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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

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Presentation Transcript
introduction
INTRODUCTION

RULE OF CAPTURE VS CORRELATIVE RIGHTS

rule of capture
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
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 trap elements
PETROLEUM TRAP ELEMENTS
  • PETROLEUM SOURCE ROCK
  • MIGRATIONAL PATHWAY
  • POROUS FORMATION ROCK
  • SEALING IMPERMEABLE CAPROCK OR BED
common oil and gas regulatory terms
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 terms15
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
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
oklahoma well spacing and pooling law
OKLAHOMA WELL SPACING AND POOLING LAW
  • CREATE DRILLING & SPACING UNITS
  • LOCATION EXCEPTIONS
  • INCREASED DENSITY WELLS
  • FORCED POOLINGS
oklahoma well spacing

OKLAHOMA WELL SPACING

GENERAL STATEWIDE RULE

oklahoma well spacing23

OKLAHOMA WELL SPACING

DRILLING AND SPACING UNITS

drilling spacing unit general requirements
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’
drilling spacing unit general requirements27
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

OKLAHOMA

LOCATION EXCEPTION

oklahoma30

OKLAHOMA

INCREASED DENSITY WELL

oklahoma32

OKLAHOMA

FORCED POOLING IN DRILLING AND SPACING UNITS

oklahoma35

OKLAHOMA

FIELD-WIDE POOLING

kansas well spacing and field wide pooling law
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
location exceptions methods
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

alternate tract units
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
louisiana well spacing and pooling law
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
texas well spacing and pooling law
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
texas compulsory pooling
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
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
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 requirements57
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