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A National Survey of Statutory Pooling and Unitization

A National Survey of Statutory Pooling and Unitization

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OVERVIEW OF POOLING AND UNITIZATION AFFECTING APPALACHIAN SHALE DEVELOPMENT Sharon O. Flanery Ryan J.

Morgan 1 Steptoe & Johnson PLLC Charleston, WV Synopsis § 01.01. What are Pooling and Unitization? ......................................................................... 2 [1] — Oil and Gas Title and the Rule of Capture ............................................................. 4 [2] — Traditional Concepts of Well Spacing .................................................................... 6 [3] — The Doctrines of Pooling and Unitization .............................................................. 8 § 01.02. History and Development Pooling and Unitization .............................................. 10 [1] — A Brief History of Statutory Pooling .................................................................... 10 [2] — The Development of Spacing and Pooling Law – The Texas Example ............... 13 [3] — A Brief History of Statutory Unitization .............................................................. 15 § 01.03. Current State of the Law – An Overview ............................................................. 17 [1] — Spacing Rules ....................................................................................................... 17 [2] — Pooling and Unitization ........................................................................................ 20 § 01.04. Status of Pooling Statutes in Appalachian Shale States........................................ 27 [1] — Maryland ............................................................................................................... 28 [2] — New York.............................................................................................................. 29 [3] — Ohio ...................................................................................................................... 32 [4] — Pennsylvania ......................................................................................................... 35 [5] — West Virginia ........................................................................................................ 39 § 01.05. Recommendations for Statutory Improvements ................................................... 48 [1] — Spacing Rules Tailored to Horizontal Wells ........................................................ 48 [2] — Notice and Approval Requirements...................................................................... 50 [3] — Allocation of Costs and Election Rights ............................................................... 51 [4] — Surface Use ........................................................................................................... 52 § 01.06. Conclusion ............................................................................................................ 52

The authors wish to acknowledge a number of individuals who provided invaluable assistance in the research and preparation of this article. Brian R. Hopkins recently joined our firm after 9 ½ years as in-house counsel at NiSource and provided extensive research on the history of pooling and spacing requirements. Alexandria D. Lay (3L at Washington & Lee University School of Law) and James M. Tartaglia (3L at T.C. Williams School of Law, University of Richmond) provided insightful comments and diligent quality review and revisions.

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Appendix

§ 02.01 § 02.02 § 03.01 § 03.02 § 04.01 § 04.02 § 05.01 § 05.02 § 06.01 § 06.02 § 07.01 § 07.02 § 08.01 § 09.01 § 10.01 § 10.02 § 11.01 § 11.02 § 12.01 § 12.02 § 13.01 § 13.02 § 14.01 § 14.02 § 15.01 § 15.02 § 15.01 § 16.02 § 17.01 § 17.02 § 18.01 § 18.02 § 18.03. § 18.04 § 19.01 § 19.02 § 20.01 § 21.01 § 22.01 § 23.01 § 23.02 § 24.01 § 25.01 § 25.02 § 26.01 § 26.02. § 27.01 § 27.02

Analysis of Alabama Regulatory Framework........................................................ 57 Types of Alabama Pooling Statutes. ....................................................................... 69 Analysis of Alaska Regulatory Framework. .......................................................... 76 Types of Alaska Pooling Statutes. ........................................................................... 87 Analysis of Arizona Regulatory Framework. ........................................................ 92 Types of Arizona Pooling Statutes. ......................................................................... 99 Analysis of Arkansas Regulatory Framework. .................................................... 105 Types of Arkansas Pooling Statutes. ..................................................................... 113 Analysis of California Regulatory Framework.................................................... 118 Types of California Pooling Statutes. ................................................................... 124 Analysis of Colorado Regulatory Framework. .................................................... 129 Types of Colorado Pooling Statutes. ..................................................................... 138 Analysis of Connecticut Regulatory Framework. ............................................... 143 Analysis of Delaware Regulatory Framework. .................................................... 146 Analysis of Florida Regulatory Framework. ....................................................... 147 Types of Florida Pooling Statutes. ........................................................................ 162 Analysis of Georgia Regulatory Framework. ...................................................... 169 Types of Georgia Pooling Statutes. ....................................................................... 178 Analysis of Hawaii Regulatory Framework. ........................................................ 181 Types of Hawaii Pooling Statutes. ......................................................................... 185 Analysis of Idaho Regulatory Framework. .......................................................... 186 Types of Idaho Pooling Statutes. ........................................................................... 191 Analysis of Illinois Regulatory Framework. ........................................................ 199 Types of Illinois Pooling Statutes. ......................................................................... 209 Analysis of Indiana Regulatory Framework. ....................................................... 214 Types of Indiana Pooling Statutes. ........................................................................ 221 Analysis of Iowa Regulatory Framework. ............................................................ 224 Types of Iowa Pooling Statutes.............................................................................. 231 Analysis of Kansas Regulatory Framework. ........................................................ 234 Types of Kansas Pooling Statutes.......................................................................... 255 Analysis of Kentucky Regulatory Framework. ................................................... 262 Types of Kentucky Pooling Statutes. .................................................................... 276 Analysis of Kentucky Regulatory Framework—Coalbed Methane. ................. 285 Types of Kentucky Pooling Statutes—Coalbed Methane. .................................. 298 Analysis of Louisiana Regulatory Framework. ................................................... 302 Types of Louisiana Pooling Statutes. .................................................................... 325 Analysis of Maine Regulatory Framework. ......................................................... 337 Analysis of Maryland Regulatory Framework. ................................................... 343 Analysis of Massachusetts Regulatory Framework. ........................................... 350 Analysis of Michigan Framework. ........................................................................ 353 Types of Michigan Pooling Statutes. ..................................................................... 361 Analysis of Minnesota Regulatory Framework. .................................................. 365 Analysis of Mississippi Regulatory Framework. ................................................. 368 Types of Mississippi Pooling Statutes. .................................................................. 385 Analysis of Missouri Regulatory Framework. ..................................................... 392 Types of Missouri Pooling Statutes. ...................................................................... 400 Analysis of Montana Regulatory Framework...................................................... 404 Types of Montana Pooling Statutes. ..................................................................... 416 2

§ 28.01 § 28.02 § 29.01 § 29.02 § 30.01 § 31.01 § 32.01 § 32.02 § 33.01 § 33.02 § 34.01 § 34.02 § 35.01 § 35.02 § 36.01 § 36.02 § 37.01 § 37.02 § 38.01 § 38.02 § 39.01 § 39.02 § 40.01 § 41.01 § 41.02 § 42.01 § 42.02 § 43.01 § 43.02 § 44.01 § 44.02 § 45.01 § 45.02 § 46.01 § 46.02 § 47.01 § 47.02 § 48.01 § 48.02 § 49.01 § 49.02 § 50.01 § 51.01 § 51.02

Analysis of Nebraska Regulatory Framework. .................................................... 421 Types of Nebraska Pooling Statutes...................................................................... 432 Analysis of Nevada Regulatory Framework. ....................................................... 436 Types of Nevada Pooling Statutes. ........................................................................ 447 Analysis of New Hampshire Regulatory Framework. ........................................ 452 Analysis of New Jersey Regulatory Framework. ................................................. 453 Analysis of New Mexico Regulatory Framework. ............................................... 458 Types of New Mexico Pooling Statutes. ................................................................ 467 Analysis of New York Regulatory Framework. ................................................... 473 Types of New York Pooling Statutes..................................................................... 482 Analysis of North Carolina Regulatory Framework. .......................................... 488 Types of North Carolina Pooling Statutes. ........................................................... 493 Analysis of North Dakota Regulatory Framework. ............................................ 496 Types of North Dakota Pooling Statutes. ............................................................. 510 Analysis of Ohio Regulatory Framework. ............................................................ 517 Types of Ohio Pooling Statutes.............................................................................. 529 Analysis of Oklahoma Regulatory Framework. .................................................. 534 Types of Pooling Statutes in Oklahoma................................................................ 545 Analysis of Oregon Regulatory Framework. ....................................................... 551 Types of Oregon Pooling Statutes. ........................................................................ 558 Analysis of Pennsylvania Regulatory Framework. ............................................. 563 Types of Pennsylvania Pooling Statutes. .............................................................. 572 Analysis of Rhode Island Regulatory Framework. ............................................. 580 Analysis of South Carolina Regulatory Framework. .......................................... 581 Types of South Carolina Pooling Statutes. ........................................................... 593 Analysis of South Dakota Regulatory Framework. ............................................. 597 Types of South Dakota Pooling Statutes............................................................... 611 Analysis of Tennessee Regulatory Framework. ................................................... 616 Types of Tennessee Pooling Statutes..................................................................... 625 Analysis of Texas Regulatory Framework. .......................................................... 630 Types of Texas Pooling Statutes. ........................................................................... 647 Analysis of Utah Regulatory Framework. ............................................................ 652 Types of Utah Pooling Statutes.............................................................................. 658 Analysis of Vermont Regulatory Framework. ..................................................... 662 Types of Vermont Pooling Statutes. ...................................................................... 672 Analysis of Virginia Regulatory Framework. ...................................................... 675 Types of Virginia Pooling Statutes. ....................................................................... 685 Analysis of Washington Regulatory Framework. ............................................... 694 Types of Washington Pooling Statutes. ................................................................ 703 Analysis of West Virginia Regulatory Framework. ............................................ 711 Types of Pooling Statutes in West Virginia. ......................................................... 739 Analysis of Wisconsin Regulatory Framework.................................................... 746 Analysis of Wyoming Regulatory Framework. ................................................... 748 Types of Wyoming Pooling Statutes. .................................................................... 752

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§ 01.01.

What are Pooling and Unitization?

[1] — Oil and Gas Title and the Rule of Capture. From the initial developments of commercial oil and gas production, legislatures and courts have faced significant challenges in developing a comprehensive legal framework to address various questions regarding ownership of oil and gas. Commercial development of oil in the United States began in 1859 with the first producing well drilled by Colonel E.L. Drake in Titusville, Pennsylvania. 2 By that time, the rules that determined ownership of coal and similar hard-rock mineral deposits, which formed strata beneath the surface of the land, were relatively well-evolved. 3 However, both oil and gas possess characteristics inconsistent with the traditional notions of “ownership in place” (or in situ ownership) applied to coal and other hard-rock minerals. 4 Oil and gas are fluid, and migrate from areas of high pressure to areas of lower pressure within the reservoir, or pool, where they are found. 5 These natural characteristics led to near-universal adoption of the “rule of capture” by courts of various producing states as the standard to determine oil and gas ownership. The “pure” rule of capture 6 was elucidated by the Supreme Court of Pennsylvania in its seminal 1889 decision, Westmoreland & Cambria Natural Gas Co. v. De Witt. 7 In De Witt, the court analogized oil and gas in their natural state to wild animals, or “animae ferae naturae,” roaming beneath the surface of the earth. 8 The court held that title to land does not necessarily constitute ownership of the oil and gas beneath it. 9 In theory, the oil and gas underlying a tract
2

See Bruce M. Kramer & Owen L. Anderson, “The Rule of Capture - An Oil and Gas Perspective,” 35 Envtl. L. 899, 900 (2005) (citing J.E. Brantley, History of Oil Well Drilling 153 (1971)). 3 See Brown v. Spilman, 155 U.S. 665, 669-70 (1895). 4 See Patrick H. Martin & Bruce M. Kramer, Williams & Meyers, Oil and Gas Law, § 203 (LexisNexis Matthew Bender 2010). 5 See id. 6 The rule as stated in this paragraph is described as the “pure rule of capture,” as distinct from the version of the rule that includes a “correlative rights” component, requiring due respect for the rights of others owning an interest in the common pool. This component was, in varying forms, incorporated into the jurisprudence of a number of producing states, including Indiana, Kentucky, and later, West Virginia and Texas. For a discussion of cases involving this component, and its evolution, see Bruce M. Kramer & Owen L. Anderson, “The Rule of Capture - An Oil and Gas Perspective,” 35 Envtl. L. 899, 911-25 (2005). 7 Westmoreland & Cambria Natural Gas Co. v. De Witt, 18 A. 724 (Pa. 1889). 8 See id. at 725. 9 Id.

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of land belong to the landowner. 10 However, when they migrate to other areas and are captured and reduced to possession by another owner, title vests in the captor and thereby extinguishes that of the prior owner. 11 This reasoning was endorsed by the U. S. Supreme Court in Brown v. Spilman, wherein the Court stated: Petroleum gas and oil are substances of a peculiar character, and decisions in ordinary cases of mining, for coal and other minerals which have a fixed situs, cannot be applied to contracts concerning them without some qualifications. They belong to the owner of the land, and are part of it, so long as they are on it or in it, or subject to his control, but when they escape or go into other land, or come under another’s control, the title of the former owner is gone. If an adjoining owner drills his own land and taps a deposit of oil or gas extending under his neighbor’s field, so that it comes into his well, it becomes his property. 12 In essence, the rule of capture provides that “[t]he owner of a tract of land acquires title to the oil and gas which he produces from wells drilled thereon, though it may be proved that part of such oil or gas migrated from adjoining lands.” 13 Therefore, it is largely a rule of self-help under which landowners, suffering from potential drainage, were not awarded a share in neighboring wells because they were deemed to have the ability to prevent drainage and protect their interest by drilling their own well. Once a producing well had been drilled, the rule of capture motivated landowners in the area to protect their potential oil and gas assets by rushing to drill on their own land. 14 Because oil and gas naturally exist in underground reservoirs or pools that often underlie numerous separately owned tracts, the rule of capture left a landowner with two options: he could either drill on his own land to take possession of the oil and gas and thereby perfect ownership; or, he could sit by while neighbors drilled wells that would likely drain those resources. As a practical
Id. Id. 12 Spilman, 155 U.S. at 669-70 (citing Brown v. Vandergrift, 80 Pa. 142 (1875); Westmoreland & Cambria Natural Gas Co. v. De Witt, 18 A. 174 (Pa. 1889)). 13 See Robert E. Hardwicke, “The Rule of Capture and Its Implications as Applied to Oil and Gas,” 13 Tex. L. Rev. 391, 393 (1935) (quoting Eliff v. Texon Drilling Co., 210 S.W.2d 558, 562 (Tex. 1948)). 14 See Rance L. Craft, “Comment: Of Reservoir Hogs and Pelt Fiction: Defending the Ferae Naturae Analogy Between Petroleum and Wildlife,” 44 Emory L.J. 697, 700 (1995).
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matter, this meant that in order to ensure recovery of his fair share of production from the “common pool,” each owner needed to drill as many wells on his property as quickly as possible. 15 The resultant race to produce led to excessive well density, substantial over-drilling, and waste, which included undue surface waste, waste of economic resources, and waste of oil and gas reserves through premature depletion. 16 While the consequences of this frenzied production were manifested in virtually every producing state, they are perhaps best illustrated by the events surrounding the famed oil well at Spindletop. 17 Captain Anthony F. Lucas and his drilling team struck oil in the Spindletop salt dome near Beaumont, Texas, on January 10, 1901. 18 The initial “black plume” that shot from Spindletop soared to twice the height of the drilling derrick, and the well set a world record of roughly 800,000 barrels of oil within the first nine days of production. 19 A wave of speculators soon followed, and by the end of 1901 there were 440 wells on the 125-acre hill where Spindletop sat. 20 New wells continued to be drilled as “close together as physically possible,” and 1,000 wells had been drilled around Spindletop by 1904. 21 However, only 100 of these wells produced oil at a rate of more than 10,000 barrels a day. 22 Captain Lucas lamented over the consequences of this rush to produce, stating that “[t]he cow was milked too hard, and moreover she was not milked intelligently.” 23 [2] — Traditional Concepts of Well Spacing. The rule of capture yielded results during the early days of oil and gas development that were not contemplated or desired by its authors. In response, various producing states enacted oil and gas conservation statutes near the turn of the Twentieth Century to curb excessive drilling
15

See Phillip E. Norvell, “Prelude to the Future of Shale Gas Development: Well Spacing and Integration for the Fayetteville Shale in Arkansas,” 49 Washburn L.J. 457, 459 (2010). 16 See id. at 459-60. 17 See Rance L. Craft, “Comment: Of Reservoir Hogs and Pelt Fiction: Defending the Ferae Naturae Analogy Between Petroleum and Wildlife,” 44 Emory L.J. 697, 701 (1995). 18 Id. 19 See id. (citing Walter Rundell, Jr., Early Texas Oil: A Photographic History 1866-1936 36-37 (1977)). 20 Id. 21 Id. (citing Richard O’Connor, The Oil Barons: Men of Greed and Grandeur 81 (1971)). 22 Id. (citing O’Connor, at 85). 23 Id.

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and protect correlative rights. 24 A primary feature of many conservation laws was the imposition of spacing requirements, which limited the number of wells that could be drilled within a specified acreage. 25 It is against this backdrop that the concept of pooling tracts together for production first emerged. 26 In order to appreciate this relationship, it is important to have a basic understanding of well spacing. Once one grasps the fundamental concepts of well spacing, it can readily be seen how pooling emerged as a natural next step in the evolution of this aspect of oil and gas law. In general, spacing requirements govern the location of wells within a given pool or common reservoir. 27 There are two types of spacing rules. First, there are “lineal” rules that prescribe setback distances between a well and other points. 28 Typically, spacing rules will establish a minimum distance between any two wells and from each well to the boundaries of the unit or leasehold upon which it sits. In addition, some states impose setback requirements from dwellings, public roads, or other features. 29 The other principal type of spacing dictates the standard acreage required for a single well and within which no other well may be located.30 This second type of spacing is often referred to as “density” spacing. 31
24

See 1 Bruce M. Kramer & Patrick H. Martin, The Law of Pooling and Unitization § 2.02 (LexisNexis Matthew Bender 2010). 25 See Bruce M. Kramer, “Compulsory Pooling and Unitization: State Options in Dealing with Uncooperative Owners,” 7 J. Energy L. & Pol’y 255, 258 n.10 (1986) (citing R. Sullivan, Handbook of Oil and Gas Law 285 (1955)). This article identifies other principal methods of oil and gas conservation, including (1) Drilling Operations-The regulation of procedures used in drilling and completing wells; (2) Maximum Efficient RateLimiting production to the maximum efficient rate (MER) of the well based on its geological capabilities; and (3) Prorationing-Limiting the amount of oil and gas that can be sold from each well within a common source of supply or reservoir and allocating that amount between the various wells that are producing from that common source. 26 See id. at 258 (“The concepts of well spacing and pooling go hand in hand.”). 27 See 1 Bruce M. Kramer and Patrick H. Martin, The Law of Pooling and Unitization, § 5.02 (LexisNexis Matthew Bender 2010). 28 Id. 29 See text infra § 01.03. [1] for an exemplary spacing regulation; see also Sharon O. Flanery & Ryan J. Morgan, “A National Survey of Statutory Pooling and Unitization,” (Steptoe & Johnson PLLC, Working Paper), available at http://www.steptoe-johnson.com/know-how/docs/A_National_Survey_of_Statutory_Pooling_and_Unitization.pdf [hereinafter “National Survey”] for further discussion of each state’s spacing requirements. 30 These unit areas are commonly set as arbitrary tracts, e.g., 40 acres for oil wells and 640 acres for gas wells. See, e.g., Mo. Code Regs. Ann. tit. 10, § 50-2.070 (2011). Conversely, some statutes do not specify acreage, but allow the conservation agency to set spacing units as that area “that can be efficiently and economically drained by one well.” See, e.g., Neb. Rev. Stat. § 57-908(2) (2010). 31 See 1 Bruce M. Kramer and Patrick H. Martin, The Law of Pooling and Unitization, § 5.02 (LexisNexis Matthew Bender 2010).

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By limiting the number of wells that may be drilled in a given area, lineal and density spacing rules seek to protect correlative rights and prevent waste. 32 In accomplishing these objectives, the spacing rules can also create a situation in which a landowner is prevented from being able to produce the oil or gas underlying the land. It is this situation that pooling is intended to address. 33 [3] — The Doctrines of Pooling and Unitization. Most often, the impetus to pool mineral interests is driven by well spacing rules which would otherwise prevent the owners of small tracts from producing the oil and gas underlying their land, as each owns insufficient acreage to obtain a well permit. 34 In simple terms, pooling is merely the grouping together of small tracts or interests therein to form a conjoined production unit in compliance with applicable spacing standards. 35 In theory, two basic types of pooling exist. The first is voluntary pooling. 36 As the name implies, voluntary pooling involves private arrangements to allow for joint development of the separately owned oil and gas interests within a spacing unit. 37 In modern practice, voluntary pooling is accomplished through several mechanisms, such as (1) community leases that embrace multiple, separately owned tracts or interests to effectuate joint development; (2) lease provisions that authorize a lessee to pool the leased area with nearby tracts; and (3) contractual pooling agreements. 38 The second type, referred to as compulsory or statutory pooling, arises when applicable spacing requirements necessitate the inclusion of adjacent tracts within the spacing unit that are
Notably, correlative rights protection and waste prevention are the stated policy goals of every state oil and gas conservation agency. See “National Survey,” for each state’s statutory definition of waste. 33 See Patrick H. Martin & Bruce M. Kramer, Williams & Meyers, Oil and Gas Law, § 901 (LexisNexis Matthew Bender 2010). 34 See 1 Bruce M. Kramer & Patrick H. Martin, The Law of Pooling and Unitization § 1.02 (LexisNexis Matthew Bender 2010). 35 See id. 36 See Patrick H. Martin & Bruce M. Kramer, Williams & Meyers, Oil and Gas Law, § 902 (LexisNexis Matthew Bender 2010) (“In some sense, perhaps, virtually all pooling is compulsory rather than voluntary, since it is motivated by the compulsion of economic factors or [by] zoning or spacing regulations.”). 37 See 1 Bruce M. Kramer & Patrick H. Martin, The Law of Pooling and Unitization §§ 7.03-7.05 (LexisNexis Matthew Bender 2010). 38 See id.
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not commonly owned. 39 This fragmented ownership may be the result of an existing lease to a party other than the proposed operator or unleased owners who fail to negotiate satisfactory terms for voluntary inclusion in the unit. 40 In these circumstances, the vast majority of producing states provide a statutory process by which, upon consent from a requisite proportion of the owners or operators in the area to be pooled, an owner or operator may petition the authorized state agency laws for a pooling order. 41 If granted, the order will mandate the inclusion of the interests of non-consenting owners or operators in the pooled area and establish the terms upon which all parties involved will be compensated. 42 The rationale behind statutory pooling is that an owner or operator of a small tract who cannot drill due to spacing requirements should remain entitled to recover the oil and gas underlying his land. To deny him that right with no opportunity to realize the economic value of his property amounts to the confiscation of his oil and gas interest without remedy or compensation. 43 On the other hand, to permit each owner or operator to drill on his small tract results in inefficient land use akin to the degradation surrounding Spindletop. A statutory pooling process provides a prudent and equitable solution to this dilemma. As a general concern, it is important to clarify the distinction between pooling and unitization. Although the two concepts are doctrinally similar, there is substantial variation in their treatment among the states. 44 On many levels, the difference between pooling and unitization is primarily one of procedure and is best understood by considering the relationship of each to spacing requirements. As noted above, the term “pooling” most often refers to the

See Bruce M. Kramer, “Compulsory Pooling and Unitization: State Options in Dealing with Uncooperative Owners,” 7 J. Energy L. & Pol’y 255, 257-59 (1986). 40 See id. at 258. 41 See text infra § 01.03. [2] for a national overview of the variety of pooling and unitization statutes. See also “National Survey,” for a further discussion of each state’s pooling and unitization laws; 1 Bruce M. Kramer & Patrick H. Martin, The Law of Pooling and Unitization § 10.01 (LexisNexis Matthew Bender 2010). 42 See 1 Bruce M. Kramer & Patrick H. Martin, The Law of Pooling and Unitization § 13.04 (LexisNexis Matthew Bender 2010). 43 See id. at § 10.01 (citing R.R. Comm’n v. Humble Oil & Refining Co., 245 S.W.2d 488 (Tex. 1952)). 44 See “National Survey,” for further discussion of each state’s pooling and unitization laws.

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integration of smaller tracts and interests therein to obtain a drilling permit in compliance with spacing rules. Unitization, also commonly labeled “unit operations,” is “the consolidation of mineral or leasehold interests covering all or part of a common source of supply.” 45 The main objective of unitization is to maximize production efficiency from a given reservoir and may be sought in the context of drilling permit applications, as well as currently-producing wells and proposed secondary recovery methods. 46 Unitization may also be vital to ensure that correlative rights of the various owners in the pool are protected. 47 Thus, while pooling stems directly from the relevant spacing requirements in an area, unitization exists outside of spacing rules to include a broader scope of joint operations. Like pooling, unitization is governed by state conservation laws that may address the ability of private parties to voluntarily unitize their interests in all or part of a reservoir; or, a statute may prescribe procedural rules under which an owner or operator may petition the agency for a unitization order. 48 For the purposes of this article, the term “pooling” is used

interchangeably to signify the general concept of integrating separately owned interests that includes both mechanisms. However, pooling and unitization are distinguished when necessary. § 01.02. History and Development Pooling and Unitization.

[1] — A Brief History of Statutory Pooling. The practice of statutory pooling dates back to 1920s municipal zoning ordinances designed to limit drilling within the boundaries of the locality, the first of which was enacted in Winfield, Kansas in 1927. 49 Soon after, the validity of a similar ordinance was challenged and

45

1 Bruce M. Kramer & Patrick H. Martin, The Law of Pooling and Unitization § 1.02 (LexisNexis Matthew Bender 2010). 46 See id. 47 See generally Patrick H. Martin & Bruce M. Kramer, Williams & Meyers, Oil and Gas Law, § 901 (LexisNexis Matthew Bender 2010) (discussing the effect and purposes of pooling and unitization); see also, e.g., Colo. Rev. Stat. § 34-60-103(4) (2010) (defining “correlative rights” to mean “that each owner and producer in a common pool or source of supply of oil and gas shall have an equal opportunity to obtain and produce his just and equitable share of the oil and gas underlying such pool or source of supply”). 48 See “National Survey,” for further discussion of each state’s unitization laws. 49 See Patrick H. Martin and Bruce M. Kramer, Williams & Meyers, Oil and Gas Law § 905.1 (LexisNexis Matthew Bender 2010) (citing R. M. Williams, “Compulsory Pooling and Unitization (of Oil and Gas Rights),” S.W. Legal Found., 15 Ann. Inst. on Oil and Gas L. & Tax’n 223 (1964)).

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ultimately upheld in the landmark case of Marrs v. City of Oxford. 50 Other municipal ordinances followed throughout Texas, 51 Oklahoma, 52 and other states, which were substantially similar to contemporary statutory pooling laws as they mandated single-well spacing units and the sharing of production therefrom. 53 These local rules were generally affirmed to be valid exercises of police power under U.S. Supreme Court precedent established in Village of Euclid v. Ambler Realty Co. 54 State-wide statutory pooling statutes were first enacted in New Mexico and Oklahoma in 1935. 55 The Oklahoma Well-Spacing Act, sustained in Patterson v. Stanolind Oil & Gas Co. 56 and Croxton v. State, 57 empowered the state’s Corporation Commission to establish drilling or spacing units of a specified acreage and provided as follows: In the event a producing well, or wells, is completed upon a unit where there are two or more separately owned tracts, any royalty owner, or group of royalty owners, holding the royalty interest under a separately owned tract, shall share in one-eighth of all of the production from the well or wells drilled within the unit in the proportion that the acreage of their separately owned tract bears to the entire acreage of the unit. 58 The statute further required that a lessee holding a majority interest in the unit allow each minority owner an opportunity to participate as a working interest owner in the development of

50

See generally Marrs v. City of Oxford, 24 F.2d 541 (D. Kan. 1928), aff’d, 32 F.2d 134 (8th. Cir. 1929) (denying that an ordinance requiring well spacing and shared production constituted a violation of local police power and the privileges and immunities clause of the Fourteenth Amendment). 51 See, e.g., Tysco Oil Co. v. R.R. Comm’n, 12 F. Supp. 195 (S.D. Tex. 1935). 52 See Patrick H. Martin and Bruce M. Kramer, Williams & Meyers, Oil and Gas Law § 905.1 (LexisNexis Matthew Bender 2010) (citing Am. Bar Ass’n, Conservation of Oil and Gas: A Legal History, 1948 391-397 (Murphy ed. 1949). 53 See id. 54 See id.; see also Vill. of Euclid v. Ambler Realty Co., 272 U.S. 365, 394 (1926)) (“We have nothing to do with the question of the wisdom or good policy of municipal ordinances. If they are not satisfying to a majority of citizens, their recourse is to the ballots – not the courts.”). 55 Id. (citing N.M. Laws 1935, Ch. 72, § 12; 1935 Okla. Sess. Laws art. 1, ch. 59). 56 Patterson v. Stanolind Oil & Gas Co., 77 P.2d 83 (Okla. 1939). 57 Croxton v. State, 97 P.2d 11 (Okla. 1939). 58 See Patterson, 77 P.2d at 87.

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common acreage to be pooled. 59 This mandate, which laid the foundation for modern pooling statutes, was expressly accepted by the court as within the legislature’s power. 60 In reaching this determination, the Oklahoma court relied upon established U.S. Supreme Court precedent in Ohio Oil Co. v. Indiana. 61 There, the Court considered the constitutional validity of a state law which prohibited the flow of oil or gas from a well to escape into open air as a practice constituting physical waste thereof.
62

In upholding the Act, the Court

acknowledged each state’s authority to prevent the waste of oil and gas and to protect correlative rights of all owners through reasonable legislation. 63 Justice White, writing for the Court, offered the following explanation which supports the mechanisms of statutory pooling and unitization today: As to gas and oil, the surface proprietors within the gas field all have the right to reduce to possession the gas and oil beneath. They could not be absolutely deprived of this right which belongs to them without a taking of private property. But there is a coequal right in them all to take from a common source of supply, the two substances which in the nature of things are united, though separate. It follows from the essence of their right and from the situation of the things, as to which it can be exerted, that the use by one of his power to seek to convert a part of the common fund to actual possession may result in an undue proportion being attributed to one of the possessors of the right, to the detriment of others, or by waste by one or more to the annihilation of the rights of the remainder. Hence, it is that the legislative power, from the peculiar nature of the right and the objects upon which it is to be exerted, can be manifested for the purpose of protecting all of the collective owners, by securing a just distribution to arise from the enjoyment by them, of their privilege to reduce to possession, and to reach the like end by preventing waste. 64 In the wake of cases such as Patterson and Croxton, most producing states enacted statutory pooling statutes, which consistently have been sustained so that no reasonable debate over their

59 60

See id. at 87-88. See id. at 88-90. 61 Ohio Oil Co. v. Indiana, 177 U.S. 190 (1899). 62 See id. at 200. 63 See id. at 210-12. 64 Id. at 209-10.

