Title 60 Oil And Gas

Chapter 1 Production of Oil and Gas

Part 1 General Provisions

§ 60-1-101. Chapter definitions.

As used in this chapter, unless the context otherwise requires:
1. (1) “Board” means the Tennessee board of water quality, oil and gas created by § 69-3-104;
2. (2) “Casinghead gas” means any gas or vapor, or both, indigenous to an oil stratum and produced from such stratum with oil. It shall be treated as gas, if sold, for the purpose of paying privilege tax;
3. (3) “Condensate” means liquid hydrocarbons that were in the gaseous phase in the reservoir in initial reservoir conditions. It shall be treated as oil for the purpose of paying privilege tax;
4. (4) “Field” means the general area which is underlain or appears to be underlain by at least one pool and including the pool or pools beneath the area;
5. (5) “Gas” means all natural gas and all other fluid hydrocarbons not defined as oil, including condensate because it originally was in a gaseous phase in the reservoir;
6. (6) “Oil” means crude petroleum that was originally in an oil phase in the reservoir;
7. (7) “Operator” means any person who owns or is directly responsible for a business involved in some phase of the production, manufacture, refining or distribution of petroleum oil or natural gas;
8. (8) “Owner” means the person who has the right to drill into and to produce from any pool, and to appropriate the production for such person or others;
9. (9) “Person” means any natural person, corporation, association, partnership, receiver, trustee, guardian, executor, administrator, fiduciary or representative of any kind;
10. (10) “Pool” means an underground reservoir containing a common accumulation of crude petroleum oil or natural gas or both. Each zone of the general structure which is completely separated from any other zone in the structure is covered by the term “pool” as used in this chapter;
11. (11) “Producer” means the owner of a well or wells capable of producing oil or gas, or both, in paying quantities;
12. (12) “Supervisor” means the commissioner of environment and conservation or the commissioner's designee; and
13. (13) “Waste,” in addition to its ordinary meaning, means “physical waste” as that term is generally understood in the oil and gas industry. It includes:
  1. (A) Underground waste and inefficient, excessive, or improper use or dissipation of reservoir energy, including gas energy and water drive, of any pool; and the locating, spacing, drilling, equipping, operating, or producing of any oil well or gas ultimately recoverable from any pool; and
  2. (B) Surface waste and the inefficient storing of oil and the locating, spacing, drilling, equipping, operating or producing of oil wells or gas wells in a manner causing or tending to cause unnecessary or excessive surface loss or destruction of oil or gas.

§ 60-1-102. Waste prohibited.

The production or handling of crude petroleum oil or natural gas in such manner or under such conditions as to constitute or result in waste as defined in § 60-1-101 is each prohibited.

§ 60-1-103. Permits — Applications — Operators' plans.

(a)
1. (1) No person shall drill any well for oil or gas, or conduct any surface disturbances incidental to or in preparation for such drilling, until a permit application has been submitted to the supervisor. The supervisor shall not issue a permit until the conditions established by this subsection (a) have been met.
2. (2) An application for a permit to drill shall be filed with the supervisor. The supervisor shall prescribe the form of the application.
3. (3) The application shall include the exact location of the well, the name and address of the person or persons responsible for the drilling operations, the proposed depth of the well, the location of all existing or proposed roads providing access to the well site, and the location of all blue-line streams within one-half mile (0.5 mi.) of the well site or access roads.
4. (4) The application shall also include a plan for erosion control prevention of pollution of surface waters, and reclamation of all areas disturbed by the operations, including access roads. The plan shall conform to the requirements of part 7 of this chapter. The plan must be sufficiently detailed to allow an inspector to locate the site of the facilities to be constructed and to estimate the expected environmental impact, but does not have to include detailed engineering design drawings.
5. (5) No drilling shall begin until the permit has been approved.
6. (6) A processing fee for permits shall be submitted with the application in an amount specified in rules promulgated by the board, which shall not exceed the amount stated in § 68-203-103(h) for an oil and gas permit.
(b) All funds received by the commissioner under this chapter, except those under parts 3 and 4 of this chapter, together with any interest earned on the funds, shall be deposited into a separate account in the environmental protection fund created by § 68-203-101.
(c) The supervisor may require or approve modifications in the operator's plan if such modifications are necessary to prevent pollution or to promote reclamation.
(d) Upon approval, the operator's plan shall be a condition of the operator's permit. Failure to comply with the plan shall be grounds for revocation of the permit and forfeiture of the bond.

§ 60-1-104. Records and reports of production and sales — False reports.

(a) It is the duty of every person producing, selling, gathering, transporting, or storing crude petroleum or natural gas from any well or wells in this state to keep and preserve suitable records of the amount of all such crude petroleum or natural gas produced, sold, gathered, transported, or stored, and the price received and paid therefor.
(b) Such person shall report such records to the oil and gas supervisor at such intervals as the board may direct and on forms provided by the supervisor.
(c) Anyone who shall intentionally make or cause to be made any false entry or statement of fact in any report required to be made by this chapter, or by any rule, regulation or order made hereunder, or who for such purpose shall make or cause to be made any false entry in any account, record or memorandum kept by any person in connection with this chapter, or any rule, regulation or order made thereunder, or who for such purpose shall omit to make, or cause to be omitted, full, true and correct entries on such accounts, records or memoranda of all facts and transactions pertaining to the interest or activities in the oil and gas industry of such persons as may be required by the board under authority given in this chapter, or by any rule, regulation or order made hereunder, or who for such purpose shall remove out of the jurisdiction of the state, or mutilate, alter or by any other means falsify any book, record or other paper pertaining to the transactions regulated by this chapter, or by any rule, regulation or order made hereunder, is guilty of a Class C misdemeanor.

§ 60-1-105. [Repealed]

§ 60-1-106. Spacing of oil wells.

