ARTICLE IV DRILLING [1]

It shall be unlawful for any person to cause or permit the drilling or deepening of any well that is nearer than 1,000 feet from:

A residence or commercial building,

A lot created pursuant to a subdivision plat duly filed of record with the county clerk of Montgomery County, Texas, and which lot is restricted to single family residential use,

The location of any proposed building for which a valid construction permit has been issued and is in effect, or

Any public park or public building within the City of Magnolia, Texas.

It shall be unlawful for any person to cause or permit the drilling or deepening of any well that is nearer than one thousand five hundred (1,500) feet from a city water well located in the city’s watershed or a fresh water water-well located inside the city limits or the city’s ETJ.

Variance.

A waiver of the drill setbacks in subsection (a) may be granted:

By the city council; or

§ 30-117 Drilling in streets and alleys.

Written notarized waiver granted by all the protected use property owners within a 1,000-foot radius around the proposed well pursuant to this section. All waivers must identify the property address, block and lot number, subdivision name (if applicable) and plat volume and page and be filed, at the expense of the operator, in the applicable county records prior to the application of a gas well permit.

This setback distance may be reduced, but never less than 400 feet.

The measurement of the 1,000-foot distance shall be made from the well bore, in a straight line, without regard to intervening structures or objects, to the closest exterior point of any building and the boundary line of a public park or property line of a school.

(Ordinance O-2013-020, sec. 2(exh. A), adopted 8/13/13)

It shall be unlawful to drill any well and no well shall be drilled and no permit shall be issued for any well to be drilled at any location which is within any of the streets, right-of-ways, or alleys of the city and no street, right-of-way or alley shall be blocked or encumbered or closed in any drilling or production operation, except by special permit by order of the city council, and then only temporarily.

(Ordinance O-2013-020, sec. 2(exh. A), adopted 8/13/13)

§ 30-118 Permit required.

It shall be unlawful for any person to commence to drill or to deepen a well or convert an abandoned well into a waste disposal well within the city or its extraterritorial jurisdiction, or to work upon or assist in any way in the prosecution or operation of any such well, without having first obtained a permit from the city.

(Ordinance O-2013-020, sec. 2(exh. A), adopted 8/13/13)

§ 30-119 Oil and gas inspector.

The city council may at any time appoint an oil and gas inspector, and his compensation shall be set by the city council, and the inspector can be removed at the will of the city council. If and when appointed, it shall be the duty of the oil and gas inspector to enforce the provisions of this article.

(Ordinance O-2013-020, sec. 2(exh. A), adopted 8/13/13)

§ 30-120 Violation of state or federal laws.

Any violation of the laws of the state or any rules, regulations or requirements of any state or federal regulatory body having jurisdiction in reference to drilling, completing, equipping, operating, producing, maintaining, or abandoning an oil or gas well or related appurtenances, equipment or facilities, fire protection, blowout protection, safety protection, or convenience of persons or property shall also be a violation of this article, and shall be punishable in accordance with the provisions of this article.

(Ordinance O-2013-020, sec. 2(exh. A), adopted 8/13/13)

§ 30-121 Penalty; administrative actions.

It shall be unlawful and an offense for any person to violate or neglect to comply with any provision of this article, irrespective of whether or not the verbiage of each section of this article contains the specific language that such violation or neglect is unlawful and is an offense.

Any person who shall violate any of the provisions of this article, or any of the provisions of a drilling and operating permit issued pursuant to this article, or any condition of the bond filed by the permittee pursuant to this article, or who shall neglect to comply with the terms of this article, shall be deemed guilty of a misdemeanor and, upon conviction thereof, shall be fined in an amount not to exceed $2,000. Each day of violation shall constitute a separate offense.

§ 30-122 Application requirements; filing fee.