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constitutionality remains. 65 However, the tension created by spacing and pooling statutes was not merely a constitutional issue, but often created debate over the equitable principles underlying state conservation laws. The following brief history of well spacing and pooling as they developed in Texas illustrates this point and highlights the struggles which led that state to adopt statutory pooling as a means of leveling the playing field between small and large tract owners. [2] — The Development of Spacing and Pooling Law—The Texas Example. The Texas Railroad Commission adopted its first lineal spacing rules in 1919. 66 By 1953, the Railroad Commission had adopted density spacing, 67 which effectively prevented small tract owners from producing the oil and gas under their land unless they were able to negotiate a pooling arrangement. 68 To account for the plight of these smaller owners, the Railroad Commission began to treat each oil and gas owner as having the right to locate a well on his tract regardless of its size and offering certain small tract owners an exception to spacing rules. 69 As no small owner would drill if his production was limited to his acreage, the Railroad Commission also refused to limit small tract production. 70 However, the freedom to produce for small owners unfairly prejudiced adjacent owners in the pool; thus, the Railroad Commission adopted proration formulas to fairly allocate production among wells with a common source of supply. 71 By the early 1960s, the Railroad Commission was commonly using a proration formula for gas wells, known as the one-third to two-third formula. 72 This method meant that “[one-third] of the total field allowable must be

See Patrick H. Martin and Bruce M. Kramer, Williams & Meyers, Oil and Gas Law § 905.1 (LexisNexis Matthew Bender 2010). 66 See Ronnie Blackwell, “Forced Pooling Within the Barnett Shale: How Should the Texas Mineral Interest Pooling Act Apply to Units for Horizontal Wells?,” 17 Tex. Wesleyan L. Rev. 1, 2 (2010). 67 See id. at 3 (citing Tex. R.R. Comm’n, Oil and Gas Circular No. 11 (Nov. 26, 1919)). 68 See id. 69 See id. Mr. Blackwell notes that the Railroad Commission did not offer this exception to owners whose tract was voluntary subdivided after oil and gas was discovered, either by lease or by deed, to circumvent the spacing rules. 70 See id. 71 See Ernest E. Smith, “The Texas Compulsory Pooling Act,” 43 Tex. L. Rev. 1003, 1004 (1965). 72 See Atlantic Ref. Co. v. R.R. Comm’n, 346 S.W.2d 801, 802 (Tex. 1961). At that time, the Railroad Commission employed a “one-half to one-half” formula for oil wells. See Ronnie Blackwell, “Forced Pooling Within the Barnett

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divided equally among all the wells in the field and that [two-thirds] of the total field allowable will be divided among all the wells on a per acreage basis.” 73 Since a substantial portion of the allowable production was allocated on a per well basis, this formula inequitably favored the small tract owner. This practice continued until the methodology was challenged in Atlantic Refining Co. v. Railroad Commission.74 In that case, the appellee owned a 0.3-acre tract and obtained a drilling permit in exception from the spacing rules. 75 The appellants presented evidence to show that under the ‘one-third to two-third formula,’ the appellee would be able to produce 200 times more gas per acre than an owner of a 320-acre tract. 76 Appellants argued that in light of such evidence, “the proration rule adopted by the Railroad Commission . . . [was] unreasonable, arbitrary and confiscatory, and [did] not allow appellants to produce their fair share of the gas from the reservoir.” 77 The Texas Supreme Court held that the proration method as applied did not “afford each producer in the field an opportunity to produce his fair share of the gas from the reservoir,” as it allowed owners of small tracts excepted from spacing rules to drain well beyond their equitable share. 78 The court refrained from imposing any judicial standard beyond what was before it, but maintained that the Railroad Commission had a statutory responsibility “to devise some rule of proration which will conserve the gas in the field…and at the same time be fair and just to all parties without depriving any of them of his property.” 79 In the wake of Atlantic Refining, the Railroad Commission developed various methods to fairly allocate allowable production and most often employed a formula based solely on

Shale: How Should the Texas Mineral Interest Pooling Act Apply to Units for Horizontal Wells?,” 17 Tex. Wesleyan L. Rev. 1, 4 (2010) (citing Robert E. Hardwicke & M. K. Woodward, “Fair Share and the Small Tract in Texas,” 41 Tex. L. Rev. 75, 81-82 (1962). 73 See Atlantic Ref., at 803. 74 See id. 75 See id. at 803. 76 See id. 77 Id. at 805. 78 Id. at 811. 79 Id. at 812.

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proportional acreage. 80 Although the small tract owners continued to receive spacing exceptions, drilling on those parcels became unprofitable without an agreement to pool with the owners of surrounding tracts. 81 Thus, the plight of the small tract owner returned, as larger owners could refuse to pool and drain the oil and gas from the reservoir without compensating the small owners, who were unable to economically drill alone. 82 The legislature responded to this unjust scenario in enacting the Mineral Interest Pooling Act in 1965 to provide a procedure by which the Railroad Commission could compulsorily pool interests under certain conditions. 83 [3] — A Brief History of Statutory Unitization. While the concepts of pooling and unitization are similar, the broader scope of unitized operations is mirrored in its initial development at the federal level. The engineering industry was accustomed to the idea of unitized operation by the early 1920s; however, many credit the work of independent oil man Henry L. Doherty as the pre-eminent advocate of its benefits. 84 Despite initial opposition from much of the oil industry, Doherty diligently urged producers and lawmakers to embrace governmental involvement in oil conservation at a national scale. 85 The crux of his arguments targeted the rule of capture as a product of judicial rhetoric that incentivized inefficiency and devastated the industry and rights of owners. Doherty lamented that “[p]ractically every evil of the oil business, and everything about which the public complain, is due to the fact that oil does not follow the usual law of property rights but belongs to the man who can capture it.” 86 In response to such efforts, groups began to investigate the potential for unitization, which eventually became a well-accepted alternative to the inefficient practices Doherty
See Ronnie Blackwell, “Forced Pooling Within the Barnett Shale: How Should the Texas Mineral Interest Pooling Act Apply to Units for Horizontal Wells?,” 17 Tex. Wesleyan L. Rev. 1, 4 (2010); see also Ernest E. Smith, “The Texas Compulsory Pooling Act,” 43 Tex. L. Rev. 1003, 1004 (1965). 81 See id. at 4-5. 82 See id. at 5. 83 See id.; see also 1965 Tex. Gen. Laws 24 (current version at Tex. Nat. Res. Code Ann. §§ 102.001, et seq. (West 2011)). 84 See 1 Bruce M. Kramer & Patrick H. Martin, The Law of Pooling and Unitization, § 3.02 (LexisNexis Matthew Bender 2010) (citing R. Hardwicke, Antitrust Laws, et al. v. Unit Operation of Oil and Gas Pools 1-13 (1961)). 85 See id. 86 See id. at n.35 (citing Hardwicke at 179-90).
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until Oklahoma enacted the first statute of its kind in 1945. § 3. see. 93 As the remainder of this See id. Kramer. 343 U. 91 See generally Palmer Oil Corp. 1951).. the constitutional validity of these regulatory mechanisms is beyond dispute.02 (LexisNexis Matthew Bender 2010). 89 However. 93 See Patrick H. Kramer & Patrick H. et seq. 91 Soon thereafter.g. much of this state intervention initially focused on prorated production rather than statutory unitization. 1003–07 (Okla. 231 P. (1945). denied. § 15-72-310. Such studies were conducted in 1920s and 1930s by the Federal Oil Conservation Board. app. 90 See id. Today.2d 997. many oil-producing states followed suit and passed conservation statutes which provided for statutory unitization. Martin & Bruce M. Stat. § 3. Kramer & Patrick H. prompted broader support of the concept and increased conservation regulation of the industry. Oil and Gas Terms: “Unitization” (LexisNexis Matthew Bender 2010) (“The best results in conservation can be attained only by unitization. as well as the American Bar Association’s 1929 policy statement. both in their voluntary and statutory forms. §§ 286. 89 See 1 Bruce M. Code Ann. which offered a model unitization statute and the support of the newly-formed Interstate Oil Compact Commission. Oil and Gas Law. e. among others. 87 16 . Martin. 90 The Oklahoma Act withstood prompt challenge in the courts. Ann. Williams & Meyers. Phillips Petroleum Corp. tit.1. The Law of Pooling and Unitization. the American Petroleum Board. 1951 Ark. v.”). 390 (1952) (upholding the statute’s validity against an array of constitutional challenges)..92 As this brief historical discussion suggests. are long-standing doctrines that have been adopted by an overwhelming majority of oil and gas producing jurisdictions.” 88 These remarks. 92 See 1 Bruce M. (citing Hardwicke at 35-75). The Oklahoma statute originally codified at Okla. the public interests of waste prevention and correlative rights protection are best pursued through a comprehensive regulatory scheme that incorporates both statutory pooling and unitization. v. The Law of Pooling and Unitization. Phillips Petroleum Corp. Martin. Acts § 134 (current version at Ark. 88 See id.criticized. and the ABA’s Mineral Law Section. 52. the Federal Oil Conservation Board issued a statement. (2010)). 87 By 1926.S. et seq. authorized the Corporation Commission to unitize all or part of a common reservoir upon petition from lessees owning at least 50 percent of the interests therein. Further. pooling and unitization. prophesying that “[t]he unit idea in producing oil is bound to win out because the natural unit is the oil pool…[and unitization] means both efficiency in development and operation and the determination of equities among the owners. as the facial constitutionality was upheld in Palmer Oil Corp.02 (LexisNexis Matthew Bender 2010).

Illinois. 30 states specify different lineal or density spacing rules based on the mineral produced from the pool. Colorado.” for further discussion of each state’s spacing rules. Mississippi. Louisiana. Indiana. Oklahoma. there are 34 states which have default spacing rules of some kind written into the law.article will show. while these goals are common among the states. Florida. Arkansas. Virginia. Wisconsin. Current State of the Law—An Overview. and Utah. § 01. 95 These seven states are Michigan. South Dakota. most current spacing schemes include lineal and density spacing requirements. there is substantial variation in how each state addresses pooling and unitization and the procedural requirements each employs to effectuate a pooling or unitization order. Nevada. Today. 95 Whether controlled by statute or agency regulation. and Wyoming. This authority is typically exercised through the creation of special rules applicable to a particular pool or field or by a process by which the agency may grant exceptions for certain wells upon application. In the modern regulatory framework. 96 The four states which do not differentiate general spacing rules based on the mineral produced are Arkansas. Montana. Vermont. North Carolina. New Mexico. Missouri. Pennsylvania. Georgia. and West Virginia. Ohio. See “National Survey. Tennessee. the states which provide some level of general spacing requirements are Alabama. Arizona. North Dakota. 94 Each one of these affords the controlling agency some. 94 17 . Iowa. New York. but expressly grant full authority to an administrative entity to set unit size and setback requirements for each pool. Kansas. Alaska. the minimum distance required by lineal spacing rules and the minimum area required by density spacing rules will often vary depending upon the mineral produced and depth to which the well will be drilled and completed. 96 In addition to each imposing separate default rules for oil and gas wells. Oregon. California. Idaho. Washington. California. In addition.03. a number of states have created spacing While application varies significantly. South Carolina. Texas. Spacing rules exist in nearly every state with codified law relating to oil and gas production. Kentucky. Of the 34 states with codified spacing. seven states do not offer default spacing by statute. [1] — Spacing Rules. Ohio. Maryland. Nebraska. if not total. discretion to reconfigure spacing on a case-by-case basis. Utah.

deepening or reopening of any shallow well for the production of gas unless the proposed location of the well shall be at least [500] feet from the nearest mineral boundary of the premises upon which such well is to be drilled. . Kentucky.510(15) (defining “shallow well” as “any well drilled and completed at a depth less than [4. These regulations provide for density spacing of deep wells based on the depth of the target formation.”). deepening.500 feet if the well is to be drilled to a depth less than 7. and West Virginia. Except as provided [by exception or special order]. and. Stat. a permit applicant must supply a plat aligned with the Commission’s default density rules: If a permit is requested for a deep gas well . Pennsylvania. § 353. the proposed location must be at least [1. the proposed location must be at least [660] feet from the nearest oil producing well.000] feet or above the base of the lowest member of the Devonian Brown Shale. 97 These rules will often be further differentiated based on the depth of the producing formation. see also id.laws particular to coalbed methane wells.000 feet and with sides of 5.000] feet except. § 353. 98 The Kentucky conservation statute sets these differing lineal. whichever is the deeper in depth. unless the proposed location of the well shall be at least [330] feet from the nearest mineral boundary of the premises upon which the well is to be drilled. Illinois. Maryland. deepened or reopened.000 feet if the well is to be drilled to a depth of 7. no permit shall be issued for the drilling. Statutory spacing for coalbed methane wells exists in the following states: Alabama. This subsection shall not be construed to regulate the distance between wells which do not produce gas from the same pool. or reopening of any shallow well for the production of oil. shallow well spacing requirements based on the mineral produced and directs the Oil and Gas Conservation Commission to create spacing rules applicable to deep wells via its permitting process. and.000 feet or more. Colorado. Indiana. 98 See Ky. in the case of any well drilled and completed east of longitude line 84 degrees 30’. . no permits shall be issued for the drilling. Rev. 97 18 . Ann.610 (LexisNexis 2011) (emphasis added). Virginia. First. deepened or reopened. This subsection shall not be construed to regulate the distance between wells which do not produce oil from the same pool.000] feet from the nearest gas producing well. the application shall include a plat showing a proposed unit comprising a square with sides of 3. shallow well means any well drilled and completed at a depth less than [4. The general spacing rules in Kentucky exemplify an encompassing framework that shows all levels of distinction: Except as provided [by exception or special order].

If an exception is necessary due to topographical or geological conditions. 99 In addition.750 feet if the well is to be drilled to a depth of less than 7.000 feet may be located no closer than 438 feet to the boundary of the proposed unit. and no deep oil well drilled to a depth of 7. Commission regulations state that if a permit is issued by the Commission to allow deviated drilling.000 feet shall be located within 1.000 feet may be located no closer than 875 feet to the boundary of the proposed unit.” 100 Further. 102 Id.000 feet shall be located within 536 feet of the boundary of the proposed unit. “no deep oil well drilled to a depth less than 7.” 101 Rather unique to Kentucky law is the caveat that the Commission may grant exceptions to spacing only to a certain extent. the proposed unit plat shall comprise a square with sides of 1. Admin. Id.000 feet or more may be located no closer than 1.If the permit is for a deep oil well. 100 19 .” 103 99 805 Ky. Regs. the well location remains subject to the following absolute set-back spacing limitations: (1) A deep oil well at a depth less than 7. the regulations provide lineal spacing rules in requiring that “no deep gas well drilled to a depth less than 7.072 feet of the boundary of the proposed unit. (3) A deep gas well at a depth of less than 7. (2) A deep oil well at a depth of 7.000 feet and 2.500 feet if the well is to be drilled to a depth of 7.532 feet of the boundary of the proposed unit. 103 Id.000 feet or more may be located no closer than 625 feet to the boundary of the proposed unit.000 feet or more.250 feet to the boundary of the proposed unit.000 feet or more shall be drilled within 1. the “bottom hole location or objective shall comply with all minimum distances from unit lines as prescribed by all statewide orders or special field rules. 1:100 (2011) (emphasis added). 102 Kentucky does not provide distinct distance requirements for horizontal oil and gas wells. 101 Id. and no deep gas well drilled to a depth of 7. (4) A deep gas well at a depth of 7.000 feet or more shall be drilled within 766 feet of the boundary of the proposed unit. However.

Additionally. under certain conditions. These spacing rules are particularly important in shale drilling regions which also have substantial coal production. although field. Pooling and unitization are often discussed interchangeably.” 104 For horizontal coalbed methane wells. many states contain laws allowing pooling or unitization of tracts and interests for the development of oil and gas. and almost all states that have statutes providing for one have 104 105 Ky. spacing can be done on a field. Ann.500] feet horizontally from the nearest coalbed methane well. Regs. Rev. Exceptions to lineal and density spacing requirements can. 805 Ky.Yet another wrinkle in Kentucky spacing laws are specific lineal requirements for coalbed methane wells. Admin. these agencies often have the discretion to grant exceptions to the general spacing rules. the foregoing well spacing standards from Kentucky are referred to as state-wide spacing rules.or reservoir-wide basis via these same means. and offer a good example of the various conditions upon which states may allow for alteration or deviation from the standard spacing requirements. For example. 20 . Unless the proposed well is granted an exception or pursuant to a voluntary pooling order. [2] — Pooling and Unitization. 105 Well spacing is done on a state-wide basis by statute or by agency rule or order.and reservoir-wide rules are frequently left to the technical expertise of administering state agencies and are determined in the agencies’ discretion. drawn around the intersection length with regard to the spacing requirements” shown above. be granted on a well-bywell basis.075 (LexisNexis 2011). a permit applicant must provide a survey which shows “a dashed line . Also. In addition to spacing provisions. “no permit shall be issued for a coalbed methane well unless the proposed location of a vertical well shall be at least [750] feet horizontally from the nearest mineral boundary upon which the well is to be drilled and the proposed location shall be at least [1. The spacing laws in Kentucky are more detailed than most in the region. Stat. 9:070 (2011). . § 349. .

Code § 9-17-81 (2010). such statutes provide for issuance of an administrative order. the owners or operators must file an application with the board containing a plan including the information required by statute along with appropriate bond and often a degree of approval among interest holders. or at least guided. 107 See. The procedural mechanisms for setting up such group development is generally the same—i. they outline the procedure to give notice to the other interested parties and to hold a hearing on the application for statutory pooling. In many states. such as formation of a spacing or drilling unit that contains two or more separately owned tracts or interests..” for further discussion of each state’s pooling and unitization laws. as previously mentioned. they set out a procedure to apply to the state conservation agency for the desired order.g.” for further discussion of each state’s procedural requirements for statutory pooling and unitization. Finally. Oklahoma. Louisiana.g. Ohio.e.statutes that provide for both. Fourth. see “National Survey. 107 While voluntary agreements have issues of their own—e. and South Dakota. Ala. must the agreement be ratified by 100 percent of the unit’s ownership?— Among states that have both statutory pooling and unitization are Alabama. to apply for a statutory pooling order. and who have standing. Kentucky. by statute or rule. Pooling orders issued by state boards are generally the result of a petition filed either by an interested party or upon a board’s own motion. 106 21 . Arkansas. they have provisions which lay out the prerequisites that must be met before statutory pooling can be invoked. Second. statutes often contain provisions identifying or establishing the parties who are authorized. First. in the absence of a voluntary agreement. Most modern statutory pooling statutes usually have five major elements. although owners or operators may also pool their interest by way of voluntary pooling agreements. In other states. 106 Most states have regulatory bodies (herein generically referred to as the “board” or “boards”) which may compulsorily pool interests in a drilling unit. Third. e. see also “National Survey. they are left largely to the discretion of the conservation agency.. Florida.. those terms are established. North Dakota. which either denies the application or sets out the terms upon which statutory pooling is granted.

108 In most cases. Arizona. this written authorization must take place within a set number of months from the date the order was issued or the order will be automatically revoked unless that time allowance is extended.statutes allowing for statutory pooling orders contain many provisions. a provision requiring the operators or owners of a minimum percentage of interests responsible for costs and of a minimum percentage of all interests entitled to royalty payments to ratify or approve in writing the order promulgated by the board. Statutory pooling orders generally must be approved by the state board. South Carolina. 109 The vast majority of these. Florida. the minimum operator control provision often dictates that unless a requisite percentage of operators or owners authorize or ratify in writing the unitization order. see W. West Virginia’s approval requirements pertain only to unitization of secondary recovery oil wells. Of the 33 states that have statutory unitization. discussed below. 29 require some form of written authorization by holders of certain types of interest in the unit to satisfy the minimum control requirements. Far more states only contain these minimum operator or owner controls with regard to unitization orders. A few states also contain minimum operator or owner controls for pooling orders—that is.” for further discussion of each state’s minimum control requirements. and West Virginia. California. New Mexico. Va. 109 108 22 . Tennessee. North Dakota. Oklahoma. The percentage varies between states. Mississippi. Georgia. Code § 22C-9-8(a)(4) (2011). but usually it is the same percentage within a particular state as to both the working interest group and the royalty See “National Survey. New York. Oregon. Vermont. Louisiana. 25 states. Utah. Washington. that order will not become effective. which naturally provide some variety among states. if any. Missouri. Nebraska. Ohio. For states with statutory unitization statutes. Nevada. as well as approval by owners entitled to royalties or by owners of similar proceeds from production free of costs (both groups herein collectively referred to as the “royalty group”). varies by state. These states are Alabama. The relevant percentage. Michigan. Montana. Colorado. Kansas. Arkansas. require authorization by both owners of a percentage of working interest or by those responsible for costs (both groups herein collectively referred to as the “working interest group”). Kentucky. Illinois.

North Dakota. and Oklahoma).. California.5 percent (Nevada). the state board may issue an order for unit operations. Similarly. 114 Those states are Montana. see Ky. or it may be that E. Nebraska. South Carolina.M. Colorado.652(1)(d) (LexisNexis 2011). New Mexico. Kentucky. 114 The statute may or may not specify that the other interest holder must be unaffiliated with the majority holder. 115 N.67 percent (Alabama). § 353. 113 A handful of regulatory unitization structures are unique in that. Washington. Va. Louisiana. Ann. Kentucky’s approval requirement appears to pertain only to deep wells. § 55-1317(b) (2010). 116 In the absence of such approval.. Illinois and Kentucky. and West Virginia. Code § 22C-9-8(a)(4) (2011). Georgia. 111 110 23 . they also dictate that if one interest holder has enough interest to approve the order. Michigan. Oregon. and South Dakota). New Mexico. one has 62. The percent of approval required then depends upon the reason for the order—i. one state. at least one other interest holder must vote in favor of the order for it to become effective. Florida. it may be due to low production and imminent abandonment of wells in the unit area (in which case only 63 percent of both groups must authorize). Montana. and one has 66. although they require a certain percentage of approval. Kansas. 116 Kan. see W. § 70-7-8 (2011). Missouri. it ranges from as low as 51 percent 110 to as high as 80 percent. 111 Sixteen states contain 75 percent approval requirements for at least one group. 113 Four have 60 percent requirements (Montana. yet holds less than 100 percent of the interest. and North Dakota. Stat. E. yet holds less than 50 percent of the interest. Stat. 115 Kansas has a noteworthy structure. which allows for “voluntary” unitization so long as all mineral and royalty owners and not less than 90 percent of the working interest holders approve the voluntary unitization agreement.group. two have 65 percent (Nebraska and Ohio). Ann. at least one other interest holder must also vote to disapprove the order. Rev. Stat.g.g. West Virginia’s approval requirement pertains only to unitization of secondary recovery oil wells. New York. 112 while 11 states provide numbers between 60 percent and 66.e. three have 63 percent (Arizona. 112 These states are Arkansas. Ann.67 percent. Kansas. requires that if one interest holder has enough interest to defeat the order. New Mexico..

and Tennessee. West Virginia requires that approval be shown prior to the issuance of any unitization order for secondary recovery oil wells. Michigan. see N. Ohio.unitization is merely feasible and would increase ultimate recovery of oil and gas (in which case 63 percent of the working interest group and 75 percent of the royalty group must authorize). South Carolina. see 58 Pa. Kansas. Oklahoma. require approval to be shown at the time the application for unitization is submitted to the board. 121 States that give the non-consenting owner several statutorily-available participation options include New York. The states that provide for transfer of the non-consenting party’s working interest vary as to whether the surrender of that interest is permanent or only until the owner’s share of costs. Oregon. 120 Mississippi provides 12 months to show the requisite approval. 117 Of the states with minimum operator controls. Oklahoma. North Dakota. New York. § 408(c) (2011). For example. Nevada. Conserv. Id. opting instead to receive a one-time per-acre bonus and a fair royalty payment. 119 These states are Kentucky. Arkansas. Michigan. and West Virginia. Code § 22C-98(a)(4) (2011). which is generally a one-eighth percentage of the owner’s share of production. and Pennsylvania. 21 states specify by statute when the requisite authorization must be secured. 122 Sometimes. 119 and one state provides 12 months. see W. 122 States that are either silent as to participation or merely state that the board must provide “just and reasonable terms and conditions” for participation include Georgia. §§ 55-1304. however. These states are Alabama. Law § 23-0901(3)(c) (McKinney 2011). 118 Almost unanimously. Arizona. Tennessee. states give six months to obtain approval of the order to satisfy the minimum operator control requirement. Oregon. Va. Another common royalty level is a one-eighth percentage or the lowest royalty provided by contract in the pool. Illinois.Y. Tennessee. Envtl. Georgia. have been recovered out of production. Florida. non-consenting interests may participate in unit development. -1305. whichever percentage is greater. Kentucky. Three states. Mississippi. The options available vary by states—some statutory schemes provide multiple avenues of participation. 118 117 24 . 121 while others offer little guidance on how to treat non-consenting interests. 120 Many states provide statutory options by which unleased. a non-consenting owner is given the statutory right to lease or otherwise relinquish its interest. and West Virginia. Colorado. Stat. or share of costs plus a penalty fee as discussed below. South Dakota.

the incentive to participate up front increases. carried participants. Owners who are statutorily entitled to be carried as a free ride have no incentive to participate up front when they may instead pay over time out of production with no interest charges and no risk penalty. This is a majority approach in which the statutes convert the unleased owners’ interest into a one-eighth royalty interest and a seven-eighths working interest and fit those interests into the states’ statutory structure for participation. owners in some states may elect to participate upfront by paying for their portion of drilling and operating costs at the outset of operations and sharing in the risk and rewards with other operators.Instead of leasing. New York. Iowa. Louisiana. some states provide the option for the non-consenting party to have its financial contribution carried. but only so long as the well is likely to produce and provided that the owner has the capital to participate. electing varying options to finance those interests. thus if drilling results in a dry hole or marginal producer. For owners subject to a substantial risk penalty. Utah. 125 Finally. allowing owners to be carried without paying a risk penalty. 125 States that allow risk penalty charges include: Colorado. Arizona. although the owners’ royalty entitlements may be exempted from this recapture. Texas. 124 Operators may not sue these carried non-participating owners for recovery of their proportionate costs of drilling and operating but may only recover said costs from the proportionate share of production. Nebraska. Nevada. 123 At one extreme. and West Virginia. Indiana. Alaska. other operators will pay the carried owners’ costs and in return will be reimbursed from the proceeds of the carried owners’ portion of production. the non-consenting owners are not subject to risk. For owners who cannot afford to pay the cost initially. 124 will be charged a “risk penalty. some states allow “free rides” to nonconsenting owners. who are not vulnerable to the risk of drilling a dry hole. by the other working interest owners. Missouri. 126 These states are Alabama. Florida. Generally.” a fee that can be as much as double or triple the actual prorated cost of drilling. 126 The various schemes of working interest participation provide different incentives to nonconsenting owners in deciding whether to join a voluntarily pooling agreement. North Carolina. or financed. Montana. New Mexico. while often allowing the owner to continue to receive their royalty entitlement. and North Dakota. many states allow the owner to retain their working interests. 123 25 . In those situations.

. § 78. Washington provides non-consenting owners with several options once a statutory pooling petition has been filed. e. for example. See. Miss. 129 The unleased owner can be treated as both royalty owner and working interest owner. § 53-3-7(2)(a) (2011). in which case. 130 For the working interest share.Also.250(4) (LexisNexis 2011). 26 .52. Rev. W. the remainder is treated as a working interest. allowing operators to charge more in costs if they can show they have provided the non-consenting party with the option to participate. e.g. with the possibility of a royalty greater than one-eighth should the leased royalty owners in the pool have higher royalties. In lieu of direct entitlement. Code Ann. some statutes that provide for the option to carry or otherwise finance nonconsenting. 128 The State of Washington provides a comprehensive example of statutory treatment of unleased mineral owners. thereby exposing the operator to increased risk. but instead incentivize the giving of options by. Additionally. with a stated number of days within which the operator must respond before he or she will be automatically considered to have chosen the default election option.52. however. Va. the usual options are available.250(4)(a). Code § 22-8-11(e) (2011). unleased owners fail to express that the operator is entitled to retain working interest revenue from production to recover well costs. including the right to participate and pay pro rata costs and the right to be carried until payout with an appropriate risk 127 128 See. Some states require the pooling order to include an offer to the non-consenting owners of their option to elect.. § 78. 127 Other states.g. states differ on whether providing options or offers to the non-consenting owners is a prerequisite to pooling. 130 Id. Code Ann. 129 Wash. The first option is a modified seven-eighths to one-eighth option. do not require the pooling order to set out the options available. those statutes give the well operator a lien on the non-consenting owner’s share of production until such time as the non-consenting owner’s share of costs has been recouped.

§ 78. § 78.52.52. 133 The owner would resort to this last option only if the prospects for a very profitable well are high and he or she can afford to participate in drilling costs. § 78. 27 . Protections against unfair leasehold provisions are written into the statute so that the operator cannot force the unleased owner to accept unconscionable terms. The final option allows the unleased owner to treat his or her entire interest as a working interest. certainty is unlikely in most instances as the operator may redesign a unit to avoid having unleased parties gain such economic benefits. Status of Pooling Statutes in Appalachian Shale States. New York. in addition to these states.penalty. The Washington provision also states that if the unleased owner does not make an election within 15 days. he or she is to be treated as having opted for the seven-eighths to one-eighth choice.250(4). 132 This option may be attractive if the lease bonus in the area is high and the unleased owner will not be able to participate financially as a working interest owner. 134 Id. 133 Id. The second option authorizes the unleased owner to grant a lease to the operator at the current market price for comparable leases. The current major horizontal shale development areas in Appalachia are Maryland. or both.52. § 01. Each of these states has adopted conservation 131 132 Id. however. These rights can include requirements that the oil and gas operator notify the relevant entities of pooling hearings and perform surface reclamation. within the pooled acreage. 134 Another difference among the states is that some statutes and regulations provide other rights to the individuals or entities who own either the surface or the coal seams.250(4)(b). Pennsylvania.52.250(4)(c). § 78. and West Virginia for Marcellus Shale development and.04.250(2). Id. and also allow objections by those entities regarding spacing and well location. Ohio for Utica Shale development. 131 This scheme may present a better option than leasing if an owner knows his or her tract will be part of a unit which will ultimately be pooled through the statutory process.

but there has been little indication from Maryland that the issuing of permits is likely before the study is completed.ok. Order No. 26. 01. imposing a 1. whether contained within the statute itself or in the utilization or application of the statute for horizontal shale development. 140 See Md.governor.01. called the Marcellus Shale Safe Drilling Initiative. even though voluntary pooling and unitization for mutual benefit are acknowledged by statute. unless the owners of adjacent lands have Each of these states are also members of the Interstate Oil & Gas Compact Commission which serves as a vehicle to assist member states to efficiently maximize oil and natural gas resources through sound regulatory practices while protecting the nation’s health. 135 28 . 2011) available at http://www. 138 In addition to the issues associated with this order and its impacts.” 139 The DOE is not authorized to order statutory pooling or unitization.” See http://iogcc. and West Virginia. Pennsylvania. the DOE. “may not prorate or limit the output of any gas or oil well.000-foot setback between gas or oil wells and boundary lines. In early June. an executive order was issued by Maryland’s governor requiring the Maryland Departments of the Environment (“DOE”) and Natural Resources to conduct a study. § 14-103(LexisNexis 2010). the Initiative will study spacing and other rules and regulations impacting oil and gas development. Code Ann. safety and environment. These issues are discussed and summarized as follows: [1] — Maryland.maryland. 136 The final results of that study are not due until August 2014.09(J) (2010) (defining “pooled unit” as “an area within which permittees of different tracts in the area have voluntarily agreed to participate in a well drilled within the unit”). 138 Id. Maryland law does contain linear spacing rules. on the impacts of natural gas drilling in the Marcellus Shale.11 (June 6. waste prevention and protection of correlative rights are primarily sought through spacing requirements. the “2004 Model Oil and Gas Conservation Act. New York.statutes. a key difficulty that Maryland oil and gas law presents for shale gas developers is the lack of a statutory pooling statute. Besides environmental issues. the state regulatory body..asp.e. i. 137 The order is not a moratorium on permits being issued.. Indeed.2011. 139 Md. Code Regs.gov/documents.01. 135 Notwithstanding the adoption of relatively comprehensive statutes by Ohio. 137 Id. Envir.state.us. 140 For those reasons. 2011. each state has unique problems.19. The IOGCC has drafted a model statute for conservation. 136 Exec.

Envir.19. 148 The Department of Environmental Conservation. 145 Id.. § 14-112(a)(2). 144 N. 26. Id. after notice and hearing. 149 Id. § 23-0301. technical justification for the alternative. § 23-0501(2). 142 Additionally. § 23-0503(2).000 feet of the proposed well location by registered mail. 147 Any party who applies for an oil or gas drilling permit must control. 148 Id. the DOE has discretion. 143 Md. 146 The spacing rules differ for oil and gas wells and are based upon target formation and upon direction. 149 Prior to issuance of a permit. either by ownership.Y. they contain both lineal and density spacing requirements. 144 unless the unit otherwise meets the state policy objectives 145 of waste prevention. and protection of correlative rights. as well as both voluntary and statutory pooling and unitization provisions.150 All comments and challenges must be received within 30 days of the notice and must include proposed alternative spacing units. Code Ann. All wells in the state must be drilled in conformity with the spacing requirements. Conserv. voluntary agreement. Code Regs. or departmental integration order.01. The unit must also either adjoin other units or leave enough space so that additional units may be developed. the Department must publish notice of intent in the Environmental Notice Bulletin. § 23-0503(2). to allow drilling within the statutory limits if doing so is necessary due to site constraints and if the applicant has notified all landowners and royalty owners within 2. 143 [2] — New York. § 23-0503(3)(a). 147 Id.consented to the spacing in writing. § 23-5301. 29 . 150 Id. New York law contains spacing rules.09(D) (2010). and the contact 141 142 Md. Law § 23-5301 (McKinney 2011). 141 The DOE has the authority to prescribe the setbacks between any wells located on the same property. Envtl. the governing body. 146 Id. not less than 60 percent of the acreage in the proposed spacing unit. § 14-112(a)(1) (LexisNexis 2010). must issue permits if the proposed spacing unit conforms to spacing rules and if it is approximately uniform in shape compared to other units covering the same reservoir. increased recovery.