(a)
1. (1) Wells drilled in search of oil or gas to a depth of less than two thousand five hundred feet (2,500′) shall not be located closer than four hundred feet (400′) from any other well completed in, drilling to, or for which a permit shall have been granted to drill to the same pool. The distance of such oil and gas wells from any property line shall not be closer than two hundred feet (200′).
2. (2) This subsection (a) applies only in counties having a population of not less than seventeen thousand five hundred fifty (17,550) and not more than seventeen thousand six hundred fifty (17,650), according to the 1980 federal census or any subsequent federal census.
(b)
1. (1) Wells drilled in search of oil and gas shall not be located closer than four hundred feet (400′) from any other well completed in, drilling to, or for which a permit shall have been granted to drill to the same pool; and not closer than two hundred feet (200′) from any property line.
2. (2) This subsection (b) applies only in counties having a population of not less than four thousand three hundred (4,300) and not more than four thousand four hundred (4,400) or in counties having a population of not less than seven thousand six hundred fifty (7,650) nor more than seven thousand seven hundred (7,700), according to the 1980 federal census or any subsequent federal census.

Part 2 General Provisions of the Board

§ 60-1-201. [Reserved]

§ 60-1-202. Powers of board.

(a) The board has jurisdiction and authority:
1. (1) Over all persons and property necessary to enforce this chapter;
2. (2) To make such inquiries as necessary to determine whether or not waste exists or is imminent;
3. (3) To collect data; to make investigations and inspections; to examine properties, leases, papers, books, and records including drilling records and logs; to examine, check, test, and gauge oil and gas wells, tanks, refineries, and modes of transportation; to hold hearings; to provide for the keeping of records and making of reports; and to take such action as may be necessary to enforce this chapter;
4. (4) To make rules, regulations, and orders for the following purposes:
  1. (A) To require the drilling, casing, and plugging of wells in such manner as to prevent the escaping of oil and gas out of one (1) stratum to another; to prevent intrusion of water to oil and gas strata; to prevent pollution of fresh water by oil, gas, or salt water; to protect potentially minable coal and other minerals; and to require bond for the plugging of each dry or abandoned well;
  2. (B) To require notification to the supervisor, upon such forms as the supervisor may prescribe, of the intention to drill any well for oil or gas;
  3. (C) To require the filing of logs, including electrical logs and drilling records, cores and drill cutting samples, and all other downhole surveys and information, within thirty (30) days following the cessation of drilling operations of the well;
  4. (D) To prevent wells from being drilled, operated, and produced in such manner as to cause injury to neighboring leases or property;
  5. (E) To prevent the drowning by water of any oil and gas stratum in paying quantities, and to prevent the premature and irregular encroachment of water which would affect the total ultimate recovery of oil and gas;
  6. (F) To require the operation of wells with efficient gas-oil ratios and to fix such ratios;
  7. (G) To prevent “blow outs,” “caving” and “seepage” in the same sense that conditions indicated by such terms are generally understood in the oil and gas business;
  8. (H) To prevent fires;
  9. (I) To identify ownership of oil and gas wells, producing leases, refineries, tanks, plants, structures, and all storage and transportation equipment and facilities;
  10. (J) To regulate the “shooting” and chemical treatment of wells;
  11. (K) To regulate secondary recovery methods;
  12. (L) To regulate the spacing of wells;
  13. (M) To provide for the forced integration of separately owned tracts and other property ownership into drilling and production units;
  14. (N) To provide that the board may, in the absence of a voluntary agreement and after a sixty-day notice to owners, force a volumetric or surface poolwide unit; provided, that the pool producers owning more than fifty percent (50%) of the pool acreage request such unitization of the pool;
  15. (O) In the absence of an acceptable plan of unitization by the operators, the board may shut in the pool to prevent waste and to protect correlative rights until an acceptable plan is presented by the operators;
  16. (P) To regulate and prescribe procedures with respect to applications for and determinations of whether natural gas produced from a well qualifies for a requested status under § 102, 103, 107 or 108 of the Natural Gas Policy Act of 1978, Public Law No. 95-621, 92 Stat. 3350 (including any act of Congress which amends or supersedes those sections of that act);
  17. (Q) To require that any person conducting oil or gas operations, or causing surface disturbances preparatory to or incidental to such operations, conduct such operations in a manner which will prevent or mitigate adverse environmental impacts, such as soil erosion and water pollution, and perform reclamation of all areas disturbed by the operations, including access roads, as prescribed by part 7 of this chapter; and
  18. (R) To require that any person conducting oil and gas operations, or causing surface disturbances preparatory to or incidental to such operations, for wells permitted and drilled after July 1, 1987, post a bond or bonds to secure compliance with the requirements of this chapter and the rules promulgated under this chapter, both for plugging of the wells and reclamation of the surface in an amount not to exceed fifteen thousand dollars ($15,000) per single well site. At sites with more than one (1) well, the portion of the bond or bonds to secure compliance with plugging requirements shall not exceed ten thousand dollars ($10,000) per well. The bond shall be filed with the supervisor at the time an operator's permit application is submitted, and shall be effective from the time the initial surface disturbances begin. As an alternative to the performance bond required in this subdivision (a)(4)(R), a person may submit:
    1. (i) A federally insured certificate of deposit issued by any financial institution in this state to be placed in a separate departmental account that shall not revert to the general fund;
    2. (ii) An irrevocable letter of credit issued by any federally insured bank or savings and loan association; or
    3. (iii) Other cash or securities in an amount mutually agreed to by the supervisor and the operator, to be placed in a separate departmental account that shall not revert to the general fund.
(b) The applicant for any permit must swear to facts set out in any application for a permit to drill or deepen a well, or reopen a plugged or abandoned well, under the rules made by the board pursuant to this title.

§ 60-1-203. [Repealed]

§ 60-1-204. [Repealed]

§ 60-1-205. Power to subpoena and swear witnesses.