In addition to the penalties in subsections (a) and (b) of this section, it is further provided that the city council, at any regular or special session or meeting thereof, may, provided ten days’ notice has been given to the permittee that revocation is to be considered at such meeting, revoke or suspend any permit issued under this article and under which drilling or producing operations are being conducted if the permittee thereof has violated any provision of the permit, the bond, or this article. If the permit is revoked, the permittee may make application to the city council for a reissuance of such permit, and the action of the city council thereon shall be final administrative action.

(Ordinance O-2013-020, sec. 2(exh. A), adopted 8/13/13)

Every application for a permit to drill and operate a well shall be in writing, signed by the applicant or by some person duly authorized to sign the application on his behalf, and it shall be filed with the city secretary and be accompanied with a filing fee of $500.00 in cash as a fee to the city.

No application shall request a permit to drill and operate but one well to each reservoir. The application shall contain full information, including the following:

The date (year, month and day) of the application.

The name of the applicant.

The address of the applicant.

The proposed site of the well accompanied by a plat showing the description of the lots, blocks or tracts owned or controlled by the applicant.

The name of the fee owner.

The name of the lease owner.

(7)

A brief description of the land.

(8)

Attached to the application, a certified or photostatic copy of the deed, oil and gas lease, or drilling contract with the owners of land covering the lot, block or tracts over which the applicant has control, together with abstracts of title or certificates of title satisfactory to the city council, to the end that the application will show what proportion and what parts the applicant owns in fee, or holds under lease or drilling contract from the owners, and the applicant must own in fee or hold under lease or drilling contract from the owners over 50 percent of the acreage unit before a permit may be issued.

(9)

The type of derrick to be used.

(10)

Whether the well shall be drilled as an oil or gas well.

(11)

The proposed depth of the well.

(12)

The motive power of the rig that is to be used.

Within 30 days after the completion of a well within the city limits, the operator an electric log. This data shall be classified as “secret” to the extent provided by law by the city council for a period of six months.

(Ordinance O-2013-020, sec. 2(exh. A), adopted 8/13/13)

§ 30-123 Notice of hearing.

Notice of the filing of each application for permit under this division shall be given by the applicant as follows:

If the official paper of the city is published weekly or daily, the publication shall be made in one issue thereof 14 days before the date of hearing. Such notice shall state the lot and block number on which the applicant is asking for a permit to drill and the date and place of hearing, and shall be in words and figures as follows:

Notice is hereby given that _____acting under and pursuant to the terms and provisions of AN ORDINANCE REGULATING THE DRILLING COMPLETION AND OPERATION OF OIL WELLS WITHIN THE LIMITS OF THE CITY OF MAGNOLIA, TEXAS, AND PROVIDING OF THE PUBLIC SAFETY IN CONNECTION THEREWITH, being Ordinance No. _____, did, on the _____day of _____, 20_____, file with the City Secretary of the City of Magnolia an application for a permit to drill a well for oil and/or gas upon Lot No. _____, Block No. _____, Magnolia _____,

A hearing upon such application will be held in the chambers of the City Council of the City of Magnolia, Texas at _____on the _____day of _____, 20_____, at _____.m.

________________________

Applicant

________________________

Applicant Printed Name

Proof of notice shall be made by the applicant by filing with the city secretary an affidavit of the printer or publisher of the paper in which the notice is published containing a copy of the notice, and stating the issue in which and period of time during which the notice was published.

At the time fixed in the notice a hearing on such application shall be held in the chambers of the city council or place designated.

(Ordinance O-2013-020, sec. 2(exh. A), adopted 8/13/13)

§ 30-124 Issuance or denial.

Determination by city council; grounds for denial; contents.

The city council, within 30 days after the filing of the application for a permit to drill and operate a well, shall determine whether or not the application complies in all respects with the provisions of this article. If it does, the city council shall then fix the amount of the principal of the bond as specified in section 30-126 which shall not be less than $500,000.00 at all times, and after such determination, and the filing and approval thereof, shall issue a permit for the drilling and operation of the well applied for.

