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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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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 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’
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
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 • 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 • 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 • 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