§ 23-0503(3)(d). § 23-0901(3). § 23-0901(3)(c). 151 If either no challenges are submitted or no submitted challenges raise substantive issues. 152 If significant issues were raised. § 23-0901. after notice and hearing. 156 Id. 155 Id. 154 Id. 160 Id. 162 151 152 Id. Id. 158 Before requiring such an order. the Department will schedule a hearing on the matter. § 23-0701(1). 159 If the operator does not control all of the interests within the unit. 30 . 161 Id. the Department must find. the operator must retain the royalties due to said unlocated owners in an interest-bearing account until the owners are located or the property is deemed abandoned. 160 The uncontrolled owners are entitled to 30 days’ notice prior to the integration hearing. 159 Id. § 23-0503(3)(c). 157 In the absence of voluntary agreements to integrate interests within a drilling unit. 153 Id. the Department may mandate pooling or unitization. either by lease or agreement. 162 Id. 153 As previously noted. Voluntary agreements may be submitted to the Department for approval as being in the public interest or as being reasonably necessary to prevent waste. § 23-0901(3)(c). 161 If those owners are unknown. however. 158 Id. 157 Id. then the Department will issue the permit. § 23-0901(2). § 23-0701. that the order is necessary to carry out the previously mentioned state policies. the Department must schedule an integration hearing to determine whether integration is in the public interest and necessary to prevent waste. New York allows both voluntary 154 and statutory 155 pooling and unitization. § 23-0701(1). 156 which approval provides a blanket defense to lawsuits alleging violation of any trust or monopoly laws in the operation of the unit.information and experience of any witness who supports the alternative. but the Department grants a spacing unit.

171 which approval must be shown within six months of the issuance of the order or it will become ineffective. but not less than one-eighth of the owner’s share of production. Once the operator has recouped the portion of the owner’s costs for the well plus a risk penalty. the owner is then entitled to his or her full share of the production attributable to his or her proportionate interest. 166 An “integrated royalty owner” is an owner who chooses to be an integrated royalty owner or who does not choose to operate as either of the previously discussed options. 166 The uncontrolled owners have 21 days after receipt of notice within which to indicate to the Department the type of ownership status they will elect. after notice and hearing. § 230901(3)(a)(1). An “integrated participating owner” or “participating owner” is a party who chooses to participate in the initial well. 165 or as an integrated royalty owner. which is equal to 200 percent of the share of the actual well costs allocated to the owner. Id. 169 Id § 23-0901(4). 172 Id. 170 Id. § 23-0901(7)(a). § 23-0901(3)(c)(1)(i). § 23-0901(3)(a)(2). but will have no obligation to the well operator for other charges or fees. id. 169 The same policies regarding waste prevention and protection of correlative rights are to be considered. § 23-0901(6). Id. 173 though only approval of affected interests will be required. 165 An “integrated non-participating owner” or “non-participating owner” is an owner who chooses to reimburse the operator from production proceeds for the owner’s proportionate share of the costs of the well. due to the virtual moratorium in recent Id. upon its own motion or after application is filed by an interested person. § 23-0901(3)(a)(3). 174 Id. Yet. and comply with any and all requirements for participation. 167 and otherwise the default election status is that of an integrated royalty owner. 167 Id. 172 Orders may be amended in the same way and are subject to the same conditions as the original orders. Id. 171 Id. 173 Id.An election form for uncontrolled interests must accompany the integration hearing notice. 168 Id. § 23-0901(2). pay the costs associated with participating up front. the owner will receive a royalty equaling the lowest royalty of the existing leases in the unit. § 23-0901(3)(c)(2). § 23-0901(7). 163 The options available to such owners include integration as an integrated participating owner. 168 The Department may also order integration. 170 Unitization orders must have the written approval of 60 percent of the working interests and 60 percent of the one-eighth royalty interests in the unit area. Id. § 23-0901(3)(a)(1). § 23-0901(3)(c)(1). 174 The foregoing shows that New York law provides relatively modern procedures that should promote horizontal shale development. 164 as an integrated non-participating owner. 164 163 31 .

months on hydraulic fracturing in New York which prevents horizontal shale development. which would protect the sensitive watershed areas while allowing for development of approximately 85 percent of the Marcellus Shale underlying New York lands. Conservation (June 30. 175 Those recommendations include the following: (1) High-volume fracturing would be prohibited in the New York City and Syracuse watersheds. and (5) DEC will issue regulations to codify these recommendations into state law. The statute provides exclusive permitting and spacing authority to the Division of Mineral Resources Management of the Department of Natural Resources. While Ohio’s statute can be used for pooling in all active shale plays.html. whether New York’s statute will be entirely satisfactory in the long term to address the unique challenges associated with horizontal drilling is still unknown. § 1509. [3] — Ohio. 178 Id. 177 Ohio Rev. the Department issued recommendations on mitigating the environmental impacts of high-volume hydraulic fracturing. the statute has been rendered moot.ny.” N. In late June of this year. created by statute to allow those adversely affected by an order to appeal to the Commission. including a buffer zone. http://www.Y. (3) Surface drilling would be prohibited on state-owned land including parks.02 (LexisNexis 2011).dec. forest areas and wildlife management areas. such as the Utica. “New Recommendations Issued in Hydraulic Fracturing Review. (2) Drilling would be prohibited within primary aquifers and within 500 feet of their boundaries. 178 Applications for drilling permits may be denied by the Chief if he determines there is substantial risk that the drilling will violate statutory provisions or that the drilling will See Press Release. 177 The Chief of the Division administers the rules. 176 Id. § 1509. of Envtl. 176 Because these recommendations have not been finally adopted and implemented. Dept. 2011).35.gov/press/75403. The Oil and Gas Commission is strictly an appellate body. (4) High-volume fracturing will be permitted on privately held lands under rigorous and effective controls. procedural issues exist. Code Ann. 175 32 .

units must comply with the boundary set-offs of the general spacing rules. § 1509. rather uniquely. the attorneys. Code Ann. If the information is complete in an application for a pooling order. in order to accommodate horizontal shale well drilling. Code 1501:9-1-04 (2011). Additional meetings are at the request of its chair or two of its members. several horizontal wells have been permitted and drilled without any request for special field rules. special field rules may be necessary. longer notice requirements are imposed and more site review is conducted. 182 Id. 183 Ohio Admin. In the absence of field rules. even for units of larger size. and all landowners in the area to be encompassed in the drilling unit of the date of the hearing in front of the Technical Advisory Council (“TAC”). neither do they differ based upon direction of drilling. In fact. 186 The TAC will recommend approving or denying the application based on the information presented in the application and at the hearing. 33 . § 1501:9-1-02(H). information presented at the hearing and the TAC recommendation and determine whether 179 180 Id. 186 Id.25.put public health and safety or the environment in imminent danger. The Technical Advisory Council on Oil and Gas was created under Section 1509. 181 Id. 185 Also. 182 The rules distinguish between the depth to which the well is drilled and include both linear and density spacing rules. the Chief will notify the applicant. wells may not “vary unreasonably from the vertical drawn from the center of the hole at the surface. 183 The rules.06(H).27 (LexisNexis 2011). although to date. The Chief will review the application. 184 Id. Id. § 1509.” 184 Pooling applications may be made to the Division for a mandatory pooling order. 180 Ohio contains spacing requirements that are set by rule. as the current spacing rules may not be adequate.06(F). § 1509. Ohio regulations provide that unless approval is given by the Chief. 181 The Chief is permitted to issue special orders providing for spacing over a pool or field. § 1509. but such requests have not been used in at least 25 years.38 of the Ohio Revised Code and consists of eight members appointed by the Governor and meets at least once a calendar quarter. 179 For permits requested in an urbanized area. § 1504. 185 Ohio Rev. do not distinguish based upon mineral produced.

and is not generally applicable to pooled units. 34 . However. involving the use of multiple wells in the unit.28(A)(1). 187 The order will specify the process whereby any party to the order may appeal the Chief’s decision to the Oil and Gas Commission. § 1509.188 For owners who do not elect to participate in the risk and cost of drilling. each 187 188 Id. 190 Id. applicants who pay for a non-participating owner’s portion of costs are entitled to the non-participating owner’s share of production. those owners will be designated non-participating owners on a limited or carried basis.27(F).28(A). will hold a hearing to decide if a need exists for the operation of the pool as a unit. either by his own motion or by application of 65 percent of the owners of the land overlying the pool. the Chief. 191 Id. this could be applied in circumstances involving the use of multiple horizontal boreholes but is better suited for its primary purpose.28(A). For example. then. § 1509. 190 This provision was intended for application in secondary oil recovery operations. Ohio’s statute is a relatively generic and comprehensive one. § 1509. 192 Id. exclusive of the royalty interest due. the major issues with this statute and its application are procedural.mandatory pooling is necessary to protect correlative rights and to effectively develop the mineral resources. § 1509. § 1509. 189 As for unit operation of a pool. the total amount of which may not exceed 200 percent of the owner’s share of charges.36 189 Id. 192 As the foregoing indicates. 191 These orders must also contain provisions providing for costs and potential financing options for owners unable to meet up-front costs. The Chief should enter the order if it finds that unit operation is reasonably necessary to increase substantially the ultimate recovery of oil and gas and that the added value likely will exceed the added costs. until the applicants have been reimbursed the costs expended plus an added percent of the owner’s share as the Chief may determine. Id. efficient utilization of secondary recovery technology in oil fields. it will enter an order. Potentially.

The Oil and Gas Act is meant to allow for responsible development of Pennsylvania’s oil and gas resources and does not restrict its application to any depth.entity is limited to five pooling applications per year. includes spacing designed to protect coal resources. 198 Id. §§ 601. [4] — Pennsylvania. and the TAC generally meets only once per quarter. unless further applications are authorized by the Director. §§ 401-419.101-. § 601. § 512.”). 199 Id. 195 Id.. it is unknown whether Ohio’s statute will be entirely satisfactory in the long term to address the unique challenges associated with horizontal drilling. 194 193 35 . 198 The Coal and Gas Coordination Act requires coordination between gas and coal operators 199 and applies to all gas wells which penetrate a workable coal seam. 197 The Department of Environmental Protection (“DEP”) is the regulatory body with authority to carry out the provisions of each act. § 1509. (Pa. 197 See S. 2011. § 503(a). The Conservation Law provides the DEP with authority to provide for the integration or communitization of interests Id. §§ 501-518.102. 2011). 201 Id. however. 201 The Conservation Law is the only act of the three that provides for unitization. 193 In addition to these procedural restrictions. 195 and the Coal and Gas Resources Coordination Act (“Coal and Gas Coordination Act”). Sess. § 503(b). Pennsylvania has three statutes that address oil and gas production: the Oil and Gas Act. Stat. 196 Id. 58 Pa. 194 the Oil and Gas Conservation Law (“Conservation Law”).605 (2011).27. 200 The Coal and Gas Coordination Act. does not apply to gas wells permitted under the Conservation Law or to oil wells. § 502 (defining a “workable coal seam” as “a coal seam identified …as capable of being mined by underground methods. 196 which was recently amended by Pennsylvania Act 2 of 2011 (“Amendment”). effective May 13. because the Utica is a recent horizontal shale development play. 200 Id. 265. as amended. Reg. the Coal and Gas Coordination Act. Assemb. see also id. and while none of the three Acts address traditional oil and gas spacing. 2011 Gen.

and the record owner or operator of all known underlying workable coal seams. 7.201(c). For those operators seeking an initial drilling permit in Pennsylvania. § 403(b)(3). 210 The orders must. however. Stat.state. under the Conservation Law. 211 Id. 203 202 36 .201(b). any wells that exceed a depth of 3.201(b) (2011).” W.800 feet beneath the surface. 206 58 Pa.” Ohio Dept. § 403(b)(1). 211 The location of permitted wells subject to the Conservation Law must be at least 330 feet from the nearest outside lease Id. they must provide the DEP with their application. 2011). in those areas in which the Onondaga horizon is nearer to the surface than 3. spacing or unit orders can be created by the DEP. 203 The Marcellus shale sits just above the Onondaga limestone formation. which is older than the Devonian.aspx (last visited Jul. surface owners and water purveyors whose water supplies are within 1.htm. § 405(c)(1)(iv).000 feet of the proposed well location. specify the minimum distance from the nearest spacing unit boundary.800 feet. § 601.within a drilling unit 202 to prevent waste. The location of any wells drilled subject to the Conservation Law must conform to any applicable spacing or pooling orders issued under the Conservation Law.edu/mar/marfaq. Geological & Economic Survey (Jan. 210 Id. 205 is covered by the Conservation Law. it only applies to wells that penetrate the Onondaga horizon or.us/geosurvey/tabid/23014/Deafult. http://ims. Id.dnr. Resources Div. 205 “Marcellus and Utica Shales Data. 208 Id. 206 each of which are entitled to a copy of the plat 207 and who have 15 days within which to file an objection. of Geological Survey http://www.wvgs. § 601. 209 Id. 204 so it is not covered by any statutory pooling provisions in Pennsylvania. 18.wvnet. Va.oh. when created. 207 Id. 208 The application must also state whether the well will substantially deviate from the vertical and which workable coal seams underlie the tract to be drilled. the Utica. 209 No spacing rules exist in Pennsylvania under any of the Acts. of Nat. § 407. which is deeper. § 601. in which the Marcellus Shale is found). 204 “Marcellus Shale FAQ. However. 2011) (stating that the Utica Shale was of the Ordovician age. which includes the names of all affected surface owners.

gas.” which are defined as the area of a well pad intended to host multiple horizontal wells (and can be no larger than 5.000-foot spacing requirement. which does not apply to wells subject to the Conservation Law or oil wells. 215 Thus. the DEP can grant an exception to the 1. 216 Id. 215 Id. This change resolves the uncertainty under the prior Coordination Act as to whether the 1.” which is defined as not including oil.000 square feet). 216 The 5. multi-well horizontal well pads used in Marcellus shale drilling were at risk because a coal seam owner could arguably object to the drilling of such wells due to the close spacing of the wells on the pad. or injection wells that do not penetrate a workable coal seam. Rather. or injection wells that have been plugged. they cannot agree to any distance less than 900 feet.000-foot spacing rule. and storage wells. 58 Pa. 212 The Coal and Gas Coordination Act. gas. depending on how an operator spaces its wellbores. as amended. 25 Pa. prior to the Amendment of the Coordination Act. while the applicant and the coal seam owner may consent to waive the 1. which requirement may be waived if landowners outside that area have entered into a voluntary pooling agreement or if the DEP grants an exception to the requirement.000-foot spacing between “well clusters. nonproducing oil or gas wells drilled and abandoned prior to 1955.000-foot 213 212 37 . 214 However. oil. Code § 79. The Amendment makes a major change with respect to spacing in that it provides for 2. the Coal and Gas Coordination Act set forth that no permits for gas wells subject to the Coal and Gas Coordination Act may be issued unless the proposed gas well is not less than 1.000 square feet limitation may or may not be prohibitive. contains spacing rules which were not enacted under traditional oil and gas concepts.boundary. Stat. § 507(a) (2011). § 407(6).000 feet from any “other well.000 feet or more from the producing formation of any other well and if the applicant and coal owner have consented in writing. Prior to its amendment. 213 Further. these were enacted to limit the number of wells drilled through coal seams and thereby protect coal reserves. § 507(c). 214 Id. where the producing formation is a vertical distance of 1.11(b) (2011). § 507(b).

Sess. Stat. 217 The Amendment expands the definition of “active coal mine” to include “the area of the workable coal seam which may reasonably be expected to be mined and permitted for mining by the operator during the five-year period beyond the projected completion of the mining of the currently permitted area. 224 Id. 2011 Gen. 223 Id. These changes should lessen the impact of wells drilled through coal on coal reserve recovery. 220 Id. the Amendment provides that an operator has to obtain the consent as to a well location from all owners of an operating coal mine that will be penetrated by the well. upon application of an operator who holds interest in the tract. (Pa. the DEP must specify the terms and conditions upon which. 219 58 Pa. 2011).” 218 For those wells subject to the Conservation Law. § 407(1) (2011). Assemb. parties may obtain spacing orders by submitting an appropriate application to the DEP after an initial discovery well has been drilled. as well as giving coal producers more space in between well clusters than they are entitled to between vertical wells. the DEP may issue an order. in the absence of a voluntary agreement and without an order explicitly integrating those interests. Reg. 222 As part of the order. 38 . 220 If the spacing units contain two or more separately owned tracts or interests. 217 See S.Also. as well as provisions for payment by those who elect not to participate in the reasonable actual costs and expense of operations. royalty interests in the units will be deemed integrated. the order must give just spacing for wells barred having more than one horizontal well on a single well pad overlying workable coal. 221 Id. 218 See id. 265. 224 If requested. 222 Id. the owners of said interests may decide to integrate for unit development. 223 The order should also prescribe the manner and time in which the operators may elect to participate in unit operations. § 408(a). 221 If parties do not voluntarily integrate their interests. though. § 407(7). § 408(c). § 409.. plus a reasonable supervision charge and interest on past due accounts. § 408(a). 219 Spacing unit orders must cover all lands believed to be underlain by the pool. which provides for such integration.

the DEP has discretion as to a substantial portion of the regulation—e. which does not include wells drilled for Marcellus development. until market price of the production equals 200 percent of the share of such costs payable to the interest. then. the surrender must be in exchange for reasonable consideration.Va. Id. at least until the DEP establishes guidance through its application of this process. is that statutory pooling is limited to deep wells. see generally id. exclusive of a one-eighth royalty interest. Additionally. For those wells that do come under the jurisdiction of the Conservation Law. Otherwise. 227 This section is not meant to be a comprehensive coverage of the West Virginia statutes. §§ 22-6-1 to -41. statutes that regulate deep wells in Pennsylvania do not address the issue of minimum operator controls. 225 Operators who do the work of drilling or pay for such work for the benefit of a non-participator. have general permitting authority for oil and gas development pursuant to the West Virginia Code. West Virginia contains three rather complicated processes for dealing with oil and natural gas development involving different governing entities. and the Secretary thereof. The lack of certainty and the lack of a detailed framework may prove problematic as various shale plays are explored in Pennsylvania. spacing rules and election rights— which might result in uncertainty for various operators. are entitled to such non-participating operators’ share of production. the order may provide for election to participate on a limited or carried basis. for complete coverage. 226 The obvious problems with the state of the law in Pennsylvania.. Code § 22-6-2 (2010). see “National Survey. 227 The Department of Environmental Protection (“DEP”). each with its own statutory framework.” 228 W.228 Id.g.and equitable alternatives for non-participating owners to surrender their leasehold interest on a reasonable basis to participators. 226 225 39 . [5] — West Virginia.

which includes the Secretary’s permitting authority. 2011). 233 The Chief of the Office of Oil and Gas (“Chief”) is the state permitting authority for coalbed methane wells. 235 Id.The Secretary is vested with statutory authority to perform all the necessary duties relating to exploration. 236 Id. see also id. but in no event may production be had therefrom). in fact. as relates to deep wells. § 22C-8-1(b). 234 Id. that the Review Board has not issued a single drilling unit or pooling order. §§ 22C-8-7 to -11. to establish drilling units or special field rules. albeit in extremely limited circumstances. to approve or deny applications for new well permits. 237 The article that provides authority to the Commission supplements and expands upon the statutory requirements set out in article six. 236 and. § 22C-9-4(h). see also id. Id. the Shallow Gas Well Review Board (“Review Board”) is the body that reviews coal owner objections regarding shallow gas well placement. 230 The Review Board also has statutory authority to create drilling units and pool interests within those drilling units. § 22-21-13. 233 W. 229 In addition. Va. Id. or any shallow well to which no objection is made. 230 229 40 . 234 much like the Secretary is the permitting authority for conventional oil and gas wells. oil wells and enhanced recovery oil wells. 237 Id. the Oil and Gas Conservation Commission (“Commission”) has authority to regulate deep well spacing. § 22-6-2(c)(12). and to approve or deny applications for the pooling of interests in a drilling unit. Code § 22C-8-3 (2011). §22-6-1(4) (defining “shallow gas wells” as those gas wells drilled and completed above the uppermost member of the Onondaga Group. 231 Id. The Coalbed Methane Review Board (“CBM Review Board”) is the body that hears coal operator objections to the drilling location of a coalbed methane well. storage. and it does not have authority over deep wells. 231 so limited. the Review Board’s purview is limited. § 22C-9-4(f). chapter 22 of the Code. § 22-21-4(b)(2). and recovery of oil and gas. Va. 232 Telephone conversation with W. § 22-6-1(g) (defining “deep wells” as those drilled and completed in a formation at or below the top of the uppermost member of the Onondaga Group). 235 Finally. with an allowance of 20 feet into the Onondaga for logging and completion operations. 232 As noted. DEP Staff (May 17. development. production.

§ 22-6-1 et seq. The Review Board will make a recommendation to the Secretary to refuse the permit or to authorize drilling at the proposed or an alternate location. the Review Board must direct the Secretary to refuse to issue a drilling permit unless the following spacing provisions are followed: (1) For all shallow wells with a depth less than [3. article eight of chapter 22C does contain spacing rules to be applied in response to coal owner objections to shallow well locations. if the proposed well is underlain by a workable coal seam. 240 In addition. § 22-6-10(a). 239 Those surface owners have 15 days to submit comments as to the location or construction of the proposed work.000] feet. there shall be a minimum distance of [1. 243 At the Review Board hearing stage. 242 Neither article six of chapter 22 nor the applicable state regulations provide spacing rules that apply to shallow wells. § 22-6-9(a). Thus.West Virginia’s general permitting statute 238 contains significant notice requirements and opportunities for objections by affected parties. . prompting the Shallow Gas Well Review Board’s jurisdiction. . if not resolved. § 22-6-17. § 22-6-11. owners and operators thereof also are entitled to a 15-day notice and comment period. 243 Id. 41 . 241 The Secretary may issue the well work permit after reviewing any comments received or once the 15-day comment period has passed with no comment submitted. 244 In making its determination. An applicant seeking to drill an oil and gas well must notify the record owner(s) of the surface tract where the well is to be located and of any surface tracts to be utilized for roads or other surface purposes. Id.000] feet from the drilling location to the nearest existing well . 242 Id. and 238 239 Id. however. any coal owner comments received regarding the location of the wells.. must be forwarded to the Review Board for hearing. § 22-6-17. 244 Id. 241 Id. initial shallow gas well permits are not subject to any spacing rules unless a coal owner objects to well location. 240 Id.

246 The royalty owners and gas operators within the drilling unit area must consent to the location therein. § 22C-8-10(c).000] feet. § 22C-8-8(a). Under the Code. 247 If unable to agree. .. 249 Id. Where the distance from the drilling location proposed by the operator or designated by the board to the nearest existing well . unless the gas operators and royalty owners of any excluded acreage have agreed to such exclusion. Id. there shall be a minimum distance of [1. except that where the distance from the drilling location to such nearest existing well is less than [2. 42 . 250 245 246 Id.(2) For all shallow wells with a depth of [3. and (4) The drilling unit includes a portion of the acreage from under which the well operator intended to produce gas under the drilling permit which was refused. 247 Id. is greater than [2. the Review Board will hold a hearing and either issue a written order establishing the drilling unit or dismiss the application. § 22C-8-10(b). . the gas operator shall have the burden of establishing the need for the drilling location less than [2. (2) The director has previously refused to issue a drilling permit on one of the tracts comprising the drilling unit because of an order of the board. 249 The complicated structure of such proceedings may help to explain why the Review Board has yet to issue a drilling unit order.500] feet from the drilling location to the nearest existing well . 245 Only after this process has been completed may a party apply for the creation of a shallow drilling unit. 248 The Review Board may not establish a drilling unit unless it finds the following: (1) The applicant has proved that the drilling location on the drilling unit has been agreed to by all of the owners of the coal seams underlying such drilling location. § 22C-8-10(c). 248 Id.000] feet or more. . the Review Board’s authority to establish a drilling unit is conditioned upon the Secretary’s prior refusal to permit drilling within the proposed unit acreage because of an order of the Review Board.500] feet and a coal seam owner has objected. (3) The drilling unit includes all acreage within the minimum distance limitations provided by section eight of this article. .000] feet but more than [1.000] feet from such nearest existing well. distance criterion will not be a ground for objection by a coal seam owner. § 22C-8-10(a).

256 In addition. and operators of natural gas surrounding the well bore and existing formations above the uppermost member of the Onondaga Group.600 feet of an existing coalbed methane well for which a permit application is on file. no permit for a coalbed methane well may be given within 100 feet of the outermost boundary of the coalbed methane tract. unless the coalbed methane well operator has received written 250 251 Telephone conversation with W. 256 Id. the Review Board will integrate such interests during the initial drilling unit hearing. § 22C-8-11(d). including a reasonable charge for supervision and any outstanding interest owed. 2011). 257 Id. 255 Operators seeking coalbed methane well drilling permits undergo a process similar to shallow gas well operators. DEP Staff (May 17.000 feet deep. 254 Id. § 22C-8-11(e). 257 In the absence of a pooling order or an order establishing special field rules issued by the CBM Review Board. 254 By default. § 22C-8-11(c). non-participating owners will be carried and receive a statutory oneeighth royalty. 253 Each pooling order also must provide working interest owners the option to either participate or be carried. or less than 6. leased premises. 253 Id. notice must be given to all owners. §§ 22-21-6(b)(1)-(2). Va. or unit from which coalbed methane will be produced or within 1. Those entitled to notice of a coalbed methane permit application include all owners and operators of any coal seam to be penetrated within 750 horizontal feet of any part of the proposed well bore or within 100 vertical feet of the coal seam to be stimulated.An order to establish a shallow well drilling unit must pool the separately owned interests in the gas to be produced from the unit. 255 Id. Va. § 22-21-9(a)(4). 252 Pooling orders must be just and equitable and provide for the payment of all drilling and operating costs by all those who elect to participate therein. whichever is shallower. 251 Absent a voluntary pooling agreement. W. 43 . lessees. Code § 22C-8-11(a) (2011). which option must be exercised within 10 days of the order’s entry. 252 Id.

who must promptly hold a hearing and provide 15 days’ notice to those who filed objections or comments. § 22-21-13(d). 263 The Chief. or an order issued by the CBM Review Board. § 22-21-7. and ultimate recoverability of their reserves.consent of coal operators of seams to be penetrated or of seams at least 28 inches thick that are targeted for production. coal owners may also comment on the effect of the proposed well on operations. § 22-21-20. the CBM Review Board must provide a conference session between the applicant and all persons entitled to notice who have 258 259 Id. §§ 22-21-11. 262 Id. if such coal seam is to be stimulated or within 100 vertical feet of any seam that the applicant plans to stimulate. 262 In addition to objections based on spacing. 258 Spacing will otherwise be provided by pooling order issued by the Chief. will forward the application to the Chairman of the CBM Review Board. 259 Consent to well location must be obtained from each owner or operator of any workable coal seam that is at least 28 inches thick and within 750 horizontal feet of the proposed well bore. to any person entitled to notice of the application. 264 In developing coalbed methane. -13(b). 260 A pre-existing contract or lease with the coal owner or operator for coalbed methane development constitutes waiver of consent requirements. 261 Id. the CBM Review Board will direct the Chief to refuse the permit or to issue it. 264 Id. upon receipt of such objections. 263 Id. 265 Prior to the hearing. 44 . § 22-21-11. safety. and to the applicant. either as is or with modifications. Id. § 22-21-15(a). After the hearing. 261 Coal owners may also file written objections to the proposed drilling within 15 days of receipt of notice. 265 Id. 260 Id. an order establishing special field rules. the statute allows the operator to apply to the Chief in order to pool the separately owned interests of a single or multiple tracts to form a drilling unit for production from one or more wells.

which dictates that a conflict between the duty to prevent waste and the duty to protect correlative rights should be resolved in favor of waste prevention. the Commission provides all interested parties with notice. 269 The statute directing the Conservation Commission provides an important policy. or (c) the drilling of more deep wells than are reasonably required to recover efficiently and economically the maximum amount of oil and gas from a pool. 271 An application to establish a drilling unit for a deep well must be preceded by completion of a discovery well into the formation at issue. the order will be final. or that causes or tends to cause unnecessary or excessive surface loss of oil or gas. §§ 22C-9-7(1)-(2). a hearing must be requested within 15 days of receipt of notice. 273 Id. . the CBM Review Board will then hold a hearing. 267 Finally. the West Virginia Conservation Commission is the authority governing the spacing of deep wells. and to approve or deny applications for the pooling of interests within a unit. 269 Id. § 22C-9-4(e)–(f). instead. 272 The statute does not require a hearing. [and] drilling . 273 The Commission has 45 days to either grant or deny the order establishing a drilling unit. Upon application to establish the drilling units. Id.not yet entered into a voluntary agreement in order to facilitate a voluntary agreement. a reduction in the quantity of oil or gas ultimately recoverable from a pool under prudent and proper operations. 268 The Commission has the authority to issue or deny permits. 272 Id. § 22-6-1(t). § 22-21-17(c). or tends to cause. If no request is submitted. §§ 22C-9-7(a)(1)-(2). § 22C-9-4(f). 270 Id. 274 Id. 266 If agreement is not reached. of any oil or gas well in a manner that causes. 268 Id. the Commission will proceed to process the application. § 22C-9-4(h). 271 Id. 45 . . after which time it will grant or deny the application for a drilling unit. § 22-21-17(a). the Commission will issue a proposed order and 266 267 Id. to establish drilling units or special field rules. if no hearing was held. 270 Waste includes: (b) the locating. 274 If a hearing was held. § 22C-9-7(a)(9).

283 Id. 279 requirements. § 22C-9-7(a)(6). § 22C-9-7(b)(1). 278 Id. 282 at which hearing the Commission will order pooling. the Commission will provide notice and a hearing. § 22C-9-7(a)(5). if no appeal has been filed.provide notice to all interested parties of said order. 279 Id. § 22C-9-7(a)(5). 284 Id. 276 275 46 . Id. Valuable consideration must also be given in exchange for the consent and an easement therefor. with a 10 percent variance if a larger area is required for efficient and economical drainage. 284 Additionally. § 22C-9-7(a)(4). 283 The pooling order must contain just and reasonable terms and conditions. and upon application of an interested operator in the unit. 282 Id. after which time. 275 Drilling unit orders must cover all lands determined or believed to be underlain by a pool and exclude all other lands. § 22C9-8(b)(4). § 22C-9-7(a)(7). Id. temporary drilling units may be created until such time that adequate information is obtained. 281 Id. § 22C-9-7(a)(11). 276 The statute directs the Commission to form units no smaller than the maximum area which can be drained efficiently and economically by one well 277 and no larger than 160 acres for oil wells or 640 acres for gas wells. the order must provide the time and manner in which all owners of working interest in the pooled tracts may elect to participate therein. 278 If adequate information is not available to determine the appropriate area. Parties may appeal the order to the full Commission and request a hearing within 15 days of the order’s entry. 277 Id. the order will become final. 281 In the absence of a voluntary pooling agreement between all affected parties. 280 Id. and under no circumstances may drilling be commenced on the tract of an unleased owner without the owner’s written consent. along with payment of all Orders must establish boundary setback Id. § 22C-9-7(b)(1). 280 Separately owned interests within a drilling unit may voluntarily integrate their interests for the development of the unit.