(a) The board, or any member thereof, is empowered to issue subpoenas for witnesses, to require their attendance and the giving of testimony before it, and to require the production of books, papers and records in any proceeding before the board as may be material upon questions lawfully before the board. Such subpoenas shall be served by the sheriff or any other officer authorized by law to serve process in this state. No person shall be excused from attending and testifying, or from producing books, papers and records before the board or a court, or from obedience to the subpoena of the board or a court, on the ground or for the reason that the testimony or evidence, documentary or otherwise, required of such person may tend to incriminate the person or subject the person to a penalty or forfeiture; provided, that nothing herein shall be construed as requiring any person to produce any books, papers or records, or to testify in response to any inquiry, not pertinent to some question lawfully before such board or court for determination. No natural person shall be subjected to criminal prosecution or to any penalty or forfeiture for or on account of any transaction, matter or thing concerning which the person may be required to testify or produce evidence, documentary or otherwise, before the board or court, or in obedience to its subpoena; provided, that no person testifying shall be exempt from prosecution and punishment for perjury committed in so testifying.
(b) In case of failure or refusal on the part of any person to comply with any subpoena issued by the board or any members thereof, or in case of the refusal of any witness to testify or answer to any matter regarding which the person may be lawfully interrogated, any circuit court in this state in the county where the board is sitting, on application of the board, may in term time or vacation, issue an attachment for such person and compel the person to comply with such subpoena and to attend before the board and produce such documents, and give testimony upon such matters, as may be lawfully required, and such court shall have the power to punish for contempt as in case of disobedience of like subpoenas issued by or from such court, or for a refusal to testify therein. The chair or any member of the board is authorized to administer oaths to witnesses, and any false swearing shall constitute perjury and be punished in accordance with the general criminal statutes relating to perjury.

§ 60-1-206. Enforcement of chapter.

The supervisor is charged with enforcing this chapter and the regulations and orders of the board.

§ 60-1-207. [Repealed]

§ 60-1-208. [Repealed]

§ 60-1-209. Notice to surface owners of oil and gas estates.

(a)
1. (1) No later than the filing of the application with the supervisor for a permit to drill and prior to initiating site preparation, the applicant shall give notice by certified mail, return receipt requested, of the applicant's intent to drill to the property owner or owners of the surface of the land to be drilled or to be affected by the surface disturbances listed in subdivision (a)(3).
2. (2) The property owners to be notified under this section are each property owner of record in the property tax assessor's office in the county where the property is located.
3. (3) The notice must include: the proposed location of the well site; the proposed location of all new ingress and egress; the location of all diversions, drilling pits, dikes, and related structures and facilities; the location of proposed storage tanks; and all other surface disturbances.
4. (4) The notice must state that each property owner of record and the applicant have fifteen (15) business days from the date of mailing to discuss the location of surface disturbances in connection with the drilling operation. The notice must also state that if each property owner and the applicant are unable to resolve differences regarding the location of surface disturbances, either or both may bring an action for settlement in a court of proper jurisdiction.
(b) Notwithstanding any other requirements for a permit to drill, such a permit may only be issued if:
1. (1) The applicant submits to the supervisor statements of no objection signed by each property owner entitled to notice under subsection (a); or
2. (2) Upon the submittal of a court order approving the location to the supervisor.

Part 3 Taxation

§ 60-1-301. Severance tax levied — Exceptions — Disposition of revenues — Moratorium on taxes.

(a) There is levied a severance tax on all gas and oil removed from the ground in Tennessee. The measure of the tax for such gas and oil shall be three percent (3%) of the sale price of such gas and oil. Every person actually engaged in severing oil or gas, or actually operating oil or gas property under contracts or agreements requiring direct payments to the owners of any royalty interest, excess royalty or working interest, either in money or otherwise, shall be liable for the tax imposed by this section and shall, prior to making any such payments, withhold from any quantity or amount due the amount of tax due pursuant to this section.
(b) The tax shall be levied for the use and benefit of the state, as well as the county governments and one-third (⅓) of all revenues collected from the tax shall be allocated to the county which was the site of the wellhead for that gas or oil. The remaining two-thirds (⅔) of such revenues shall be deposited to the credit of the state treasurer as a part of the general funds of the state.
(c) No other tax shall be imposed on such gas and oil by the state, counties or any other political subdivision of the state; provided, however, that:
1. (1) Free gas used by the property owner or tenant under the terms of the lease, unless it be in lieu of cash payment; and
2. (2) Gas which has been injected into the ground for underground storage and thereafter withdrawn shall not be subject to this, or any taxation.

§ 60-1-302. Reports and payment of tax.

The severance tax imposed in this part shall be payable as follows:
1. (1) On or before the twentieth day of each month the person liable for the tax shall file with the commissioner of revenue, on forms prescribed by the commissioner, a report of all oil removed from the ground during the preceding month, and shall remit to the commissioner of revenue therewith the amount of tax due for the period covered by the report;
2. (2) On or before the twentieth day of each month the person liable for the tax shall file with the commissioner, on forms prescribed by the commissioner, a report of all gas removed from the ground during the second preceding month and shall remit to the commissioner therewith the amount of tax due for the period covered by the report.

Part 4 Violations

§ 60-1-401. Violations — Penalties — Notice — Appeals — Hearing.

