3-8-6: LAND INTEREST PROVISIONS; ROYALTIES:

In the event an application for a permit for the drilling, completion and operation of a well either for oil or gas shall be made by any person not owning or not holding leases of oil or gas rights or drilling contracts from the owners of all lots, blocks or parcels of land included in or embraced within a drilling unit, a permit shall be issued to such applicant, heirs, successors and assigns, only upon the following conditions in addition to such other conditions as may be provided for in other sections of this Chapter, as follows:

   A.   Contracts and Agreements: The applicant shall be free to enter into such contracts and agreements with the owners of such other lots, blocks or tracts as he may be able to make.

   B.   Options: If agreements are not reached with all owners of lots, blocks and tracts within the drilling unit, then the owner of any given lot, block or tract shall have the right or option, by notice to the permittee, given, in writing, within thirty (30) days after the issuance of a permit for a well on the drilling unit involved, either:

      1.   To treat his interest as a working interest and contribute toward the actual cost and expense of drilling, completing and operating said well with all necessary appurtenances, currently each month, in the proportion that the number of square feet in area owned by him in the drilling unit bears the total number of square feet embraced in said unit and thereupon receive the same proportion of the oil produced and saved from such well or its value at the well, at the option of the permittee, and a like proportion of gas well gas and casinghead gas produced, saved and utilized or sold or the value of same at the well, at the option of the permittee; or

      2.   To treat his interest as a royalty interest and receive, deliver free of cost in the pipeline to which the well may be connected a share of all oil produced and saved from such well equal to one-eighth (1/8) of the proportion of the whole quantity of oil so produced and saved that the number of square feet in the area owned by him bears to total number of square feet in such drilling unit or, at the election of permittee, to receive such proportion of the value at the well of the oil so produced, and to receive a like proportion of the gas well gas and casing- head gas produced, saved and utilized or sold or at the election of the permittee, the market value at the well of such proportion of gas well gas or casinghead gas produced and sold or used off the premises or for gas sold at the well, such proportion of the amount realized from such sale.

   C.   Royalty Owed: If any owner does not exercise the right and option above provided, the obligation shall then be upon the permittee, his heirs, successors and assigns, to make settlement with such owner on the terms provided in subsection B2 above, providing for the payment of a one-eighth (1/8) royalty.

   D.   Reimbursement of Expenses: If the owner of a lot, block or tract shall exercise option in subsection B1 above and treat his interest as a working interest, as therein provided, the permittee shall be entitled to reimburse himself for such owner's proportionate part of the costs out of such owner's proportionate part of the oil, gas well gas or casinghead gas, or the value thereof, before making deliveries of products or settlement for the value thereof.

   E.   Surety of Owner: If option of subsection B1 is exercised by the owner of any lot, block or tract, such owner shall, within the time provided for notice of his election above set forth, file with the City Secretary a bond or other obligation executed by such owner as principal and by an authorized surety company as surety, in which such principal and surety agree, bind and obligate themselves to pay to the permittee, his heirs, successors and assigns currently each month that proportion of the actual and necessary costs and expenses involved in the drilling, completion and operation of such well that the number of square feet embraced within the lot, block or tract of such owner bears to the total number of square feet in such drilling block, such bond to be approved by the Mayor and held by the City Secretary for the benefit of the beneficiaries therein.

   F.   Conditions of Permit Issuance: No permit shall be granted or issued for the drilling of a well, except upon ground owned by the applicant or held by him under oil and gas lease or drilling contract from the owner, giving the owner's permission or authority to drill a well thereon. (Ord. 587, 7-1-75; 1994 Code)

3-8-7: REFUSAL OR ISSUANCE OF PERMIT:

   A.   Authority to Refuse Permit: The Board of Commissioners shall have the power, and reserves the authority, to refuse any application for a permit to drill any well at any particular location within any drilling block, where by reason of such particular location and the character and value of the permanent improvements already erected on the drilling block in question or adjacent thereto or because of the use to which the land and surroundings are adapted for school, college, hospital, park or civic purposes or for health reasons or safety reasons or any of them, the drilling of such well on such particular location might be injurious or be a disadvantage to the City or to its inhabitants as a whole or to a substantial number of its inhabitants or to the visitors as a group or would not promote orderly development and conservation of oil, gas and minerals or orderly growth and development of the City, but when a permit shall be refused for any of these reasons, but not otherwise, the deposit in cash as a fee made with the application shall be returned to the applicant, less one hundred dollars ($100.00) filing fee to be retained by the City.