Pennsylvania. the use of New York’s and Ohio’s Conservation Statutes for large scale horizontal drilling in the Marcellus and Utica Shales is still untested as to whether further modifications are needed. the establishment of appropriate units based on the affected reservoir. or if such statutes will be sufficient to promote such development. West Virginia lacks an adequate structure to provide for statutory pooling in connection with Marcellus shale development as those wells are classified as shallow wells under the statute. 47 . nor does the statute address spacing rules specifically applicable to horizontal wells. 287 Id.286 Operators must have approval of at least three-fourths of all the working interest and three-fourths of all the royalty owners within the proposed unit prior to the order being granted. 285 The Commission lastly has authority over secondary recovery of oil and may provide notice and a hearing to all interested parties upon application of an operator in a pool that is productive of oil to provide for unit operation of the pool in connection with secondary recovery of oil and unitizing the separately owned tracts in the pool. The deep well statutes are somewhat more comprehensive.reasonable costs of operating and drilling. On the other hand. including a reasonable charge for supervision and for interest on past-due accounts by those who elect to participate. Maryland. 287 As the foregoing shows. Id. but do not include common provisions such as minimum operator controls or clear and detailed resolution of the rights of non-consenting parties. § 22C-9-7(b)(3). or the fundamental policy goals of correlative rights protection and waste prevention. The statute that covers shallow gas wells is primarily concerned with resolving conflicts between well operators and coal operators and fails to address statutory integration. and because of the varying considerations in each 285 286 Id. and West Virginia all need statutes to address horizontal shale development in the Marcellus formation. In summary. § 22C-9-8(a).

one horizontal well may possess multiple horizontal side laterals to be drilled into the same formation. and shallow well operators. such statutes should be uniquely tailored to each particular state. coal. Further. increased well density. oil and gas.05. are appropriately balanced by the new legal structure. multiple wells spaced and drilled on a well pad. common horizontal industry practice—based on technology and economies of scale—is to drill multiple horizontal wells together from a single well pad.e. A typical Marcellus multi-well pad is 48 . Such supplemental provisions must consider the unique nature of horizontal methods and should address the measures discussed below. Unlike traditional vertical drilling. [1] — Spacing Rules Tailored to Horizontal Wells. and restrict or limit the drilling of individual conventional vertical wells between such well clusters in order to both protect coal resources and promote horizontal well drilling. However. Statutory pooling for horizontal Marcellus and Utica wells will undoubtedly enhance a producer’s ability to efficiently recover oil and gas from shale deposits. provide adequate minimum spacing distances between the well cluster on one multi-well pad and the well cluster on any other multiwell pad.state. may adversely impact the development of coal reserves because of the potential inability of a coal operator to mine through the vertical sections of such wells. Recommendations for Statutory Improvements.. and surface owners. such as coal interests. severed interests.e. § 01. a proper regulatory framework should allow this statutory integration alongside other provisions to ensure that all the various interests. Any state conservation statute and implementation thereof needs to address factors that are unique to horizontal development in Appalachia. Horizontal drilling allows significantly less surface disturbance within the encompassed unit area because of the use of multi-well pads. any statute must address the maximum surface acreage to be utilized for the vertical sections of the horizontal well locations (or “well cluster” as used in Pennsylvania’s recently enacted Amendment discussed above) on any such multi-well pad. However. Thus. i. i..

because of the continuing developments in horizontal drilling and completion technology. restrictions on the maximum acreage area associated with each well cluster. http://www.org/resources/marcellus/horiz_drilling.approximately five acres in disturbed surface size. because on a macro level there should be much less surface disturbance. the minimum distance between well clusters. “Why Multiple Horizontal Wells from Centralized Well Pads Should Be Used for the Marcellus Shale. and the location of conventional vertical wells between well clusters fosters many public policies. an operator can produce more natural gas as compared to development by vertical wells which would require many more conventional vertical well locations and therefore much more surface disturbance.” W. an unleased tract in the middle of a horizontal wellbore design has potentially greater negative impact as it could affect rational development and deprive not only the oil and gas owner and developer of royalties and income but also deprive a jurisdiction of significant revenues from taxes and other direct and 288 See. Furthermore. promoting development of horizontal multi-well pads and providing spacing regulations to govern minimum distances between such well clusters better serves surface owners. Also. as well as environmental and land use interests. In summary. e. Unlike a conventional vertical well.g.wvsoro. 288 Utilizing this limited surface area for well operations. because of the irregular size of tracts involved in Appalachia and because numerous tracts can be penetrated by the horizontal bore in Appalachia. Surface Owners’ Rights Org.html (last visited July 10. any effective statute for horizontal shale wells should include not only a combining of drained properties for the sharing of production but also the right to drill through properties. This right to drill through properties is somewhat different from the traditional use of conservation statutes that were originally enacted to address drainage from an off-tract well in addition to addressing over-drilling. and its drainage is a limited area beyond the completion locations in the horizontal bore. 49 .. while protecting the interests of surface owners and the coal owners and operators. Thus. a horizontal shale well actually drills through the formation. 2011). Va.. Furthermore. more and more properties may be impacted by each horizontal well.

03. Additionally.05. Currently. but that the oil and gas owners’ rights are protected and that public policy to develop natural resources is fostered. coal owners could be impacted by increased well density in the unit. Additionally. Va. these thresholds of required consent across the various jurisdictions range from 50 percent of proposed 289 290 See text supra §§ 01. and Pennsylvania is partially due to the severed land and mineral ownership. The need for statutory pooling in Maryland. See W. The notice requirements currently in place in West Virginia for well work applications 290 offer an example well-suited to transition to applications for pooling and unitization orders. [2]. Any statute should therefore address the right to penetrate or drill through tracts. et seq. (2010). Further. such notice and a clear structure of what factors should be considered by the reviewing body when addressing such comments are needed in order to insure that not only are non-oil and gas owners’ rights protected.. and oil and gas owners are sufficiently protected. the statutes should provide specific notice requirements which afford each owner potentially affected by an application for a pooling order notice and an opportunity to voice comments and concerns. as well as the irregularly-shaped tracts in the region.g. Code § 22-6-1. [3] for further discussion of election rights.indirect economic benefits associated with such well development. surface owners could be impacted by use of their surface. 01. a clear structure setting forth the election rights 289 will offer a currently nonconsenting oil and gas owner a final chance to negotiate with the applicant for consensual pooling terms. the statute should subject any horizontal pooling order to minimum operator control thresholds based on widely accepted standards found in other states. there is greater potential for stranded unleased tracts that will never be drilled or developed if pooling and unitization principles are not adopted. coal. To ensure that the rights of surface. 50 . In addition. e. West Virginia. and oil and gas owners could be impacted by being statutorily pooled. [2] — Notice and Approval Requirements.

a non-consenting owner may owe the operator 200 percent of the unpaid portion of that owner’s share of drilling and operating costs. there are many ways to structure a statutory election scheme. 294 This proposed risk compensation fee for horizontal shallow wells would mirror those already in place in West Virginia for deep wells. For example. The most comprehensive of these provides legislative guidance in how these rights should be framed. such tract should be counted toward such approval threshold. Severed ownership in Appalachia. Notably. this payment would come solely from such owner’s share of production from the unit and be withheld by the operator exclusive of a royalty guaranteed by statute. When issued by the authorized agency. As this article shows.03. See W.pooled interests to 75 percent or 80 percent consent by relevant owners thereof on a net acreage basis. Code § 22C-9-11(b)(6) (2011) (establishing that a deep well operator who obtains a pooling order is entitled to production of a carried non-participating owner “until the market value of such 292 291 51 .” for further discussion of each state’s minimum control requirements. 293 In West Virginia. 293 [3] — Allocation of Costs and Election Rights. This will prevent a cotenant with a small undivided interest from exercising a veto over the rights of all other cotenants who freely contract for or approve such pooling and unitization. coupled with the substantial initial and continuing costs of Marcellus well production. Va. suggests that non-consenting owners should be able to transfer their interests to the operator on reasonable terms or be carried with a marginal risk compensation fee. but also allows agency discretion to set particular terms based on the facts presented at the public hearing. as total compensation for the expense and inherent risks in commencing drilling operations. See text supra § 01. 292 A minimum operator control threshold requiring 75 percent approval on a net acreage basis also provides substantial protection to owners of unleased tracts and smaller independent producers who may have acreage within a proposed unit. 294 This compensation scheme is See “National Survey. these orders should provide general terms as to how such non-consenting mineral owners are to be treated. Another important aspect of comprehensive pooling statutes is the statutory presence of clear election rights for non-consenting owners who are subject to a pooling or unitization order. this minimum threshold should also apply to any tracts owned by cotenants and to the extent 75 percent of such leased and unleased cotenants approve. [2] for further discussion. 291 Most states require between 63 percent and 75 percent consent from working interest and/or royalty owners.

the Appalachian region has supplied the often-overlooked foundation for America’s global leadership in energy production and technological advancement. and provisions could be set forth granting access across such unleased tract. In addition to the protections afforded to an unleased fee simple owner by adequate notice.significantly more generous to non-consenting owners than the law in many states. public policy interests in some circumstances may require that the unit operator be granted reasonable access to and from operation locations. When the surface overlying a tract is owned by a number of cotenants. 295 while retaining a nominal fee to fairly protect horizontal well operators and incentivize smaller lessees and unleased owners to negotiate with operators and feel secure in doing so. which was statutorily pooled. Conclusion. approval. 295 See “National Survey. Although the owner of the surface overlying a statutorily pooled unleased mineral owner holding a minority interest in the pooled acreage should not able to unilaterally halt the unit operations of the total unit. a statutory requirement could be placed on the operator to secure the voluntary agreement from a supermajority of the undivided interests before surface operations would be permitted on the tract. traditional standards of equity suggest that he should have some level of control over whether a horizontal well pad is located on the surface overlying unleased acreage. The coal industry in our area has traditionally provided the American public the irreplaceable service of non-participating owner's share of the production. 52 . exclusive of such royalty.” for further discussion of each state’s treatment of non-consenting owners or operators. Throughout history. and election schemes. overriding royalty or one-eighth of production. equals double the share of such costs payable by or charged to the interest of such nonparticipating owner”). § 01. Likewise. For example. a revised statute tailored to horizontal wells must consider appropriate use of the surface with respect to unleased tracts that will be statutorily pooled in a unit.06. the horizontal pooling statute could require consent from the owner of the surface overlying an unleased mineral owner before the unit operator may conduct surface operations on said unleased tract. [4] — Surface Use.

and Pennsylvania must advance their respective legal structures to incorporate statutory pooling for all horizontal shale wells. The wealth of oil and natural gas underlying our region demands that industrial and independent producers be supported by a comprehensive regulatory framework to foster safe and efficient development of these resources. While the authorized state agency should maintain some level of discretion to determine proper details for each situation. West Virginia. Maryland. successfully balance the interests of the coal and natural gas industries so vital to local economies. and oil and gas owners. and prompt more environmentally-responsible well location and operation. However. a cohesive regulatory framework must protect the rights of surface. As this paper shows. the inclusion of statutory pooling and unitization is the common trend underlying those regulatory schemes which are welldeveloped and most sensitive to the various interests involved. In Appalachia. and Pennsylvania at the precipice of unprecedented economic growth. which is crucial to re-capturing fiscal stability here and abroad. well-developed system for pooling and unitization of horizontal wells will require a comprehensive approach. and capitalize on the unique natural resources of the region. Today. modern innovation of horizontal drilling methods enables production from these reserves with efficiency never-before imagined. the vast natural reserves of the Marcellus Shale place Maryland.affordable and reliable energy. coal. To accomplish these goals. there is substantial variety among the states in procedural treatment of oil and gas production under conservation laws. address potential environmental concerns by promoting best industry practices and public education. West Virginia. the legislature must empower these bodies to use 53 . The recommendations above are not intended to provide an exhaustive list of all important aspects of this horizontal shale well regulation. However. rather a sound. Further. It is inadequate to add a statutory pooling provision for horizontal shallow wells to existing law. with the potential to reshape our nation’s energy portfolio. such provisions will afford benefit to landowners.

It aims to clearly convey that pooling and unitization are developed. enhance oil and gas recovery. When done properly. owners. long-standing legal doctrines formed and adopted by the overwhelming majority of states to encourage the most efficient and cost-effective means of recovering oil and gas. Further. the constitutional validity of these regulatory mechanisms is beyond dispute.statutory integration to pool ownership interests so that production will minimize surface use. This article’s summary of the various pooling strategies found throughout the nation serves more than an academic exercise or guide for industry actors. West Virginia. and Pennsylvania at the forefront of sustainable energy production through the Twenty-First Century. and provide otherwise unattainable economic benefit to citizens. and well operators. protect coal resources. 54 . these methods will spur economic growth and be a catalyst that places Maryland.

Appendix 55 .

oil and gas production maintains its traditional place within the purview of state regulation. with a focus toward pooling and unitization schemes. yet each state addresses oil and gas regulation in light of its particular social and economic aims. Many jurisdictions endorse common goals and procedures in developing conservation mechanisms. While some conservation programs are significantly more in-depth than others. this Appendix provides a state-by-state analysis to identify each state’s regulatory framework. and notable areas of the law that impact their implementation. and anyone seeking to learn more about oil and gas conservation in their home or other states. procedural requirements imposed for pooling and unitization. The authors hope that the following serves as a reliable tool for industry members. This Appendix offers a detailed summary of each state’s oil and gas conservation regulations.Appendix Notwithstanding the effects of federal environmental legislation. legal professionals. 56 . The logical variety among states with regard to attainable intrastate resources and other localized interests thus creates a hodgepodge of regulatory frameworks when considered on a national scale.

Id. § 9-17-3(b). 298 Id. one member is elected for a term of two years. The Board consists of three members with staggered terms. which receive no compensation.00. § 9-17-3(a). the Governor must appoint a new member to fill the unexpired term of the previous member. 300 296 297 Ala. The State Oil and Gas Board (“Board”) is the regulatory body created by the legislature with specific authority to regulate pooling in the state.00 per month. each member must qualify by taking an oath of office and must hold his office until his successor is appointed and qualified. 300 Id. which allowance is paid by the oil and gas fund. 57 . Each member is eligible for reappointment at the Governor’s discretion. Also. and for the initial appointments. plus entitlement to a travel and office expense allowance of $500. [1] – Name of the Governing Body. 299 Id. each member receives an annual compensation of $3. All of the members of the Commission must be residents of Alabama and must be a qualified voter in that state. 299 The Board is required to elect a chairman from its membership and is required to meet or hold hearings at times and places found by the Board to be necessary to carry out its duties. and one for a term of six years.01 Analysis of Alabama Regulatory Framework.§ 02. 296 [2] – Membership on the Governing Body. 298 Otherwise. In the event of a vacancy. At the expiration of the initial terms. one for a term of four years. Code § 9-17-3(a) (2010).600. The Governor appoints the members. each newly appointed member will thereafter serve six-year terms. § 9-17-3(a). 297 Members who serve nineteen or more years continuously become nonvoting members emeritus of the Board.

The Supervisor is given the duty to enforce this article and all rules. or producing of any oil or gas well or wells in a manner which results or tends to result in reducing the quantity of oil or gas ultimately to be recovered from any pool in this state. § 9-17-9. 301 Additionally. with the Board’s concurrence. operating. but two affirmative votes are required for the adoption or promulgation of any rule. regulation. equipping. equipping. 58 . the state geologist is. 303 [3] – Scope of Authority. 304 Id. regulations. 305 Id. or producing of any oil or gas well or wells in a manner causing or tending to cause unnecessary or excessive surface loss or destruction of oil or gas.Two members of the Board constitute a quorum. (c) abuse of the correlative rights and opportunities of each owner of oil and gas in a common reservoir due to nonuniform.” and includes the following: (a) the inefficient. The Board has jurisdiction and authority “over all persons and property necessary to administer and enforce effectively the provisions of this article and all other articles relating to the conservation of oil and gas. § 9-17-4. § 9-17-10(a). § 9-17-6(a). excessive. Also. 305 “Waste” is defined as “‘physical waste’ as that term is generally understood in the oil and gas industry. ex officio. § 9-17-2. has the authority and duty to employ all personnel necessary to carry out this article’s provisions.” 304 The article declares as its public policy the prevention of waste of oil and gas and protection of correlative rights. and orders promulgated by the Board. 303 Id. secretary of the Board and will keep all the Board’s minutes and records. (b) the inefficient storing of oil and the locating space. or improper use or dissipation of reservoir energy and the locating. spacing. drilling. or order of the Board. 301 302 Id. ex officio. operating. Id. the Supervisor is. the state oil and gas supervisor (“Supervisor”). 302 The Supervisor. drilling.

the Board has the authority to do the following: (1) collect data. 308 In meeting that goal. processing facilities. processing facilities. 309 Id. (g). (7) require the keeping of records and the making of reports. 308 Id. tanks. after proper hearing and notice. and orders may be made for the following purposes. including drilling records. (5) hold hearings.disproportionate and unratable withdrawals causing undue drainage between tracts of land. regulations. (l) production of gas in excess of reasonable market demand. and records. operated. leases. tanks. . and other geological and geophysical data. (4) examine. [and] . and orders that may be necessary in the administration and enforcement of this article. . . (g) underground waste however caused and whether or not defined. 310 Id. 310 Such rules. (11) to identify the ownership of all oil and gas wells. plants. . natural gas 306 307 Id. if cores are taken. books. . 307 as this article explicitly prohibits waste. within six months from the time of any well’s completion. and gauge oil and gas wells. Id. . (6) to prevent wells from being drilled. . logs. § 9-17-6(c). or produced in a way that causes injury to neighboring leases or property. natural gas pipelines and gathering lines. among others: (4) to require reports showing the location of wells and to require the filing of logs and drilling records and the lodgment in the office of the State Oil and Gas Supervisor of typical drill cutting or cores. test. and storage and transportation equipment and facilities. . § 9-17-1(19)(a)–(c). § 9-17-6(b)(1)–(8). producing leases. and other modes of transportation. . . (3) examine properties. structures. 309 The Board has authority to create reasonable rules. (2) make investigation and inspection. check. structures. plants. regulations. § 9-17-6(a). [and] (8) take action as may be reasonably necessary to enforce the article. (6) appoint a hearing officer for the purpose of conducting public hearings on behalf of the board and making recommendations to the board. § 9-17-11. 59 . . 306 The Board has the authority and duty to determine whether or not waste exists or is imminent within its jurisdiction. (l). papers.

01. . r. to determine the spacing of wells. . . 318 Ala. r. 313 Id. 312 [4] – Process for Pooling. 313 submerged offshore wells. 311 The Rules and Regulations Governing the Conservation of Oil and Gas in Alabama can be found in the Alabama Administrative Code. Code r. 317 Id. 400-5-1-. The Alabama Administrative Code provides rules and regulations governing the permitting of onshore wells. 400-6-1-. at r. Code § 9-17-13(a) (2010). [and] . to establish the spacing of wells for each pool. (14) to establish drilling units. so far as is practical. 60 . such as when owners of interests agree to pool and develop their land as a unit. to establish oil and gas fields for each oil and gas pool. .01. . reasonably avoidable drainage from each developed unit which is not equalized by counterdrainage. 400-3-1-. (17) to prevent.pipelines and gathering lines and storage and transportation equipment and facilities. or both. Also. 317 Integration or pooling of interests or tracts of land may be appropriate when any mineral interest deriving from two or more separately owned tracts of land exist within an established or a proposed drilling or production unit or when there are separately owned interests in all or a part of an established unit. 400-4-1-. 316 Id. 400-1-1-. 316 The Administrative Code also includes rules and regulations governing forced integration or forced pooling.01. under the Board’s authority to prevent waste 311 312 Id. 315 Id. (15) to limit and prorate the production of oil or gas or both from any pool or field for the prevention of waste as defined herein. and to establish drainage or production units.01. 314 Id. 314 coalbed methane gas wells.01 (2010).01. Admin. 315 and other injection and storage wells. 318 Pooling may be voluntary. 400-7-1-. rr. 400-2-1-.01. Ala. § 9-17-6(c)(1)–(18).

05(2) (2010).11(4)(i)(1)–(2). § 9-17-13(a). of its own volition or upon the petition of any interested person. (b) Petitions to Establish Spacing Units. 320 A petitioner other than the Board must comply with Rule 400-7-1-. (g) Petitions to Establish or Amend Special Field Rules.11 relating to notice. (c) Petitions to Amend or Reform Established Spacing Units. 324 Id. 322 Id. r. the petitioner must give notice by first class mail to particular individuals in the following instances: (a) Petitions for Exceptional Locations. 321 which requires the petitioner to file a proposed notice for publication along with a written request for the Supervisor to approve publication of the notice as submitted or with modifications. and (h) [when notice is otherwise required by the Supervisor].and to avoid drilling unnecessary wells. 324 Additionally. Code r. 326 The notice should include the following: (a) The name of the petitioner. 400-7-1-. 322 After the Supervisor approves the notice for publication. 61 . and must also obtain proof of publication to be filed with the Board at least three days before the hearing.11(1).11(4)(a)–(h). § 9-17-81. 400-7-1-. 319 The Board. 400-7-1-. must hold a hearing to determine the need for the operation as a unit of an entire field or of any pool or pools or of any portion of a pool or combination thereof within a field for the production of oil or gas. r. 319 320 Id. r. 325 Such notice must be mailed at least fifteen days before the hearing date after a reasonably diligent effort to find the correct mailing addresses. r. 323 The notice must have been published in the appropriate newspaper at least ten days before the hearing. (f) Petitions for Compulsory Unitization. 400-7-1-. Admin. the petitioner will publish at his or her own expense. 321 Ala. the Board may require non-consenting owners to pool their interests and to develop the land as a unit. 325 Id. 326 Id. (d) Petitions to Establish or Amend Allowables. Id.11(3). 400-7-1-. (e) Petitions for Forced Pooling. 323 Id.

400-7-1-. 332 Factors for the Board to consider when deciding whether an integration or pooling order is reasonably necessary include the prevention of waste.07.11(5). [and] (f) An accurate description of the lands affected by the petition. Id. at least twenty-five days before the hearing on the petition. 400-7-1-. the petitioner’s written petition for a hearing must be filed with the Board.06(1)–(2). 329 Five copies of all exhibits used as evidence by petitioner in the hearing must be submitted at least twenty days before the hearing. together with four copies.05(3). (c) A statement of the legal authority and jurisdiction under which the hearing is to be held. rr. although all other parties only need to submit their five copies at least two work days before the hearing. the Board shall issue an order requiring the unit operation. property involved. 331 Id. place. 330 Id. r. (2) the proposed plan for unit operations will increase the ultimate recovery of oil or gas by enhanced recovery methods. 331 If the Board finds that: (1) unit operation is reasonably necessary. (d) A reference to the particular sections of the statutes and rules involved. 400-7-1-. 327 In addition to the notice requirements. the 327 328 Id. r.00.11(2). 332 Ala. to be sent to the State Treasurer of Alabama. the petitioner must pay the filing fee. 400-7-1-. that information includes the name of petitioner. r. r. (e) A short and plain statement of the matters asserted. Broadly. and signature of the attorney or party attesting to the veracity of the information contained therein. 400-7-1-. or (3) the estimated additional cost incident to conducting such operation will not exceed the value of the estimated additional recovery of oil and gas. in the amount of $150. 400-7-1-. and nature of the hearing. relief sought.05(2). Code § 9-17-82 (2010).(b) A statement of the time. 328 Finally. 329 Id. 62 . wells affected. 330 The Rules contain detailed requirements for the information to be contained in the petition.

that this limitation shall not apply to a non-consenting owner who has 333 334 Id. 335 A drilling unit is “[a]n administrative unit established by the Board to provide and allow for the drilling of a well. 335 Ala. § 9-17-1(4). Ala. shall be charged to the separately owned tracts or interests in the unit in the same proportion that such tracts or interests share in production from the unit. the avoidance of drilling unnecessary wells. Prior to the establishment of a field and drainage or production unit within the field. and the protection of correlative rights. (2) That such costs and fee (if any) chargeable to a tract or interest shall be paid by the person or persons not entitled to share in production free of development and operating costs and who. (3) That.increase in the ultimate recovery of oil or gas. 400-7-1-. 63 . would be responsible for the expense of developing and operating the tract or interest and that person’s or persons’ interest in the separately owned tract or interest shall be primarily responsible therefor. Code r. it will enter a formal written order. Code § 9-17-13(c) (2010).23 (2010). if applicable. Admin. provided. in the absence of the pooling or integration order.” 336 Those orders must include the following information: (1) That the actual and reasonable costs of developing and operating the pooled integrated unit (including a reasonable charge for supervision) and. 334 Orders requiring pooling or integration within a drilling unit are different from orders requiring pool-wide or field-wide unit operations. the cost and/or fee shall be recoverable solely out of the production allocable to the tract or interest. Then. 82. . however. 333 The Board will take prompt action as it considers appropriate concerning the subject matter. a risk compensation fee . the Board may establish a drilling unit to allow for the drilling of a well in search of oil and gas. . executed by the appropriate number of members and attested by the Secretary. 336 Id. the allowance of drilling wells at optimum geologic locations. if any non-consenting owner shall fail or refuse to pay the costs and/or fee (if any) chargeable to his or her tract or interest. §§ 9-17-81.

no order will subject a non-consenting owner who is subject 337 338 Id. royalty in excess of 3/16ths of production. . as provided above. who is not primarily responsible for payment of the development and operating costs or risk compensation fee (if any). Allocation thus determined is considered the just and reasonable allocation to give each owner his or her just and equitable share of production. or other interests. be subrogated to all the rights of the operator with respect to the interest or interests primarily responsible for the payment. . § 9-17-13(c)(5). (5) That any person owning any overriding royalty. Also. oil and gas payment. shall. then 13/16ths (or if said tract or interest is leased. 64 . . 337 The orders must also contain provision regarding payment by non-consenting owners. . . but that a 3/16ths part (or the actual landowner royalty if it is less) of the unit production allocated to each separately owned tract or interest shall in all events be regarded as royalty and shall . production from any unit formed by an order will be allocated to each separately-owned tract or interest in the proportion that the acreage of each tract or unit bears to the total unit acreage. Id. . (4) That. or the proceeds thereof paid to. 338 Unless the order specifies otherwise or the parties otherwise agree. . when the full amount of any charge made against a separately owned tract or interest is not paid when due by the [responsible party]. be distributed to and among. to the extent of any payment or deduction therefor from his or her share. free and clear of the development and operating costs and of any risk compensation fee and free and clear of any lien for the payment of the costs and fee. allowing them to agree to pay their share or not based on their signing a notarized statement. the working interest fraction or percent if it is greater) of the oil and gas production allocated to the separately owned tract or interest may be appropriated by the operator and marketed and sold for the payment of the charge. § 9-17-13(c)(1)–(5).furnished the operator with a notarized statement agreeing to pay his or her proportionate share of the drilling and completion costs for a unit well as hereinafter provided. the person or persons owning royalty or unleased mineral interests .

and must include the following: (1) A description of the area embraced. . . . termed the unit pool. They must be fair and reasonable under all circumstances. or both. 339 Orders requiring unit operation for field-wide and pool-wide units are governed by Section 9-17-83. (5) A provision that the costs and expenses of unit operation. of their respective investment in wells. . a unit operator. and (8) The time the unit operation shall become effective and the manner in which and the circumstances under which the unit operation will terminate. . .to a risk compensation fee to personable liability for damages stemming from any related negligence or tort. including investment. § 9-17-83. to the total production of oil or gas. (7) A provision that when [a responsible party does not pay its costs and expenses that the owner may appropriate 7/8ths of its oil and gas production allocation to such payment. while the remaining 1/8th is considered to be royalty to be paid to the royalty owners free and clear of unit expenses]. 65 . (4) A provision for adjustment among the owners of the unit area . . . and not required in the conduct of such operations or unavoidably lost. (3) An allocation among the separately owned interested . such allocation to be based on the relative contribution which each such tract or interest is expected to make during the course of such operation. . (2) A statement of the nature of the operations contemplated. produced from the unit pool within the unit area. or both. of all the oil or gas. . . . . as provided in subdivision (3) of this section. equipment. so allocated. Id. or a provision for the selection of. .. . (6) The designation of. termed the unit area. must protect the rights of interested parties. The adjustments provided for in this subdivision may be treated separately and handled by agreements separate from the unitization agreement. . . and services of value attributable to the unit operations.. 340 339 340 Id. . . past and prospective be charged to the separately owned tracts or interests in the same proportions that such tracts or interests share in unit production. . and a description of the pool or pools or portions thereof affected and lying within the unit area.

with a six-month deadline for doing so. § 9-17-12(b). 343 Costs and expenses will be governed as provided in Section 9-17-83(5). [a] Number of Wells. If the appropriate percentage of interest-holders has not ratified an agreement within six months of the order date. 343 Id. the maximum area that may be efficiently and economically drained by one well. 66 . the Board may amend orders to add to unit operations pools or portions thereof not included and may extend the unit area as required. 345 [b] Spacing of Wells. 341 Additionally. The Board has the authority to establish drainage or production units. 341 342 Id. 345 Id. 344 [5] – Matters Covered. 344 Id. 342 Such orders do not become operative until the requisite 66 2/3 percent of the new ownership interest has ratified the extension. § 9-17-84.Orders requiring unit operations become effective only after the above provisions are signed or ratified in writing by the owners of not less than 66 2/3 percent in interest as costs are shared and revenue is distributed pursuant to Section 9-17-83(3). In such a case. § 9-17-85(a). The Board may later alter the number of wells to be drilled and produced within a particular drainage or production unit in the field after a party has demonstrated the necessity of the amendment based on geologic and engineering evidence. the Board will reallocate production to include the correct proportion of the new area. the order will be revoked automatically. Id. § 9-17-85(b)(2). § 9-17-85(c).

Ala. 400-1-2-. also called production units. A production unit is “the area in a pool that may be drained efficiently and economically by one well. For unitization of interests within a drilling unit. 351 Ala. Code § 9-17-13(a) (2010). 352 [c] Authority to Integrate Production. 351 After the field is established. the special field rules will apply to govern spacing. the Board may require the owners to integrate or pool so to develop their interests as a drilling or production unit. and as a means to prevent waste and the drilling of unnecessary wells. 400-1-2-.The Board has the authority to establish spacing requirements as part of special field rules governing each established field. r. 348 Ala. 349 Id. the Board 346 347 Ala.02(1) (2010).” 347 Once the Board has established a field. Code § 9-17-1(5) (2010). 353 [d] Allocation of Production and Costs. 67 . The Alabama Code requires that allocation of production and costs be provided for in each pooling or unitization order. 400-1-2-. an operator may drill a well on a drilling unit. 350 Id. Those rules establish drainage or production units. Admin. the Board has set default spacing provisions.02(1). it will establish special field rules for that field. In the event the owners have not agreed to integrate or pool.” 349 For wells drilled that are not governed by field rules. 400-1-2-. Code § 9-17-12(b) (2010). 352 Ala.” 348 Before a field is established and the drainage or production units within the field are established. Code r.02(2).02(1) (2010). 346 A field is “the general area in a pool which may be drained efficiently and economically by one well. A drilling unit is “an administrative unit established by the Board to provide and allow for the drilling of a well. Code r. for the specific field. Admin. 350 Those provisions have allowable exceptions and maximum limits. likely because the field had not yet been established and so the well was drilled on a drilling unit instead. 400-1-2-. r.02(1)–(2) (2010). Code r. 353 Ala. Admin.

357 Id. 354 355 Id. 360 As for pool-wide or field-wide units. 3/16ths of the unit production allocated to each separately owned tract or interest will in all events be regarded as royalty. the person or persons owning the respective royalties. governed by Section 9-17-13(c)(4). 358 [e] Royalty Distribution. The Code provides for two different levels of royalty payment. which requires that the order provide a plan of allocation based on the relative contribution that those tracts or interests expect to make during the course of the operations to the total production of oil or gas. § 9-17-12(d). 358 Id. 356 Id. § 9-17-13(c). or the proceeds thereof paid to. 354 Each tract’s share of production is such that it would afford to each interest-owner his or her just and equitable share. unless the actual landowner royalty is less. 355 equal to the amount recoverable in the developed area of the tract or interest in the tract that bears to the amount recoverable in the total developed area of the pool. 356 When determining the allocation for field-wide or pool-wide units. Id. the Board should refer to the guidelines in § 9-17-83 in promulgating its order. one-eight of the unit production allocated to each separately owned tract or interest will in all events be regarded as royalty. 359 Id. § 9-17-83(5). governed by Section 9-17-83(4). 361 Id. which states that actual and reasonable costs and a risk compensation fee is charged to the separately owned tracts or interests in the unit in the same proportion that such tracts or interests share in production. 68 . 357 Costs are to be allocated in the same proportion as production. §§ 9-17-13(c). § 9-17-83(3). 360 Id. § 9-17-13(c)(4). § 9-17-83(4). § 9-17-13(c)(1). 359 As for unitization of interests within a drilling unit.should refer to the guidelines in section 9-17-13(c). 361 Those amounts will be distributed to and among. [f] Agreements Not Restraint of Trade.

” 367 The Statute defines oil as “crude petroleum oil and other hydrocarbons. to limit and prorate the production of oil or gas. including casinghead gas. § 9-17-1. The Alabama Oil and Gas Conservation and Unitization Statute (hereinafter.When agreements for pooling interests in drilling units or for unit operations are approved by the Board. 366 It states that gas is “all natural gas. 363 When the Board limits the total amount of oil or gas that may be produced in the state. 362 [g] Limitation on Production. subject to reasonable requirements for prevention of waste. § 9-17-6(b)(15). § 9-17-14(a). 364 Likewise. from any pool or field for the prevention of waste. 367 Id. it should allocate or distribute the allowable so fixed among all the separate pools in the state. 365 § 02. § 9-17-14(b). which are produced at the well in liquid form by ordinary production methods and which are not the result of a condensation of gas after it leaves the pool. Id. 365 Id. as part of its special field rules that apply to each established field. 368 Id. or contracts and combinations in restraint of trade. 69 .02 Types of Alabama Pooling Statutes. 366 Id. they are authorized and will not be held or construed to violate state statutes relating to trusts. The Board has the authority. [1] – Mineral Distinctions. regardless of gravity.” 368 362 363 Id. and all other hydrocarbons not defined as oil in subdivision (9) of this section. the Statute) provides a limited number of mineral distinctions. § 9-17-1(10). or both. the Board should prorate the allowable among the producers in the pool. § 9-17-1(6). 364 Id. when the Board limits the total amount of oil or gas that may be produced by any pool to an amount less than it could otherwise produce. monopolies. § 9-17-14(e).

r. Code r. and coalbed methane gas well as “a well capable of producing occluded natural gas from a coalbed or coalbeds. coalbed methane gas field as “the area defined by the operator and approved by the Board which is underlain or appears to be underlain by at least one coalbed. r.01 (2010). contain the same definition of gas as in the onshore rules. 369 370 Ala.” 371 which govern coalbed methane gas operations. 400-1-1-. r. r.05(13). Id. The Coalbed Methane rules define coalbed methane gas as “occluded natural gas found in coalbeds” 372 . 400-1-1-.05(14). Admin. 369 a different definition of gas is given: “all natural gas.” 370 The “Rules and Regulations of the State Oil and Gas Board of Alabama Governing Coalbed Methane Gas Operations. but define additional terms. 373 Id. [2] – Split by Depth. 371 Id.The Rules and Regulations Governing the Conservation of Oil and Gas in Alabama provide some new and altered definitions. including casinghead gas and occluded natural gas found in coalbeds. 400-3-1-. 372 Id. 374 Id. Alabama law does not appear to distinguish based on drilling depth.01. 400-3-1-. capable of producing occluded natural gas” 373. r.” which govern onshore land operations but do not apply to coalbed methane gas operations.” 374 Both the Onshore Land Operation and the Coalbed Methane Gas Operation rules and regulations state that the Rules and Regulations of the State Oil and Gas Board of Alabama Governing Practice and Procedure and Forced Integration or Forced Pooling apply in addition to the rules set forth within their sections.05(30). In the “Rules and Regulations of the State Oil and Gas Board of Alabama Governing Onshore Land Operations. 400-3-1-. and all other liquid or gaseous hydrocarbons not defined as oil. 70 .05(12). 400-3-1-. [3] – Spacing Rules and Size.

