SPACINGVertical

Horizontal

Eric R. King

Week ThreeSeptember 9, 2010

Conservation

• 52 O.S. 87.1• Common Source of Supply of Oil • Well Spacing and Drilling Units

Spacing• Actual Notice at least 15 days prior to Hearing to

all parties who have the right to share in production

• File Application• Notice Regular Mail at least 15 days before

Hearing• Publication Notice – At least 15 days in County

where Land is situated and Oklahoma County before the Hearing

• Hearing• Issues

OAC 5-7-6

Drilling and spacing unit establishment or modification

(a) Notice of hearing relating to drilling and spacing units shall be published one time at least fifteen (15) days prior to the hearing in a newspaper of general circulation published in Oklahoma County, Oklahoma, and in a newspaper of general circulation published in each county in which lands embraced in the application are located.

(b) When an applicant proposes to establish, vacate, alter, modify, amend, or extend a drilling and spacing unit, the application and

notice shall be served by the applicant no less than fifteen (15) days prior to the date of the hearing, by regular mail, upon each person or governmental entity having the right to participate in production from the proposed drilling and spacing unit or the existing drilling and spacing unit.(c) A plat or plats shall be attached to each application for an order to establish a drilling and spacing unit or units or to extend existing spacing within a common source or sources of

supply, which plat shall show the spacing units requested together with any spacing units abutting or overlapping the area to be spaced, and any abutting spacing units in all spaced formations. An amended plat shall be provided at the time of the hearing in the event drilling and spacing units have been established after the application was filed and prior to the hearing to reflect the status of the spacing at the time of the hearing.

(d) An application to extend spacing from an adjacent drilling and spacing unit shall state in the body of the application the most recent order number that created the spacing in the adjacent unit that applies to the common sources of supply which are sought to be extended by the application. Such request to extend spacing and citation to the most recent order number shall be placed in the special relief paragraph of the notice of hearing.

(e) Where a well has not been commenced to or completed in the common source of supply sought to be spaced, notice of hearing for an order to vacate, alter, amend, extend, or change a prior spacing order shall be served and published as required in (a) of this Section. Such request to vacate, alter, amend, extend, or change a prior spacing order shall be placed in the special relief paragraph of the notice of hearing.

(f) Where two or more orders have issued spacing a common source of supply and such spacing orders have resulted in there being a conflict either as to the size of the unit or as to a common source of supply or a conflict as to the nomenclature of the common source of supply, then the applicant seeking to vacate, alter, amend, or change one of the prior spacing orders shall either file an application to construe and modify the conflicting orders or may amend a relevant application to accomplish the same

result. Notice of hearing shall be served and published as required upon the commencement of a proceeding.(g) The Commission may issue an order establishing horizontal well units for a common source of supply.(h) No order of the Commission authorizing a horizontal well unit that overlies any existing well or portion of any existing drilling and spacing unit producing from the same common source of supply will become effective until at

least fifty percent (50%) of the ownership having a right to drill in each such well and/or drilling and spacing unit consents in writing to the horizontal well unit by filing such written consent with the Court Clerk of the Commission in such cause. In addition, if the boundaries of the horizontal well unit do not encompass such existing drilling and spacing unit in its entirety, then the application and notice for the horizontal well unit shall be served by the applicant no less than fifteen (15) days prior to

the date of the hearing, by regular mail, upon each person on governmental entity having the right to participate in production from the existing drilling and spacing unit.(i) Any written consent to the order required under subsection (h) of this Section shall not be a waiver of, nor commitment of, any rights of such owners in either the existing production or the proposed horizontal well unit. If the required percentage of consent cannot be obtained, the applicant may make application to

the Commission for a waiver of the consent requirement, and upon a showing of good cause by the applicant, the Commission may waive the consent requirement.

