens oversight of state contracts awarded to private companies, adds reporting requirements and prohibits a state employee who was involved in a bid decision from working for the winning company for two years.

S.B. 293 by Nelson, Jane: Relating to a clarification of the law governing eligibility of certain events for funding under the Major Events trust fund.

H.B. 1261 by King, Susan/ Senate, Uresti, Carlos: relating to the comptroller's report on the effect of certain tax provisions. Requires the Comptroller in preparing its required report to the legislature and the governor on the effect, if it is possible to assess, of exemptions, discounts, exclusions and special tax provisions, etc.), if actual data is not available, to use available statistical data to estimate the effect of an exemption, discount, exclusion, etc. to a tax. Requires the comptroller, if the report states that the effect of a particular tax preference cannot be determined to include in the report a complete explanation of why the comptroller reached that conclusion.

S.B. 374 by Schwertner, Charles: Relating to requiring state agencies to participate in the federal verification of employment authorization program or E-verify. State agencies will be required to verify the immigration of all job applicants via E-verify, a federal verification program; the policy no longer applies to employees of businesses contracting with the state.

H.B. 1690 by King, Phil (R-Weatherford), et.al: Relating to the investigation and prosecution of offenses against public administration, including ethics offenses. Modifies the way Texas elected officials and state employees are investigated and prosecuted for corruption stemming from government jobs such as bribery, misuse of campaign funds and public coercion. Removes jurisdiction from the Public Integrity Unit of the Travis County District Attorney’s Office and venue to official’s hometown.

Public safety/traffic

• S.B. 58 by Nelson, Donna : Relating to the enforcement of commercial vehicle safety standards by

certain municipalities and counties. (R-Flower Mound) This bill authorizes certain county sheriffs to inspect commercial vehicles to enforce federal safety regulations.

 • S.B. 1828 by Zaffirini, Judith (D- Laredo): Relating to the creation of the offense of cargo theft. Creates

a new offense designed to cover not only persons who wrongfully take cargo but also persons who receive, possess, conceal store, barter, sell, abandon, ordispose of stolen cargo. A driver who knowingly or intentionally failsto deliver the entire cargo or causes the seal to be broken also commitsan offense. The offense of cargo theft is considered a felony withincreasing penalties depending on the value of the cargo involved in thecriminal activity.

• H.B. 2246 by Villalba, Jason (R-Dallas): Relating to the restriction of certain intoxication offenders to the operation of a motor vehicle with an ignition interlock device in lieu of a license suspension. Requires an ignition interlock device to be installed in any vehicle operated by an individual convicted of DWI in order to obtain post-conviction occupational license (applies to first time offenders).

Insurance/worker’s comp

S.B. 529 by Hancock, Kelly (R-Richland Hills) , King, Phil: Relating to the eligibility of a landman for unemployment compensation.

Clears up ambiguity in interpretation of the definition of “landman” which had resulted in some confusion regarding the status of independent contractors working as landmen and eligibility for unemployment benefits. The bill amends the Labor Code to clarify that "employment" under the Texas Unemployment Compensation Act does not include services performed for a private for-profit person by a landman and to instead provide for the definition of "landman" by reference to the Private Security Act. Signed by Governor, effective immediately.

S.B. 901 by Eltife, Kevin (R-Tyler): Relating to the amount of temporary income benefits to which an injured employee is entitled under the workers' compensation system. Raises the average weekly wage minimum from $8.50 to $10 fortemporary income benefits in workers compensation claims –impacts low wage earners.

H. B. 3150: Huberty, Dan (R-Houston): Relating to the calculation of taxable wages paid by a professional employer organization for purposes of the Texas Unemployment Compensation Act. Provides tax-lowering credits to outsourcing companies, makes it more attractive for businesses in Texas to change their structure and outsource human resources operations to a Professional Employer Organization or PEO.

Conclusion: noteworthy legislation that did not pass

H.B. 14 relating to the Texas Emissions Reduction Plan.

S.B. 12 relating to alternative fuel fleets of certain governmental entities, including funding for motor vehicles, infrastructure, and equipment.

H.B. 1552 relating to oil and gas (allocation) wells that traverse multiple tracts, died in the House , was surprisingly resurrected as an amendment in the Senate, and then died again.

H.B. 1392, a seemingly non-controversial bill relating to the recovery of stranded oil, gas or oil and gas from depleting Cenozoic Era reservoirs in East Texas, got unexpected opposition from West Texas and died.

H. B 118 relating to unit operations for oil, gas or oil and gas production from depleting reservoirs or carbon dioxide storage had powerful enemies from the start.

H.B. 1628 , relating to hailstorm lawsuit abuse.

Vetoed: H.B. 3291: House author: Raymond, Richard Senate sponsor: Zaffirini, Judith : Relating to the creation of the offense of theft of pipeline equipment, oil and gas equipment, oil, gas, or condensate and the unauthorized purchase or sale of oil, gas, or condensate.

The bill elevated the theft of crude oil, gas and condensate from a 3rd degree felony to a 2nd degree felony. Though exempting pipelines and gatherers, the legislation required that anyone possessing, transporting, removing, delivering, accepting, purchasing, selling or physically storing crude oil, gas or condensate must have a permit, approval, or authorization for the transaction from the RRC or must have a pending application for such.

Contact : www.texaslegislatureonline

Contact :

Gloria LealAttorney & Government Affairs Consultant

3600C Las Colinas

Austin, Texas GLeaLLaw@sbcglobal.net512-426-1568

Alex Mills, President

George E. Rogers, Chairman of the Board

Townes Pressler, Chairman Emeritus

Texas Alliance of Energy Producers

900 8th Street, Suite 400

Wichita Falls, Texas 76301

940-723-4131 or 800-299-2998

www.texasalliance.org