400-1-2-. and Tuscaloosa Counties. to revert to if the well is completed as an oil well. 379 Also.02. 400-3-2-.The Board has the authority to establish special field rules for each pool that set forth. pre-determined spacing provisions are applicable. r. Mobile. 376 The Onshore Lands Operations rules and regulations provide spacing rules. among other things. 378 As governing onshore land operations. r. a well may be drilled on a governmental quarter section.03(2)(c). the larger unit may call for written justification to be submitted to the Supervisor. Pickens. Code r. 400-1-2-.03(2)(b). 400-1-2-. 379 Id. 381 Id. 377 as do the Coalbed Methane Gas Operations rules and regulations. the drainage or production units for the field and production allowables for each drainage or production unit. r.02(2) (2010).” 375 For those wells drilled that will not be governed by special field rules.” is “the maximum area which may be efficiently and economically drained by one well. a governmental half section. Lamar. Admin. 400-1-2-. and located at least 660 feet from every exterior boundary of the unit. gas wells should be drilled on a drilling unit that consists of 320 acres. and wells drilled thereon should be at least 660 feet from every exterior boundary of the unit. 381 If the gas well is drilled in Baldwin. 71 . or 160 acres.02. or about 40 acres and at least 330 feet from every exterior boundary of the drilling unit. 378 Id. 400-1-2-. Ala. A drainage or production unit. the default regulations require wells to be drilled on drilling units that consist of a governmental quarter-quarter section.02(2)(a). Code § 9-17-12(b) (2010). 377 Id. r. the drilling units should be approximately 640 375 376 Ala. also referred to as a “production unit. However. Operators should designate an alternate forty-acre unit. r. 380 Id. Escambia. If drilling is in Fayette. and Washington Counties. with the well 330 feet from the exterior boundaries. 380 The onshore land operations rules also contain specific spacing provisions depending on the county in which drilling occurs.

r. 383 The Supervisor may require a well to be drilled on a drilling unit contiguous with an existing field as an extension of that field and following the spacing provisions provided for by that field’s special field rules. 72 . it can be shown that the spacing unit is partly outside of the pool. 400-1-2-. after notice and hearing. or 640 contiguous surface acres other than a governmental section. a governmental section. r. However. 384 As provided for in Section 9-17-12(c) of the Code. in which case the Supervisor may allow the operator to follow the default spacing rules in the regulations. r. the Board may allow exceptions if reasonably necessary where.acres.03(2)(f). 400-1-2-. or where physical conditions make the drilling as authorized unduly burdensome. Also.03(2)(d). an operator can give written justification that the pool in which the current well is to be completed is in a pool outside the already-established field. after notice and hearing. after receiving written justification from the operator.03(h). 400-1-2-. allow permitting for a well on a drilling unit that is about approximately 40. r. and wells should be located at least 1. unless the Board provides otherwise. if it can be shown that a well located in accordance with the applicable rules would be unproductive. The operators should designate an alternate one hundred sixty-acre drilling unit in case the well is completed as an oil well. 400-1-2-.320 feet from every exterior boundary of the unit. 382 The Supervisor may. Id. using substantial evidence based on geologic and engineering evidence and production information 382 383 Id. and the well should be at least 660 feet from all exterior boundaries of that alternate drilling unit.03(g). 160. 400-1-2-. 384 Id. 386 As for established fields. would not be at the best placement in the unit for the most efficient and economic drainage of the unit. 386 Id. parties may prove to the Board. r. 385 Id.03(2)(e). 385 No well may be drilled within 200 feet of any permanent residence. 320.

make production units for oil and gas pools not to exceed 50 percent larger than the above limitations. The Board may. provided that the action is justified by sufficient technical evidence. the Board may amend the rules to allow more than one well to be drilled and produced within that area. an established field providing for an eighty-acre drainage and production unit. after notice and hearing. However. may the Board establish a spacing unit in a shale natural gas reservoir larger than 320 acres for a vertical well and 640 acres for a horizontal well. without a second well. however. The Board does have limits on the size of production units. In determining if a second well is needed. and (3) is an unnecessary well. The ten percent tolerance is given to allow for irregularities. environmental or safety considerations. a person may show that one well will not efficiently and economically drain the entire drainage area. that one well will not efficiently and economically drain the entire production unit provided for in the special field rules. economic.that comes from wells in an established field. It does not have the authority to establish a production unit larger than 160 acres or one governmental quarter section plus 10 percent tolerance for any pool that is determined to be an oil reservoir or larger than 640 acres or one governmental section plus 10 percent tolerance for any pool determined to be a gas reservoir. indicating that the acreage or land in excess of the above limits is being drained or is in danger of being 73 . or other reasons deemed valid by the Board. Under no circumstances. the Board may establish production units in excess of the limits when it is affirmatively demonstrated that the larger unit is justified because of technical. after notice and hearing. the Board should consider factors including whether the second well: (1) will significantly increase production from the unit. In that case. As for coalbed methane reservoirs. (2) will extend the duration of production from the unit.

However. Code § 9-17-84 (2010). the production unit so created will be valid and binding even if it encompasses more acreage than the Board included or is authorized to include in a unit for the same pool. 390 Such orders do not become operative until the requisite 66 2/3 percent of the new ownership interest has ratified the extension. 387 Finally. 387 388 Id. If the appropriate percentage of interest-holders has not ratified an agreement within six months of the order date. 389 Ala. the Board will reallocate production to include the correct proportion of the new area. 389 Additionally. 390 Id. In such a case. Unit operation orders become effective only after the unitization plan prescribed by the Board is signed or ratified in writing by the owners of not less than 66 2/3 percent in interest as costs are shared and revenue is distributed pursuant to Section 9-17-83(3). Id. as provided in the preceding paragraph. with a six-month deadline for doing so. the order will be revoked automatically. § 9-17-85(b)(2). subject to Board approval. and up to 50 percent greater. if owners voluntarily pool. 391 Id.drained and that the owners of those excess acreage cannot otherwise receive their just and equitable share of production from the pool being so drained. the Board may amend unitization orders to add to unit operations pools or portions thereof not included and may extend the unit area as required. 391 [5] – Directional Drilling. the law provides that the owners can agree to the establishment of production units containing as much or more acreage than the Board provided or has the authority to provide for the same pool. 388 [4] – Minimum Operator Control. § 9-17-85(a). Such unit may not be in excess of the same limits given to the board. 74 .

That section states that if the operator.All wells must maintain a vertical wellbore unless the operator obtains a permit allowing otherwise. deepening. 75 . including “to offer each non-consenting owner the opportunity to lease or farm out on reasonable terms or participate in the cost and risk of developing and operating the unit well involved on reasonable terms.01(4)(a) (2010). and completing that well. 400-1-2-.01(4)(d). if the operator requests. plugging back. or the operator together with the consenting owners.” then the pooling or integration order will. or does not agree to do so. Section 9-17-13(c)(5) seems to incentivize such offers. among other things. then there will be charged to that owner 150 percent of the tract’s or interest’s share of the actual and reasonable costs of drilling. 394 392 393 Ala. also provide that if the non-consenting owner does not pay his or her proportionate costs within a certain period. own a majority in interest of the unit and the operator has made a good faith effort to negotiate with each non-consenting owner to have that owner’s interest voluntarily integrated or pooled into the unit. 400-1-2-. Admin. testing. r. Code § 9-17-13(c)(5) (2010). 394 Ala. reworking. 392 The permit must provide that the bottom of the wellbore remains in compliance with spacing provisions. Code r. The Statute does not appear to require the operator to extend an option to participate. Id. However. 393 [6] – Options. Permits must be obtained even if the purpose of deviation is to drill around an obstruction.

396 In making appointments to the Commission.05.05. 398 The term of office of each member is six years. upon the expiration of a term.005 (2010). reservoir engineering. for the purposes of this subparagraph. 399 Id. 397 Id.§ 03. 76 . 398 Id. shall continue to hold office until a successor is appointed and qualified. or a combination thereof. This member shall serve as chair for a term of four years but may not be appointed for successive terms as chair of the Commission. or (B) has earned a degree from a university in the field of engineering and has at least 10 years of professional subsurface experience in the oil and gas industry in drilling. Id.005(a).05.01 Analysis of Alaska Regulatory Framework. a person meets the requirement of earning a degree in the field of engineering if the person obtains an undergraduate or graduate degree in engineering that meets the requirements for program accreditation by the Engineering Accreditation Commission of the Accreditation Board for Engineering and Technology and 395 396 Alaska Stat. has qualified as a petroleum engineer. well operations. 395 [2] – Membership on the Board. A Commissioner. § 31. [1] – Name of the Governing Body. under regulations adopted to implement that chapter. § 31. 399 Members shall be qualified as follows: (1) one member shall be a petroleum engineer who: (A) holds a certificate of registration as an engineer under AS 08.007(a). In Alaska.48 and. the agency with oversight of pooling is the Alaska Oil and Gas Conservation Commission (“Commission”).005(b). 397 The governor shall designate one member of the Commission as chair of the Commission. The Commission is composed of three Commissioners appointed by the governor and confirmed by the legislature in joint session. the governor shall consider and give preference to a person who demonstrates experience in oil and gas operations in the state. production process operations. § 31.05. § 31.

030(c).009. plants.05.05. (2) the making and filing of reports. producing leases. 402 Id. § 31. and drilling structures.02.05. electric logs.030(a). or (B) has earned a degree in the field of geology from a university accredited in the field of geology and has a minimum of 10 years professional experience in the field of petroleum geology. § 31.the person completes university or industry training specific to petroleum engineering that illustrates application of engineering principles to the problems encountered and methods used in the petroleum industry. 402 The Commission shall investigate to determine whether or not waste exists or is imminent. for the performance of a duty. 77 . and hydrocarbon transportation. § 31. tanks. necessary to carry out the purposes and intent of Alaska’s Oil and Gas Conservation Act. 400 Two members of the Commission constitute a quorum for the transaction of business. directional surveys. drilling logs. and all other subsurface 400 401 Id. lithologic logs. The Commission has jurisdiction and authority over all persons and property. or for the exercise of a power of the Commission. 404 Id. or whether or not other facts exist which justify or require action by it. (2) one member shall be a geologist who: (A) holds a certification as a professional geologist under AS 08. reservoir engineering.030(b). Id. fluid flow through subsurface formations. including drilling.05.05. 404 The Commission may require the following: (1) identification of ownership of wells. § 31. § 31. and (3) one member who shall have training or experience that gives the person a fundamental understanding of the oil and gas industry in the state. 401 [3] – Scope of Authority. well logs. 403 and shall adopt regulations and orders and take other appropriate action to carry out the purposes of the Act. 403 Id.011.011 and has professional experience in the field of petroleum geology. production. public and private.

producing. and (B) the well logs. unless extended by the Commission on request. 405 The Commission may regulate. or salt water. nonpotable water. for conservation purposes and. seepages. (7) every person who produces oil or gas in the state to keep and maintain for a period of five years in the state complete and accurate records of the quantities of oil and gas produced. abandonment. subject to the following: (A) the reports required to be filed by the Commission under this paragraph shall be filed within 30 days after the completion. and protect the correlative rights of persons owning interests in the tracts of land affected. 78 . abandonment. (A) the drilling. and fires. (B) the perforating. gas. (D) the disposal of salt water. (3) the drilling. § 31. and may fix these ratios. to the extent not in conflict with regulation by the Department of Labor and Workforce Development or the Department of Environmental Conservation. the intrusion of water into an oil or gas stratum. (8) the measuring and monitoring of oil and gas pool pressures. (4) the furnishing of a reasonable bond with sufficient surety conditioned for the performance of the duty to plug each dry or abandoned well or the repair of wells causing waste.information on a well for which a permit to drill has been issued by the Commission. fracture stimulation. drilling logs. the pollution of fresh water supplies by oil.030(d). for public health and safety purposes. and plugging of wells. ensure a greater ultimate recovery of oil and gas. or suspension of the well. and prevent blowouts. directional surveys. which shall be available for examination by the Commission at all reasonable times. and oil field wastes. 405 Id. electric logs. casing. and all other information required to be filed by the Commission under this paragraph shall be filed within 90 days after the completion. (6) the gauging or other measuring of oil and gas to determine the quality and quantity of oil and gas. cavings. lithologic logs. (C) the spacing of wells. (9) the filing and approval of a plan of development and operation for a field or pool to prevent waste. and chemical treatment of wells. and plugging of wells in a manner that will prevent the escape of oil or gas out of one stratum into another.05. or suspension of the well. (5) the operation of wells with efficient gas-oil and water-oil ratios.

a "nonhazardous drilling operation waste" means a waste. (F) the quantity and rate of the production of oil and gas from a well or property. § 31.030(e)(2). the Commission shall require the operator to 406 407 Id. § 31. part 261. the Commission may not issue a permit to drill if the well would be used to produce gas from an aquifer that serves as a source of water for human consumption or agricultural purposes unless the Commission determines that the well will not adversely affect the aquifer as a source of water for human consumption or agricultural purposes or allow injection of produced water except at depths below known sources of water for human consumption or agricultural purposes. the Commission is charged to regulate hydraulic fracturing to ensure protection of drinking water quality and regulate the disposal of wastes produced from the operations unless the disposal is otherwise subject to regulation by the Department of Environmental Conservation or the United States Environmental Protection Agency. 407 For exploration and development operations involving nonconventional gas. 409 Id.05.030(j)(2)(A)-(B). the regulation that identifies and lists hazardous wastes associated with the act of drilling a well for exploratory or production purposes. 409 As a condition of approval of a permit to drill a well for regular production of coal bed methane.030(j)(1). (G) the underground injection of gas for purposes of storage.05. § 31. other than a hazardous waste identified by the Environmental Protection Agency in Title 40 of the Code of Federal Regulations.05. Id.030(e)(1). § 31. 408 Id. and nonhazardous drilling operation wastes in the annular space of a well for which a permit to drill has been issued by the Commission.05. 406 The Commission may also regulate the disposal of drilling mud. As used here. cuttings. 408 For exploration and development operations involving nonconventional gas.(E) the contamination or waste of underground water. 79 .

05.100(a).110(a). or the reduced recovery which might result from too small a number of wells. 415 A separate permit application must be submitted for each well. 413 including the authority to provide for unitized operation of a pool.05. § 31. 416 The permit application must be in the form required by the Commission and include all information required by the Commission. 414 [4] – Process for Pooling and Matters Covered. A person shall apply for and receive a permit from the Commission before drilling a well in search of oil or gas. 411 The establishment of a unit for gas shall be limited to the production of gas. 414 Id. 418 taking into consideration 410 411 Id. a well in support of the recovery or production of oil or gas. upon proper petition. or an underground injection well for which the state has acquired primary enforcement responsibility. to protect and enforce the correlative rights of lessees in a pool. 412 Finally. and to avoid the augmenting and accumulation of risks arising from the drilling of an excessive number of wells. 410 The Commission has authority to establish a drilling unit or units for each pool in order to prevent waste. the Commission.05. 413 Id.05.090(b). power. § 31. 416 Id. and it is its duty.05. 418 Id. 417 Id. § 31. § 31. to make and enforce orders and to do the things necessary or proper to carry out the purposes of Alaska’s Oil and Gas Conservation Act.030(j)(2)(C).090(c). and authority. 415 Id. 80 . Id.design and implement a water well testing program to provide baseline data on water quality and quantity and shall make the results of the water well testing program available to the public.110(b).090(a). 412 Id. after notice and hearing. an underground injection well for the purpose of gas storage.417 The Commission shall promptly approve or deny a permit application. 31. has jurisdiction. § 31.05. § 31.05.

422 The Commission shall enter its order within 30 days after the hearing. § 31. 424 Id. the Commission may. 81 . § 31. 423 For an action that involves the exploration for or development of nonconventional gas and that has application to a single well or a single field.whether the proposed well is contrary to Alaska oil and gas laws or regulations. or upon the petition of an interested person.090(d). the Commission may approve the variance if: (1) the approval provides at least an equally effective means of accomplishing the requirement set out in the Commission's regulation or the Commission determines that the request is more appropriate to the proposed operation than compliance with the requirement of the regulation. or term of a permit issued by the Commission. upon the request of a lessee or operator. or any order.05.060(a). approve a variance from the Commission's regulations that apply to the well or field without providing notice and opportunity to be heard. and (2) the terms of the approval of the variance may include exempting the lessee or operator from a requirement of a regulation if the Commission determines that the requirement is not necessary or not suited to the well or field. § 31.05. whether the applicant is in violation of any Alaska oil and gas law or regulation or any order. the 419 420 Id.05. where operations might be unduly delayed. 421 The hearing shall be held without undue delay after the filing of the petition. stipulation. 424 In the exercise of its authority to issue the variance. Id. the Commission shall promptly fix a date for a hearing and shall cause notice of the hearing to be given. taking into consideration the nature of the operation involved. 422 Id. stipulation. 420 On the filing of a petition concerning a matter within the jurisdiction of the Commission. 421 Id. 423 Id.060(c). 419 The Commission may act upon its own motion. or term of a permit issued by the Commission and the magnitude of such violation.

Id.100(b).characteristics of the well or field for which the variance is sought. and the producer of the well drilled as an exception will be allowed to produce no more than a just and equitable share of the oil and gas in the pool. after notice and hearing. The establishment of a unit for gas shall be limited to the production of gas. to protect and enforce the correlative rights of lessees in a pool. 425 [a] Establishment of Drilling Units.05. The Commission has authority to establish a drilling unit or units for each pool in order to prevent waste. 428 If an exception is granted. the Commission must offset any advantage the person securing the exception may have over other producers by drilling the well as an exception and so that drainage from developed units to the tract with respect to which the exception is granted will be prevented or minimized. persons owning the drilling rights in it and the right to share in the production from 425 426 Id. § 31.060(c). 428 Id. or where topographical conditions make drilling at such a location unduly burdensome.05. and to avoid the augmenting and accumulation of risks arising from the drilling of an excessive number of wells or the reduced recovery which might result from too small a number of wells. or for some other reason a well so located on the unit would be nonproductive. § 31. 429 Id.100(a). § 31. 427 Exceptions to the rules and spacing pattern may be granted where it is shown. that the unit is partly outside the pool. 426 Each permitted well on a drilling unit shall be drilled under the rules and regulations and in accordance with the spacing pattern as the Commission prescribes for the pool in which the well is located. and the reasonably anticipated risks of the exemption from the requirement to human safety and the environment.05. 429 When two or more separately owned tracts of land are embraced within an established drilling unit. 82 . 427 Id.

when produced. the Commission shall determine the proper costs upon notice to all interested parties and hearing. 432 Id. 430 If the persons do not agree to pool their interests. 433 The portion of the production allocated to the lessee of each tract included in a drilling unit formed by a pooling order shall. 436 Id. § 31. including a reasonable charge for supervision.434 If pooling is effectuated. 437 Id. 83 . 432 Operations incident to the drilling of a well upon a portion of a unit covered by a pooling order shall be considered for all purposes to be the conduct of the operation upon each separately owned tract in the unit by the several lessees of it. Id. for the protection of correlative rights. the Commission may enter an order pooling and integrating their interests for the development of their lands as a drilling unit for the prevention of waste. 436 In the event of a dispute relative to the costs. production from the unit belonging to such lessee. 434 Id. and only out of. 435 As to lessees who refuse to agree upon pooling. the order shall provide for reimbursement for costs chargeable to each lessee out of. 433 Id.it may agree to pool their interests and develop their lands as a drilling unit. or to avoid the drilling of unnecessary wells. 431 Orders effectuating pooling shall be made after notice and hearing and shall be upon terms and conditions that will afford the owner of each tract the opportunity to recover or receive the owner's just and equitable share of the oil and gas in the pool without unnecessary expense. 435 Id.05.100(c). 437 Appeals may be taken from the 430 431 Id. the cost of development and operation of the pooled unit chargeable by the operator to the other interested lessee is limited to the actual and reasonable expenditures for this purpose. be considered as if it had been produced from the tract by a well drilled on it.

and if the Commission is without authority to require pooling as provided by law. if any. the lessee of each tract embraced within the drilling unit may drill on the lessee's tract. 440 The Commission shall. 442 Id. as provided above. then in addition to any other right conferred by the pooling order. 442 If persons owning the drilling or other rights in separate tracts embraced within a drilling unit fail to agree upon the pooling of the tracts and the drilling of the well on the unit. the lessee drilling or operating has a lien on the share of production from the unit accruing to the interest of each of the other lessees for the payment of the proportionate share of such expenses. require the operator. but the allowable production from the tract shall be the proportion of the 438 439 Id. or pays the expense of drilling and operating the well for the benefit of others. 84 . Id.100(d). but subject to the right of the operator to market production and collect the proceeds with respect to a lessee in default.05. upon request of a lessee. with the balance. § 31. 441 Id. to deliver to the lessee or assigns the lessee's proportionate share of the production from the well common to the drilling unit. subject to all other applicable provisions of law.438 If a lessee drills and operates. or so much of the oil and gas subject to the lien as is necessary shall be marketed and sold by the creditor. payable to the debtor.determination as from any other order of the Commission. 440 Id. then. in all instances where a unit has been formed out of lands or areas of more than one ownership. and the proceeds applied in payment of the expenses secured by the lien. 439 All the oil and gas subject to the lien. 441 The lessee receiving a share shall provide at the lessee's own expense proper receptacles for the receipt and storage of it.

correlative rights protection. and it is its duty. cycling operations. power. pressure-maintenance or repressuring operations. development. § 25. upon proper petition. which plan must provide for waste prevention. § 25. and operation of those tracts as a unit. 447 Alaska Stat. (c). has jurisdiction. and greater recovery of oil and gas. § 31. 447 Upon the filing of a petition by or with the Commission. 445 Prior to beginning production from the oil or gas pool.518 (2010). and after notice and hearing. to ensure a greater ultimate recovery of oil and gas.110(a) (2010).05. 446 Where parties have not agreed to integrate their interests. To prevent waste. Id. 443 444 Id. and authority. 445 Alaska Admin.100(e). 20. § 31. or any combination of these.allowable production for the full drilling unit as the area of the separately owned tract bears to the full drilling unit. the operator must submit to the Commission a plan of development and operation for the pool where conduct is contemplated.517 (a). Code tit. 443 [b] Unitization and Integration by Agreement.444 Such voluntary integration agreements must be filed with the Commission not later than 30 days after the agreement’s execution. 85 . 446 Id.110(a). and to protect their correlative rights. § 31. to make and enforce orders and to do the things necessary or proper to carry out the purposes of Alaska’s Oil and Gas Conservation Act.05. the Commission. water flooding operations. after notice and hearing.05. persons owning interests in tracts of land may validly integrate their interests to provide for the unitized management. the Commission will issue an order creating the unit and providing for the unitized operation of the pool if it finds that: (1) the unitized management. or any other form of joint effort calculated to substantially increase the ultimate recovery of oil and gas from the pool. operation and further development of a pool or portion of a pool is reasonably necessary in order to effectively carry on pressure control.

if any. 453 The plan of unitization for each unit and unit area shall be suited to the needs and requirements 448 449 Id. 451 Only so much of a pool or pools as has been defined and determined to be productive on the basis of information available to the Commission may be so included within the unit area. § 31. 451 Id. § 31. Id. and (4) the unitization and adoption of one or more of the unitized methods of operation is for the common good. 448 The petition shall set out a description of the proposed unit area with a map or plat of it attached.(2) one or more of the unitized methods of operation as applied to the pool or portion of it is feasible. and that the conduct of it will have no material adverse effect upon the remainder of the pool.05. 452 A unit may be created to embrace less than the whole of a pool only where it is shown by the evidence that the area to be so included within the unit area is of a size and shape as may be reasonably required for the successful and efficient conduct of the unitized method of operation for which the unit is created. shall allege the existence of the facts required to be found by the Commission and shall have attached to it a recommended plan of unitization applicable to the proposed unit area and which the petitioner considers to be fair. 453 Id.450 Each unit and unit area may be limited to all or a portion of a single pool. (3) the estimated additional cost.110(b). 449 The order of the Commission shall define the boundary of the area to be included within the unit area and prescribe with reasonable detail the plan of unitization applicable to it.05. of conducting such operations will not exceed the value of the additional oil and gas so recovered. 450 Id. reasonable and equitable. 452 Id.110(c). 86 . and will prevent waste and will with reasonable probability result in the increased recovery of substantially more oil and gas from the pool than would otherwise be recovered.

including the method of arriving at the compensation for it. equitable and reasonable share of the unit production or other benefits of it. [1] – Mineral Distinctions. their fair. instead thereof. and equitable provisions for: (1) the efficient unitized management or control of the further development and operation of the unit area for the recovery of oil and gas from the pool affected. boards or officers to function under the authority of the operating committee as may be necessary.02 Types of Alaska Pooling Statutes. defining the powers and duties of all the committees. (7) the time when and the conditions under which and the method by which the unit shall or may be dissolved and its affairs wound up. 454 455 Id. among and to the several separately owned tracts within the unit area such as will reasonably permit persons otherwise entitled to share in or benefit by the production from such separately owned tracts to produce and receive. together with the creation or designation of other subcommittees. (5) the creation of an operating committee to have general overall management and control of the unit and the conduct of its business and affairs and the operations carried on by it. 455 § 03. (3) the manner in which the unit and the further development and operation of the unit area shall or may be financed and the basis. reasonable. or of otherwise proportionately equalizing or adjusting the investment of the several lessees in the project as of the effective date of unit operation. including a detailed accounting procedure governing all charges and credits incident to such operations. equipment and other properties of the several lessees within the unit area are to be taken over and used for unit operations. Id. boards and officers.454 Each plan of unitization shall contain fair. terms and conditions on which the cost and expense of it shall be apportioned among and assessed against the tracts and interests made chargeable with it. and prescribing their tenure and time and method for their selection.of the particular unit dependent upon the facts and conditions found to exist with respect to it. (6) the time when the plan of unitization becomes effective. (2) the division of interest or formula for the apportionment and allocation of the unit production. proper or convenient in the efficient management of the unit. (4) the procedure and basis upon which wells. 87 .

a wellbore may be open to test or regular production within 500 feet of a property line only if the owner is the same and the landowner is the same on both sides of the line. (2) for a well drilling for gas. a wellbore may be open to test or regular production within 1. other than gas produced in association with oil and commonly known as casinghead gas. the drilling unit for the pool is a governmental quarter section."Gas" includes “all natural gas and all hydrocarbons produced at the wellhead not defined as oil.520.05.” 456 “Oil" includes “crude petroleum oil and other hydrocarbons regardless of gravity which are produced at the wellhead in liquid form and the liquid hydrocarbons known as distillate or condensate recovered or extracted from gas.500 feet of a property line only if the owner is the same and the landowner is the same on both sides of the line.170(9). Alaska law does not differentiate spacing or pooling regulation based on the actual proposed well depth. Id. not more than one well may be drilled to and completed in that pool on any governmental quarter section. (3) if oil has been discovered. 456 457 Id. the following statewide spacing requirements apply: (1) for a well drilling for oil. The Commission will. [3] – Size and Spacing Rules. In the absence of an order by the Commission establishing drilling units or prescribing a spacing pattern for a pool.” 457 The Alaska Oil and Gas Conservation Law does not provide a definition for coal bed methane gas. § 31. in its discretion. § 31. [2] – Split by Depth. establish drilling units to govern well spacing and prescribe a spacing pattern by pool rules adopted in accordance with title 20 of Alaska Administrative Code section 25.000 feet to any well drilling to or capable of producing from the same pool. a well may not be drilled or completed closer than 1.05. 88 .170(6).

The applicant for an exception shall send notice of the application by certified mail to the owners. and operators of all properties within 1. a well may not be drilled or completed closer than 3. 20.540. showing the location of the well for which the exception is sought. the date of mailing. unless the interests of the persons owning the drilling rights in and the right to share in the production from the quarter section or section. landowners. 89 . and all adjoining properties and wells. 460 458 459 Alaska Admin. 458 A well may not begin regular production of oil from a property that is smaller than the governmental quarter section upon which the well is located or begin regular production of gas from a property that is smaller than the governmental section upon which the well is located.05. (2) a plat drawn to a scale of one inch equaling 2. all other completed and drilling wells on the property. Alaska Stat.000 feet of a well drilling for oil or within 3. respectively.055 (2010).000 feet to any well drilling to or capable of producing from the same pool. not more than one well may be drilled to and completed in that pool on any governmental section. § 25. and (3) an affidavit by a person acquainted with the facts. the drilling unit for the pool is a governmental section.170(9) (2010). 459 The Commission will review an application for an exception to the provisions of this section in accordance with title 20 of Alaska Administrative Code section 25. and operators described above and shall furnish the Commission with a copy of the notice. A pooling agreement must be filed with the Commission before regular production from the affected property begins. Code tit. landowners.640 feet or larger. § 31.(4) if gas has been discovered. 460 Id. The application must include: (1) the names of all owners. and the addresses to which the notice was sent. verifying that all facts are true and that the plat correctly portrays pertinent and required data.000 feet of a well drilling for gas for which an exception is sought. have been pooled.

463 For those wells that are within 200 feet of the proposed wellbore. § 25. 461 462 Id. Alaska Admin.050(a)(1) (2010). § 25.050(b)(2).050(b)(1). providing said owners with a copy of the application via certified mail. 461 [4] – Minimum Operator Control. 20. Neither the statutes nor Commission regulations specify a minimum proportional threshold need of all relevant owners to approve pooling or unitization orders. Code tit. or a statement that the applicant is the only owner affected by the proposed deviation.Upon application by the operator. 90 . Deviations that are permissible are those for correcting issues that arise during drilling. the application must include the names of all operators affected. 463 Id. Wells that are not intentionally deviated must be drilled as much as possible in a vertical direction using conventional drilling techniques. the drilling permit application must include a plat showing the proposed wellbore and all adjacent wellbores within 200 feet of any portion of the proposed well. § 25. to the extent discoverable. 464 [6] – Options. 464 Id. 462 For wells that will be intentionally deviated from the vertical. the Commission will establish notice requirements different from those above if the operator demonstrates to the Commission's satisfaction that compliance with the notice requirements of this section is not feasible because of the complexity of ownership within the notice area. [5] – Directional Drilling.

91 . 465 Alaska law does not provide statutory standards to dictate options and similar carrying arrangements.110(c)(3) (2010). § 31.Each plan of unitization must include a fair provision for carrying or otherwise financing lessees unable to meet the upfront financial burden of drilling.05. 465 Alaska Stat.

468 Id. investigation or proceeding held under Arizona law relating to conservation of oil and gas. who has no vote. § 27-514(B).§ 04. 466 [2] – Membership on the Governing Body. Stat. The Commission administers and enforces the provisions of Arizona law relating to the conservation of oil and gas. 470 The Commission may do the following: (1) Administer oaths to a witness in any hearing. at any time. Ann. and records deemed material or necessary. and five members to be appointed by the governor. [1] – Name of Governing Body. machinery. 467 The Arizona Geological Survey shall provide staff support to the Commission as needed. and appliances necessary to gauge the wells. 466 467 Ariz. papers. § 27-515(A). § 27-515(A) (2010).01 Analysis of Arizona Regulatory Framework. 92 . Three members of the Commission constitute a quorum for the transaction of business. Rev. (2) Issue subpoenas requiring attendance and testimony of witnesses and production of books. 470 Id. Oil and gas production in Arizona is governed by the state’s Oil and Gas Conservation Commission (“Commission”). The Commission consists of the State Land Commissioner ex officio. 469 The Commission and administrative staff may. The appointed members must be United States citizens and shall have been residents of Arizona for not less than the five years immediately preceding their appointment. Id. enter upon property and inspect wells drilled for oil or gas and well records and shall control property. 469 Id. no more than three of whom may be of the same political party. and direct service of subpoenas by a sheriff or other officer authorized by law to serve process. 468 [3] – Scope of Authority.