General Well Spacing Requirements

OAC 165:10-1-21Any unspaced common source of supply 2,500 feet

or more in depth – No closer than 330 feet from any property line or 600 feet from any drilling or producing oil or gas well from the same formation

Any unspaced common source of supply 2,500 feet or less in depth – No closer than 165 feet from any property line or 300 feet from any drilling or producing oil or gas well from the same formation

Drilling and Spacing UnitsOAC 165: 10-1-22(a) The Commission may establish drilling and spacing units in any common source of supply a s provided by law, and the special orders creating drilling and spacing units shall supersede the provisions of 165:10-1-21. It shall beThe responsibility of any operator who proposes to drill a well to ascertain the existence and provisions of special spacing orders.

(b) The drilling of a well or wells in to a common source of supply in an area covered by an application pending before the Commission seeking the establishment of drilling and spacing units is prohibited except by special order of the Commission. However, if an Intent to Drill (Form 1000) has been approved by the Commission and operations commenced prior to the filing of a spacing application, the operator shall be permitted to drill and complete the well without a special order of the Commission.

Permitted Well Locations Within Standard Drilling

and Spacing UnitsOAC 165: 10-1-24• (a) The permitted well location within any standard square

drilling and spacing unit shall be the center of the unit. The permitted well locations within standard rectangular drilling and spacing units shall be the centers of alternate square tracts constituting the units (alternate halves of the units); provided, however, a well will be deemed drilled at the permitted location if drilled within the following tolerance areas:

(1) Not less than 165 feet from the boundary of any standard 10-acre drilling and spacing unit or the proper square 10-acre tract within any standard 20-acre drilling and spacing unit.

(2) Not less than 330 feet from the boundary of any standard 40-acre drilling and spacing unit or the proper square 40-acre tract within any standard 80-acre drilling and spacing unit.

(3) Not less than 660-feet from the boundary of any standard 160-acre drilling and spacing unit or the proper square 160-acre tract within any standard 320-acre drilling and spacing unit.

(4 ) Not less than 1320 feet from the boundary of any standard 640-acre drilling and spacing unit.

A Township - 36 Sections of Land

640 acres (Section)

320 acres (Half Section)

160 acres (Quarter Section)

Drilling and Spacing Units

• A Township - 36 Sections of Land• Size of Drilling and Spacing Units• 80 acres – Stand-Up or Lay-Down Units• 40 acres (Quarter Quarter Section)• 20 acres Stand-Up or Lay-Down Units• 10 acres (Quarter Quarter Quarter Section)

Proper Well Location Requirements(Continued)

• 640 acres - No closer than 1320 feet from unit boundaries

• 320 acres - Stand-Up or Lay-Down Units – No closer than 660 feet from proper Quarter Section i.e. on NW-SE proper location within each 320 acre unit (or can be NE-SW)

• 160 acres –No closer than 660 from unit boundaries

• 80 acres – Stand-Up or Lay-Down Units – No closer than 330 feet from proper Quarter Quarter Section i.e. on NW-SE proper location within each 80 acre unit (or can be NE-SW)

Proper Well Location Requirements continued

• 40 acres No closer than 330 feet from unit boundary• 20 acres Stand-Up or Lay-Down Units - No closer

than 165 feet from proper Quarter Quarter Section i.e. on NW-SE proper location within each 20 acre unit (or can be NE-SW)

• 10 acres – No closer than 165 feet from unit boundary

VerticalDrilling and Spacing Causes

Samples applications/notices/orders• 40-acre units• 80 acre stand-up units• 160-acre units• 320-acre lay-down Units• 640-acre units

Horizontal Drilling Offshore

Horizontal Drilling Texas

Horizontal Drilling compared to Slant Hole Drilling

Horizontal Drilling

OAC 165: 10-3-28

Definitions. The following words and terms, when used in this Section, shall have the following meaning, unless the context clearly indicates otherwise:

(1) "Horizontal well" shall mean a well drilled, completed, or recompleted with one or more laterals in a common source of supply in a manner in which, for at least one lateral, the horizontal component of the completion interval in the common source of supply exceeds the vertical component thereof and the horizontal component extends a minimum of 150 feet in the formation.(2) "Point of entry" shall mean the point at which the borehole first intersects the top of the common source of supply.(3) "True vertical depth" shall mean that depth at the point of entry perpendicular to the surface as measured from the elevation of the kelly bushing on the drilling rig.(4) "Terminus" shall mean the end point of the borehole in the common source of supply.