The city council shall have the power, and reserves the authority, to refuse any application for a permit when, by reason of the location of the proposed well and the character and value of the permanent improvements already erected on the drilling location in question or adjacent thereto, and the use to which the land and surroundings are adapted for civic purposes, or for sanitary reasons, the drilling of an oil or gas well will be a serious disadvantage to either the health, safety, morals or welfare of the city and its inhabitants.

Each permit issued under this article shall:

By reference have incorporated therein all the provisions of this article with the same force and effect as if this article were copied verbatim in the permit;

Specify the well location with particularity to lot number, block number, name of addition or subdivision, or other available correct legal description;

Contain and specify that the terms of such permit shall be for a period of six months from the date of the permit, and as long thereafter as the permittee is engaged in continuous drilling or reworking operations or oil or gas is produced in commercial quantities from the well drilled pursuant to such permit; provided that if at any time after discovery of oil or gas the production thereof in commercial quantities shall cease, the term shall not terminate if the permittee commences additional reworking operations within six months thereafter, and if they result in the production of oil or gas, so long thereafter as oil or gas is produced in commercial quantities from the well;

Contain and specify such conditions as are by this article authorized;

Specify the total depth to which the well may be drilled; and

Contain and specify that no actual drilling operations shall be commenced until the permittee shall file and have approved an indemnity bond in the designated principal amount as so determined by the city council and conditioned as specified.

Signatures; issuance; effect.

The permit, in duplicate originals, shall be signed by the city secretary and prior to delivery to the permittee shall be signed by the permittee (with one original to be retained by the city and one by the permittee), and when so signed shall constitute the permittee’s drilling and operating license and the contractual obligation of the permittee to comply with the terms of such permit, and such bond specified in [section 30-126] and this article.

§ 30-126 Bond, letters of credit, indemnity, insurance.

Withdrawal of application.

If the permit for the well is refused, or if the applicant notifies the city council in writing that he does not elect to accept the permit as tendered and wishes to withdraw his application, or if the bond of the applicant is not approved and the applicant notifies the city council in writing that he wishes to withdraw his application, then upon the happening of any of such events the cash deposit provided for to be filed with the application shall be returned to the applicant, except there shall be retained therefrom by the city $100.00 as a processing fee.

(d)

Reworking wells.

Except in an emergency, in which event an operator may proceed without notice, any operator desiring to rework a well shall give the city council written notice of his intent prior to the commencement of operations.

(Ordinance O-2013-020, sec. 2(exh. A), adopted 8/13/13)

§ 30-125 Termination.

When a permit shall have been issued under this division, the permit shall terminate and become inoperative without any action on the part of the city unless within six months from the date of issuance actual drilling of the well designated therein shall have commenced. The cessation for a like period of the drilling and/or reworking operations, or the cessation of the production of oil or gas from the well after production shall have commenced, or cessation of use for waste purposes, shall operate to terminate and cancel the permit, and the well shall be considered as abandoned for all purposes of this article, and it shall be unlawful thereafter to continue the operation or drilling of such well or using such well for disposal of waste without the issuance of another permit.

(Ordinance O-2013-020, sec. 2(exh. A), adopted 8/13/13)

General requirements.

If a permit is issued by the city council under the terms of this division for the drilling and operation of a well the permittee shall be required to:

Comply with the terms and conditions of this article and the permit issued hereunder.

Indemnify and hold harmless the city, its officers, agents, and employees from and against any and all claims, losses, damages, causes of action, suits and liability of every kind, including all expenses of litigation, court costs, and attorney’s fees, for injury to or death of any person or for damage to any property arising out of or in connection with the work done by operator under a gas well permit:

Where such injuries, death or damages are caused by operator’s sole negligence or the joint negligence of operator and any other person or entity; and

Regardless of whether such injuries, death or damages are caused in whole or in part by the negligence of operator.

Promptly pay all fines, penalties and other assessments imposed due to breach of any terms of the gas well permit.

Promptly restore to its former condition any public property damaged by the operation of the permittee as near as practicable.

Promptly clear all premises of all litter, trash, waste, and other substances used, allowed or occurring in the drilling or producing operations, and will grade, level or restore the property to the same surface condition, as near as practicable, as existed when operations for the drilling of the well were first commenced.

