11/4/2014
REGULATION OF MIDSTREAM GATHERING COMPANIES IN TEXAS AND OKLAHOMA
John J. Morozuk
Ross Molina Oliveros P.C.
San Antonio Midland Oklahoma City
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WHAT IS GAS GATHERING?
Railroad Commission of Texas Rules
16 Texas Administrative Code, Rule 7.115 Definitions
(15) Gas‐gathering utility‐‐For the purposes of determining which annual report to file, a
gas utility or public utility which employs a pipeline or pipelines and ancillary facilities
thereto in the first taking or the first retaining of possession of gas produced by others
which extends from any point where such gas is produced, purchased, or received to the
trunk line or main line of transportation where such gas is sold or delivered, without regard
to the size, the length, or the amount of such gas carried through such pipeline or pipelines
to the trunk line or main line of transportation, thus having as its primary function the
collecting or collecting and processing of gas produced by others as a preliminary incident
to the transportation after it has been severed from the earth by production.
WHAT IS GAS GATHERING?
Oklahoma Statutes
52 Oklahoma Statutes ¶24.4 Definitions
For purposes of this act:
1. “Gathering is the transportation of natural gas though a pipeline for hire, compensation
otherwise, or transporting natural gas through a pipeline, in whole or in part, for such
person’s own account, whether in connection with the purchase and resale of natural gas,
or in connection with the processing of natural gas or otherwise, performed by a person
other than a local distribution company, intrastate transmission pipeline or interstate
pipeline. Gathering includes those activities or processes performed between the delivery
points and the redelivery points, which shall include and be limited to only transportation,
measurement, conditioning, compressing, pressure regulation, recompressing, cleaning
and treating of such gas and the fuel or gas loss associated with such foregoing activities.
The terms “conditioning, cleaning and treating” as used herein shall include those
processes of separation, dehydration, removal of all contaminants and inerts and filtering.
Gathering specifically shall not include processing or the extraction of natural gas liquids
and products;
2. “Gatherer” shall include any person who performs the activities or processes defined as
gathering;
WHAT IS GAS GATHERING?
U.S. Department of Transportation ‐ Pipeline and Hazardous Materials Safety Administration
49 C.F.R. §192.3 Definitions
Gathering Line means a pipeline that transports gas from a current production facility to a
transmission line or main.
Transmission Line means a pipeline other than a gathering line that: (1) transports gas
from a gathering line or storage facility to a gas distribution center, storage facility, or large
volume customer that is not down‐stream from a gas distribution center; (2) operates at a
hoop stress of 202 percent or more of [Specified Minimum Yield Strength]; or (3)
transports gas within a storage field.
Main means a distribution line that serves as a common source of supply for more than
one service line.
Distribution Line means a pipeline other than a gathering or transmission line.
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TEXAS NATURAL RESOURCES CODE
 Midstream companies are lumped together with natural gas purchasers, crude oil purchasers,
crude oil pipeline gatherers and crude oil trucking companies as common purchasers.
 A common purchaser is required to purchase or take the natural gas purchased or taken by it as a
common purchaser under rules of the Railroad Commission of Texas.
 A common purchaser must purchase all the natural gas offered to it without discrimination in
favor of one producer or person against another in the same field and without unjust or
unreasonable discrimination between fields.
 A common purchaser may not discriminate between or against natural gas of a similar kind or
quality in favor of its own production or production in which it is directly or indirectly interested.
 If the common purchaser must prorate its gas takes, it must take natural gas in like manner as
that of any other person or producer and gas must be taken in ratable proportion that the
production bears to the total production offered for the market in that field.
 The definition of “field” is variable; sometimes it means a particular reservoir and sometimes it
means an entire geographical area from which gas is produced.
TEXAS UTILITIES CODE
 A midstream company that owns, operates or manages a pipeline system that carries natural gas
for public hire is a gas corporation.
 As a gas corporation, it has the right to condemn land for right of way, to lay pipelines along,
under and across a public road, interurban railroad, street railroad, canal or stream, municipal
street or alley or a railroad or railroad right of way, subject to certain statutory conditions.
 If the midstream company uses the power of eminent domain to obtain right of way, it becomes a
gas gathering utility.
 A gas gathering utility must do the following:
• Maintain an office in a Texas county where some part of its pipeline facilities are located and keep
required books and records in that office.
• File a sworn, annual report with the Railroad Commission providing certain information required by
statute.
• Abide by pipeline safety rules of the Railroad Commission.