In order to prevent waste. including drilling records and logs. the 471 472 Id. permit the cycling of gas in any pool or portion thereof or the introduction of gas or other substance into an oil or gas reservoir for the purpose of re-pressuring the reservoir. and gauge oil and gas wells. 473 Id. and to avoid augmentation and accumulation of risks arising from drilling an excessive number of wells. but not limited to. 472 The Commission may. (5) Publish technical maps. reproduction and distribution. (4) examine. maintaining pressure. The Commission will permit the pooling or integration of separate tracts when reasonably necessary in connection with the operations. In the exercise of such power the Commission may: (1) collect data. papers. 93 . to protect and enforce the correlative rights of owners in a pool. (6) require keeping of records and making of reports. and reports and sell these materials for a fee to cover the costs incurred in their preparation. (3) examine property. (5) hold hearings. (7) take action necessary to enforce and effectuate the provisions of Arizona oil and gas conservation laws. (2) make investigations and inspections. § 27-503(C). § 27-503(A)–(B). and records. books. check. and modes of transportation. test. § 27-515(B). tanks. in order to prevent waste and avoid drilling unnecessary wells. reproduction of records and copies of rules. refineries. cross sections. 471 The Commission must make inquiries deemed proper to determine whether waste exists or is imminent. Id.(3) Prescribe rules and do all acts necessary or advisable to carry out its duties. leases. (4) Collect fees to cover the costs of services including. 473 [4] – Process for Pooling and Matters Covered. or reduced recovery which might result from too small a number of wells. or carrying on secondary recovery operations of any type.

the Commission may enter an order pooling and integrating their interests for the development of their lands as a drilling unit.476 Exceptions to the rules and spacing pattern may be granted where it is shown. the Commission must take action to offset any advantage to the person securing the exception over other producers and so that drainage from developed units to the exceptional tract is prevented or minimized. a well so located on the unit would be non-productive. after a hearing. 94 . 477 Id. after notice and hearing. for some other reason. 480 Id. establish a drilling unit or units for each pool. 481 Orders effectuating pooling must be made after notice and hearing and upon terms and conditions that will afford the owner 474 475 Id. § 27-504(C). 475 Each well permitted on a drilling unit will be drilled under the applicable rules and regulations and in accordance with the applicable spacing pattern prescribed by the Commission. 476 Id. 478 Id. 477 Exceptions permitting a proposed well to be drilled on an unconventional location may be granted on the basis of topography or terrain without notice or hearing. § 27-504(B). 478 If an exception is granted. 481 Id.Commission must. 474 The establishment of a unit for gas will be limited to the production of gas. § 27-505(A). 480 If they do not agree to pool their interests. persons owning the drilling rights and the right to share in the production from those tracts may agree to pool their interests and develop their lands as a drilling unit. that the unit is partly outside the pool or. § 27-504(A) Id. 479 When two or more separately owned tracts of land are embraced within an established drilling unit. 479 Id. and the producer of the well drilled as an exception will be allowed to produce no more than a just and equitable share of the oil and gas in the pool.

to be the conduct of operations upon each separately owned tract in the unit by the several owners thereof. production from the unit belonging to that owner. including a reasonable charge for supervision. when produced. as they may do from any other order of the Commission. in addition to any other rights conferred by the pooling order. for all purposes. be considered as if it had been produced from the tract by a well drilled thereon. or pays the expense of drilling and operating the well for the benefit of others. 489 All the oil and gas subject to the lien. or as much as necessary. 488 Id. 489 Id. 483 The portion of the production allocated to the owner of each tract included in a drilling unit formed by a pooling order will. 95 . Id. the cost of development and operation of the pooled unit chargeable by the operator to other interested owners will be limited to the actual and reasonable expenditures required for that purpose. 486 Id. 484 Id. the Commission will determine the proper costs.of each tract the opportunity to recover or receive his just and equitable share of the oil and gas in the pool without unnecessary expense. 487 Id. 484 If pooling takes place. that owner or owners is entitled to a lien on the share of production from the unit accruing to the interest of each of the other owners for the payment of his proportionate share of the expenses. must be marketed and sold by the creditor and the 482 483 Id. 485 As to owners who refuse to agree to pool their interests.488 If one or more of the owners drills and operates. the order shall provide for reimbursement for costs chargeable to each owner out of. 482 Operations incident to drilling a well upon any portion of a unit covered by a pooling order will be deemed. 485 Id. 486 In the event of a dispute relative to costs. and only out of. 487 Parties may appeal from the Commissioner’s determination of costs. then.

493 Id. § 27-505(C). upon notice and hearing. § 27-505(B). the owner of each tract within the drilling unit may drill on his tract. or to protect the correlative rights of the 490 491 Id. § 27-506(A). 490 The Commission shall. require the operator. 492 If the persons owning and drilling or exercising other rights in separate tracts within a drilling unit fail to agree to the pooling of the tracts and drilling of a well on the unit. 492 Id. and if the Commission is without authority to require pooling. 491 The owner receiving his share shall provide at his own expense proper receptacles for the receipt and storage thereof. to ensure a greater recovery of gas or oil.proceeds applied in payment of the expenses secured by the lien. upon request of an owner. then. Id. regulate the drilling and location of wells in any pool and the production therefrom in order to prevent reasonably avoidable net drainage from each developed unit so that each owner in a pool can recover his fair and equitable share of recoverable oil and gas in the pool. to deliver to the owner or his assigns his proportionate share of the production from the well common to the drilling unit. with the balance if any payable to the debtor. 96 . in all instances where a unit has been formed from lands or areas of more than one ownership. 494 Id. subject to all other applicable provisions of law. development. 493 The Commission shall. 494 Persons owning interests in tracts of land may voluntarily integrate their interests to provide for the unitized management. and operation of those tracts as a unit to prevent waste. but the allowable production from the tract must be only the proportion of the allowable production for the full drilling unit as the area of such separately owned tract bears to the full drilling unit.

499 Id. water flooding operations. and further development of a pool or portion thereof is reasonably necessary in order to effectively carry on pressure control. 495 Where there is no voluntary agreement to unitize interests. operation. and (2) One or more of the unitized methods of operation as applied to such pool or portion thereof are feasible. 500 The plan of unitization for each unit 495 496 Id. and (3) The estimated additional cost. 497 Id. of conducting such operations will not exceed the value of the additional oil and gas so recovered.various owners. 97 . the Commission. 496 The order of the Commission shall define the area of the pool or portion thereof to be included within the unit area and prescribe with reasonable detail the plan of unitization applicable thereto. § 27-531(A)–(B). with reasonable probability. cycling operations. 499 A unit may be created which contains less than the whole of a pool only if it is shown by the evidence that the area to be included within the unit area is of a size and shape that is reasonably required for the successful and efficient conduct of the unitized method of operation will have no material adverse effect upon the remaining portions of the pool. or any combination thereof. upon proper petition. pressure-maintenance or repressuring operations. or any other form of joint effort calculated to substantially increase the ultimate recovery of oil and gas from the pool. Id. § 27-531(A). § 27-532. 500 Id. result in the increased recovery of substantially more oil and gas from the pool than would otherwise be recovered. 497 Each unit and unit area shall be limited to all or a portion of a single pool. will prevent waste and will. 498 Id. 498 Only so much of a pool as has been defined and determined to be productive of oil and gas by actual drilling operations may be included within the unit area. if any. after notice and hearing may make an order providing for the unitized operation of a pool or part thereof if it finds that: (1) The unitized management.

and unit area must be one suited to the needs and requirements of the particular unit dependent upon the facts and conditions found to exist. terms. (4) The procedure and basis upon which wells. their fair. and conditions on which costs and expenses will be apportioned among the tracts. The designation of the unit operator shall be by vote of the lessees in the unit in a manner provided in the plan of unitization and not by the Commission. Under such a plan the actual operations within the unit area may be carried on in whole or in part by the unit itself. 501 In addition to the terms. in respect to which each person shall have a vote with a value corresponding to the percentage of the costs of unit operations chargeable against the interest of such person. among and to the several separately owned tracts within the unit area as will reasonably permit persons otherwise entitled to share in or benefit by the production from the separately owned tracts to produce and receive. (5) The supervision and conduct of the unit operations. including a detailed accounting procedure governing all charges and credits incident to those operations. provisions. including the method of arriving at compensation or of otherwise proportionately equalizing or adjusting the investment of the several lessees in the project as of the effective date of unit operation. equitable. the conditions under which. conditions and requirements found by the Commission to be reasonably necessary or proper. equipment. and the method by which the unit shall or may be dissolved and its affairs wound up. (7) The time when. dependent upon what is most beneficial or expedient. (6) The time when the plan of unitization becomes effective. (2) The division of interest or formula for the apportionment and allocation of the unit production. or by one or more of the lessees within the unit area as the unit operator subject to the supervision and direction of the unit. 98 . 502 501 502 Id. Id. in lieu thereof. (3) The manner in which the unit and the further development and operation of the unit area will be financed and the basis. reasonable and equitable provisions for the following: (1) The efficient unitized management or control of the further development and operation of the unit area for the recovery of oil and gas from the pool affected. and other properties of the lessees within the unit area are to be taken over and used for unit operations. and reasonable share of the unit production or other benefits. each plan of unitization shall contain fair.

505 Id.An order providing for unit operations may be amended by an order made by the Commission. § 27-533(C). Natural gas and casinghead gas are further defined as follows: (a) ‘natural gas’ means any combustible gas or vapor composed chiefly of hydrocarbons occurring in gaseous or vapor phase at initial reservoir conditions.” 506 503 504 Id. all other hydrocarbons not defined as oil. casinghead gas. 503 The Commission. Id. and the portion of the unit production allocated to it shall then be allocated among the separately owned tracts included in the previously established unit area in the same proportions as those specified in the previous order. "Gas" means “natural gas. 99 . § 25-501(9). except with the consent of all persons owning interests in that tract. [1] – Mineral Distinctions. in the same manner and subject to the same conditions as an original order providing for unit operations. 506 Id. and helium or other substances of a gaseous nature.02 Types of Arizona Pooling Statutes. may provide for the unit operation of a pool or a part thereof that embraces a unit area established by a previous order of the Commission. by an order. the approval of the amendment by the royalty owners shall not be required. shall first treat the unit area previously established as a single tract.504 Such an order. Provided that. (1) if an amendment affects only the rights and interests of the owners. and (2) no order of amendment shall change the percentage for allocation of oil and gas as established for any separately owned tract by the original order. in providing for the allocation of unit production. (b) ‘casinghead gas’ means any gas or vapor indigenous to an oil stratum and produced from such stratum with oil. carbon dioxide. § 27-533(B). 505 § 04.

Arizona law does not differentiate based upon depth. 512 Every well drilled for gas shall be located on a drilling unit consisting of approximately 640 but not less than 600 contiguous surface acres within one governmental section upon which there 507 508 Id. Admin. Code § 12-7-107(A) (2010). upon which there is not located. Every well drilled for oil shall be located on a drilling unit consisting of approximately 80 contiguous surface acres within two governmental quarter-quarter sections or lots having one side in common. and its maximum dimension shall not exceed 3. 509 The unit shall contain at least 76 contiguous surface acres. 511 No well drilled for oil shall be located within a quarter-quarter section or lot having one side in common with another quarterquarter section or lot upon which there is located a well completed in or drilling to the same pool. 509 Id. any other well completed in or drilling to the same pool.” 507 [2] – Split by Depth. Ariz. which are produced at a well in liquid form by ordinary production methods and which are not the result of condensation of gas. 100 . 512 Id. § 12-7-107(A)(2). § 12-7-107(A)(3). 510 Id. [3] – Size and Spacing Rules."Oil" means “crude petroleum oil and all other hydrocarbons. § 12-7-107(A)(1). 508 In areas not covered by United States Public Land Surveys. regardless of gravity. and of which no part is attributed to. 510 No well drilled for oil shall be located closer than 330 feet to any boundary of the drilling unit or closer than 330 feet to the shortest center line of the drilling unit.000 feet. 511 Id. § 25-501 (13). the oil drilling unit shall consist of an area bounded by four sides intersecting at angles of not less than 85 degrees or more than 95 degrees.

521 If an existing well's 513 514 Id. § 12-7-107(E)(3). 517 The Commission may grant exceptions to the regular locations specified above only after notice and hearing.660 feet from the boundary of the spacing unit in the case of a gas well. Id. § 12-7-107(E). § 12-7-107(B)(1) (2010). § 12-7-107(E)(2) (2010). any other well completed in or drilling to the same pool. § 12-7-107(E)(1). 519 Id. 517 Id. drilling. the gas drilling unit shall consist of an area bounded by four sides intersecting at angles of not less than 85 degrees or more than 95 degrees. 514 The unit shall contain at least 600 contiguous surface acres and its maximum dimension shall not exceed 8.is not located. 515 No well drilled for gas shall be located closer than 1. and permitted wells on the property and all adjoining surrounding properties and wells. 519 Exceptions shall be granted only after the operator provides by certified mail a copy of the application to all adjoining lessees and only after the Commission determines in a duly noted public hearing that the application is valid. 516 If the operator drills a horizontal segment. 518 Id. at least 1. 513 In areas not covered by United States Public Land Surveys. § 12-7-107(B). and as approved or modified by the Commission in the case of a geothermal well. § 12-7-107(B)(2). and of which no part is attributed to. 521 Id. § 12-7-107(D).500 feet. 516 Id. 518 Applications for exception shall fully state the reasons why the exception is necessary and shall include a plat prepared and certified by a registered surveyor bearing the surveyor's certificate number showing all other completed. 520 Id. 520 The Commission may grant an exception location without notice or hearing when topography prohibits drilling at a regular location on the drilling unit. that horizontal segment shall be located as follows: at least 330 feet from the boundary of the spacing unit in the case of an oil well. 515 Id. 101 .660 feet from any boundary of the drilling unit.

Rev. If the amendment only affects the rights of owners. § 12-7-107(E)(4). § 27-533(B). 524 Id. Ann. Ariz. 522 523 Id. The Commission must make a finding. 522 [4] – Minimum Operator Control. royalty owner approval is not required. Said approval must be given within six months of the original unitization order. 524 [5] – Directional Drilling. that the required percentage has so approved. 523 Unitization orders may be amended under the same conditions and subject to the same procedure as the original unitization order.classification changes due to its recompletion or due to a change in the nature of the product being produced. The Commission may hold supplemental hearings upon notice and petition. No order of the Commission for unitization becomes effective until the plan providing for unit operations has been signed or approved in writing by lessees of not less than 63 percent of the unit area and by owners of not less than 63 percent (exclusive of royalty interest owned by lessees or by any lessees’ subsidiaries) of the normal 1/8th royalty interest in the unit. either in the original unitization order or in a supplemental order. Stat. provided that the operator furnish the Commission with proof of mailing of a copy of the application to all operators within a one-mile radius of the acreage to be dedicated. the Commission may approve an irregular location application with supporting data and 10 days' notice and hearing. or it will be automatically revoked. § 27-533(A) (2010). 102 . to decide if the approval has been given by the appropriate percentage of lessees and royalty owners. No amendment may alter the allocation of production for any separately owned tract in the original order without consent of all parties owning interest in that tract.

and county where the proposed well is located. The operator shall test any vertical or deviated well that is drilled or deepened at least once each 500 feet or at the first bit change succeeding 500 feet. and telephone number of the operator. Admin. 103 . lease name. Code §12-7-115 (2010). (2) The field name. reservoir name. address. or correct other mechanical difficulties. the Commission may require the operator to run a directional survey of any hole at the operator's expense.660 feet or less in the case of a gas well from the boundary of any drilling unit shall run a directional survey before running the production casing. and (5) The signature of the operator. Deviation from the vertical for short distances is permitted in the drilling of a well without special approval only to straighten the hole. The normal vertical course of a well is defined by an average deviation from vertical of not more than five degrees in any 500-foot interval. 525 An application for directional drilling shall include the following: (1) The name. sidetrack junk. Id. The operator shall tabulate all deviation tests run and file the tabulation with the Commission within 30 days after drilling is completed. state permit number.An operator drilling a well shall not intentionally deviate from the normal vertical course of the well unless the operator first files an application and obtains approval from the Commission after notice and hearing. (3) A plat or sketch showing the distance from the surface location to section and lease lines and to the target location within the intended producing interval. The Commission may require an operator to run a directional survey of any hole at the request of an offset operator at 525 526 Ariz. 527 Id. 526 The operator of any well capable of production and whose producing interval or any portion of the producing interval is located 330 feet or less in the case of an oil well or 1. well number. 527 In order to ensure compliance with these requirements. (4) The reason for the intentional deviation.

531 Ariz.the expense and risk of the offset operator unless the survey shows that the well is completed at a point outside the drilling unit or at an unauthorized point. except by approval obtained from the Commission after notice and hearing. § 27-535 (2010). Arizona law does not appear to include an election right for parties. Stat. the operator must file with the Commission a complete angular deviation and directional survey of the well. 528 Within 30 days following the completion of drilling a directionally drilled well. 529 An operator must not drill a well in a manner that results in the well crossing drilling unit lines. obtained by a well survey company. 531 528 529 Id. 530 Id. However. Id. Ann. 530 [6] – Options. 104 . Rev. the law does provide for a mandatory one-eighth royalty for owners of interest in separately owned tracts.

535 Id. § 15-71-105(c).§ 05. the governor must appoint a new member to fill the unexpired term of the previous member. a majority of which must have experience in oil or gas development. The Arkansas Oil and Gas Commission (“the Commission”) regulates pooling under the state’s Oil and Gas Conservation statute (“the Act”). § 15-71-102(b). 538 Id. Id. 537 The director serves at the governor’s pleasure as the Commission’s executive officer for oil and gas regulation. each appointed to a term of six years. 539 [3] – Scope of Authority. § 15-71-102(a). Code Ann.538 The Commission may also appoint an officer to preside over public hearings and conduct proceedings in accordance with the Act and regulations outlined below. or transportation. 537 Id. 536 Id. 536 In addition. and performs any duty or act required or authorized by the Commission. § 15-71-105(a)(1) (2010). § 15-71-106. the Commission has appointed a Director of Production and Conservation. § 15-71-103(a) –(b). 535 The Commission is led by a chairman elected from among its membership to provide a single voice for the agency’s action. 532 [2] – Membership on the Governing Body. 539 Id. [1] – Name of the Governing Body. 534 Id. The Commission consists of nine members.01 Analysis of Arkansas Regulatory Framework. 534 All Commission members must be state residents and citizens age 21 or older. 105 . 532 533 Ark. 533 In the event of a vacancy. production. § 15-71-101 (2010).

and unratable withdrawals causing undue drainage between tracts of land… 542 The Commission may: (1) collect data.] (C) Abuse of the correlative rights and opportunities of each owner of oil and gas in a common reservoir due to nonuniform. papers. tanks. equipping. unnecessary or excessive surface loss or destruction of oil or gas. 541 Waste is expressly prohibited and defined to include “physical waste. check. 543 Id. books. or improper use or dissipation of reservoir energy and the locating. drilling. 106 . in reducing the quantity of oil or gas ultimately to be recovered from any pool in this state. § 15-72-303(b).The Act was “enacted for the protection of public and private interests” and to promote waste prevention and correlative rights protection. test. equipping. or producing of any oil or gas well or wells in a manner causing. excessive. drilling. 540 541 Id. and gauge oil and gas wells. (3) examine properties. 543 In addition. The Commission has jurisdiction over all persons and property necessary to administer and enforce the Act. (5) hold hearings. refineries. the Commission may issue permits to authorize drilling and well operation. regulate the location and spacing of wells. and means of transportation. operating. or producing of any oil or gas well or wells in a manner which results. 544 Id. (6) provide for the keeping of records and the making of reports. (B) The inefficient storing of oil and the locating. disproportionate. 544 [b] Commission Procedure. and integrate production among various owners within a relevant area. §§ 15-72-302 to 304. (2) make investigations and inspections. or tending to cause. establish drilling units. operating. and (7) take any other action reasonably necessary to enforce the Act. leases. 540 [a] Matters Governed. Id. or tends to result. (4) examine. § 15-71-110(a)(1). spacing. § 15-72-102(15). § 15-72-101. 542 Id. spacing.” as well as: (A) The inefficient. [and. and records.

] or by any agent of the Commission in the same manner as provided by law for the service of summons in civil actions. 549 Id. the Commission must “give notice of the public hearing to be held upon such application by one publication at least ten days prior to the date of the hearing. 548 Id. 107 . § 15-71-110(d). § 15-72-323(1). in a legal newspaper having a general circulation in the county. Id. 545 The Commission is authorized to enact and enforce rules. 548 When an application is filed with the Commission seeking action authorized under the Act. § 15-71-103(d). regulation.The Commission may meet or hold hearings at any time and place necessary to carry out its duties. 545 546 Id. may any rule. however. regulations. 551 [4] – Process for Pooling and Matters Covered. 546 A majority of members constitutes a quorum for voting purposes. which “may be made by any officer authorized to serve process[. 547 Id. in which the lands embraced within the application are situated. regulations and orders issued by the Commission must in writing and maintained as public record. copies of which are receivable into evidence in all state courts. 547 Excluding emergencies.” 550 All rules. or order be adopted or promulgated without receiving at least five affirmative votes. regulation or order. but not more than 30 days prior thereto. the Commission may elect to give notice by personal service. the notice shall be published in a legal newspaper having state-wide circulation.” 549 In addition. or [if applicable] in each county. the Commission must hold a public hearing prior to issuing any rule. 551 Id. 550 Id. except that. in no event. § 15-71-111(e). as to any public hearing pertaining to a matter of general application throughout the State of Arkansas. § 15-72-323(1). and orders pursuant to the Act. [a] Drilling Units. § 15-71-111(d).

After notice and a hearing. 557 If such owners do not voluntarily pool their interests.” 552 A drilling unit “means a single governmental section or the equivalent [i. and [r]egulate the spacing among multiple wells drilled and produced [therein]. a 640-acre tract] unless a larger or smaller area is requested by an owner. 108 . § 15-72-302(b)(1). § 15-72-302(c)(1).e. When two or more separately owned tracts or interests are embraced within an established drilling unit. the Commission may establish drilling units “for the prevention of waste and to avoid the…accumulation of risks arising from the drilling of an excessive number of wells. 555 Id. 556 Id. The Commission will force 552 553 Id. 557 Id. 554 Id. “with such exception(s) as may be reasonably necessary where it is shown…that a well drilled at a different location is likely to prevent waste or protect correlative rights of owners within the unit.” 554 An order establishing drilling units will specify the location of the permitted well(s) thereon. the Commission may enter an order integrating the tracts and interests in the drilling unit for the development and operation of the drilling unit and sharing of production therefrom. Id. § 15-72-302(b)(2). upon the application of any interested owner or operator.” 553 The Commission may “[d]esignate the number of wells that may be drilled and produced within a drilling unit. § 15-72-303(a).” 555 The Commission must act to offset any advantage conferred by an exception to prevent drainage and ensure that “the producer of the well drilled as an exception will be allowed to produce no more than his or her just and equitable share of the oil and gas in the pool.” 556 [b] Authority to Integrate Production. the owners may voluntarily pool or integrate their tracts or interests for the development and operation of the drilling unit.

561 Id. Rule A-3(b)(2) (2011). complete. § 15-72-303(b). (4) a geologic report of the area where the drilling unit is to be located. indicating the known or potential presence of reservoirs. absent an agreement between the parties. 109 .561 In the event that there is a well capable of producing oil or gas within the drilling unit when the order is issued. Rules & Regs. (3) provide that within the time stipulated in the order.. and. Oil & Gas Commission. Code Ann. 560 Ark. (2) reasons for desiring to integrate the separately owned interests. (3) prescribe the time and manner in which all owners in the drilling unit who desire to pay their share of the operating costs and participate therein may elect to do so. Such transfer must be for a reasonable consideration that. and. § 15-72-304(a) (2010). (3) a legal land description of the drilling unit sought to be established or integrated. (2) provide who may operate the well. and 558 559 Id. § 15-72-304(b).integration if necessary to prevent waste and avoid extraneous drilling. (4) provide that an owner who does not elect to participate in the risks and costs of operations must transfer his or her rights to drill and produce from the unit well to those parties who elect to participate therein. 560 If drilling has not commenced or is incomplete as of the effective date of the pooling order. 558 An application to integrate or pool rights to develop oil or gas must contain: (1) the applicant’s name and address. Gen. said order must: (1) authorize the drilling or completion and operation of a well on the drilling unit. any owner in the drilling unit who did not participate in the drilling of the well must either reimburse the drilling parties in cash for his or her share of the actual cost of drilling. and operate the well. completing. Ark. (2) provide who may drill. the order will: (1) authorize the operation of the well. will be determined by the Commission. 559 Any compulsory pooling order must establish reasonable terms to afford each owner in the drilling unit an opportunity to recover or receive his or her just and equitable share of the oil and gas in the pool.

the Act also provides for voluntary or compulsory unitization. 110 . § 15-72-308(b). § 15-72-304(d). or any portion thereof. and. out of the share of production attributable to the interest so transferred. and by persons who at that time own legal title to 75 percent of royalties and overriding royalties payable with respect to oil or gas produced from the unit area. 564 The petition must contain: (1) a description of the proposed unit area. (2) the proposed unit operation is reasonably necessary to prevent waste. § 15-72-308(c). 565 Any person(s) authorized to do so in the proposed unitization agreement may file the petition. and protect 562 563 Id. to prevent waste. 566 The Commission will issue an order requiring unit operation in accordance with the terms of the proposed unit agreement upon finding that: (1) the proposed unit agreement has been executed by persons who. 566 Id. an amount equal to the share of the costs that would have been borne by the transferring party had he or she participated in drilling and operating the well. at the time of the filing. Upon the filing of a petition. plus an additional sum to be fixed by the Commission. Id. the Commission will hold a hearing to consider the need for unit operations of a pool. 563 In addition to pooling. § 15-72-308(a). (2) a statement of the nature of the proposed unit operation. 562 An owner of unleased mineral rights in a drilling unit will be regarded as a royalty owner to the extent of having a 1/8th interest in and to said unleased minerals. 565 Id. or transfer his or her rights in such drilling unit to the drilling parties until those parties have received. increase ultimate recovery of oil or gas. § 15-72-304(c). own legal title to at least an undivided 75 percent interest in the right to drill into and produce oil or gas from the proposed unit area. 564 Id. (3) a copy of the proposed unit operating agreement. increase ultimate recovery of oil and gas.equipping the well. and protect correlative rights.

the Commission must allocate production from each pool among the various units or wells therein in a manner that will 567 568 Id. giving to each pool with small wells of settled production an allowable that will not accelerate premature abandonment of any well. 569 Id. be charged to each separately owned tract in the same proportion that each tract shares in the unit production. Id. § 15-72-324(a). not in conflict with or inconsistent with the unit operating agreement. the order and the provisions of the unit operating agreement is binding upon each person owning an interest in. § 15-72-324(b). (3) the value of the additional oil or gas to be recovered from the proposed unit area will exceed the additional cost incident to conducting said operation. 570 Id.correlative rights. 111 . including capital investments. and equipment contributed to the unit operation. 571 Moreover. 569 [c] Limitation and Allocation of Production and Costs. the Commission must allocate allowable production among the various pools throughout the state on a reasonable basis. the Commission may limit the total amount of oil or gas that may be produced in Arkansas. § 15-72-309(b). 568 A unitization order must provide: (1) a description of the unit area. and. § 15-72-310. 570 If a limitation in production is necessary. as agreed upon within the unit operating agreement. or right to production or proceeds from in the unit area. pumps. 571 Id. § 15-72-309(a). (5) the time at which the unit operation must commence. (6) any additional provisions. To prevent waste. 567 Upon entry. materials. (3) a provision for the credits and charges to be made in the adjustment among the owners for their respective investments in wells. which the Commission determines to be appropriate for the prevention of waste and protection of all interested parties. (2) the allocation of production to each separately owned tract. tanks. and. machinery. (4) a provision that the expenses of unit operation.

“prevent or minimize reasonably avoidable drainage…and [allow each] the opportunity to produce or receive his just and equitable share…. 574 [d] Royalty Distribution. rather than upon the actual production therefrom. § 15-72-324(c). § 15-72-305(a)(3). or contract creating it. 575 Unless all royalty owners within the drilling unit agree to an alternate method. § 15-72-305(a)(1). production payment. and the net proceeds received from the sale thereof must be distributed to the owners of marketable title in and to the leasehold royalty. but computed upon the production allocated to each tract.” 572 The order of the Commission creating a drilling unit must provide that effective as of the commencement of the drilling of a well upon the drilling unit or. all royalty. (3) the 572 573 Id. if a well capable of producing oil and gas in commercial quantities has already been completed on the lands included within the drilling unit. § 15-72-305(a)(2). 112 . subject to the requirements for the prevention of waste. 574 Id. 576 Id. One-eighth of all gas sold from any unit is considered royalty gas. agreement. 575 Id. (2) each royalty owner’s tax information. Id. 576 Within 30 days of receipt of the proceeds from the gas sale. each working interest owner must provide the designated operator with the following: (1) the names and addresses of all royalty owners under the working interest owner’s leasehold. 573 The interests must be paid or delivered to each owner thereof in conformance with the provisions of the appropriate lease. or similar interests in the drilling unit must be integrated without the necessity of any additional order or action by the commission or owners. royalty distribution must comply with those provisions specified in the Act. overriding royalty.