That permittee will pay to the owners of any buildings, improvements, goods or chattels located on the property any extra cost of insurance of such property imposed by reason of the granting of the permit, or the operations carried on thereunder, and that the permittee will promptly pay and discharge any liability imposed by law for damages on account of injury to property, either public or private, or bodily injury, including death, received or suffered by any person whomsoever and resulting from the drilling operations, production and maintenance of the well, equipment, facilities, or appurtenances thereto;

Bond, irrevocable letter of credit.

No actual drilling operations shall be commenced until the permittee shall file with the city secretary a bond (and obtain written approval thereof by the city secretary) duly executed by the applicant as principal and by a reliable surety company authorized to do business in the state as surety, running to the city for the benefit of the city and all persons concerned; the permittee file with the city secretary the original of an irrevocable letter of credit signed by the appropriate officer of the banking institution. The bond or letter of credit shall be in the principal sum of the number of dollars as has been so determined by the city council as set out in section 30-124. The bond or letter of credit shall become effective on or before the date the bond is filed with the city secretary, and remain in force and effect for at least a period of two years subsequent to the expiration of the term of the permit issued. The bond or letter of credit shall accrue to the benefit of any person with reference to the conditions stated in this section, and may be sued upon by him.

Insurance.

In addition to the bond or letter of credit required pursuant to this article, the operator shall carry a policy or policies of insurance issued by an insurance company or companies authorized to do business in Texas. In the event such insurance policy or policies are cancelled, the gas well permit shall be suspended on such date of cancellation and the operator’s right to operate under such gas well permit shall immediately cease until the operator files additional insurance as provided herein.

General requirements applicable to all policies.

The city, its officials, employees, agents and officers shall be endorsed as an “additional insured” to all policies except employers’ liability coverage under the operator’s workers compensation policy.

All policies shall be written on an occurrence basis except for environmental pollution liability (seepage and pollution coverage) and excess or umbrella liability, which may be on a claims-made basis.

All policies shall be written by an insurer with an A-VIII or better rating by the most current version of the A. M. Best Key Rating Guide or with such other financially sound insurance carriers acceptable to the city.

Deductibles shall be listed on the certificate of insurance and shall be on a “per occurrence” basis unless otherwise stipulated herein.

Certificates of insurance shall be delivered to the City of Magnolia City Secretary, evidencing all the required coverage, including endorsements, prior to the issuance of a gas well permit.

All policies shall be endorsed with a waiver of subrogation providing rights of recovery in favor of the city.

Any failure on part of the city to request required insurance documentation shall not constitute a waiver of the insurance requirement specified herein.

Each policy shall be endorsed to provide the city a minimum 30-day notice of cancellation, non-renewal, and/or material change in policy terms or coverage. A ten-day notice shall be acceptable in the event of non-payment of premium.

During the term of the permit, the operator shall report, in a timely manner, to the city secretary or designee any known loss occurrence which could give rise to a liability claim or lawsuit or which could result in a property loss.

Upon request, certified copies of all insurance policies shall be furnished to the city.

Standard commercial general liability policy.

This coverage must include premises, operations, blowout or explosion, products, completed operations, sudden and accidental pollution, blanket contractual liability, underground resources and equipment hazard damage, broad form property damage, independent contractors’ protective liability and personal injury. This coverage shall be a minimum combined single limit of $1,000,000.00 per occurrence for bodily injury and property damage.

Excess or umbrella liability.

Five-million-dollar excess when necessary.

Environmental pollution liability coverage.

Operator shall purchase and maintain in force for the duration of the gas well permit, insurance for environmental pollution liability applicable to bodily injury, property damage, including loss of use of damaged property or of property that has not been physically injured or destroyed; cleanup costs; and defense, including costs and expenses incurred in the investigation, defense or settlement of claims; all in connection with any loss arising from the insured site. Coverage shall be maintained in an amount of at least $5,000,000.00 per loss.