   B.   Approval: Except as hereinbefore provided, if an application be found by the Board of Commissioners to comply in all respects with the terms of this Chapter, the City Secretary shall issue a permit for the drilling, completion and operation of the well applied for. The granting and issuance of a permit for a well on a drilling unit or block, as provided in this Chapter, shall automatically operate as a rejection and denial of all other pending applications for a well to be completed in the same reservoir upon the drilling unit or block involved, or any portion thereof. (Ord. 587, 7-1-75)

3-8-8: BOND AND INSURANCE REQUIREMENTS:

   A.   Surety Bond Requirements:

      1.   In the event a permit is issued by the Board of Commissioners under the terms of this Chapter for the drilling and operation of a well, no actual drilling operations shall be commenced until a surety bond, duly executed by permittee, as principal, and by a reliable surety company authorized to do business in the State, as surety, in the amount and upon the conditions prescribed in this subsection shall be filed and approved, in writing, by the City Secretary or until an instrument executed by the surety, as hereafter prescribed, is filed with and approved, in writing, by the City Secretary which makes the drilling and operation of such well subject to the terms and conditions of two (2) surety bonds (totalling $200,000.00 in the aggregate) previously filed by permittee hereunder.

      2.   Applicant's bond to be filed hereunder shall be in the sum of not less than one hundred thousand dollars ($100,000.00) and shall run to the City for the benefit of the City and all persons concerned, conditioned that the permittee will comply with the terms and conditions of this Chapter in the drilling and operation of the well, that the permittee will promptly restore the streets and sidewalks and other public property of the City, which may be disturbed or damaged in the operations, to their former conditions, as near as practicable, that the permittee will promptly clear all premises of all litter, trash, waste and other substances used, allowed or occurring in the drilling and producing operations and will grade, level and restore said property to the same surface condition, as near as practicable, as existed when operations for the drilling of the well were first commenced, and that the permittee will indemnify and hold the City harmless from any and all liability growing out of or attributable to the granting of such permit.

      3.   Any such bond filed by a permittee hereunder shall become effective on or before the date filed with the City Secretary and remain in force and effect until the expiration of the term of the permit issued; subject, however, to the right of the surety company to cancel same after thirty (30) days' written notice of such intention has been given to the City Secretary, but the privilege of cancellation shall not affect any liability which may have arisen hereunder up to the time the bond above provided for shall have been cancelled and such cancellation shall automatically suspend his right to operate under his permit until such time as permittee shall furnish another bond as required by this Chapter.

      4.   If, in accordance with the provisions of this Section a permittee has filed with the City two (2) one hundred thousand dollar ($100,000.00) surety bonds to cover the drilling and operation of wells under this Chapter, said permittee may drill and operate an additional well hereunder without filing any additional surety bond as specified above; provided said permittee files with the City an instrument (and obtains written approval thereof by the City Secretary) duly executed by the surety company named as surety, in each of the permittee's bonds on file with the City, agreeing that such bonds are in full force and effect in the aggregate sum of two hundred thousand dollars ($200,000.00) and that the terms and conditions of each bond shall thereafter likewise apply to the drilling and operation of the additional well named therein.

   B.   Insurance Requirements:

      1.   In addition to the bond required, each person drilling an oil or gas well shall carry public liability insurance in the minimum amount of one hundred thousand dollars ($100,000.00) for one person and three hundred thousand dollars ($300,000.00) for one accident and property damage insurance in the minimum amount of one million dollars ($1,000,000.00) for one accident, with a company authorized to do business in the State, which shall be in force and effect during the drilling of such well and until the completion thereof as a producing well or the abandonment and plugging thereof as a dry hole. A certificate of insurance shall accompany the application for the drilling permit and shall be subject to the approval of the Board of Commissioners.

      2.   In the event any oil or gas well is completed as a commercially producing well, then permittee therefor shall be required to carry public liability insurance in a minimum amount of two hundred fifty thousand dollars ($250,000.00) for one person and three hundred thousand dollars ($300,000.00) for one accident, and property damage insurance in a minimum amount of five hundred thousand dollars ($500,000.00) for one accident, which shall remain in force and effect and be so carried as long as such well is producing oil and gas or either of them, in commercial quantities and until plugged and abandoned. A certificate of insurance, subject to approval of the Board of Commissioners, shall be furnished annually by the permittee or the owner and operator of such well, showing that such insurance is being carried and continues in effect. (Ord. 587, 7-1-75; 1994 Code)

3-8-9: INOPERATIVE PERMITS; CANCELLATION:

   A.   Commencement of Work; Cessation of Work: When a permit shall have been issued, the same shall terminate and become inoperative without any action on the part of the Board of Commissioners unless, within one hundred eighty (180) days from the date of issuance, actual operations for drilling of the well shall have been commenced, and after the operations for drilling of the well shall have been commenced, the cessation of operations for drilling, prior to completion of the well, for a period of six (6) months shall operate to terminate and cancel the permit (save as otherwise provided with respect to the relocation of such well according to Section 3-8-14 hereof) and the well shall be considered as abandoned for all purposes of this Chapter and it shall be unlawful thereafter to continue the operation or drilling of such well without the issuance of another permit; provided, that if said well shall be completed as a well capable of production and shall thereafter cease to be capable of production, the permittee shall have the right to conduct reworking operations on said well within six (6) months after it becomes incapable of production without having to procure a new permit.

