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OIL & GAS DEVELOPMENT AND UNITIZATION LAWS IN
VARIOUS STATES
MARCH 2010
INTRODUCTION
RULE OF CAPTURE VS CORRELATIVE RIGHTS
RULE OF CAPTURE
• LANDOWNER MAY PRODUCE OIL & GAS UNDER HIS PROPERTY WITHOUT REGARD WHETHER HE DRAINS HIS NEIGHBOR’S PROPERTY AS WELL
• NO LEGAL LIABILITY UNLESS WASTE RESOURCE OR DAMAGE RESERVOIR
CORRELATIVE RIGHTS
• EACH OWNER IN A COMMON OIL AND GAS POOL IS AFFORDED AN OPPORTUNITY TO RECOVER HIS JUST & EQUITABLE SHARE OF RESERVES
• GOAL IS TO LIMIT UNCOMPENSATED DRAINAGE, BUT NOT AN ABSOLUTE RIGHT – MUST EXERCISE RIGHT TO DRILL TO CLAIM CORRELATIVE RIGHT
PETROLEUM GEOLOGY, MINERAL INTERESTS AND
REGULATION
PETROLEUM TRAP ELEMENTS
• PETROLEUM SOURCE ROCK
• MIGRATIONAL PATHWAY
• POROUS FORMATION ROCK
• SEALING IMPERMEABLE CAPROCK OR BED
JURISDICTION OF CONSERVATION
AGENCIES TO REGULATE OIL AND GAS
DEVELOPMENT
COMMON OIL AND GAS REGULATORY TERMS
• MEANING OF “POOL” FOR REGULATORY PURPOSES
Underground reservoir containing an interconnected common accumulation of crude oil and/or natural gas in pressure communication
COMMON OIL AND GAS REGULATORY TERMS
• CONCEPT OF A “DRILLING UNIT”
Maximum area from which one well can efficiently and economically drain the recoverable oil and gas reserves in a given reservoir
EFFECT OF UNITIZATION ON MINERAL RIGHTS
• CREATES A LEGAL FICTION THAT OPERATIONS OR PRODUCTION ANYWHERE ON THE UNIT IS AS IF ON EACH AND EVERY LEASE IN THE UNIT
• NOT A CROSS ASSIGNMENT – EACH LESSEE STILL OWNS AND REMAINS RESPONSIBLE TO HIS OWN LESSOR
• MUST BE UNIT OPER’NS OR PROD’N
COMPARISON OF OIL AND GAS DEVELOPMENT
REGULATORY STRUCTURES IN FIVE
STATES
OKLAHOMA WELL SPACING AND POOLING LAW
• CREATE DRILLING & SPACING UNITS
• LOCATION EXCEPTIONS
• INCREASED DENSITY WELLS
• FORCED POOLINGS
OKLAHOMA WELL SPACING
GENERAL STATEWIDE RULE
OKLAHOMA WELL SPACING
DRILLING AND SPACING UNITS
DRILLING & SPACING UNIT GENERAL REQUIREMENTS
• APPROXIMATELY SQUARE OR RECTANGULAR AND USUALLY OF UNIFORM SIZE ACROSS SAME POOL
• COMBINATION RESERVOIRS MAY HAVE NON-UNIFORM SIZE UNITS
• < 40 ACRES FOR OIL WELLS < 4,000’
• < 80 ACRES FOR OIL WELLS BETWEEN 4,000’ AND 9,990’
OFF-CENTER S/B ACREAGE SIZE
165 10 or 20
330 40 or 80
660 160 or 320
1,320 640
OKLAHOMA OFF-CENTER SETBACK / ACREAGE SIZE RULE
FOR SPACING UNITS
DRILLING & SPACING UNIT GENERAL REQUIREMENTS
• > 160 ACRE UNIT HOLDS LEASE ACREAGE OUTSIDE OF UNIT FOR ONLY 90 DAYS AFTER END OF TERM
• TOTAL UNIT ACRES LIMITED TO 640 ACRES WITH 10% TOLERANCE
• NO REQUIREMENT UNIT BE SHOWN UNDERLAIN ENTIRELY BY PAY FOR FULL ALLOWABLE
OKLAHOMA
LOCATION EXCEPTION
OKLAHOMA
INCREASED DENSITY WELL
OKLAHOMA
FORCED POOLING IN DRILLING AND SPACING UNITS
OKLAHOMA
FIELD-WIDE POOLING
KANSAS WELL SPACING AND FIELD-WIDE POOLING LAW
• General Spacing and Oil Unit Rules
• Well Spacing and Basic Proration Orders –UNIT ACREAGE TO BE SHOWN REASONABLY PRODUCTIVE
• Location Exceptions -- YES
• NO General Compulsory Pooling Law