(a) If, upon an inspection or investigation, the supervisor determines that a person is in violation of this chapter, rules promulgated pursuant to this chapter, an order adopted by the board, or terms or conditions of a permit, the supervisor shall with reasonable promptness, and in no event no later than six (6) months following the inspection or investigation, issue by certified mail a written notice that states the nature and, if applicable, the location of the violation, including a reference to the statute, rules, order, or permit terms or conditions alleged to have been violated. In addition, the notice must fix a reasonable time for abatement of the violation. The supervisor may suspend or lengthen the abatement period upon a showing of a good faith effort to comply with the abatement requirements and that failure to comply with the abatement requirements is due to factors beyond the person's reasonable control. If applicable, the notice may state that the supervisor has reason to believe that a violation, or the failure to abate such violation, should result in the assessment of a civil penalty.
(b)
1. (1) The supervisor may assess civil penalties up to ten thousand dollars ($10,000) for each day a violation occurs against a person who violates this chapter, rules promulgated pursuant to this chapter, an order adopted by the board, or the terms or conditions of a permit.
2. (2) A civil penalty must be assessed in the following manner:
  1. (A) An order and assessment must be issued by certified mail, return receipt requested, personal service, or any other means authorized by the Tennessee Rules of Civil Procedure stating the amount of the penalty to be assessed and the reason therefor;
  2. (B) An order and assessment issued pursuant to subdivision (b)(2)(A) must inform the person of the right to appeal to the board within thirty (30) days of service by filing a written notice of appeal with the supervisor and the board setting forth the grounds and reasons for the objections and requesting a hearing in the matter involved before the board;
  3. (C) A hearing brought before the board must be conducted as a contested case in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5; and
  4. (D) If a petition for review of an order and assessment is not filed within thirty (30) days after the date of service, the person is deemed to consent to the order and assessment, and the order and assessment is final.
3. (3) In assessing a civil penalty, the supervisor shall consider the following:
  1. (A) The appropriateness of the penalty with respect to the size of the business of the person assessed;
  2. (B) The gravity of the violation;
  3. (C) The good faith of the person;
  4. (D) The person's history of previous violations;
  5. (E) The economic benefit gained by the person; and
  6. (F) Damages to this state, including waste resulting from the violation, as well as expenses incurred in investigating and enforcing this section and the costs involved in rectifying any damage.
4. (4)
  1. (A) If a person appeals an order and assessment of a penalty pursuant to this subsection (b), the appeal must be conducted as a contested case and heard before an administrative judge sitting alone pursuant to §§ 4-5-301(a)(2) and 4-5-314(b), unless settled by the parties.
  2. (B) The administrative judge to whom an appeal is assigned shall convene the parties for a scheduling conference within thirty (30) days of the date the appeal is filed.
  3. (C) The administrative judge shall issue a scheduling order for the contested case that results in a hearing being completed within one-hundred eighty (180) days of the scheduling conference, unless the parties agree to a longer time or the administrative judge allows otherwise for good cause shown, and an initial order being issued within ninety (90) days of completion of the record of the hearing.
  4. (D) The administrative judge's initial order, together with any earlier orders issued by the administrative judge, becomes final unless a party appeals pursuant to § 4-5-315 within fifteen (15) days after entry of the initial order.
  5. (E) The board is precluded from reviewing an initial order unless appealed by a party. Upon appeal to the board by a party the board shall afford each party an opportunity to present briefs, review the record, and allow each party an opportunity to present oral argument. If appealed to the board, the review of the administrative judge's initial order is limited to the record, but must be reviewed de novo with no presumption of correctness. In such appeals, the board shall render a final order, in accordance with § 4-5-315, affirming, modifying, remanding, or vacating the order and assessment. A final order rendered pursuant to this subdivision (b)(4)(E) is effective upon its entry unless a later effective date is stated in the final order. A petition to stay the effective date of a final order may be filed under § 4-5-316. A petition for reconsideration of a final order may be filed pursuant to § 4-5-317. Judicial review of a final order may be sought by filing a petition for review in accordance with § 4-5-322.
  6. (F) An order of an administrative judge that becomes final in the absence of an appeal is deemed to be a decision of the board in that case for purposes of the standard of review by a court; provided, however, that in other matters before the board, it may be considered but is not binding on the board.
(c)
1. (1) The supervisor, through a notice of forfeiture, may order the forfeiture of the bond to the department for any person who violates this chapter, rules promulgated pursuant to this chapter, an order adopted by the board, or the terms or conditions of a permit.
2. (2) A bond forfeiture must be issued in the following manner:
  1. (A) The supervisor shall with reasonable promptness, and no later than six (6) months following the inspection or investigation, issue to the person by certified mail a notice of noncompliance that states the nature, and if applicable, the location of the violation, including a reference to the alleged violation;
  2. (B) A notice of noncompliance must fix a reasonable time for abatement of the violation. The supervisor may suspend or lengthen the abatement period upon a showing of a good faith effort to comply with the abatement requirements and that failure to comply with the abatement requirements is due to factors beyond the person's reasonable control. If the supervisor has reason to believe that the violation, or the failure to abate the violation, may result in bond forfeiture, the notice may so state;
  3. (C) If, within the period of abatement established in the notice of noncompliance, no agreement has been reached with the supervisor regarding the alleged failure to comply, and the supervisor determines that the person has not complied with the requirements set forth by the notice of noncompliance, then the supervisor shall issue a notice of forfeiture to the person by certified mail, return receipt requested, personal service, or any other means authorized by the Tennessee Rules of Civil Procedure stating that the bond is ordered forfeited to the department;
  4. (D) A notice of forfeiture issued pursuant to this subsection (c) must inform the person of their right to appeal to the board within a period of thirty (30) days of service by filing a written notice of appeal with the supervisor and the board setting forth the grounds and reasons for the objections and asking for a hearing in the matter involved before the board.
  5. (E) Any hearing brought before the board must be conducted as a contested case in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5; and
  6. (F) If a petition for review of the notice of forfeiture is not filed within thirty (30) days after the date the notice of forfeiture is served, then the bond must be ordered forfeited to the department.
3. (3)
  1. (A) If a person appeals a notice of forfeiture pursuant to this subsection (c), the appeal must be conducted as a contested case and heard before an administrative judge sitting alone pursuant to §§ 4-5-301(a)(2) and 4-5-314(b), unless settled by the parties.
  2. (B) The administrative judge to whom an appeal is assigned shall convene the parties for a scheduling conference within thirty (30) days of the date the appeal is filed.
  3. (C) The administrative judge shall issue a scheduling order for the contested case that results in a hearing being completed within one-hundred eighty (180) days of the scheduling conference, unless the parties agree to a longer time or the administrative judge allows otherwise for good cause shown, and an initial order being issued within ninety (90) days of completion of the record of the hearing.
  4. (D) The administrative judge's initial order, together with any earlier orders issued by the administrative judge, becomes final unless a party appeals pursuant to § 4-5-315 within fifteen (15) days after entry of the initial order.
  5. (E) The board shall not review an initial order unless appealed by a party. Upon appeal to the board by a party, the board shall afford each party an opportunity to present briefs, review the record, and allow each party an opportunity to present oral argument. If appealed to the board, the review of the administrative judge's initial order is limited to the record, but must be reviewed de novo with no presumption of correctness. In such appeals, the board shall render a final order, in accordance with § 4-5-314, affirming, modifying, remanding, or vacating the notice of forfeiture. A final order rendered pursuant to this subdivision (c)(3)(E) is effective upon its entry unless a later effective date is stated in the final order. A petition to stay the effective date of a final order may be filed under § 4-5-316. A petition for reconsideration of a final order may be filed pursuant to § 4-5-317. Judicial review of a final order may be sought by filing a petition for review in accordance with § 4-5-322.
  6. (F) An order of an administrative judge that becomes final in the absence of an appeal is deemed to be a decision of the board in that case for purposes of the standard of review by a court; provided, however, that in other matters before the board, it may be considered but is not binding on the board.
4. (4)
  1. (A) Reclamation bonds must be performance bonds, conditioned on the reclamation of the well site and access roads pursuant to part 7 of this chapter.
  2. (B) Any portion of a reclamation bond not expended for the purposes described in subdivision (c)(4)(A) shall be refunded to the operator or the operator's surety if the conditions of the bond are fully satisfied.
  3. (C) If the conditions of a reclamation bond are not fully satisfied, because the bond is a blanket bond or otherwise, the unexpended proceeds must be held or applied in a manner to secure the performance of the remaining obligations secured by the bond. If the bond is a blanket bond and the unexpended portion is less than is required for the remaining wells covered by the bond, a supplementary bond must be required.