§ 15-72-307. the operator may file an application with the Commission to request an order that requires a refusing working interest owner’s appearance at a hearing to show cause with respect to his failure to comply. [1] – Mineral Distinctions. 582 Id. the operator may notify said working interest owner of the royalty owner believed to be entitled to receive payments pursuant to the terms. is not a violation of any Arkansas statute related to trusts. 579 Alternatively. Id. 581 [e] Agreements Not Restraint of Trade. a working interest owner whose royalty obligations have not been paid may facilitate payment by either: (1) filing an application with the Commission for an order requiring the operator to show cause to justify his failure at a hearing. for which the operator will be liable for all costs and expenses arising from the litigation. or any agreement for pooled or unit operations of one or more drilling units as provided under this Act. 579 Id. (2) file a civil action to compel the operator’s compliance. any information necessary to facilitate a change in ownership therein. the operator is entitled to pay royalties as specified in the notice given. The formation of any drilling unit. contracts. or combinations in restraint of trade. 581 Id. 577 If a working interest owner fails or refuses to discharge these obligations. 580 Id. 113 . 578 If the working interest owner does not respond within 30 days.02 Types of Arkansas Pooling Statutes. and (4) if applicable.fractional interests of each owned tract within the unit. 580 If an operator fails to remit revenues in a timely manner. 577 578 Id. 582 § 05. monopolies. or.

or a combination thereof. may be drilled in an exploratory drilling unit. 585 Id. including casing head gas. 590 Id. a pool is defined as an underground reservoir containing an accumulation of crude petroleum or natural gas. § 15-71-102(3). 586 The current emphasis is on economic efficiency based on the geologic characteristics of the reservoir.. as opposed to hearing evidence on the acreage that a single well would most economically and efficiently drain. or both. Rather. § 15-71-102(7). 114 . 587 [3] – Size and Spacing Rules. gas is defined as “all natural gas. 589 Id. There is a statutory presumption in favor of 640-acre units.” 584 Further. even though 16 wells are permitted. 588 Ark. Rule B-43(i)(4). regardless of gravity.In Arkansas. 590 For horizontal wells. the external 585 There is no mention of coalbed methane in the Arkansas 583 584 Id. Gen. 589 For vertical wells.” 583 Oil includes “crude petroleum oil and other hydrocarbons. pooling statutes. which are produced at the well in the liquid form by ordinary production methods and which are not the result of condensation of gas after it leaves the reservoir. that amounts to a 40acre spacing pattern. [2] – Split by Depth. but cost-efficient. § 15-71-102(11)(a). although the Commission may establish a larger or smaller unit. 588 Sixteen vertical or horizontal wells. and all other hydrocarbons not defined as oil. 587 Id. Rules and Regs. Oil & Gas Commission. the Commission hears evidence on the most effective and efficient manner of locating multiple wells for the effective. removal of the maximum amount of oil or gas from a square mile unit. 586 Id. Rule B-43(f) (2011). The Arkansas regulations make no distinctions based on depth. Id. § 15-72-302(b)(2)(B).

produce oil or gas. each well is required to be located at least 560 feet from each other well and a minimum of 560 feet from all unit boundaries.’ as distinct from ‘established drilling units. provided that one or more persons who collectively own at least an undivided 50 percent interest in the right to drill and produce oil and gas to support the filing of the application. § 15-72-302(e) (2010). In particular. a condition to the Commission granting an order for unit operations that will force all owners within a prescribed area to comply with a proposed unitization agreement requires consent of certain owners. 593 Applications for exceptions to the well location provisions relative to a drilling unit boundary or other location in a common source of supply may be brought before the Commission. provided that one or more persons owning an interest in the right to drill. 595 Ark. 594 Id. 591 The internal well location restriction requires all wells in the unit to be spaced 448 feet apart with an allowed variance of 20 percent. and for which the operator has filed documentation with the Commission establishing such completion. Rule B-43(i)(3). Rule B-43(i)(1). Id. 596 Id.594 [4] – Minimum Operator Control.and internal unit well-location restrictions will allow only six to eight horizontal wells in the unit. the applicant must show that “the proposed unit agreement has been executed by persons Id. The filing of an application to integrate separately owned tracts within an exploratory drilling unit is permissible. see also id. Rule B-43(g). when a petition seeking a unitization order is filed. Rule B-43(i)(5). 595 The filing of an application to integrate separately owned tracts within an established or producing drilling unit is permissible without a minimum acreage requirement. Code Ann. 592 591 115 . This 50% requirement is only applicable to ‘exploratory drilling units. Rule B-43(f).’ A drilling unit is or becomes ‘established’ if it contains an existing well or completed well. 596 As shown above. or both from the total acreage assigned to such established drilling unit requests such integration. 592 Externally. Rule B-43(h). See id. 593 Id.

own legal title to at least an undivided 75 percent interest in the right to drill into and produce oil or gas from the proposed unit area. Rules & Regs.who. the well location is the location of the perforated interval of the well bore.] own legal title to 75 percent of royalties and overriding royalties payable with respect to oil or gas produced from the unit area. For the purpose of complying with spacing rules. 598 [6] – Options. Ark. (C) In a horizontally drilled well. projected vertically to the surface. projected vertically to the surface. as follows: (A) In a vertically drilled well without a directional survey. Code Ann. Oil & Gas Commission. § 15-72-309(b) (2010). projected to the surface.] at that time[. The Act acknowledges that an owner subject to compulsory pooling may elect to participate in the cost of operation. projected vertically to the surface. the well location is the location of the midpoint of the perforated interval of the producing formation. If a pooling order is issued for a well that has not been commenced within a drilling unit with no currently producible well. as calculated from the directional survey. at the time of the filing. the well location is the entire perforated length of the lateral section of the well bore. as shown on a directional survey.” as well as those “persons who[.. absent an agreement 597 598 Ark. § 15-72-304(b) (2010). Code Ann.” 599 The transfer must be for a reasonable consideration which. 599 Ark. well location is defined as the actual physical location of the completed interval in the well. Gen. the well location is the surface location.” 597 [5] – Directional Drilling. 116 . Rule B-3(a)(2) (2011). (B) In a directionally drilled well. The Commission may grant a drilling permit to allow deviated or horizontal drilling methods. In a vertically drilled well. the order must provide “that an owner who does not elect to participate in the risks and costs of operations must transfer his or her rights to drill and produce from the unit well to those parties who elect to participate therein.

will be determined by the Commission. equipping.] until those parties have received[. 602 The Act does not provide statutory requirements relating to carrying a non-consenting owner. plus and additional sum to be fixed by the Commission. If applicable.] an amount equal to the share of the costs that would have been borne by the transferring party had he participated in drilling.600 Moreover.] out of the share of production attributable to the interest so transferred[. or enforcing a risk penalty for such situations. the transfer “may be either a permanent transfer or may be for a limited period pending recoupment out of the share of production attributable to the interest of the nonparticipating owner by the participating parties of an amount equal to the share of the costs that would have been borne by the nonparticipating party had he participated in the operations.”601 The election rights are slightly different if a well capable of production exists on drilling unit as of the effective date of the pooling order. and equipping the well[.between the parties. In that event. § 15-72-304(c). 602 Id. 600 601 Id. the order must stipulate a time period within which any owner in the drilling unit who did not participate in the drilling of the well must either: (A) reimburse the drilling parties in cash for his or her share of the actual cost of drilling. completing. Id. plus an additional sum to be fixed by the Commission. 117 . the Commission will determine such matters on a case-by-case basis. completing. and operating the well.] or… (B) transfer his rights in such drilling unit and the production from the well to the drilling parties[.

and geothermal reservoirs. Code § 3100 (West 2011). and Geothermal Resources (“Division”) in the Department of Conservation (“Department”) was formed in 1915 to address the needs of the state. 605 Id. property. gas.gov/dog/Pages/aboutUs. The Division supervises the drilling. health. 607 Each District Deputy must also be a competent engineer or geologist. 6. The Division of Oil. § 3101. Gas. 604 The State Oil and Gas Supervisor (“Supervisor”) leads the Division of Oil. § 3103. and geothermal wells.01 Analysis of California Regulatory Framework. underground and surface waters suitable for irrigation or domestic use. 608 Id. The state is divided into six districts. registered in the state. local governments. plugging.§ 06.ca. gas. Oil. § 3104.aspx (last visited Jun. 607 Id. [1] – Name of the Governing Body. and abandonment of onshore and offshore oil. gas. and experienced in the development and production of oil and gas.conservation. and industry by regulating statewide oil and gas activities with uniform laws and regulations. & Geothermal-About Us. Res. 604 Cal. Gas and Geothermal Resources 605 and appoints one Chief Deputy and at least one District Deputy for each of the districts. 606 Id. maintenance. and natural resources. http://www. 2011). and experienced in the development and production of oil and gas. preventing damage to life. and geothermal resources while protecting the environment. Division requirements encourage wise development of California’s oil. 603 [2] – Membership on the Governing Body. the boundaries of which are fixed by the Director of the Department. 608 State of California Department of Conservation. preferably registered in the state. 606 The Chief Deputy appointees must be competent engineers or geologists. operation. § 690. and oil. 603 118 . Pub. Gas.

§ 3641. that failure shall be considered as an approval of the notice. and abandonment of wells to ensure that all suitable methods and practices known to the industry for increasing the ultimate recovery of underground hydrocarbons are used. the Supervisor shall issue orders directing unit operations in accordance with the agreement. 612 If a valid unit agreement is proposed. 609 New wells shall not be drilled without first obtaining approval from either the Supervisor or the District Deputy. operation. 611 Id.) 609 610 Id. § 3645. 613 An order of the Supervisor approving unit operations must require the recordation of the agreement in the county recorder’s office of each county in which any part of the unit area is situated and must require that the interests of all persons in the unit area be thereafter subject to the unit agreement the same as if all such persons had expressly consented to the unit agreement. § 3203(a). 119 . 614 Id. § 3642. 611 The Supervisor is authorized to approve unit agreements proposed by landowners and consented to by persons who own at least an undivided three-fourths of the total working interests in the area proposed to be unitized and by persons who own at least an undivided threefourths of the total royalty interest in the area.[3] – Scope of Authority. 614 The Supervisor's order shall include fair and reasonable provisions for all of the following: (a) The date when all tracts of land not theretofore committed to the unit shall be subject to unit operation (in no event earlier than the first day of the month following the effective date of the Supervisor's order. maintenance. The Supervisor oversees the drilling. 612 Id. 610 If the Supervisor or the District Deputy fails to give a written response to a notice of intent to drill within 10 working days from the date of receipt. § 3106(b). 613 Id. Id.

8. 618 Id. 617 A well-spacing plan adopted by the Supervisor shall require that all or certain parcels of land be included in a voluntary or mandatory pooling agreement if necessary to protect correlative rights. 120 . allowing a reasonable interest charge to those who carry or finance such obligations. § 1722(k) (2011). § 1721. 617 Id. Code Regs. Cal. § 1721. 14. 616 Field rules supplement more broadly applicable statutory and regulatory requirements. the Supervisor may provide up to 60 days from the date of the order for affected parties to attempt to voluntarily pool their respective interests.7. tit. 619 Id. The Supervisor may also establish variances from the statutory well-spacing requirements if he determines that the development of a pool requires the adoption of a well-spacing pattern other than that specified by statute in order to prevent waste and to increase the ultimate economic recovery of oil or gas.(b) Provision for the carrying or otherwise financing of any persons who request the same and who the Supervisor determines are unable to meet their financial obligations in connection with the unit operation. Any well-spacing order providing a period for an attempt at voluntary pooling is not a final order of the Supervisor until either voluntary pooling has been accomplished and the Supervisor notified of it or the Supervisor has 615 616 Id. specific to areas and zones or pools within a field. 615 The Supervisor may establish field rules for any oil and gas pool or zone in a field when sufficient geologic and engineering data is available from previous drilling operations. 619 That period may be extended at the Supervisor's discretion upon the written request of the affected parties. and in many cases. Each field rule is specific to a field. (c) Such additional provisions which the Supervisor determines to be appropriate for bringing into the unit area on a fair and reasonable basis tracts of land and interests not theretofore committed to the unit agreement. 618 In any order adopting a well-spacing plan. § 3646.

623 Id. The Director. 621 Notice of the time and place of the hearing shall be given by publication in a newspaper printed and published in the county in which the unreasonable waste of gas is alleged to be taking place or to be threatened. Code §3302 (West 2011). in which case the Director shall order the Supervisor to hold a hearing. 622 Id. § 3306. is unreasonable. occurring or threatened. or operator known to him of any well in the field. 627 [a] Spacing Rules. lessee. Pub. Res. 626 Whenever the Supervisor finds that it is in the interest of the protection of oil or gas from unreasonable waste. 121 . may also order a hearing. 623 Publication shall be daily for five days prior to the time of the hearing. with the approval of the Supervisor. § 3303. in existence or threatened. enter into agreements for the cooperative development and operation of all or a part or parts of the field. 620 [4] – Process for Pooling and Matters Covered. 624 Id. 622 The notice shall specify the commonly accepted name or a general description of the field or locality. 627 Id. 625 Id.ordered mandatory pooling upon the failure of the affected parties to reach a pooling agreement voluntarily. owners or operators in same producing or prospective oil or gas field. 625 Upon the conclusion of the hearing. the Supervisor shall determine whether or not there is an unreasonable waste of gas in the field. § 3301. Any person operating in a field may file a complaint with the Director alleging unreasonable waste of gas. Cal. and shall also determine the extent to which the waste of gas. upon the application of the Supervisor. 626 Id. 620 621 Id. 624 The Supervisor shall also send notice by mail to each lessor. may.

§ 1721. Res. 632 Cal. at any time after the discovery of a new pool. and operation as a unit to prevent waste and to increase the ultimate recovery of oil and gas. 630 The petition shall be supported by information necessary to establish the need for an extent of such a well-spacing plan. development. 629 Any affected person may. 122 . Code Regs. 633 Id.2(a) (2011). petition the Supervisor to adopt a well-spacing plan other than that specified in the California Public Resources Code.3 631 Id. or deepen. development. and for the allocation of benefits and costs as set forth in the agreement. 633 An agreement for the management. Pub. The Supervisor may require. 632 [c] Unitization. at the time he gives approval of a notice of intention to drill. and operation of two or more tracts of land in the same field or in the same producing or prospective pool as a unit without regard to separate ownerships. re-drill. 14. § 1721. 630 Id. that a subsurface directional survey be made for the well and that a plat of the directional survey be filed with the Supervisor within 15 days of completion. Id.Whenever a new pool is discovered. Tracts of land may be unitized to provide for their management. Code § 3606 (West 2011). tit. the Supervisor may issue a notice of intent to establish a well-spacing plan for the pool. 631 [b] Directional Surveys. shall be valid and binding upon those who consent to it and may be filed with the Supervisor for 628 629 Cal. § 3640. 628 The notice shall be delivered or mailed to all operators in the pool and any other affected persons whose identity is known to or can readily be ascertained by the Division and shall be published in a newspaper of general circulation in the county in which the pool is located.

§ 3641.approval. (e) The proposed unit agreement provides for an allocation of the unit production among and to the separately owned tracts in the 634 635 Id. 123 . or portions thereof. 634 However. consistent with good oilfield practice. (c) The unitized management and operation of the pool or pools. if. Id. gas injection operations. should not be considered a part of or related to the field or pool or pools. or the increased present worth value due to accelerated recovery of oil or gas. or any combination thereof. consistent with good oilfield practice. (d) The value of the estimated recovery of additional oil or gas. should be considered a part of and related to the field or pool or pools. may be filed with the Supervisor by the owner of any such working interest in conjunction with a petition requesting approval of an agreement. the proposed unit agreement was consented to by persons owning at least threefourths of the working interests and three-fourths of the lessors' royalty interests. reduction of oil viscosity operations. cycling or recycling operations. 635 Any proposed agreement for unit operation of tracts of land that has been consented to by persons who own at least an undivided three-fourths of the total working interests in the area proposed to be unitized. persons who do not consent to the agreement will not be bound by it. (b) As of the date of filing of the petition. proposed for unit operation. after a public hearing. proposed for unit operation but does not include tracts which. water flooding operations. until the Supervisor approves the agreement. or portions thereof. or portions thereof. and by persons who own at least an undivided three-fourths of the total royalty interest in the area proposed to be unitized. or any other form of joint effort calculated to increase the ultimate recovery of oil and gas from the proposed unit area. the Supervisor finds all of the following: (a) The unit area of the proposed agreement for unit operation takes in all tracts which. as a result of the unit operations will exceed the estimated additional cost incident to conducting such operations. § 3642. 636 Id. proposed to be unitized is reasonably necessary to carry on pressure maintenance or pressure replenishment operations. 636 The unit agreement shall be approved.

for the organization and consolidation of surface facilities. treatment. Id. and transportation facilities. and provides a fair procedure for the waiver. (h) If state-owned lands under the jurisdiction of the State Lands Commission are included in the proposed unit agreement. is a public 637 638 Id. in lieu thereof. Except as otherwise provided by California law. [3] – Size and Spacing Rules. "Oil" includes petroleum. (g) The proposed unit agreement is fair and reasonable under all the circumstances in other material respects. the agreement has been reviewed and approved by the Commission. § 3643. 639 Id. freeing such areas for other productive use and development. of the working interest owners’ right of entry on surface areas which in the future become unneeded for the conduct of unit operations. 124 . § 3007. their fair.area proposed to be unitized that will reasonably permit persons otherwise entitled to share in or benefit by the production from their separately owned tracts to produce or receive. or within 100 feet of a public street or road or highway dedicated prior to the commencement of drilling of the well. from time to time. equitable.02 Types of California Pooling Statutes. any oil or gas well drilled within 100 feet of an outer boundary of the parcel of land on which the well is situated. storage. 638 "Gas" means any natural hydrocarbon gas coming from the earth. or within 150 feet of a well producing oil or gas or capable of producing oil or gas. 637 § 06. 639 [2] – Split by Depth. California does not differentiate based upon depth. [1] – Mineral Distinctions. and reasonable pro rata share of the unit production or other benefits thereof. to the full extent practical. including oil production. (f) The proposed unit agreement provides. in a manner that will eliminate wasteful and excessive use of land surface areas. § 3006. and "petroleum" includes oil.

of that operator unless approved in advance by the Supervisor who may. 641 Where a parcel of land contains one acre or more. in granting approval. only one well may be drilled on the parcel of land to each acre of the area if the surface location of any well or wells is as far from the lateral boundary lines of the parcel of land as the configuration of the surface and the existing improvements thereon will permit. Pub. shall be not less than 25 feet from an outer boundary of the surface of the property the well is located upon. and shall be 640 641 Id. provided: (1) No operator shall construct or maintain any derrick within 150 feet of any other derrick.1 (2011). Code Regs. 642 Where a parcel of land contains one acre or more and the hydrocarbons to be developed are too heavy or viscous to produce by normal means. there may be drilled or produced not more than one well into each acre of such parcel of land. Cal. § 3600. 125 . the Supervisor may approve proposals to drill wells at whatever locations he deems advisable for the purpose of the proper development of such hydrocarbons by the application of pressure. 643 Where a parcel of land contains one acre or more and where all or substantially all of the surface of such parcel of land is unavailable for the surface location of oil or gas wells. § 1721. and the property upon which the surface location of such well may be located may or may not be contiguous to such parcel of land. or other means for the reduction of oil viscosity.nuisance. 640 Further. but is less than 250 feet in width. and the surface location of such well may be located upon property which may or may not contain one acre or more of surface area. heat. Code § 3602 (West 2011). the producing interval of any well drilled into a new pool must not be less than 75 feet from an outer boundary line. and such wells shall not be classed as public nuisances. then standing. as measured from the center of the hole. 14. 643 Id. § 3602. tit. (2) The surface location of a well. attach conditions that are reasonably necessary. 642 Cal.1. Res.

Unitization agreements must be authorized by persons owning three-fourths of the total working interest in the unitized area and by persons owning three-fourths of the total royalty interest in that area. the producing interval of that well shall be as far from the lateral boundary lines of the property as is practicable. road or highway in public use at the time drilling of the well commences. 126 . that the well density shall not exceed one well per acre unless the Supervisor shall determine that more than one zone or pool underlies the property and that it is not practical to produce from all zones or pools from a single well per acre and that other zones or pools are being drained by offset wells. California does not appear to regulate based upon the direction of operations.1. The owner of any working interest or royalty interest in a tract that is the subject of a unit agreement who did not consent to the proposed unit agreement shall. (3) The producing interval of the well shall be not less than 75 feet from an outer boundary of the parcel of land into which the producing interval is drilled. 60 days after the Supervisor 644 645 Id. a maximum density of two wells per acre may be approved. and the producing interval of the well shall be not less than 150 feet. however. Id.§ 3606. [6] – Options. provided. 645 [4] – Minimum Operator Control. 646 [5] – Directional Drilling. § 3606. as measured horizontally in the same zone. § 3642. 646 Id.not less than 25 feet from any dedicated public street. from the producing interval of any other well producing or capable of producing oil or gas. In such cases only. If the parcel of land qualified to be drilled is less than 150 feet in width. 644 The 150-foot restriction shall apply only to wells drilled and producing from the same zone or pool.

issues his order.650 The arbitration committee shall consider all relevant data and information submitted by interested parties and may seek and consider other information it deems relevant. or the greater portion of it. shall be paid by the working interest owners who 647 648 Id. 651 The arbitration committee’s determination shall be binding on the parties except that. Id. to make an independent appraisal of the value of the interest as of the date the Supervisor issued his order. The arbitration committee shall determine the fair market value of the interest as of the date the Supervisor issued his order and fix the price at which the sale shall be consummated. 649 If a disagreement arises with respect to the purchase price for such an interest. the seller or any one or more of the purchasers may have such price judicially determined by filing suit for a declaratory judgment as to the fair market value in the superior court for the county in which the tract involved. and a third member selected by the other two members. within 30 days after the determination of the arbitration committee has been mailed to the parties concerned. 652 Id. § 3647. 648 Unless one or more working interest owners purchase that interest. then either party may request the Supervisor to authorize the creation of an arbitration committee consisting of three members. 650 Id. lies. the order of the Supervisor will not become effective. be entitled to offer his interest for sale. one member appointed by the seller. 649 Id. if the unit becomes effective. one member appointed by the purchaser or purchasers. 647 All working interest owners who consented to the proposed unit agreement shall be entitled to purchase that interest in proportion to their respective shares of unit production. 127 . 652 The compensation and expenses of the arbitration committee shall be subject to approval by the Supervisor and. 651 Id.

elected to participate in purchasing the interest in the proportion they share unit expenses. 128 . Id. 653 If the unit does not become effective within the time provided for in the order of the Supervisor. 654 653 654 Id. the working interest owners who have consented to the unit agreement and have requested the independent appraisal shall pay such compensation and expenses in proportion to what would have been their shares of unit expenses.

660 Each person on the Commission serves for a term of four years.01 Analysis of Colorado Regulatory Framework. 661 Id. at least one member of the Commission must be a local government official. 657 Id. 661 655 656 Colo. respectively. 659 Id. The Colorado Oil and Gas Conservation Commission (“Commission”) regulates oil and gas production and exploration within the state pursuant to the Oil and Gas Conservation Act (“Act”). and at least two of those three must possess a college degree in petroleum geology or petroleum engineering. 129 . §§ 34-60-101. 660 Id. one member must have formal training or experience in environmental or wildlife protection. no more than four members of the Commission may belong to the same political party.§ 07. 658 Additionally. [1] – Name of the Governing Body. The Commission is comprised of nine members. Id. Stat. and one member must be actively engaged in agricultural production. 658 Id. 655 [2] – Membership on the Governing Body. 34-60-103 (2010).” 657 No less than three members of the Commission must have substantial experience in the oil and gas industry. 656 The remaining seven members are appointed by the governor based on the area from which they hail: at least two must reside west of the continental divide.” 659 Not including the two executive directors. “other members shall be appointed taking into account the need for geographical representation of other areas of the state with high levels of oil and gas activity or employment. “and also be a royalty owner. two of which are the executive directors of the Department of Public Health and the Department of the Environment. § 34-60-104(2)(b). one member must have formal training in soil reclamation. when possible. Rev. § 34-60-104(2)(a). and.

directly or indirectly into the open air. as applied to gas. . or releasing.” 663 Rather. . Id. § 34-60-107. and utilization of the natural resources of oil and gas in the state of Colorado in a manner consistent with protection of public health. § 34-60-102(1)(b). including protection of the environment and wildlife resources.” subject to the goals stated above. including to: (I) foster the responsible. . and the production of gas in quantities or in such manner as unreasonably reduces reservoir pressure or unreasonably diminishes the quantity 662 663 Id. of gas from wells productive of gas only. 665 “Waste” is prohibited under the Act 666 and defined to include: (a) Waste. the Commission’s authority is grounded in the aim of waste prevention. and (IV) plan and manage oil and gas operations in a manner that balances development with wildlife conservation in recognition of the state’s obligation to protect wildlife resources . protect and enforce the coequal and correlative rights of owners and producers in a common source or pool of oil and gas to the end that each such owner and producer…may obtain a just and equitable share of production therefrom. the Act seeks to allow “each oil and gas pool in Colorado to produce up to its maximum efficient rate of production. (III) safeguard. safety. includes the escape. and welfare. 130 . or gas in an excessive or unreasonable amount from wells producing oil. 664 Id.[3] – Scope of Authority. or both oil and gas. production. § 34-60-102(1)(a). 664 [a] Matters Governed. blowing. balanced development. The Commission’s duty is to promote the public interest and policy goals specified in the Act. 665 Id. As expressed above. (II) protect the public and private interests against waste in the production and utilization of oil and gas. 666 Id. 662 It is neither the intent nor purpose of the Act “to require or permit the proration or distribution of the production of oil and gas among the fields and pools of Colorado on the basis of market demand.

[t]he locating. 669 Id. or improper use or dissipation of reservoir energy. directional surveys. but excluding storage. (c) waste in addition [to the above] means physical waste. drilling [and other operations] in such manner as to prevent the escape of oil or gas. the Commission may require the “[i]dentification of [well] ownership…. (b) waste. the Commission has authority to dictate the spacing of wells. § 34-60-105(1). disproportionate. inefficient. unratable. and. [a]buse of the correlative rights of any owner in a pool due to non-uniform. testing. surface waste. reasonably necessary for building up or maintaining crude stocks and products thereof for consumption. and waste incident to the production of oil in excess of the producer's aboveground storage facilities and lease and contractual requirements. excessive. or excessive withdrawals of oil or gas therefrom. 131 . openpit storage. as…generally understood in the oil and gas industry.…the intrusion of water into oil or gas strata. or producing of any oil or gas wells in a manner which causes or tends to cause reduction in [the] quantity of oil or gas ultimately recoverable from a pool under prudent and proper operations[. causing reasonably avoidable drainage between tracts of land or resulting in one or more producers or owners in such pool producing more than his equitable share of the oil or gas from such pool. use. as applied to oil includes underground waste. and in furnishing power for the production of wells. excepting gas that is reasonably necessary in the drilling. drilling. necessary to enforce” the Act. and sale.] or which causes or tends to cause unnecessary or excessive surface loss or destruction of oil and gas. §§ 34-60-103(11)-(13) (emphasis added).…[keeping of] complete and accurate [production] records. equipping. public and private. 667 The Commission has jurisdiction over “all persons and property. the making and filing of…well logs. § 34-60-106(1). including gas energy and water drive. and “to limit and to 667 668 Id. the pollution of fresh water supplies. other than openpit storage.” and various other aspects of oil and gas production. Id. spacing. and reports on well location…. and has general authority “to do whatever may reasonably be necessary to carry out the Act’s provisions. completing. 668 For example. 669 In addition. operating.of oil or gas that ultimately may be produced.

may apply for a hearing before the Commission in relation to any issue within its jurisdiction. Should the Commission elect or be required to give notice by personal service. 673 Except in emergency situations. Id. § 34-60-105(1). Proof of service by such agent shall be by his affidavit. § 34-60-108(2)-(3). and shall specify the style and number of the proceeding and the time and place of the hearing at which the hearing will be held. § 34-60-106(3). § 34-60-108(7). shall be signed by the Commission or [its] secretary. 674 Such notice must be made as follows: Any notice required [under the Act]…shall be given by the election of the Commission either by mailing a copy thereof…to the last known mailing address of the person to be given notice. § 34-60-105(1). and orders pursuant to the Act. 673 Id. or the attorney general on behalf of the state. 132 . and proof of service by an officer shall be in the form required by law with respect to service of process in civil actions. regulations. and shall briefly state the purpose of the proceeding.] or by any agent of the Commission[. shall state the time within which protests to the granting of a petition shall be filed if [applicable]. The Commission is authorized to enact and enforce rules. at least 10 days prior to the hearing. In all cases 670 671 Id. or by personal service. 674 Id. 671 The Commission is empowered to act upon its own motion or that of any interested person. The notice shall issue in the name of the state. in a newspaper of general circulation in the county where the land affected. regulation. such service may be made by any officer authorized to serve summons[.allocate the production from [any] pool or field among or between tracts of land having separate ownerships therein. or some part thereof. is situated. or order without a hearing upon no less than 20 days notice. In addition.] in the same manner and extent as is provided by law for the service of summons in civil actions in the district courts of this state. 672 Any person. 672 Id. the Commission shall cause one publication of such notice.” 670 [b] Commission Procedure. the Commission may not make any rule.

or a complaint is made by the Commission or any party[. § 34-60-116(1). the Commission will enter its order within 30 days of the hearing. [a] Drilling Units. 680 Id. § 34-60-108(7). which must be filed at least three days prior to the hearing. modify. 680 Such a hearing may be prompted by the Commission itself. or upon the application of any interested party. § 34-60-108(4). amend. 675 Any rule. to avoid the drilling of unnecessary wells. or any rule. notice of the hearing to be held on such application or complaint shall be served on the interested parties either by mail or in the same manner as is provided in the Colorado rules of civil procedure for the service of process in civil actions in the district courts of this state.where there is an application for the entry of a pooling order or unitization order. or supplement the same. copies of which are receivable into evidence in all state courts. After notice and a hearing. 133 . or to protect correlative rights. or an application for an exception from an establish well spacing pattern. 679 Id. 681 The Commission will set drilling units based on efficient production from an 675 676 Id. and “any person affected by any order…shall have the right at any time to apply to the Commission to repeal. 676 Any interested person may file a written protest with the Commission that states the grounds for such protest. or order issued by the Commission must be in writing and maintained as public record. the Commission may establish drilling units “to prevent…waste. regulation. 681 Id. § 34-60-105(7). 677 A timely protest affords the applicant the right to be heard at the hearing. 678 In any case.] that any part of any provision of [the Act]. regulation. 678 Id.” 679 [4] – Process for Pooling and Matters Covered. Id. § 34-60-108(6). or order of the commission is being violated. 677 Id.

the Commission may “divide any pool into zones and establish drilling units for each zone.” 688 682 683 Id.” 686 [b] Authority to Integrate Production. and if necessary. § 34-60-116(3). 684 Id.” 687 In the absence of voluntary pooling. If multiple.” 683 Each rule governing a drilling unit applies only to the relevant area in question and not to all units on a statewide basis. 686 Id. so that the pool as a whole will be efficiently and economically developed. 688 Id. the Commission may. which…may differ in size and shape from those established in any other zone. 684 An order establishing drilling units “shall permit only one well to be drilled and produced from the common source of supply on a drilling unit. “persons owning such interests [therein] may pool their interests for the development and operation of the drilling unit. 687 Id.entire pool.” and must “specify the location of the permitted well thereon. separately owned tracts are embraced within one drilling unit. “no drilling unit shall be smaller than the maximum area that can be efficiently and economically drained by one well. § 34-60-116(6).” 682 Notwithstanding this discretion. “order pooling of all interests in the drilling unit for the development and operation thereof. § 34-60-116(2). 134 . 685 Id. and after notice and a hearing. Id.” 685 The Commission must act to offset any advantage conferred by such exceptions and “include in the order suitable provisions to prevent the production from the drilling unit of more than its just and equitable share of the oil and gas in the pool. upon application from an interested person.] or where…the Commission finds [that] the requirement to drill…at the authorized location on the unit would be inequitable or unreasonable. with such exception…as may be reasonably necessary for [existing] wells[.

135 . if not already drilled. 689 690 Id. or parts thereof. including a reasonable charge for supervision and storage. and equipment contributed to the unit operations. termed the unit area. 691 This will be discussed in further detail below. § 34-60-116(7)(a). Id. materials. yet enforces a risk penalty for those non-consenting owners who refuse to sell their rights in the pool. tanks. machinery. the Commission will order unitization if it finds that such is reasonably necessary to increase ultimate recovery. 690 The Act affords election rights in compulsory pooling situations. 692 After the hearing. being the production that is not used in the conduct of operations on the unit area or not unavoidably lost. a pooling order must establish how production and costs will be allocated among the various owners within the pool. but only so much of a pool as has reasonably been defined and determined by drilling operations to be productive of oil or gas may be included within the unit area. (c) An allocation to the separately owned tracts in the unit area of all the oil and gas that is produced from the unit area and is saved. § 34-60-118(3). § 34-60-118(2).Each pooling order must provide just and reasonable terms and conditions. and make provision for the payment of the reasonable actual cost [of operation]. to be so operated. and “shall make provision for the drilling of a well on the drilling unit. 691 Id. Upon application from any interested person. pumps.” 689 In addition.” 693 A unitization order must contain the following information: (a) A description of the pool. The Act also allows voluntary and compulsory unitization. (d) A provision for the credits and charges to be made in the adjustment among the owners in the unit area for their respective investments in wells. 693 Id. § 34-60-106. (b) A statement of the nature of the operations contemplated. the Commission will hold a hearing to consider the need for unit operations of one or more pools. and that the “value of the estimated additional recovery of oil or gas exceeds the estimated additional cost incident to conducting such operations. 692 Id. for the operation thereof.

shall be determined and charged to the separately owned tracts and how said costs shall be paid. or the interest of such owner. 695 Allocation must be made “on a reasonable basis [to] prevent[] or minimiz[e] reasonably avoidable drainage. Id.” 696 The effect of a unitization agreement or order is to treat all tracts within the unit area. As a general matter. and the manner in which. and by whom the unit production allocated to an owner who does not pay the share of the cost of unit operations charged to such owner. for carrying or otherwise financing any person who elects to be carried or otherwise financed. § 34-60-117(2). including capital investments. so that each property will have the opportunity to produce or to receive its just and equitable share. § 34-60-117(1). and for the protection of correlative rights. in respect to which each person shall have a vote with a value corresponding to the percentage of the costs of unit operations chargeable against the interest of such person. including a provision providing when. may be sold and the proceeds applied to the payment of such costs. the unit operations shall terminate.(e) A provision providing how the costs of unit operations. and the circumstances under which. 694 [c] Allocation of Production and Costs. how. (g) A provision for the supervision and conduct of the unit operations. (i) Such additional provisions that are found to be appropriate for carrying on the unit operations. if necessary. And. equitably based on respective interests therein. (h) The time when the unit operations shall commence. “[a]ll operations…of a well upon any portion of the unit area shall be deemed for all purposes the conduct of such operations upon each separately owned tract in the unit area by the several 694 695 Id. and owners thereof. subject to the reasonable necessities for the prevention of waste. allowing a reasonable interest charge for such service payable out of such person’s share of the production. § 34-60-118(4). (f) A provision. 136 . 696 Id. The Commission has express authority to limit and allocate production among various pools and wells to prevent waste and protect correlative rights.

Id. or contracts and combinations in restraint of trade. 703 Id. A non-consenting owner of an unleased tract lying within a drilling unit is presumed under the Act “to have a landowner’s royalty of 12. 698 An agreement for reasonable allocation made by all interested parties will control and be stated in the order. the Commission will “determine the relative value. § 34-60-116(7)(c). § 34-60-118(9).” 703 This protection under the Act only applies “if the 697 698 Id. “[t]he production allocated to each tract shall be the proportion that the relative value of each tract so determined bears to the relative value of all tracts in the unit area. 699 Id.” In turn.” 701 [d] Royalty Distribution. § 34-60-118(1). § 34-60-118(4). an order for unit operations must provide terms upon which production and costs will be allocated. 702 [e] Restraint of Trade.” or one-eighth. from evidence introduced at the hearing. monopolies.” 700 Under the order. 702 Id. 699 In the event that no agreement exists. 137 . 701 Id.” 697 As shown above. 700 Id. and shall not be held or construed to violate any statutes relating to trusts. A voluntary agreement among owners to pool interests within a drilling unit. “the portion of unit production allocated to a separately owned tract in a unit area” is considered “to have been actually produced from such tract by a well drilled thereon. “is authorized and may be performed. or to carry on unitized or cooperative operations. of the separately owned tracts in the unit area…[and] require the production of [any]…evidence[] at the hearing…as may be required to protect the interests of all interested persons.owners thereof.5 percent.