(5) "Completion interval" shall mean, for open hole completions, the interval from the point of entry to the terminus and, for cased and cemented completions, the interval from the first perforations to the last perforations.(6) "Horizontal well unit" shall mean a drilling and spacing unit established by the Commission, after application, notice, and hearing, for a common source of supply into which a horizontal well has been or will be drilled.(7) "Standard horizontal well unit" shall mean a horizontal well unit that is a square 10-, 40-, 160-, or 640-acre tract or a rectangular 20-, 80-, or 320-acre tract in accordance with OAC 165:10-1-22.(8) "Non-standard horizontal well unit" shall mean a horizontal well unit that is not a standard horizontal well unit.

(9) "Conventional reservoir" shall mean a common source of supply that is not an unconventional reservoir.(10) "Unconventional reservoir" shall mean a common source of supply that is a shale or a coal bed. "Unconventional reservoir" shall also mean any other common source of supply designated as such by Commission order or rule.(11) "Directional survey" shall mean that survey or report showing the location of any point of the wellbore as it relates to the surveyed surface location from the surface to the terminus of each lateral.(12) "Date of first production" shall mean the date hydrocarbons are first produced from the horizontal well, whether or not production occurs during drilling, completion, or through permanent surface equipment.

(13) "Vertical component" shall mean the calculated vertical distance from the point of entry to the terminus of the lateral.(14) "Horizontal component" shall mean the calculated horizontal distance from the point of entry to the terminus.

(1) Within 30 days after completion of a horizontal well, the operator shall show that the location of the completion interval complies with the applicable general rule, location exception order, or other order of the Commission by submitting the following to the Technical Services Department:(A) A directional survey run in the horizontal well.(B) A plat constructed from the results of the directional survey showing the completion interval.

General horizontal drilling requirements

(2) The completion interval of a horizontal well shall be located not closer than the minimum distance as set out below from any other oil or gas well completed in the same common source of supply except as authorized by a special order of the Commission:(A) Three hundred feet from any other oil or gas well completed in the same common source of supply that is less than 2,500 feet in true vertical depth.B) Six hundred feet from any other oil or gas well completed in the same common source of supply that is 2,500 feet or more in true vertical depth. (C) This paragraph does not apply to horizontal wells drilled in a unit created for secondary or enhanced recovery operations pursuant to 52 O.S. § 287.1 et seq.

In a horizontal well drilled in a common source of supply in which the Commission has not established any drilling and spacing units or horizontal well units, the completion interval of a horizontal well may not be located closer to the boundaries of the applicable mineral estate, oil and gas leasehold estate, or voluntary unit than the minimum distance set out below except as authorized by a special order of the Commission:(1) Not less than 165 feet when the common source of supply is less than 2,500 feet in true vertical depth.(2) Not less than 330 feet when the common source of supply is 2,500 feet or more in true vertical depth.

Horizontal well requirements in an unspaced common source of supply.

(1) A horizontal well may be drilled on any drilling and spacing unit.(2) A horizontal well unit may be created in accordance with 165:10-1-22 and 165:5-7-6. Such units shall be created as new units after notice and hearing as provided for by the Rules of Practice, OAC 165:5.(3) The Commission may create a non-standard horizontal well unit covering contiguous lands in any configuration or shape deemed by the Commission to be necessary for the development of a conventional reservoir or an unconventional reservoir by the drilling of one or more horizontal wells. A non-standard horizontal well unit may not exceed 640 acres plus the tolerances and variances allowed pursuant to 52 O.S. § 87.1.