§ 60-1-402. Restraining violations.

Whenever it shall appear that any person is violating or threatening to violate any provisions of this chapter, or any rule, regulation or order made hereunder, and unless the board without litigation can effectively prevent further violation or threat of violation, then the board, through the attorney general, who may call to the attorney general's assistance the district attorney general of the district in which suit is instituted, shall bring suit in the name of the state of Tennessee against such person in the circuit or chancery court in the county of the residence of the defendant, or if there be more than one (1) defendant, in the circuit or chancery court in the county of the residence of any of same, or in the circuit or chancery court in the county in which such violation is alleged to have occurred, to restrain such person from continuing such violation or from carrying out the threat of violation. In such suit the board, in the name of the state of Tennessee, may obtain an injunction prohibitory and mandatory, including temporary restraining orders and temporary injunctions as the facts may warrant.

§ 60-1-403. Right to damages unimpaired.

Nothing in this chapter contained or authorized and no suit by or against the board and no penalties imposed or claimed against any person for violating any provision of this chapter, or any rule, regulation or order issued hereunder, and no forfeiture shall impair or abridge or delay any cause of action for damages which any person may have or assert against any person violating any provisions of this chapter or any rule, regulation or order issued hereunder. Any person so damaged by the violation may sue for and recover such damages as the person may show that the person is entitled to receive.

§ 60-1-404. Tennessee board of water quality, oil and gas reclamation fund.

(a) All sums received in payment of penalties assessed by the board pursuant to this part shall be placed in the state treasury in a separate account to be designated as the Tennessee board of water quality, oil and gas reclamation fund.
(b) This fund shall be available to the board for expenditure for site protection and reclamation work on land and waters damaged by surface disturbances. The fund may be expended for such work following default and notice of forfeiture of bond, if the bond furnished by the operator is not sufficient to cover the cost of reclamation. It may also be expended for such work if the operations which caused the damage were not covered by the bond, including operations conducted before January 1, 1988.
(c) This fund shall also be available to the board for expenditure for the plugging of dry or abandoned wells. The fund may be expended for such work, following default and notice of forfeiture, if the bond furnished by the operator is not sufficient to cover the cost of plugging. It also may be expended to plug dry or abandoned wells not covered by a bond, including wells drilled before January 1, 1988.
(d) Any unencumbered or unexpended balance of this fund remaining at the end of any fiscal year together with any interest earned thereon shall not revert to the general fund, but shall be carried forward until expended for the purpose of site protection and reclamation or the plugging of dry or abandoned wells, as provided in this section.

Part 5 Mineral Test Hole Regulatory Act [Transferred]

§ 60-1-501. [Transferred]

§ 60-1-502. [Transferred]

§ 60-1-503. [Transferred]

§ 60-1-504. [Transferred]

§ 60-1-505. [Transferred]

§ 60-1-506. [Transferred]

§ 60-1-507. [Transferred]

§ 60-1-508. [Transferred]

§ 60-1-509. [Transferred]

§ 60-1-510. [Transferred]

§ 60-1-511. [Transferred]

Part 6 Oil and Gas Surface Owners Compensation

§ 60-1-601. Short title.

This part shall be known as and may be cited as the “Oil and Gas Surface Owners Compensation Act of 1984.”

§ 60-1-602. Purpose.

(a) The general assembly finds that the exploration for and development of oil and gas reserves must coexist with the equal right to the use, agricultural or otherwise, of the surface of land within this state.
(b) It is the purpose of this part to provide constitutionally permissible protection and compensation to surface owners of land on which oil and gas wells are drilled for the burden resulting from such drilling operations. This part shall be interpreted to benefit surface owners regardless of when any particular oil and gas estate was separated from the surface estate and regardless of who executed that document.

§ 60-1-603. Part definitions.

For purposes of this part and unless the context clearly requires otherwise, the terms listed below will have the following meaning:
1. (1) “Drilling operation” means the actual drilling or redrilling of an oil or gas well and the related preparation of the drilling site and access roads, which requires entry upon the surface estate;
2. (2) “Oil and gas developer” means the person who acquires the oil and gas estate by any legal means for the purpose of extracting therefrom oil or gas;
3. (3) “Person” means any natural person, corporation, firm, partnership, venture, receiver, trustee, executor, administrator, guardian, fiduciary or other representative of any kind, and includes any government or any political subdivision or agency thereof; and
4. (4) “Surface owner” means a person who owns an estate in fee in the surface of land overlying an oil and gas estate being developed, either solely or as a co-owner.

§ 60-1-604. Compensation of surface owners for drilling operations.