Coverage shall apply to sudden and accidental, as well as gradual pollution conditions resulting from the escape or release of smoke, vapors, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste material or other irritants, contaminants or pollutants.

The operator shall maintain continuous coverage and shall purchase extended coverage period insurance when necessary. The extended coverage period insurance must provide that any retroactive date applicable to coverage under the policy precedes the effective date of the issuance of the permit by the city.

Control of well.

The policy should cover the cost of controlling a well that is out of control, re-drilling or restoration expenses, seepage and pollution damage as first party recovery for the operator and related expenses, including, but not limited to, loss of equipment, experts and evacuation of residents.

Five million dollars per occurrence/combined single limit.

Five hundred thousand dollars sub-limit endorsement may be added for damage to property for which the operator has care, custody and control.

Workers compensation and employers liability insurance.

Workers compensation benefits shall be Texas statutory limits.

Employers liability shall be a minimum of $500,000.00 per accident.

Such coverage shall include a waiver of subrogation in favor of the city and provide coverage in accordance with applicable state and federal laws.

(7)

Automobile liability insurance.

Combined single limit of $1,000,000.00 per occurrence for bodily injury and property damage.

Coverage must include all owned, hired and not-owned automobiles.

(8)

Certificates of insurance.

The company must be admitted or approved to do business in the State of Texas, unless the coverage is written by a surplus lines insurer.

The insurance set forth by the insurance company must be underwritten on forms that have been approved by the Texas State Board of Insurance or ISO, or an equivalent policy form acceptable to the city, with the exception of environmental pollution liability and control of well coverage; and set forth all endorsements and insurance coverage according to requirements and instructions contained herein; and

Shall specifically set forth the notice of cancellation, termination, or change in coverage provisions to the city. All policies shall be endorsed to read “THIS POLICY WILL NOT BE CANCELLED OR NON-RENEWED WITHOUT 30 DAYS ADVANCED WRITTEN NOTICE TO THE OWNER AND THE CITY EXCEPT WHEN THIS POLICY IS BEING CANCELLED FOR NONPAYMENT OF PREMIUM, IN WHICH CASE 10 DAYS ADVANCE WRITTEN NOTICE IS REQUIRED”.

Original endorsements affecting coverage required by this section shall be furnished with the certificates of insurance.

(Ordinance O-2013-020, sec. 2(exh. A), adopted 8/13/13)

§ 30-127 Derrick and rig.

It shall be unlawful and an offense for any person to use or operate, in connection with the drilling or reworking of any well within the city limits, any wooden derrick or any steam-powered rig, and all engines shall be equipped with adequate mufflers approved by the city council; or to permit any derricks to remain on the premises or drilling site for a period longer than 30 days after completion or abandonment of the well. At all times from the start of erection of a derrick, or a mast, or a gin-pole, until the well is abandoned and plugged, or completed as a producer and enclosed with a fence as provided in this article, the permittee shall keep a watchman on duty on the premises.

(Ordinance O-2013-020, sec. 2(exh. A), adopted 8/13/13)

§ 30-128 Pits.

Only portable slush tanks for mud or water shall be permitted in connection with the drilling and reworking operation. The tanks and their contents shall be removed from the premises and the drilling site within ten days after completion of the well.

(Ordinance O-2013-020, sec. 2(exh. A), adopted 8/13/13)

§ 30-129 Drilling plans.

All drilling plans including, but not limited to pipe used, depth, cementing, casing, drill stem tests, tubing, drilling fluid, Christmas tree and well head connections, and all materials and machinery to be used shall be prepared and sealed and signed by a professional engineer licensed to practice in Texas and shall be presented to the city engineer or his designee for review and approval.

Casing materials.

The productive string shall be new pipe and shall have a sufficient mill test of number of pounds required by the Texas Railroad Commission and approved by the city engineer for wells 6,000 feet or less in depth.

The surface casing shall be new pipe and shall have a mill test of number of pounds required by the Texas Railroad Commission and approved by the city engineer for wells 6,000 feet or less in depth.

