193 Osage Envtl., Inc. v. R.R. Comm’n of Tex

Richard F. Brown

 
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
 
Osage Envtl, Inc. v. R.R. Comm’n of Tex., No. 03-08-00005-CV, 2008 WL 2852295 (Tex. App.—Austin Jul. 24, 2008, no pet.) (Memorandum opinion), examines whether storing and recycling drill cuttings constitutes disposing of oil and gas waste within the meaning of Rule 8 of the Railroad Commission Statewide Rules (“Rule 8”). Rule 8 provides “no person may dispose of any oil and gas wastes by any method without obtaining a permit to dispose of such wastes.” Oil and gas waste includes “saltwater, other mineralized water, sludge, spent drilling fluids, cuttings, waste oil, spent completion fluids, and other liquid, semiliquid, or solid waste material.”
 
Osage received and stored oil-based drill cuttings, “. . . bits of rock and soil cut from subsurface formations by the drill bit during the process of drilling a well . . .,” to recycle and sell as road base material. When Osage’s President contacted the Texas Railroad Commission in 1999 concerning the receipt and storage of drill cuttings, he was told Osage did not need a permit. However, in 2000 the Railroad Commission inspected Osage, concluded it was receiving oilfield waste, and notified it that Osage was required to apply for and obtain a permit to store and process oil and gas waste.
 
Osage filed suit against the Railroad Commission for a determination of whether Rule 8 required it to maintain a permit, but eventually agreed to permit terms requiring Osage to reduce its stored cuttings to 10,000 cubic yards and to file reports and financial security with the Railroad Commission. However, Osage failed to comply with the terms of its permit and continued to amass drill cuttings well in excess of 10,000 cubic yards. The Railroad Commission began enforcement proceedings against Osage, and ordered $40,000 in administrative penalties for Osage’s violation of both the permit requirements and the Commission Rules.
 
Osage then filed suit against the Railroad Commission, claiming that because it planned to recycle its stored cuttings, they were not “oil and gas waste” within the meaning of Rule 8. The Austin Court of Appeals, however, looked to the plain language of Rule 8, which includes drill cuttings within the meaning of “oil and gas waste,” and to the Railroad Commission’s enabling act, which defines “oil and gas waste” as “waste arising out of or incidental to the drilling for or producing of oil or gas.” The court held that the stored cuttings were “oil and gas waste” within the plain meaning of both statutes and did not lose their character as such until they were recycled into finished road base.
 
The court also considered the definition of “to dispose” in Rule 8, “. . . conducting, draining, discharging, emitting, throwing, releasing, depositing, burying, landfarming, or allowing to seep, or to cause or allow any such act of disposal.” Because Osage deposited its cuttings directly onto the ground, “where they would be subject to the elements and potential surface water run-off,” it was engaged in the disposal of oil and gas waste within the meaning of Rule 8. The Railroad Commission, therefore, properly required Osage to obtain a permit for its activities.
 
The significance of the case is the holding that typical oil-based drill cuttings will ordinarily require a permit for disposal. An intent to recycle the cuttings into road base does not equal recycling, and that intent does not eliminate Rule 8’s requirement of a permit for disposal.