The oil and gas developer shall be obligated to pay the surface owner for:
1. (1) Lost income or expenses incurred as a result of being unable to dedicate land actually occupied by the driller's operation or to which access is prevented by such drilling operation to the uses to which it was dedicated prior to commencement of the activity for which a permit was obtained, measured from the date the operator enters upon the land;
2. (2) The market value of crops destroyed, damaged or prevented from reaching market;
3. (3) Any damage to a water supply in use prior to the commencement of the permitted activity;
4. (4) The cost of repair of personal property up to the value of replacement by personal property of like age, wear and quality; and
5. (5) The diminution in value, if any, of the surface lands and other property after completion of the surface disturbance done pursuant to the activity for which the permit was issued, determined according to the actual use made thereof by the surface owner immediately prior to the commencement of the permitted activity.

§ 60-1-605. Notice of claim.

Any surface owner, to receive compensation under this part shall notify by certified mail, return receipt requested, the oil and gas developer of the damages sustained by the person within three (3) years after the injury occurs.

§ 60-1-606. Response to persons seeking compensation.

Within sixty (60) days after the oil and gas developer receives notice of damages, the oil and gas developer shall make a written response to the person seeking compensation for the damages.

§ 60-1-607. Arbitration.

(a) If the person seeking compensation receives a written rejection, rejects any counter-offer of the oil and gas developer, or receives no reply, that person may bring an action for compensation in a court of proper jurisdiction or the parties may elect to proceed by arbitration as provided herein. If the amount of compensation awarded by arbitration or the court is greater than that which had been offered by the oil and gas developer, the person seeking compensation shall also be awarded reasonable attorney fees, costs of expert witnesses, any other costs which may be legally assessed, and interest on the amount of the final compensation awarded from the day drilling was commenced.
(b) The person seeking compensation, in place of bringing an action in court, can request of the oil and gas developer in writing by certified mail, return receipt requested, that compensation be determined by binding arbitration. If the oil and gas developer agrees to binding arbitration, the developer shall notify the person seeking compensation of consent to arbitration in writing within fifteen (15) days of receiving the request.
(c)
1. (1) In the event of binding arbitration, compensation to be awarded the surface owner shall be determined by a disinterested arbitrator chosen by the surface owner and the oil and gas developer from a list of arbitrators approved by the American Arbitration Association.
2. (2) Such hearings shall be conducted as provided in title 29, chapter 5, part 3.
(d) Each party shall pay one-half (½) the compensation due the arbitrator.

§ 60-1-608. Common law remedies preserved.

Nothing in this part shall be construed to diminish in any way the common law remedies, including damages, of a surface owner or any other person against the oil and gas developer for the unreasonable, negligent or otherwise wrongful exercise of the contractual right, whether express or implied, to use the surface of the land for the benefit of the developer's interest.

Part 7 Environmental Protection

§ 60-1-701. Measures by operator at well site.

At the well site, the operator shall take measures to prevent or minimize soil erosion and pollution of surface waters during the life of the operation, including work preparatory to or incidental to such operations. Such measures may include sediment ponds, berms, diversion ditches, hay bales, and other measures designed to prevent erosion and discharge of pollutants from the well site.

§ 60-1-702. Access roads.

Access roads must be constructed and maintained in accordance with all applicable local, state, and federal laws, rules, and regulations, including, but not limited to, the requirements of the Water Quality Control Act of 1977, compiled in title 69, chapter 3, part 1, and applicable rules promulgated by the board.

§ 60-1-703. Manner of accomplishing reclamation of disturbed areas.

Reclamation of all disturbed areas shall be accomplished in the following manner:
1. (1) The vegetative cover must be diverse, effective, and permanent. It must be capable of long-term stabilization of the soil and must not impede natural vegetative succession or interfere with surrounding vegetative cover;
2. (2) The permanent reclamation plant species must be capable of self-regeneration and must have the same seasonal characteristics of growth as the original vegetation. A different plant species not having these characteristics may be used to establish a quick-growing, temporary cover to stabilize the disturbed area;
3. (3) Suitable mulch and soil nutrients shall be applied where necessary to stabilize a regraded area and to establish the vegetative cover;
4. (4) Except for active work areas, a temporary vegetative cover shall be planted on all disturbed areas within thirty (30) days of the initial disturbance;
5. (5) Within thirty (30) days of the plugging of a well, the permanent vegetative cover shall be planted on all disturbed areas;
6. (6) Access roads are subject to all the above reclamation requirements unless the landowner establishes by sworn affidavit that a road will continue to be used for other legitimate purposes and maintained in usable condition, which condition reduces erosion to a practical minimum, by the surface owner. An access road may continue to be used by the operator to gain access to the well site in order to determine the adequacy of the vegetation cover or to perform additional revegetation;
7. (7) Revegetation success shall not be determined until after two (2) successfully completed growing seasons have occurred; and
8. (8) Revegetation shall be considered successful if a ground cover of at least ninety percent (90%) herbaceous and/or woody species is achieved, so long as at least eighty percent (80%) are perennial species.

§ 60-1-704. Release of reclamation bond.

(a) Upon satisfactory completion of regrading and revegetation of all disturbed areas except active work areas and access roads needed for oil or gas production, the supervisor may release one-third (⅓) of the reclamation bond upon written request by the operator or as determined by the supervisor. After plugging, and upon final reclamation and satisfactory survival of the vegetation as determined by the supervisor, the supervisor may release the remainder of the reclamation bond upon written request of the operator or as determined by the supervisor.
(b) For the purposes of this section, “active work area” means that portion of the initially disturbed area necessary for production-related equipment, materials and facilities, as determined by the supervisor.

§ 60-1-705. [Repealed]

Chapter 3 Inspection of Volatile Oils

§ 60-3-101. Short title.

This chapter may be cited and referred to as the “Inspection of Volatile Oils Law.”

§ 60-3-102. Chapter definitions.

As used in this chapter, the following words and phrases shall have the meanings ascribed herein unless the context in which used dictates otherwise:
1. (1) “Commissioner” means the commissioner of revenue, or the commissioner's authorized delegate;
2. (2) “Department” means the department of revenue;
3. (3) “Inspector” means an employee of the petroleum tax division of the department who is designated as such; and
4. (4) “Oil or substance” means any oil or substance described in §§ 60-3-103 and 60-3-104.