• Pay an annual Gas Utility Tax equal to one‐half of one percent of its gross income, less cost of
purchasing, treating, storing, gathering and transportation of gas to its facilities.
• Within 60 days of the transaction date, report to the Railroad Commission (i) the sale, acquisition or
lease of a plant or system for more that $1 million, or (ii) the merger or consolidation with another gas
utility. This requirement does not apply to replacement property or additions to facilities by
construction.
RAILROAD COMMISSION OF TEXAS
 Established by the Texas Legislature in 1891 to regulate railroads, terminals, wharves and express
companies.
 Given the power to set rates and issue rules on how to classify freight, require adequate railroad
reports and prohibit and punish discrimination and extortion by corporations.
 Later give the power to regulate other industries in Texas:
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Oil pipelines (1917)
Oil and gas Production (1919)
Natural gas delivery systems (1920)
Bus lines (1927)
Trucking (1929)
 Railroad regulatory power was transferred to the Texas Department of Transportation, effective
October 1, 2005.
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RAILROAD COMMISSION RULES FOR MIDSTREAM COMPANIES
 File an Organizational report on Form P‐5 before beginning operations and annually thereafter.
 File a New Construction Report on Form PS‐48 at least 30 days before construction of any new
installation totaling at least one mile of pipe.
 Before using a pipeline to transport any gas, obtain a permit by filing an Application for Permit to
Operate a Pipeline in Texas on Form T‐4 accompanied by more detailed information on Form PS‐8000A.
 Before connecting any well to a pipeline system, the well operator must provide the midstream
company with a Form P‐4, Certificate of Compliance and Transportation Authority, issued by the
Railroad Commission. To take care of production and to prevent waste, the midstream company may
temporarily connect a well for up to 30 days while the well operator obtains a Certificate of
Compliance.
 A midstream company may not be disconnect a well from its system or cease providing gathering
service without written consent of the well or lease operator or written permission from the Railroad
Commission.
 Upon notification from the Railroad Commission that a well operator’s Certificate of Compliance has
been cancelled, the midstream company must disconnect the well or suspend gathering service.
RAILROAD COMMISSION RULES FOR MIDSTREAM COMPANIES
 Midstream companies must adhere to the Railroad Commission’s Natural Gas Transportation
Standards and Code of Conduct, intended to prevent discrimination against, or in favor of, any
customer:
• All tariffs (e.g. fees for services) and discretionary service provisions must be applied in a similar
manner to similarly situated customers.
• If a tariff or service provision is not discretionary on the part of the midstream company, it must be
enforced in a similar manner to similarly situated customers.
• No customer may be given any preference over another, similarly situated customer in the provision of
gathering services.
• The books and records of the midstream company related to gathering services must be made available
to the Railroad Commission for audit purposes within ten working days of notice.
RAILROAD COMMISSION RULES FOR GAS GATHERING UTILITIES
 File a Gathering Annual Report by April 1 each year on a form provided by the Railroad Commission.
 File a curtailment plan with the Railroad Commission that complies with the Order issued January 5, 1973 in Gas Utilities Docket No. 489.
 File tariffs electronically with the Railroad Commission, which consist of certain information about each customer contract, including things such as:
Name of the gas gathering utility
Full name of the customer [may request that customer name be kept confidential].
Contract number.
List of the services provided.
Contract date and date of most recent amendment.
Current rate for service and billing unit, such as MMBtu or MCF.
All rate adjustment provisions.
Name, title address, telephone number and email address of all persons who will respond to inquiries about tariffs.
• Contractual point or points of redelivery.
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OKLAHOMA PIPELINES ACT OF 1907
 Any firm, co‐partnership, association or combination of individuals any become an Oklahoma
domestic corporation for the purpose of producing, transmitting or transporting natural gas
within the state. Foreign corporations authorized to do business Oklahoma may also engage in
the same businesses.
 Gas corporations are authorized to use eminent domain to acquire sites for pumping stations.
 Gas corporations may install pipelines over, under, across and through all highways, bridges,
streets, alley or other public places, subject to control of the state oil and gas inspector and
municipalities.
 Before exercising the right of eminent domain, the gas corporation is required to file a plat with
the Oklahoma Corporation Commission shoeing certain details and specifications of its pipeline
system and file a formal acceptance of the oil and gas conservation statutes applicable to
pipelines.
