1. OIL & GAS DEVELOPMENT AND UNITIZATION LAWS IN VARIOUS STATES
MARCH 2010

2. RULE OF CAPTURE VS CORRELATIVE RIGHTS
INTRODUCTION
RULE OF CAPTURE VS CORRELATIVE RIGHTS

3. 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

4. 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

5. PETROLEUM GEOLOGY, MINERAL INTERESTS AND REGULATION

6. PETROLEUM TRAP ELEMENTS
PETROLEUM SOURCE ROCK
MIGRATIONAL PATHWAY
POROUS FORMATION ROCK
SEALING IMPERMEABLE CAPROCK OR BED

13. JURISDICTION OF CONSERVATION AGENCIES TO REGULATE OIL AND GAS DEVELOPMENT

14. 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

15. 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

18. 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

19. COMPARISON OF OIL AND GAS DEVELOPMENT REGULATORY STRUCTURES IN FIVE STATES

20. OKLAHOMA WELL SPACING AND POOLING LAW
CREATE DRILLING & SPACING UNITS
LOCATION EXCEPTIONS
INCREASED DENSITY WELLS
FORCED POOLINGS

21. GENERAL STATEWIDE RULE
OKLAHOMA WELL SPACING
GENERAL STATEWIDE RULE

23. DRILLING AND SPACING UNITS
OKLAHOMA WELL SPACING
DRILLING AND SPACING UNITS

24. 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’

25. OKLAHOMA OFF-CENTER SETBACK / ACREAGE SIZE RULE FOR SPACING UNITS
OFF-CENTER S/B
ACREAGE SIZE
165
10 or 20
330
40 or 80
660
160 or 320
1,320
640

27. 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

28. OKLAHOMA
LOCATION EXCEPTION

30. INCREASED DENSITY WELL
OKLAHOMA
INCREASED DENSITY WELL

32. FORCED POOLING IN DRILLING AND SPACING UNITS
OKLAHOMA
FORCED POOLING IN DRILLING AND SPACING UNITS

35. OKLAHOMA
FIELD-WIDE POOLING

37. 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

39. KANSAS BASIC PRORATION ORDER MODEL

40. 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

41. LOCATION EXCEPTION METHODS

42. 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

43. ALTERNATE TRACT UNIT (4 X 160 ACRES)

44. ALTERNATE TRACT UNIT (2 X 320 ACRES)

45. 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

48. LOUISIANA GENERAL SPACING RULE

50. 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

51. TEXAS GENERAL SETBACK / ACREAGE SIZE RULE
SPACING RULE (From Line-Apart)
ACREAGE REQUIREMENT
150 – 300 2
200 – 400 4
330 – 660 10
330 – 933 20
467 – 933
467 – 1200 40
660 – 1320

52. 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

54. 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

56. 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

57. 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

58. CONCLUDING COMMENTS QUESTIONS?