   B.   Abandoning Premises; Return of Bond or Security: If and when any permit shall terminate and become inoperative, as in this Section provided, or if and when the permittee or his assigns shall file with the Board of Commissioners written notice of his election to surrender his permit and abandon the premises covered thereby, then if there are no claims under the bond and undertakings shall have been filed within ninety (90) days thereafter, the City Secretary shall return the bond, undertaking and/or security therefor furnished by the permittee in connection with such permit, and if such claims are filed within such time, upon the satisfaction or defeat of such claims, such bond, undertaking and/or security shall thereupon be returned to the permittee or his assigns. (Ord. 587, 7-1-75)

3-8-10: USE OF PUBLIC WAYS:

It shall be unlawful to drill any well for oil or gas within any of the streets or alleys of the City or to block or encumber or close up any street or alley in any drilling or producing operations, except by special permit by order of the Board of Commissioners and then only temporarily. (Ord. 587, 7-1-75; 1994 Code)

3-8-11: OPERATORS:

   A.   Definition of Operator: The permittee in any drilling unit, or his assigns, shall be only one person and such person shall be known as the operator thereof for oil or gas and shall be held primarily accountable under the provisions of this Chapter.

   B.   Other Persons: The interests of persons other than the operator who hold oil and gas leases or equivalent contracts in any drilling unit shall be treated as part of the total working interest of said block and such other persons holding such interest shall each make the following election with the operator prior to the time a well is commenced on said block, either:

      1.   To agree, in writing, with the operator to contribute their share of all costs and expenses, properly allocated to said well and drilling unit each month the proportion that the number of square feet in area held by them or each of them in the drilling unit bears to the total numbers of square feet embraced in said unit and to execute a bond or deposit securities to be held in escrow by such depository as the City Board of Commissioners may designate to secure such agreement; said bond or securities to be in an amount at any given time sufficient reasonably to protect the interests of the operator under such agreement, and thereupon said persons so acting shall be entitled to participate in the total working interest under said unit, and said persons so acting shall have the right, upon reasonable notice given to the operator, upon the furnishing of storage tanks or facilities for handling the same and upon the payment of or securing the payment of their share of the royalty interests and any overriding royalty or oil payment interests thereof, to receive in kind their proportionate share of oil or gas produced and saved from the well in said drilling unit and allocated to the working interest of said well; or

      2.   If such other persons, or any one of them fails to elect under subsection B1 above prior to the time operator commences drilling such well, then he or they shall be deemed to have elected to agree that operator shall be entitled to reimburse himself currently each month from such other persons' proportionate share of the proceeds of sale or production in kind for twice the amount of such other persons' proportionate part of the costs and expenses as set out in the option in subsection B1 above. Provided, however, that operator and such other persons, or any one of them, shall be able to alter the obligations as set out in this Section by an agreement made by them, in writing; provided, such agreement is not repugnant to other rules and regulations set out in this Chapter.

      3.   Such other persons, as described in this Section, shall have ten (10) days after receiving written notice of intention of operator to commence drilling operations, within which to make the election set out in this Section and such other persons may advise the operator as to drilling or operating the well on said drilling unit, but final authority and responsibility therefor shall rest solely on the operator. (Ord. 587, 7-1-75)

3-8-12: RULES OF OPERATION:

In operations under a permit, the permittee or his assigns must observe the following rules, and the failure to observe the same shall be unlawful, as follows:

   A.   Storage within City: After any oil and/or gas well is brought into production, there shall be no storage or receiving tanks kept within the City limits, but the same shall be kept on the outside thereof.

   B.   Pits: In no event shall earthen slush or mud pits be dug or used within the City.

   C.   Field Working Tanks: No field working tank having a capacity of ten thousand (10,000) barrels or more shall hereafter be built nearer than two hundred feet (200') (measured from shell to shell) to any other like tank.

   D.   Signs: Printed signs reading "Dangerous, No Smoking Allowed", or similar words, shall be posted in conspicuous places near each producing well, tank battery, etc.