 NOTE: Oklahoma assesses ad valorem tax on pipeline property. The valuation of the property
and the assessment ratio are different for companies that use eminent domain to obtain rights of
way, resulting in higher ad valorem taxes than companies that do not use eminent domain.
OKLAHOMA PRODUCTION AND TRANSPORTATION ACT OF 1913
 Every legal entity or person exercising or claiming the right to carry or transport natural gas by
pipeline for hire, compensation or otherwise, or engaged in the business of buying, selling or
transporting natural gas, shall not have the right to engage in such business except as authorized
by the Act.
 A pipeline company that engages in the business of purchasing and selling natural gas is a
common purchaser and must comply with the following obligations:
• Purchase all of the natural gas offered for sale within the vicinity of, or that can reasonably be reached
by, the company’s trunk lines or gathering lines without discrimination in favor or one producer as
against another or in favor of one source of supply as against another.
• If not all gas offered can be purchased, the company must purchase from each producer ratably in
proportion to the average production.
• The company may not discriminate in gas purchases between like grades and pressures of gas or
between like grades of gas or facilities as between producers.
• These obligations may not apply if a state District Court or the Corporation Commission determines that
the nature and extent of the company’s business is such that the public need so use in it and that is
conduct is not a matter of public consequence.
OKLAHOMA PRODUCTION AND TRANSPORTATION ACT OF 1913
 Companies engaged in the business of gas gathering are exempt from the common carrier
statutes, but have similar obligations under statutes that apply specifically to gas gatherers.
 Gas Gathering includes transportation, measurement, conditioning , compression, pressure
regulation, recompression, cleaning, treating and fuel and lost gas associated with such activities.
It does not include processing or extraction of natural gas liquids or liquid products.
 Statutory obligations of a gas gatherer include:
• Provide open access natural gas gathering, including redelivery to existing to redelivery points, for a fee
to any party requesting service (subject to certain statutory exceptions).
• May not charge any fee or require any terms and conditions of service which are unjust, unreasonable
or unduly discriminatory.
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OKLAHOMA CORPORATION COMMISSION
 Established by the Oklahoma Legislature in 1907 to regulate public service corporations.
 Given the power to regulate transportation and transmission companies, mostly railroads,
telephone and telegraph companies. Regulatory authority later expanded to include motor
carriers, private water companies, for‐hire buses, taxis and gas fuel dispensing units at filling
stations.
 Legislature also direct the agency to collect and maintain records of stockholders, officers and
directors of all corporations chartered or licensed to do business in Oklahoma.
 Later give the power to regulate other industries in Oklahoma:
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Pipelines and telephone service (1908)
Water, heat, light and power rates (1913)
Oil and gas drilling and production (1914)
Protection of the rights of all parties entitled to share in oil and gas production (1915)
Cotton gins (1915)
 Corporation regulatory power was later reassigned to the Secretary of State and other state
commissions and agencies according to business type.
CORPORATION COMMISSION RULES FOR MIDSTREAM COMPANIES
 Each producing gas well, except for shut‐in wells, must have a gas meter and a recorder to
measure gas production.
 If the midstream company operated the meter, it is required to file a monthly Form 1004
reporting the amount of gas in Mcf that passed through the meter that month.
 No gas may be purchased, taken or transported from a well in excess of the well allowable.
 The midstream company must abide by all pipeline safety rules of the Corporation Commission.
 At lease seven calendar days prior to new construction, relocation or replacement of a pipeline
one mile long or more, the midstream company must complete and mail Form 5001 to the
Corporation Commission.
 In case of emergency construction, relocation or replacement of a pipeline, telephone notice
must be given to the Pipeline Safety Division of the Corporation Commission and Form 5001
must be mailed to the Commission within five days after the telephone notice.
CORPORATION COMMISSION RULES FOR MIDSTREAM COMPANIES
 Midstream companies intending to acquire right of way by eminent domain must file a written
acceptance of Title 52 Oklahoma Statutes section 21 – 34 and 236 – 247 with the Corporation
Commission. The acceptance does not have to be in any particular form, although the
Commission provides a form on its website for convenience.
 If a midstream company cannot take all the gas available to it, it must ratably curtail its takes of
gas according to the following priority system established by the Corporation Commission:
• Priority One – Hardship and distressed wells.
• Priority Two – Enhanced recovery wells.
• Priority Three – Wells producing casinghead gas and associated gas.
 A company implementing curtailment must submit a Form 1004B to the Corporation Commission
by the twentieth day of the month, showing nominations for gas to be purchased or taken in the
following month.
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