§ 60-3-103. Minimum standards — Penalty for violation.

(a) It is unlawful for any person to sell or offer for sale, or to bring to rest in Tennessee for consumption, storage, sale or use, any ethanol, methanol, benzol, gasoline, burning oil, distillate, fuel oil, gas oil, kerosene, naphtha, or substitutes for any of these by whatever trade name known, reflecting a gravity of sixteen degrees (16°) or above on the American Petroleum Institute scale or a lower standard of quality than the minimum specifications for the substances published from time to time by the United States government or other recognized authority.
(b) It is unlawful for any person or persons to distill, manufacture, or otherwise produce ethyl alcohol, methane alcohol, or other liquids to be used as a fuel or to be blended as a fuel for combustion engines or heating oil systems without denaturing such liquid no later than immediately following the distilling process by providing for flow of the liquid from the condensing apparatus into a container containing a quantity of the denaturing agent.
(c) It is unlawful to distribute to any manufacturer, wholesaler, or retailer in this state ethyl alcohol, methane alcohol, or other liquids to be blended as a fuel for combustion engines or heating oil systems, in any container of fifty-five gallons (55 gals.) or less, unless such container is prominently labelled with the words “POISON: UNSAFE FOR HUMAN CONSUMPTION”.
(d) The denaturing agent used shall be determined by the commissioner or the commissioner's designated agent.
(e) Each separate violation of a provision of this section is a Class C misdemeanor.

§ 60-3-104. Oils and substances subject to inspection.

(a) All ethanol, methanol, benzol, gasoline, burning oil, distillate, fuel oil, gas oil, kerosene, naphtha, or any other volatile substances, reflecting a gravity of sixteen degrees (16°) or above on the American Petroleum Institute scale, with the exception of those substances with a kinematic viscosity greater than seventy (70) centistokes at one hundred twenty-two degrees Fahrenheit (122° F) and a flash point greater than one hundred fifty degrees Fahrenheit (150° F), produced from petroleum, natural gas, oil shales or coal, by whatever trade name known, or substitutes therefor, or any other petroleum substances used as a substitute for or in the place of any of the substances herein enumerated sold or used or stored in this state, separately or in combination for any purpose whatever, by any user or storer, whether manufactured in this state or not, shall be subject to inspection under the general supervision of the commissioner before being sold or offered for sale or used or stored in this state.
(b) Oils and substances subject to inspection as provided in subsection (a) may be inspected in transit while in the hands of the carrier, forwarding agent, or warehouseman. It is unlawful for any carrier, forwarding agent or warehouseman to unload or store any of the oils or substances before having the same inspected as provided in this section.

§ 60-3-105. Examination and testing — Records regarding transportation of substances — Rules and regulations.

(a) The commissioner is authorized to examine and test, within this state, all oils and substances before the same are sold, offered for sale, used or stored in this state.
(b) It is the duty of all persons handling, transporting or storing oils or substances within this state to retain records or intelligible memoranda or books subject to inspection by an inspector covering the movements of the oils or substances in this state. The records shall be retained for a period of three (3) years following the end of the year in which the records were originated.
(c) The commissioner is authorized to examine and test all oils and substances for which there is a duty imposed upon the commissioner under this chapter, and also any products submitted to the commissioner, to determine whether the minimum standards imposed by § 60-3-103 are met and also to determine the value of such products for the purpose claimed.
(d) The commissioner shall make and publish rules necessary to effectuate an efficient and uniform system of inspection of oils and substances.
(e) The commissioner may prescribe standard minimum specifications for oils and substances and may promulgate rules for the uniform inspection of them. All tests shall conform to and be made under conditions and rules adopted by American Society for Testing Materials.
(f) The gravity, purity and test of oils and substances shall be determined in the manner and under the regulations as the commissioner may specify.
(g) The commissioner may purchase the apparatus for making chemical and physical tests of oils and substances, and may make any tests as are called for by this chapter, or as, in the judgment of the commissioner, are deemed essential for better enforcement and to afford full protection to the public.

§ 60-3-106. Marking of receptacles, tanks and pumps — Unlawful removal of notices or placards.

(a) After making any examination and test, the commissioner may affix to the receptacle, tank, pump, or other container, containing oils or substances inspected, such identification or caution notices as the commissioner may designate. It is unlawful for any person to remove the identification or caution notice without authorization of the commissioner.
(b) When any receptacle, tank, pump or other container is found by the commissioner to contain any oil or substance that does not meet the minimum specifications, it shall be the commissioner's duty to attach and seal thereto a placard bearing in bold letters a description of the substance and a warning that it is condemned and does not meet Tennessee specifications. It is unlawful for any person to remove, obscure or deface any condemnation placard described herein without the written consent of the commissioner, or in any manner to interfere with or obstruct the commissioner in the discharge of any of the commissioner's duties under this chapter.
(c) A violation of this section is a Class C misdemeanor.

§ 60-3-107. Marking of gross weight — Fluids having no proper test.

If weight shall be established for the purpose of ascertaining quantity, instead of gauging by gallons, then the inspector shall mark on the container inspected by the inspector the gross weight instead of gallons. In addition, the inspector shall affix the inspector's brand on all containers or packages found by the inspector to contain fluids that have no proper test with the words “highly inflammable,” or with other words which properly reflect the conditions as found by the inspector.

§ 60-3-108. Unlawful alteration of markings.

(a) It is unlawful for any manufacturer or dealer of oils or substances, with intent to deceive or defraud, to alter or erase the inspector's brand, to indicate a different test, gravity, purity or quantity than is found by the inspector, or to use with such intent any container or package having any inspector's brand thereon, without having the contents actually inspected.
(b) A violation of this section is a Class C misdemeanor.

§ 60-3-109. Identification and disposition of condemned oils or substances.

Where any shipment of oils or substances is sent from another state for consumption in this state, and the same, upon inspection by an inspector, is found to be of less test than required or is otherwise indicated to be either unsafe for use or of a lower standard of quality than the minimum specifications for the oil or substance, as published by the commissioner, the commissioner is authorized to condemn the oils or substances, to mark or otherwise indicate the shipment is rejected for use in this state, and to order that the rejected oils or substances be shipped back to the shippers of the same.