Setting and cementing casing.

No well shall be drilled within the city limits or the city’s ETJ without properly setting surface casing to a minimum depth of 2,000 feet or to the bottom of the deepest fresh water bearing sand, whichever is deeper. No well shall be drilled within the city limits or its ETJ without cementing the surface casing by the pump and plug method with sufficient cement to completely fill all of the annular space behind such casing to the surface of the ground, and without cementing the production string by the pump and plug method with sufficient cement to completely fill all the annular space behind the production string to at least 600 feet above the highest oil and/or gas bearing horizon, and, if a protection string of casing is used, without cementing the protection string by the pump and plug method with sufficient cement to completely fill all the annular space behind the protection string to at least 600 feet above the highest oil and/or gas bearing horizon.

Valves and blowout preventers.

No well shall be drilled within the city limits or it’s ETJ without properly equipping the surface casing when set with at least two ram type blowout preventers, one of which shall be equipped with bond rams and the other with pipe rams. On each well drilled, a valve cock or kelley cock shall be installed on the kelley used. Each blowout preventer shall be tested at least once every 24-hour period and all control equipment shall be in good working condition and order at all times. Drilling fluid return lines shall be equipped with flow valves where the return line is connected below the top blowout preventer.

Drilling fluid.

All operators shall be required to drill with fluid of sufficient weight to exceed the formation pressure anticipated in the city limits or it ETJ.

Drill stem tests.

It shall be unlawful and an offense for any person in connection with the drilling and reworking operations of any well within the city limits to take and to complete any drill stem test except during daylight hours and then only if the well effluent during the test is produced through an adequate oil and gas separator to storage tanks, and the effluent remaining in the drill pipe at the time the tool is closed is flushed to the surface by circulating drilling fluid down the annulus and up the drill pipe.

(Ordinance O-2013-020, sec. 2(exh. A), adopted 8/13/13)

§ 30-130 Premises.

The premises shall be kept in a clean and sanitary condition, free from rubbish of every character, to the satisfaction of the county health officer and the city, at all times drilling operations or reworking operations are being conducted, and as long thereafter as oil and/or gas is being produced therefrom.

Fencing.

Any permittee or person who completes any well as a producer shall have the obligation to enclose the well, together with its surface facilities, by an eight-foot masonry screening wall sufficiently high and properly built so as to ordinarily keep persons and animals out of the enclosure, with all gates thereto to be kept locked when the permittee or his employees are not within the enclosure

Mufflers required.

Motive power for all operations after completion of drilling operations shall be electric or properly muffled gas or gasoline engines, such mufflers to be approved by the city inspector. All pumping wells shall be equipped with electric motors.

Ambient noise level.

Maximum permitted sound levels for all permanent lift or line compressors shall be limited by the following zoning classifications:

Industrial: 75 dBA daytime/65 dBA nighttime

Commercial: 65 dBA daytime/55 dBA nighttime

Residential: 55 dBA daytime/50 dBA nighttime

If the measurement location is on a boundary between two different land use classifications, the lower noise level standard applicable to the noise zone shall apply. If there is no zoning, then the residential ambient noise level shall be complied with.

Operators shall be allowed to demonstrate that the current actual ambient is greater than allowed which will become the new ambient for that location (measured at the property line of the noise creator), except if located in residential zoning, a special exception granted by the board of adjustment shall be required.

Noise measurement will be taken at the property line of the compressor station to determine ambient. To determine compliance with the noise requirements all measurements will be taken at the property line of the receiver/receptor.

Compressors shall meet the low and high frequency requirements/standards as required above.

Warning signs.

Printed signs reading “DANGEROUS, NO SMOKING ALLOWED” or similar words shall be posted in conspicuous places on each drilling site or well site.

Location of storage tanks.

All crude oil storage tanks shall be located outside the city limits. However if the well is a gas well, any condensate or oil that is separated from the gas may be stored on site in a storage tank not to exceed 25,000 gallons.