   E.   Combustible Materials: All permittees' premises shall be kept clear of high grass, weeds and combustible trash, within the fenced enclosure around an oil tank or producing well or, if there be no fenced enclosure, within a radius of twenty five feet (25') around an oil tank or producing well.

   F.   Earthen Storage: Open earthen storage for oil is prohibited.

   G.   Oil Tanks: All oil tanks, where there is a gas hazard, shall be gastight and provided with proper gas vents.

   H.   Open Flames: No open flame shall be placed inside the derrick of a well showing oil or gas.

   I.   Pipelines: All oil and gas pipelines laid upon or across a public road or highway must be buried to a reasonably safe depth.

   J.   Standard Operating Procedures: Standard operating procedures under the applicable rules and regulations of the Railroad Commission of the State as well as those ordinary practices adhered to by prudent operators in this area shall be followed in:

      1.   The setting and cementing of surface casing and oil strings.

      2.   The testing of surface pipe and oil strings.

   K.   Blowout Preventers: Two (2) fluid-operated blowout preventers shall be used for all drilling or completion operations involving the use of drill pipe, casing or tubing after surface casing has been set. The mechanical operation of blowout preventers shall be tested at reasonable intervals and, in addition, they shall be tested with pump pressure frequently enough to insure good working order at all times.

   L.   Testing Equipment: All wells shall be equipped with wellhead assemblies and Christmas trees of working and test pressures, as provided in applicable rules and regulations of the Railroad Commission of the State and, in addition, shall conform with standard practice and procedures used by prudent operators in this area.

   M.   Lighting Generators: No boiler or electric lighting generator shall be placed or remain nearer than one hundred fifty feet (150') to any producing well or oil tank.

   N.   Fire Hazards; Disposal of Wastes: Any rubbish or debris that might constitute a fire hazard shall be removed to a distance of at least one hundred feet (100') from the vicinity of wells, tanks and pump stations. All wastes shall be disposed of in such manner as to avoid creating a fire hazard or polluting streams and fresh water strata.

   O.   Fence Required: All producing wells, pits and tank batteries shall be protected with a six foot (6') woven fence having a barbed wire guard at the top and a gate with lock.

   P.   Slush Tanks: Only portable slush tanks for mud or water shall be permitted in connection with the drilling and reworking operations. Said tanks and their contents shall be removed from the premises and the drilling site within ten (10) days after completion of the well.

   Q.   Motors and Engines: Motive power for all operations, after completion of drilling operations, shall be electric or properly muffled gas or gasoline engines. All pumping wells shall be equipped with electric motors, gas lift facilities or properly muffled gas or gasoline engines.

   R.   Impurities: Permittee shall make adequate provisions for the disposal of all salt water or other impurities which he may bring to the surface, such disposal to be made in such manner as not to contaminate the fresh water supply, present or prospective, or to injure surface vegetation.

   S.   Protection of Fresh Water:

      1.   In order to protect the fresh water sands which are the source of water supply for this City, the casing program of all wells drilled hereafter in this City not otherwise excepted from the terms of this Chapter shall include surface casing of new or reconditioned pipe. Fresh water sands to be protected are herein defined as those above a minimum depth of eight hundred fifty feet (850') or greater depth as stipulated by the Texas Water Commission or Texas Railroad Commission in the event special field rules are adopted.

      2.   To protect fresh water, a permittee shall set surface casing to the depth stipulated by the Texas Water Commission or the Texas Railroad Commission, in the event special field rules are adopted, but in no instance to a depth less than one thousand one hundred fifty feet (1,150'), and cement with sufficient cement to fill the arnulus from the casing set depth to the surface and provide return of uncontaminated cement at the surface.

      3.   Cementing shall be by pump and plug method. Cement shall be allowed to stand a minimum of twelve (12) hours under pressure and twenty four (24) hours before drilling plug or initiating test.

      4.   After cementing, the surface casing shall be tested by pump pressure of at least seven hundred fifty (750) pounds per square inch. If at the end of the thirty (30) minutes the pressure shows a drop of one hundred fifty (150) pounds per square inch or more, the casing shall be condemned. After the corrective operations the casing shall again be tested in the same manner.

      5.   It is controllingly provided, that in the event a permittee can establish to the satisfaction of the Board of Commissioners of the City that said fresh water sands can be adequately protected by use of other means or measures, any or all of the foregoing requirements may be waived by the Board of Commissioners.

   T.   Waiver of Provisions: Any and all the provisions of this Chapter may be waived by the Board of Commissioners of the City upon a showing by the permittee to the satisfaction of the Board of Commissioners that the planned manner of operation by the permittee or equipment to be used by the permittee will adequately protect the public health, safety and welfare. (Ord. 587, 7-1-75)