§ 60-3-110. Inspection of oils held for export.

Whenever any oil or substance is stored in this state, or has come to rest after shipment in interstate commerce and is stored in this state, and such oil or substance is subsequently exported to a point outside this state, it shall be subject to inspection under this part.

§ 60-3-111. Records of inspectors — Daily reports — Locking and sealing valves — Unlawful breaking of locks or seals.

(a) Inspectors shall keep an accurate record of all oils and substances inspected, rejected, or certified to by them, which record shall state the date of the inspection, the number of gallons approved, the number rejected, if any, the name of the person for whom inspected, and the name and address of the person to whom consigned.
(b) Inspectors are authorized to lock and seal any or all valves at bulk plants or river terminals; and in no case shall any lock or seal which has been affixed by an inspector to a valve be opened except in the presence of an inspector.
(c)
1. (1) It is unlawful for any person to break a lock or seal in violation of this section.
2. (2) A violation of this subsection (c) is a Class C misdemeanor.

§ 60-3-112. Storage, unloading, or sale before inspection.

(a) If any person, manufacturer or dealer shall store, unload or sell to any person in the state any oil or substance before having the same inspected, as provided in this chapter, the oil or substance stored, unloaded or sold shall be subject to the gasoline tax, which tax shall be collected in the same manner as now provided by law for the collection of the gasoline tax.
(b) Any of the oils or substances found to be rejected may be forfeited and sold, and the proceeds shall go to the common school fund of the state.

§ 60-3-113. Prohibited acts.

(a) It is unlawful for any dealer, distributor or manufacturer of oils or substances to refuse to admit an inspector upon the dealer's, distributor's or manufacturer's premises, to such extent as it may be necessary for the performance of the inspector's duties, or to obstruct an inspector in the discharge of the inspector's duties.
(b) It is unlawful for any person to mix, for sale, naphtha and other such oils or substances or same with any corrosive substance, or to knowingly sell, or keep for sale, or offer for sale, the mixture, or to sell, or offer for sale any products which are not of required test.
(c) It is unlawful for any person to violate any of the other provisions of this part with the intent of obstructing the commissioner or delegate in the performance of the commissioner's or delegate's duties under this chapter.
(d) A violation of this section is a Class C misdemeanor.

§ 60-3-114. Report and prosecution of violation — Disposition of fine.

(a) It is the duty of any inspector, or any other person having cognizance of any violation of this chapter, to make complaint forthwith against the person so offending to the district attorney for the county in which the offense is alleged to have been committed.
(b) It is the duty of the district attorney to represent and prosecute, on behalf of the state, all cases of offense arising under this chapter and within any county under the district attorney's jurisdiction.
(c) All prosecutions for fines and penalties under the criminal provisions of this chapter shall be by indictment or presentment and when collected shall be paid over to the state treasurer, one-fourth (¼) of which shall be paid to the informer, and three-fourths (¾) placed into the general fund.

§ 60-3-115. Alternative testing standard to American Petroleum Institute scale — Penalty for furnishing calibration tables on storage tanks.

(a) If the commissioner finds that the American Petroleum Institute scale standard is impractical or outdated for purposes of testing volatile oils and substances, the commissioner may by rule provide for an alternative testing standard to that set out in §§ 60-3-103 and 60-3-104. The alternative standard must conform to and be made under the conditions and rules adopted by the American Society for Testing Materials and shall be promulgated as a rule in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.
(b) It is a Class C misdemeanor to furnish calibration tables on storage tanks.

Chapter 4 Production of Fuel Alcohol

§ 60-4-101. Licensing of fuel alcohol producers.

(a) Except as provided by subsection (c), in this state every producer of fuel alcohol as defined in [former] § 67-3-602 [repealed], shall be licensed annually by the department of revenue on forms approved by the commissioner.
(b) Every producer of fuel alcohol shall be subjected to the following annual license fee:
1. (1) Production of one thousand gallons (1,000 gals.) up to two thousand and five hundred gallons (2,500 gals.) annually shall require a fifty dollar ($50.00) licensing fee; and
2. (2) Production of over two thousand and five hundred gallons (2,500 gals.) of fuel alcohol annually shall require a one hundred dollar ($100) licensing fee.
(c) Production of up to one thousand gallons (1,000 gals.) of fuel alcohol annually shall require no license fee. However, anyone producing less than one thousand gallons (1,000 gals.) per year shall be required to notify the department in writing of any intention to produce fuel alcohol before such production occurs.
(d) All fees shall be collected by the commissioner or the commissioner's designated agent; all license application and fee information shall be accessible to the alcoholic beverage commission in such form and manner as prescribed by the commissioner.
(e) It is unlawful for any producer to fail to comply with subsections (a)-(c), and any person found guilty of doing so shall be punished by a fine of not less than fifty dollars ($50.00) and not more than the maximum fine provided under the general law for the commission of a misdemeanor.
(f) The commissioner shall have the authority to establish rules and regulations relating to the licensing of producers of fuel alcohol.

§ 60-4-102. Taxation of fuel alcohol — Rules and regulations concerning use and production.

(a) Chapter 3 of this title and [former] title 67, chapter 3, parts 1-9 [repealed] shall apply to fuel alcohol. A person producing fuel alcohol for personal use in combustion engines or heating oil systems shall not be considered a distributor or a dealer within the meaning of chapter 3 of this title and [former] title 67, chapter 3, parts 1-9 [repealed]. If a person sells fuel alcohol, such person shall be deemed a distributor unless the fuel alcohol is sold to a bonded distributor or its lawful agents who must assume reporting and payment of all taxes due on such fuel alcohol.
(b) The commissioner shall have the authority to establish rules and regulations concerning the use and production of fuel alcohol, for the administration of subsection (a).

§ 60-4-103. Requirements — License eligibility.

To be eligible for a license under this chapter, a person must be a United States citizen or a qualified alien, as defined in § 4-58-102.