• Field-wide Pooling - YES
KANSAS BASIC PRORATION ORDER MODEL
LOCATION EXCEPTIONS METHODS
• STANDARD ADMINISTRATIVE APPLICATION • BPO “SLIDING SCALE” WITHOUT APPLICATION
BPO STANDARD GAS WELL SETBACK -> 1250’
WELL LOCATION TO W/IN 330’ OF UNIT LINE
DIVIDE DISTANCE FROM LINE BY 1250’,
THEN MULTIPLY QUOTIENT BY INITIAL RATE
TO DETERMINE PENALTY ON PRODUCTION
SUBJECT TO STATEWIDE OVERAGE RULE
LOCATION EXCEPTION METHODS
ALTERNATE TRACT UNITS
• Novel feature of large gas field BPOs in Kansas - ATUs• Combine adjoining tracts from existing units to form new
640-acre ATU – either 4 X 160 acres or 2 X 320 acres• One ATU well drilled as near center of ATU as practical• Existing units contributing tracts share in ATU production• Does not affect allocation from unit wells in existing units• Effort to drill in “corners” and along boundary lines not
drained by existing production• Fairer to competing interests than standard location
exceptions
ALTERNATE TRACT UNIT (4 X 160 ACRES)
ALTERNATE TRACT UNIT (2 X 320 ACRES)
LOUISIANA WELL SPACING AND POOLING LAW
• Unitization – Drilling and Production Units
• Field-wide “(Reservoirwide”) Units
• Unitization and Equity among Unit Interests
• Well Spacing
• Limited Location Exceptions
• Replacement (“Substitute Unit”) Wells
• Increased Density (“Alternate Unit”) Wells
LOUISIANA GENERAL SPACING RULE
TEXAS WELL SPACING AND POOLING LAW
• Well Spacing and Density (Acreage Requirement)
• Compulsory Pooling in Texas -- Rare
• Voluntary Field-wide Unitization Statute w/o Compulsory Pooling Provision by Vote or Otherwise
SPACING RULE (From Line-
Apart)
ACREAGE REQUIREMENT
150 – 300 2
200 – 400 4
330 – 660 10
330 – 933 20
467 – 933 20
467 – 1200 40
660 – 1320 40
TEXAS GENERAL SETBACK / ACREAGE SIZE RULE
Texas Compulsory Pooling
• Voluntary pooling strongly favored
• Forced pooling only after voluntary efforts prove futile and several prerequisites met
• Only allowed ~100 times since 1965
• Limited to < 160-acre oil units / < 640-acre gas units
• Voluntary unitization statute for EOR or gas recycling has no compulsory clause
COLORADO WELL SPACING & POOLING LAW
• Well Spacing – > 2500’ deep: 600’ from lease line / 1200’ from well in same pool; <2500’ deep: 200’ from line / 300’ apart
• Drilling Units by Order – drained by 1 well
• Location Exception – waiver>variance>hrg
• Density Drilling – no set unit size / “area”
• Forced Pooling and Field-wide Unitization
NOTICE REQUIREMENTS
• DIFFER FROM STATE TO STATE - TIME
• PERSONAL NOTICE TO INTERESTED PARTIES AND PUBLICATION NOTICE VIA NEWSPAPERS IN COUNTIES OF AGENCY AND LAND AT ISSUE
• MULANE STANDARD ESSENTIAL FOR CONSTITUTIONAL SUFFICIENCY AS TO OPPORTUNITY TO APPEAR & HR’G
NOTICE REQUIREMENTS
MULANE STANDARD –
THAT NOTICE REASONABLE UNDER THE CIRCUMSTANCES CALCULATED TO APPRISE A PROPERTY OWNER OF HIS RIGHT TO APPEAR AND BE HEARD AS TO POTENTIAL ADVERSE LEGAL EFFECT ON HIS PROPERY RIGHTS AS A MATTER OF DUE PROCESS
CONCLUDING COMMENTS
QUESTIONS?