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Minutes for HB2534 - Committee on Appropriations
Short Title
Abolishing the well plugging assurance fund and transferring all assets and liabilities to the abandoned oil and gas well fund.
Minutes Content for Thu, Feb 13, 2020
Hearing on: HB 2535 - Repealing obsolete provision requiring the state corporation commission and the department of health and environment enter into an interagency agreement for integration of certain oil and gas regulatory operations on or before November 1, 1982.
Hearing on: HB 2536 - Updating the state corporation commission's authority to regulate abandoned oil and gas wells, providing methods for the commission to plug such wells and authorizing payments from the abandoned oil and gas well fund for certain plugging operation.
Nick Myers, Office of the Revisor of Statues provided the bill brief for HB 2534, (Attachment 1) HB 2535 (Attachment 2) and HB 2536 (Attachment 3).
HB 2534 would consolidate the abandoned oil and gas wells, the well plugging assurance fund, and the abandoned oil and gas well fund. The bill would consolidate these funds so that the Kansas Corporation Commission would administer one primary fund related to abandoned oil and gas wells and statutorily abolish the well plugging assurance fund and transfer all assets and liabilities to the abandoned oil and gas well fund (See attachment 1).
HB 2535 would repeal the statute requiring the Kansas Corporation Commission and the Secretary of the Kansas Department of Health and Environment to enter into an agreement for the purpose of integrating agency field operations for oil and gas activities (See attachment 2).
HB 2536 makes amendments to statutes relating to the Kansas Corporation Commission's (KCC) oversight and operations concerning abandoned oil and gas wells (See attachment 3). Should the bill pass in committee, suggested technical amendments were reviewed in Section 2, which adds a subsection (a), and two of these bills amends the same statute regarding the abandons the oil and gas fund, he stated.
Mr. Myers responded to questions by Committee members.
Dwight Keen, Commissioner, Kansas Corporation Commission, presented testimony as a proponent of HB 2534, HB 2535 and HB 2536, (no testimony was provided).
Ryan Hoffman, Director, Conservation Division, Kansas Corporation Commission, presented testimony as a proponent of HB 2534, HB 2535 and HB 2536, (Attachment 4). In 1986, the statute vested th Commission with exclusive jurisdiction over regulation of oil and gas activities. After the enactment of K.S.A. 74-623, the need for a joint program no longer existed and should have been repealed. HB 2535 removes the obsolete and unnecessary statute. HB 2534 would combine two existing funds used to plug abandoned wells, the Legacy Fund and Assurance Fund into the Conservation Fee Fund. As the number of wells plugged significantly increases annually, access to more funding is necessary, it was noted. HB 2536 The bill provides staff with the ability to develop a program for persons to apply for reimbursement of cost associated with plugging abandoned wells.
Mr. Hoffman responded to questions from Committee members. He responded there are approximately 5,653 abandoned oil and gas wells across the state. The cost for plugging a well varies depending upon the depth of the well from $3,800 to $6,200 over the last three fiscal years. There would be no impact to the state with the combining of the two funds. Historically, the State General Fund (SGF) was a dollar for dollar match into the Conservation Fee Fund. This has not been done for over a decade and the bill does not reference matching funds. A priority system is in place for determining plugging of abandoned wells, which is primarily based on the immediacy of the threat related to leakage, such as salt water, oil or gas. John Myers, Assistant General Counsel, Kansas Corporation Commission, stated the rationale for imminent threat of an abandoned well is that the well is likely to cause pollution, and is a requirement for an investigation by the Commission.
David Bleakley, Chairman, Kansas Independent Oil and Gas Association, presented testimony as a proponent of the HB 2534 HB 2535 and HB 2536 (Attachment 5). Regarding HB 2534, there is no need to differentiate between an abandoned well drilled before July, 1996 and one that was drilled afterward. The two funds should be merged to plug more abandoned wells, he stated. HB 2536 addresses issues related to legal responsibility for the proper care and control of abandoned wells, regulations and reimbursements.
Mr. Bleakley responded to questions by Committee members. The combined plugging fund balance is approximately $7 million.
Chris McGown, President, McGown Drilling, presented testimony on behalf of EKOGAas a proponent of HB 2534 and HB 2536 (Attachment 6). The bills are a significant step forward for the industry in providing clarity, regulatory certainty and efficiency, he stated. Kansas oil and gas producers directly or indirectly pay for every well plugged in the state, he noted. In 2018, there were over 1,100 wells plugged in Eastern Kansas, of which approximately 90 percent were plugged by operators. Operators would like more dollars earmarked for plugging abandoned wells in which there is no responsible party. There has been an increase in service contractors and competition for these funds, which keeps the costs for drilling down. Drilling is down, which reduces lower tax revenues for local counties through severance tax collections, cultivation collections, sales and property tax collections. Failure to pass these bills could result in reduced asset valuation and asset acuity for Eastern Kansas operators, he added.
Written testimony as proponents of HB 2536 was submitted by John Donley, Kansas Farm Bureau (Attachment 7). Written testimony as proponents of HB 2534, HB 2535 and HB 2536 was submitted by John Farmer and Andrea Krauss, John Farmer, Inc., (Attachment 8).
Tom Birt, LETUS, presented testimony as an opponent of HB 2536 and HB 2534 (no written testimony was provided). An oil and ownership map of Johnson, Miami and Franklin Counties was provided to Committee members and reviewed (Attachment 9). He expressed concern for the lack of transparency within the oil and gas industry. These bills no longer prioritize funds for wells drilled prior to 1996.
Mr. Birt responded to questions from Committee members. He emphasized the need to maintain funding priorities for the older wells in Eastern Kansas.
Scott Yeargain, presented testimony as an opponent of HB 2535 and HB 2536 (Attachment 10). Concern was expressed that expanding the purview of the Commission would shrink the responsibility of lease operators. For years, actively leaking wells remain on the Commission's list to be plugged. The current bill makes the industry responsible for determining what wells are abandoned and those that are not, and he suggested the bill be amended, modified or not passed in the current form.
Polly Shteamer presented testimony as an opponent of HB 2534 and HB 2536 (Attachment 11). Concern was expressed for the water threats from old abandoned wells, and moving funds to western Kansas to equalize districts when 90 percent of these are in Eastern Kansas. She emphasized the need to postpone these bills for additional research regarding issues not aligned with oil and gas.
Discussion followed by Committee members. It was noted that these bills will get more money for contractors to plug abandoned wells.
Meeting recessed at: 10:58 a.m.
Meeting reconvened at: 11:35 a.m
Zack Pistora, Kansas Sierra Club, presented testimony in neutral position of HB 2534 (Attachment 12). and HB 2535 (Attachment 13). The Kansas Sierra Club supports plugging abandoned wells and noted ample funds in both fund accounts to address plugging abandoned wells. Concern was expressed that by merging the two funds this would result in a half million dollar loss for the plugging of abandoned oil and gas wells, and may limit the benefit of KDHE 's involvement in oil and gas management and planning. Mr. Pistora presented testimony as an opponent of HB 2536 (Attachment 14). The bill reduces the scope of KCC's mission to protect against pollution and potential risks created by abandoned oil and gas wells by changing many statutory terms and deleting important provisions. The Kansas Judiciary ruling in John M. Denman V. State Corporation Commission was reviewed. And, more needs to be done to address the root case of abandoned wells, he noted.
Chairman Waymaster closed the hearing on HB 2534, HB 2535 and HB 2536.
The meeting adjourned at: 11:53 a.m.