Drilling and spacing units

(4) A horizontal well unit may be established for a common source of supply for which there are already established non-horizontal drilling and spacing units, and said horizontal well unit may include within the boundaries thereof more than one existing non-horizontal drilling and spacing unit for the common source of supply.(A) Horizontal well units may exist concurrently with producing nonhorizontal drilling and spacing units.(B) Horizontal well units shall supersede existing non-developed nonhorizontal drilling and spacing units.

Conventional reservoirs. In a conventional reservoir, the completion interval of a horizontal well in a horizontal well unit shall be located not less than the minimum distance from the unit boundary as follows:(A) Not less than 165 feet from the boundary of any 10-, 20-, or 40-acre horizontal well unit.(B) Not less than 330 feet from the boundary of any 80- or 160-acre horizontal well unit.(C) Not less than 660 feet from the boundary of any 320- or 640-acre horizontal well unit.

Horizontal well location requirements in horizontal well units.

Unconventional reservoirs. In an unconventional reservoir, the completion interval of a horizontal well in a horizontal well unit shall be located not less than the minimum distance from the unit boundary as follows:(A) Not less than 165 feet from the boundary of any 10-, 20-, or 40-acre horizontal well unit.(B) Not less than 330 feet from the boundary of any 80-, 160-, 320-, or 640-acre horizontal well unit.

The Commission may establish well location requirements different from those provided in subsection (f) of this Section when necessary to prevent waste and protect correlative rights. These requirements may be established in the order creating a standard or nonstandard horizontal well unit or through a special rule of the Commission covering a conventional or unconventional reservoir in a designated geographic area. (see OAC 165:10, Subchapter 29, Special Area Rules).

Alternative well location requirements.

(1) Horizontal oil well allowables may be established administratively using the standard allowables provided in Appendix A (Allocated Well Allowable Table) supplemented by the additional allowables provided in Appendix C (Table HD) to this Chapter.(2) The allowable for a horizontal gas well shall be computed in the manner prescribed for a non-horizontal gas well in the same common source of supply. The allowable for a horizontal well unit with multiple horizontal gas wells shall be the sum of the allowables for the separate horizontal gas wells. For this summation, the allowable for each horizontal gas well will be calculated as if it were the only well in the unit.

Allowable

Horizontal well units may be pooled as provided in 52 O.S. § 87.1 and Commission Rules of Practice, OAC 165:5.

Pooling

OAC 165: 10-29-2

Alternative location requirements for horizontal well units

(a) Scope and effect. The well location requirements of this Section apply to horizontal wells completed in horizontal well units in designated common sources of supply and geographic areas as specified in this Section. Horizontal wells covered by this Section are subject to OAC 165:10-3-28 and other applicable Commission rules except as provided in this Section.

(b) Woodford shale.(1)This subsection applies to horizontal wells completed in the

Woodford shale common source of supply in Atoka, Blaine, Caddo, Canadian, Coal, Dewey, Grady, Haskell, Hughes, Kingfisher, LeFlore, Latimer, McIntosh, Pittsburg, and Sequoyah Counties.

(2) The completion interval of a horizontal well subject to this subsection shall be located not less than the minimum distance from the boundary of a standard or non-standard horizontal well unit as follows:

(A) Not less than 330 feet from an east or west unit boundary.(B) Not less than 165 feet from a north or south unit boundary.

Appendix C: Table HD

Recommended Additional Allowable for Horizontal Oil Wells based on True Vertical Depth and Completion Interval

Average True Vertical Depth of Pool in Feet

Additional Allowable in Barrels per foot of Completion Interval

To 4,000 .2

4,001 to 8,000 .3

8,001 to 12,000 .4

Greater than 12,000 .5

All oil produced and marketed during the drilling and completion operations shall be charged against the allowable assigned to the well upon completion.

Effective date of the allowable shall be the date of first production.

HorizontalDrilling and Spacing Causes

Sample application/notice/interim order/final order

Sample Survey

Eric R. KingOne Leadership Square, 15th Floor

211 N. Robinson Ave.Oklahoma City, OK 73102

(405) 235-5518