” 706 The Act offers a limited ‘compliance defense’ in stating that “[o]perations conducted pursuant to [a unitization] order…shall constitute a fulfillment of all the express or implied obligations of each lease or contract covering lands in the unit area to the extent that compliance with such obligations cannot be had because of the order. 138 . 707 Id. § 34-60-103(5). § 34-60-118(9).” 709 With regard to spacing or pooling provisions. a unitization order “shall [not] be construed to result in a transfer of all or any part of the title of any person to the oil and gas rights in any tract in the unit area. 709 Id.agreement is approved by the Commission as being in the public interest for conservation[. § 34-60-118(11).” 705 Further. Id. 704 705 Id. 706 Id. which will remain in force and “apply to oil and gas allocated to such tract until terminated in accordance with the provisions thereof. § 34-60-103(6). an order will not terminate any existing contract “relating to the sale or purchase of production from a separately owned tract” within the unit area. “gas” includes “all natural gases and all hydrocarbons not [otherwise] defined as oil. the Act does not distinguish between based on whether oil or gas is produced from a given well. Unless otherwise agreed upon.] or is reasonably necessary to increase ultimate recovery or to prevent waste. regardless of gravities. 708 Id. As defined in the Act.” 704 [f] Impact on Existing Contracts. and which are not the result of condensation of gas before or after it leaves the reservoir. [1] – Mineral Distinctions.” 707 § 07.” 708 “Oil” is defined as “crude petroleum and any other hydrocarbons.02 Types of Colorado Pooling Statutes. § 34-60-118(12). which are produced at the well in liquid form by ordinary production methods.

nor within 15 feet of any mine haulage or airway.500 feet or greater may not be located within 600 feet of any lease line.500 feet may not be within 600 feet of the any boundary line of the unit area. 712 Id. The Commission must find. or within 1. or mine fan. As shown below. 713 In addition. that approval is given from 710 711 Colo.500 feet deep may not be located less than 200 feet of such unit boundaries. those drilled less than 2. these regulations control the required spacing between wells and/or other tracts. nor within 100 feet of any mine shaft house. either in the original order or a supplementary order if necessary. Unless otherwise authorized by the Commission after notice and a hearing. Colorado’s default spacing rules vary by well depth. in turn. There are no other relevant provisions treating wells differently based on such grounds. mine boiler house. 710 Any oil or gas well drilled at a depth of 2. Code Regs. 711 No well at a depth of 2. 139 .500 feet or less may be located within 200 feet of any lease line.[2] – Split by Depth. nor within 300 feet of any other producible well drilling from the same pool. 712 For wells subject to a unitization agreement or order. [3] – Spacing Rules. Commission regulations provide default setback rules applicable to all oil and gas wells. no well may be drilled within 200 feet of a shaft or entrance to a coal mine (unless abandoned and sealed).200 feet of any other producible well within the same pool. § 404-318 (2010). mine engine house. A unitization order issued by the Commission will not become effective without the written approval of a proportion of relevant operators and owners. 714 [4] – Minimum Operator Control. these spacing rules are limited to the following: wells deeper than 2. 713 Id. Id. 714 Id.

140 . subject to royalty or similar obligations. the terms of which must be provided in the relevant order. and that each non-consenting owner is entitled to own and to receive the share of 715 716 Colo. the share of the production from the well applicable to his interest in the drilling unit. § 34-60-116(7)(a). 718 The Act affords any owner subject to compulsory pooling or unitization the right to opt out of participation in the pool or unit. overriding royalties. “unless for good cause shown the Commission extends said time. Stat. Stat. § 118(5) (2010). 717 Colo. the order will state each consenting owner’s “proportionate part of the non-consenting owner’s share of such production until costs are recovered. the order will become ineffective and is revoked. and also by the owners of at least 80 percent of the production or proceeds thereof that will credited to interests which are free of cost. and production payments. Rev. Code Regs. The Act requires that all owners within a drilling unit pay their fair share of the costs of drilling and operating the well thereon. § 404-321 (2010).” 719 Unless otherwise agreed among the owners. conditioned upon the operator’s satisfaction of additional notice and permitting requirements stated in the regulations. Id.those “who will be required to pay at least 80 percent of the costs of the unit operation.” 716 [5] – Directional Drilling. 718 Colo. Rev. § 34-60-116(6) (2010).” 715 If such approval is not granted within six months of issuance. 719 Id. The Commission may permit an operator to drill a horizontal or deviated well using controlled directional drilling methods. 717 [6] – Options. such as royalties. A pooling order must establish the relative “interest of each owner in the [drilling] unit and provide that each consenting owner is entitled to receive.

the Act affords owners of unleased tracts within a unit further protection by allowing a non-consenting owner to acquire a working interest in the well upon the other consenting owners’ cost recovery. 722 Id. The Act provides: A non-consenting owner of a tract in a drilling unit which is not subject to any lease or other contract for the development thereof for oil and gas shall be deemed to have a landowner's proportionate royalty of twelve and one-half percent [i. rigging up. and completing the well. (2) One hundred percent of the non-consenting owner's share of the cost of operation of the well commencing with first production and continuing until the consenting owners have recovered such costs. only out of the non-consenting owner's proportionate seven-eighths share of production. 721 This penalty applies to non-consenting owners who are oil and gas lessees. including the wellhead connections.e. and. (4) Two hundred percent of that portion of the cost of equipment in the well.the production applicable to his interest in the unit after the consenting owners have recovered the non-consenting owner’s share out of production. obtaining rights-of-way. 722 However.” 720 If one or more owners within a pooled drilling unit refuse to pay. (3) Two hundred percent of that portion of the costs and expenses of staking. This statutory penalty allows respective consenting owners or operators to recover: (1) One hundred percent of the non-consenting owner's share of the cost of surface equipment beyond the wellhead connections (including. 1/8th] until such time as the consenting owners recover. After recovery of such costs. drilling. treaters. reworking. separators. and. deepening or plugging back. Id. and piping). plus. after deducting any cash contributions received by the consenting owners. each will be subject to an additional risk penalty respective of each non-consenting owner’s interest until all costs and other charges are recovered by the consenting owners. well site preparation. but not limited to. testing. 141 . pumping equipment. the non-consenting 720 721 Id. the costs specified [above]. § 34-60-116 (7)(c). stock tanks.

723 724 Id. or the interest of such owner. allowing a reasonable interest charge for such service payable out of such person's share of the production 725 Thus. the non-consenting owner subject to forced unitization may either elect to sell his interest or portion of production. shall be determined and charged to the separately owned tracts and how said costs shall be paid. including capital investments. § 34-60-118(4)(d)-(e) (emphasis added). may be carried by other owners who so agree without facing a statutory risk penalty. how.owner shall then own his proportionate eight-eighths share of the well. 724 The Act does not provide a risk penalty for owners subject to forced unitization because such an owner has limited election rights. and.” and has “been furnished in writing such owner’s share of the estimated drilling and completion costs of the well. Id. may be sold and the proceeds applied to the payment of such costs. § 34-60-116(7)(d).” and the estimated time of commencing operations. if necessary. the location and objective depth of the well. for carrying or otherwise financing any person who elects to be carried or otherwise financed. 725 Id. 142 . including” (1) a provision providing when. and production and then be liable for further costs as if he had originally agreed to drilling of the well. or in turn. The cost allocation must be provided in an order for unit operations to show “how the costs of unit operations. surface facilities. 723 In addition. (2) a provision. the Commission may not enter a pooling order over the protest of an owner of unleased minerals unless shown that such owner has “been tendered a reasonable offer to lease upon terms no less favorable that those currently prevailing in the area. and by whom the unit production allocated to an owner who does not pay the share of the cost of unit operations charged to such owner.

Id. (C) A description of the exploration activity. extraction. § 22a-2(a) (2011).000 feet which shows the location of the exploration activity. . excavation or removal of earth materials of all types. 726 727 728 729 730 731 Conn. § 22a-5. 143 . However. the name. . if such person is a business. (B) A United States Geologic Survey topographic map at a scale of one inch equals 25. including providing for “minimum state-wide standards for the mining. Stat. Id. . the Department of Environmental Protection has promulgated regulations for oil and gas exploration and production. 726 The Commissioner of Environmental Protection (“Commissioner”) directs the Department. [1] – Governance. Conn. § 22a-472-1 (2011). 731 They require that persons exploring for oil or gas to register with the Commissioner by submitting information set forth in the regulations: (A) The name. The body charged with jurisdiction over the preservation of natural resources in Connecticut is the Department of Environmental Protection (“Department”). Id. depth and number of borings to be drilled. § 22a-4. 730 Those regulations primarily govern permitting for exploration and production wells. mailing and location address and telephone number of the individual designated as the contact for the Commissioner. 729 [2] – Procedure. including but not limited to a description of the methods of exploration to be used and the location. Id. 727 The Commissioner’s duties and powers embrace those necessary and convenient to carry out the state’s environmental policies. Gen. and. Agencies Regs.§ 08. Connecticut has not enacted legislation directly related to pooling or spacing.01 Analysis of Connecticut Regulatory Framework. mailing and location address and telephone number of the person for whom the exploration is conducted.” 728 and he may employ such agents and employees as necessary to carry out his duties.

000 for each proposed well. § 22a-472-1(b)(3). Id. § 22a-472-1(b)(2). 144 . regardless of gravity. § 22a-472-1(b)(3)(C).” 740 No definition is given for coalbed methane gas. 738 The regulations also provide a definition for oil and gas. Id. And. 732 Exploration may not begin until after the Commissioner approves the registration. Id. § 22a-472-1(c).” while gas is defined as “all natural gas and all other hydrocarbons that occur in a gaseous phase in the reservoir. § 22a-472-1(b)(3)(D). Id. [3] – Operating Requirements. § 22a-472-1(a). 732 733 734 735 736 737 738 739 740 Id. that are produced in liquid form by ordinary production methods. the registration must include a “surety or performance bond payable to the State of Connecticut in the sum of $25. 733 A separate registration must be submitted for each exploratory well and each production well. § 22a-472-1(b)(3)(I). Id. § 22a-472-1(b)(1). 739 Oil is defined as “crude petroleum oil and other hydrocarbons. Id.” 737 If drilling is not commenced within one year of the Commissioner’s approval of registration. Id.(D) A registration fee of $50 payable by certified check or money order to the Commissioner of Environmental Protection.” 736 Additionally. (E) Any other information which the Commissioner deems necessary. Id. maintained and abandoned in accordance with this section and the exploration and production activities not causing pollution. 734 That registration must include the proposed final depth of the proposed well 735 and “the depth of each private well within a 1000 foot radius of the proposed well and the depth of each public water supply well within a one mile radius of the proposed well. conditioned on the well being drilled. that registration expires.

The remaining portions of the regulations set forth construction, drilling, and abandonment requirements. Casing must be sufficient to prevent oil or gas from infiltrating a water-bearing horizon. 741 Drilling activities must be conducts such that they do not create a reasonable expectation of water pollution. 742 Finally, registrants must give 30 days’ notice of abandonment to the Commissioner 743 and must perform abandonment in conformity with the regulations within 180 days of cessation of drilling unless the Commissioner approves otherwise. 744

741 742 743 744

Id. § 22a-472-1(d). Id. § 22a-472-1(e). Id. § 22a-472-1(f)(1). Id. § 22a-472-1(f)(2)–(5).

145

§ 09.01

Analysis of Delaware Regulatory Framework. The state of Delaware has not enacted statutes addressing oil and gas conservation.

146

§ 10.01

Analysis of Florida Regulatory Framework. [1] – Name of the Governing Body. The body vested with the authority to enforce Florida’s Oil and Gas Conservation Statute

(“Oil and Gas Statute”) 745 is the Division of Water Resource Management (“Division”) of the Department of Environmental Protection (“Department”). 746 [2] – Membership on the Governing Body. The Department of Environmental Protection is headed by a secretary (“Secretary”), who is appointed by the Governor with concurrence of three or more members of the Cabinet 747 and confirmation by the Senate. 748 The Secretary serves at the pleasure of the Governor 749 and may appoint three deputy secretaries, which serve at the pleasure of the Secretary. 750 The Oil and Gas Statute is administered by the Division of Water Resource Management. 751 The departmental divisions are each headed by a director 752 to be appointed by the Secretary and to serve at his or her pleasure. [3] – Scope of Authority. The Division has jurisdiction and authority over “all persons and property necessary to administer and enforce effectively the provisions of this law and all other laws relating to the conservation of oil and gas.” 753 All production of oil and gas from common supply sources are

Fla. Stat. § 377.01–.42 (2010). Id. § 377.07. Although the statute states that the Division of “Resource Management” is the governing body, the more accurate name is the Division of Water Resource Management so to distinguish it from the Division of Air Resource Management. 747 Id. § 20.255(1). 748 Id. § 20.05(2). 749 Id. 750 Id. § 20.255(2)(a). 751 Id. § 377.07. 752 Id. § 20.04(3)(a). 753 Id. § 377.21(1).
746

745

147

controlled and regulated under the Oil and Gas Statute, 754 which declares that the public policy of Florida includes the following: “to conserve and control the natural resources of oil and gas in said state . . .; to prevent waste of said natural resources; to provide for the protection and adjustment of the correlative rights of the owners of the land wherein said natural resources lie and the owners and producers of oil and gas resources and the products made therefrom and of others interested therein.” 755 Waste of oil and gas is prohibited. 756 Waste is defined to mean “physical waste” as understood in the oil and gas community and also including the following: (a) The inefficient, excessive or improper use or dissipation of reservoir energy; and the locating, spacing, drilling, equipping, operating or producing of any oil or gas well or wells in a manner which results, or tends to result, in reducing the quantity of oil or gas ultimately to be recovered . . . . (b) The inefficient storing of oil; and the locating, spacing, drilling, equipping, operating, or producing of any oil or gas well or wells in a manner causing, or tending to cause, unnecessary or excessive surface loss or destruction of oil or gas. (g) Underground waste however caused and whether or not defined. (k) Abuse of correlative rights and opportunities of each owner of oil and gas in a common reservoir due to nonuniform, disproportionate and unratable withdrawals, causing undue drainage between tracts of land. The Division has the authority and duty to investigate as is proper to determine if waste exists or is imminent.757 In the exercise of those duties, the division has the authority to: (a) Collect data. (b) Make investigations and inspections. (c) Examine properties, leases, papers, books, and records and to examine, survey, check, test, and gauge oil and gas wells, tanks, storage tanks, treatment plants and facilities, and modes of transportation used to gather and process crude oil or gas and
754 755

Id. § 377.18. Id. § 377.06. 756 Id. § 377.20. 757 Id. § 377.21(2).

148

products derived from wells within the state, prior to delivery to common carrier. (d) Hold hearings. (e) Provide for the keeping of records and making of reports. (f) Take such action as may be reasonably necessary to enforce this law. 758 The Department may issue orders and rules in order to implement and enforce this chapter. Rules and orders may be promulgated under the authority of this chapter for the following reasons, among others: (d) To require the drilling, casing, and plugging of wells to be done in such a manner as to prevent the escape of oil or other petroleum products from one stratum to another. (f) To require a reasonable bond, or other form of security acceptable to the department, conditioned upon the performance of the duty to plug properly each dry and abandoned well and the full and complete restoration by the applicant of the area of which geophysical exploration, drilling, or production is conducted to the similar contour and general condition in existence prior to such operation. (i) To prevent wells from being drilled, operated, or produced in such a manner as to cause injury to neighboring leases or property. (r) If necessary for the prevention of waste, as herein defined, to determine, limit, and prorate the production of oil or gas, or both, from any pool or field in the state. (t) To regulate the spacing of wells and to establish drilling units. (u) To prevent, so far as is practicable, reasonably avoidable drainage from each developed unit which is not equalized by counterdrainage. (x) To act in a receivership capacity for fractional mineral interests for which the owners are unknown or unlocated and to administratively designate the operator as the lessee. 759 When necessary to prevent waste and to avoid drilling unnecessary wells, the Division may establish a drilling unit or units for each pool. 760 A drilling unit is defined as “the maximum area in a pool which may be efficiently and economically drained by one well.” 761 Owners of

758 759

Id. Id. § 377.22(2). 760 Id. § 377.25(2). 761 Id.

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two or more separately owned tracts may, on their own, agree to integrate their interests and develop the land as a unit. 762 If no agreement has been reached, the Division may require

owners of two or more separately owned tracts within an established drilling unit to integrate their interests and develop their land as a drilling unit. 763 The Department also has the authority to issue an order requiring the operation as a unit of an entire field or of a pool or pools therein. 764 [4] – Process for Pooling. Florida requires permits be obtained prior to drilling wells and prior to operating those wells. 765 Before an applicant may apply for a drilling permit, he or she must have “a lawful right to drill, explore, or develop from a majority of the mineral interests within a drilling unit,” whether by owning or leasing the minerals. 766 Unallocated interests may be unitized. 767 Also, prior to issuing a permit, the Division must find that the applicant has implemented, or will implement, programs to control oil- and petroleum-related pollution and the abatement thereof. 768 All permits to drill must include the address of the applicant’s residence or the several applicants’ residences, 769 as well as the following: an Organization Report, performance

security, location plat, site construction plans, casing and cementing program, contingency plan if appropriate, and application fee of $2,000. If the application is one for a nonroutine well, a well not in conformity with given spacing or location requirements, it should also include a lease

762 763

Id. § 377.27(1). Id. 764 Id. § 377.28(1). 765 Fla. Admin. Code Ann. r. 62C-26.003, 008 (2010). 766 Fla. Stat. § 377.2411(2010); see also id. § 377.243(1). 767 Id. § 377.243(1). 768 Id. § 377.243(2). 769 Id. § 377.24(2) (2010).

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map or document and letter of justification. 770 If the Department has any of these items on file, they may be included by reference. 771 The application will be considered incomplete until the applicant also has requested a “preliminary site inspection” to be made by the Department. 772 No permit may be given to allow for the drilling of an oil or gas well on certain coastal locations or within corporate municipalities. 773 Permits will be valid for one year from the date of

approval and may be extended for up to one year for an additional fee of $1,000. 774 After obtaining a permit to drill, the operator must give written notice by certified mail, return receipt requested, of the proposal to drill to all those mineral owners both who hold a minority interest and who are either unleased mineral owners or owners of minerals leases who have not entered farmout agreements or other like agreement to drill with the operator. 775 This notice must include an offer to participate for a pro rata share of costs or to lease or farm out its right in the drilling unit. 776 However, the bonus and royalty amounts included in the offer may not be less than a $26-per-acre one-time bonus and a one-eighth royalty. 777 This notice must be given at least 60 days before drilling the well. 778 Notified owners have 30 days after receipt of notice to respond in writing. Otherwise, they will be deemed a “carried owner.” 779 Carried owners do not receive revenue until the applicant and its partners in the joint venture have been paid from production for an amount equal to 300 percent of the actual costs of drilling, developing, and producing the well. 780

770 771

Fla. Admin. Code Ann. r. 62C-26.003(3) (2010). Id. 772 Id. r. 62C-003(4). 773 Fla. Stat. § 377.24(5)–(9) (2010). 774 Fla. Admin. Code Ann. r. 62C-26.003(1) (2010). 775 Fla. Stat. § 377.2411(1)(a) (2010). 776 Id. § 377.2411(1)(b). 777 Id.; see also id. § 377.247(2). 778 Id. § 377.2411(1)(c). 779 Id. § 377.2411(2)(a). 780 Id. § 377.2411(2)(b).

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Carried owners are entitled to an annual accounting of the amount still owing to the operators.781 If the mineral owner is the State, these provisions do not apply. 782 Further, operating permits are necessary for each well not plugged and abandoned to authorize operators to use them for their intended purpose, i.e., to produce oil or gas; these permits should be obtained during the testing phase. 783 Every five years, the Department conducts a field inspection of the well and operating permit to verify compliance. 784 Every application and re-certification for operating permits must include the following: Form 14, the Application for Permit to Operate Well; application fee of $2,000; continued or revised bond or security coverage; new or updated Spill Prevention and Clean Up Plan; new or updated Flowline specifications and installation plan; and Secondary Containment Facility Certification, if not already on file and current. 785 Further, the Department will not issue an operating permit unless all reporting and data submission requirements have been met, which include the following: Well Record with driller’s log, Well Completion Report, Monthly Well Production and Test Report, Monthly Injection Well Report, and copies of all mud logs, well logs, samples, cores, core analysis reports, and directional surveys. 786 The Division may deny any application for just and lawful cause. 787 The Division must base its decision of whether to issue a permit on consideration of the following criteria: (1) The nature, character and location of the lands involved; whether rural, such as farms, groves, or ranches, or urban property vacant or presently developed for residential or business purposes or are in such a location or of such a nature as to make such improvements and developments a probability in the near future.
781 782

Fla. Stat. § 377.2411(2)(c) (2010). Id. § 377.2411(2)(d). 783 Fla. Admin. Code Ann. r. 62C-25.006(2) (2010); see also id. r. 62.26.008(1). 784 Id. r. 62C-25.006(2). 785 Id. r. 62C-26.008(3). 786 Id. r. 62C-26.008(4). 787 Fla. Stat. § 377.24(4) (2010).

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(2) The nature, type and extent of ownership of the applicant, including such matters as the length of time the applicant has owned the rights claimed without having performed any of the exploratory operations so granted or authorized. (3) The proven or indicated likelihood of the presence of oil or gas or related minerals in such quantities as to warrant the exploration and extraction of such products on a commercially profitable basis. 788 The board 789 will establish a drilling unit or units for each pool in order to prevent waste and to avoid drilling unnecessary wells. 790 A drilling unit is the “maximum area in a pool which may be efficiently and economically drained by one well.” 791 The Division, as previously noted, has the authority to integrate interests “when two or more separately owned tracts are embraced within an established drilling unit.” 792 If the owners agree to pool their interests within the drilling unit, they may do so voluntarily. 793 If pooling does not take place voluntarily, the Division will require such integration in the prevention of waste and to avoid the drilling of unnecessary wells. 794 If the Division is found to lack the authority to require integration, the owners may each drill on their respective tracts subject to a limitation on production allowing each owner to produce only the proportion of the allowable for the whole drilling unit as the tract bears to the full drilling unit. 795 Also, the Oil and Gas Statute provides that the Department may determine that an entire field or any pool or pools or portions thereof may need to be operated as a unit. 796 Although the Florida Oil and Gas Statute does not explicitly call for a hearing prior to integration of interests or orders of unit operation, the Florida Administrative Code’s
788 789

Id. § 377.241. This is a body not defined by statute; presumably the “Division” is intended. 790 Id. § 377.25(2). 791 Id. 792 Id. § 377.27(1). 793 Id. 794 Id. 795 Id. § 377.27(2). This provision appears to be in place as a safety feature in the statute. 796 Id. § 377.28(1).

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Administrative Procedure Act provides a procedure for “decisions which affect substantial interests,” applicable to all proceedings in which substantial interests of a party are determined by an agency. 797 That section says that, unless otherwise agreed, section 120.57(2) of the Administrative Code applies to all cases. 798 Section 120.57(2) requires that affected persons be afforded reasonable notice of agency action, whether proposed or already taken, with a summary of the grounds upon which that action rests; the option to present evidence in opposition to the action or to otherwise challenge the action; and a written explanation within seven days. 799 Parties’ notice must include information that an administrative hearing or judicial review may be had and should indicate the procedure to obtain such review. 800 Petitions or requests for hearings should be filed with the “agency,” 801 which can be defined as the Department. 802 All parties are entitled to reasonable notice of not less than 14 days, which notice requirement may be waived. 803 If not waived, notice must include a statement of (1) the time, place, and nature of the hearing and (2) a statement of the legal authority and jurisdiction under which the hearing will be held.804 Besides requirements adopted specifically by law, the petition or request for hearing must be signed by the party or the party’s attorney805 and must include the following: (a) The identification of the petitioner. (b) A statement of when and how the petitioner received notice of the agency’s action or proposed action. (c) An explanation of how the petitioner’s substantial interests are or will be affected by the action or proposed action.

797 798

Id. § 120.569(1). Id. 799 Id. § 120.57(2)(a). 800 Id. § 120.569(1). 801 Id. § 120.569(2)(a). 802 Id. § 120.52(1)(a). 803 Id. § 120.569(2)(b). 804 Id. 805 Id. § 120.569(2)(e).

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(d) A statement of all material facts disputed by the petitioner or a statement that there are no disputed facts. (e) A statement of the ultimate facts alleged, including a statement of the specific facts the petitioner contends warrant reversal or modification of the agency’s proposed action. (f) A statement of the specific rules or statutes that the petitioner contends require reversal or modification of the agency’s proposed action, including an explanation of how the alleged facts relate to the specific rules or statutes. (g) A statement of the relief sought by petitioner, stating precisely the action petitioner wishes the agency to take with respect to the proposed action. 806 Upon receipt of notice in proper conformity with the above requirements, the agency may dismiss it as having an incurable defect; promptly give notice to all parties of action taken on the petition, including particular reasons if not granted; or refer to the Division for the assignment of an administrative law judge. 807 A final order must be in writing and include finding of facts and conclusions of law separately; it also should be rendered within 90 days after the hearing, if conducted by the agency; after a recommended order is submitted to the agency and mailed to all parties, if conducted by an administrative law judge; or after the agency has received all material it has authorized to be submitted, if no hearing was conducted. 808 Orders requiring integration and pooling must be on just and reasonable terms and must afford the owners of each tract the opportunity to obtain the tract’s just and equitable share of production from the pool. 809 Orders for unit operation must be fair and reasonable, must protect the rights of interested parties, and must include the following: (a) A description of the area embraced, termed the “unit area” and a description of the pool or pools, or portions thereof, affected and lying within the unit area. (b) A statement of the nature of the operations contemplated.

806 807

Id. § 120.54(5)(b)(4). Id. § 120.569(2)(c)-(d). 808 Id. § 120.569(2)(l). 809 Id. § 377.28(9).

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(c) A method of allocation among the separately owned tracts in the unit area of all the oil or gas, or both, produced from the unit pool within the unit area and not required in the conduct of such operation or unavoidably lost, such method of allocation to be on a formula that is fair and equitable and that will protect the correlative rights of all interested parties. (d) A provision for adjustment among the owners of the unit area (not including royalty owners) of their respective investments . . . attributable to the unit operations. . . . The adjustment provided for herein may be treated separately and handled by agreements separate from the unitization agreement. (e) A provision that the costs and expenses of unit operation, including investment, past and prospective, be charged to the separately owned tracts in the same proportions that such tracts share in unit production. The expenses chargeable to a tract shall be paid by the person not entitled to share in production free of operating costs and who, in the absence of unit operation, would be responsible for the expenses of developing and operating such tracts, and such person’s interest in the separately owned tract shall be primarily responsible therefor. The obligation or liability of such persons in the several, separately owned tracts for the payment of unit expense shall at all times be several, and not joint or collective. . . . (f) The designation of, or a provision for the selection of, a unit operator. . . . (g) A provision that when the full amount of any charge made against any interest in a separately owned tract is not paid when due by the person or persons primarily responsible therefor, then all of the oil and gas production allocated to the interest in default in such separately owned tract, upon which operator has a lien, may be appropriated by the unit operator and marketed and sold for the payment of such share, together with interest at a rate of six percent (6%) per annum. The remaining portion of the unit production, or the proceeds derived therefrom, allocated to each separately owned tract shall in all events be regarded as royalty to be paid to the owners, free and clear of all unit expense and free and clear of any lien therefor. . . . (h) The time the unit operation shall become effective and the manner in which, and the circumstances under which, the unit operation shall terminate. 810 Owners of fractional undivided mineral interests in lands subject to permits are entitled to their pro rata share of the earnings after costs of exploration and operation have been

810

Id. § 377.28(3).

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allocated. 811 When operators cannot find the owner of the minority mineral interest in a drilling unit after reasonable attempts to locate that owner, the operator may call for the Department to act as the receiver for that party. Unlocated owners are entitled to the one-time bonus payment of $26 per acre and one-eighth production royalty. 812 The orders requiring unit operations are not effective until the unitization agreement is ratified or approved in writing by the owners of at least 75 percent of the cost allocation and by 75 percent of the holders of production allocated to royalty owners. 813 A party potentially could be responsible for both cost and also be a holder of royalty interest. If that is the case, the party may cast their vote as one or the other, but not as both. For example, if such party votes its cost allocation percentage toward the 75 percent required approval, that party’s percentage interest as a royalty holder will be excluded when calculating the percentage of consenting and nonconsenting royalty holders. 814 Additionally, parties responsible for at least 75 percent of the costs must ratify a contract incorporating the operation arrangements. 815 If the required approval does not take place within six months of the order date, or within a department-granted extension period, the order is automatically revoked. 816 Additionally, the Board may amend or add to orders providing for unit operations by entering a new order or by amending an order, and production should then be reallocated among the tracts. 817 No order that changes the percentage of oil and gas allocated to each separately owned tract is retroactive. 818 Orders that extend or add to an existing unit area are only effective

811 812

Id. § 377.245. Id. 813 Id. § 377.28(4)(a). 814 Id. 815 Id. § 377.28(4)(b). 816 Id. 817 Id. § 377.28(5)(a). 818 Id. § 377.28(6).

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upon ratification by the appropriate percentage, given above, of interested parties in the tracts to be added. 819 The portions allocated to each tract in unit operations will be considered to have been produced from each tract by a well drilled on said tract. 820 Also, for required integration and pooling, operators have the right to charge each owner with the actual and reasonable cost of development and operation, including a reasonable charge for supervision. 821 The operator also has the right to first production for payment of costs. If a dispute arises regarding the amount of costs, the Division may determine appropriate costs. If the well drilled is a dry hole, no liability for payment attaches to any person by virtue of the unit operation order. 822 [5] – Matters Covered. [a] Number of Wells. The drilling units, as set by the Department, should contain only one currently producing well in the same pool, and no drilling unit should be attributed to any other producing well in the same reservoir unless allowed in the special field rules or in a non-uniform permit under Florida Administrative Code section 62C-26.004(6). [b] Spacing and Depth of Wells. The Florida Administrative Code provides that unless governed by special field rules adopted by the Department, general spacing rules apply. For gas wells of any depth, exploratory wells should be on 640-acre units, and routine test wells or condensate wells should have a bottom hole location of not closer than 1,320 feet to the closets drilling unit boundary. For oil wells less than 7,000 feet deep, exploratory wells should be on 40-acre lots, and routine test

819 820

Id. § 377.28(5)(b)(2). Id. § 377.28(9). 821 Id. 822 Id.

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wells should have a bottom hole location no closer than 460 feet to the closest drilling unit boundary. As for oil wells drilled to below 7,000 feet, exploratory wells should be on 160-acre units, while routine test wells should have a bottom hole location no closer than 920 feet to the nearest drilling unit boundary. If the bottom hole location does not meet the spacing requirements or the drilling unit shapes are not in conformity with the rules and the location has not been approved as a condition of the drilling permit, the well will be called a “nonroutine location.” 823 The operator must then apply for a nonroutine location, at which time the Department may grant drilling permits with shorter distances to surrounding drilling units or on different drilling units. 824 [c] Authority to Integrate Production. When more than one separately owned tract is found within an established drilling unit and the owners thereof have not agreed to integrate their interests, the Division shall require them to do so and to develop their land as a drilling unit if it finds that the interests of preventing waste and avoiding unnecessary drilling are thereby served. 825 Additionally, the Department may adjudge the necessity for operating a field or pools as a unit and will require unit operation, if necessary. 826 [d] Allocation of Production and Costs. Owners who have been ordered to integrate and pool their interests in a drilling unit may be charged by the operator the actual costs of development and operations, including a reasonable charge for supervision, which costs will be charged against the owners’ interest in the

823 824

Fla. Admin. Code Ann. r. 62C-26.004(4)(c) (2010). Id. r. 62C-26.004(6). 825 Fla. Stat. § 377.27(1) (2010). 826 Id. §§ 377.28(1)-(2).

159

.248(3)(d). 835 Id. the others will not be liable for payment unless they specifically agreed to be so liable. § 377.248(9). held by the operator in payment of each tract’s share of the production costs. 827 828 Id. 827 The operator has the right to the first production from wells drilled thereon in order to pay for others’ share of drilling expenses. production allocation is to be made according to a formula that is “fair and equitable and that will protect the correlative rights of all interested parties. § 377. 834 If the owners do not respond to the offer within 30 days. which adjustment may be set out in a separate agreement from the unitization agreement. 160 . 828 For orders requiring unit operation. 830 Id.248(3)(e).production unit. § 377. see also id.248(3)(c). 833 The bonus and royalty amounts in the offer may not be less than a $26-per-acre one-time bonus and a one-eighth royalty. § 377. § 377. the Department can help in making the determination.2411(1)(b). Unit operators must give minority interests the option to participate for pro rata share of costs or to lease or farm out their right to drill. 831 Id.2411(2)(a). exclusive of the royalty provided for by agreement. § 377.” 835 Carried owners do not receive revenue until the applicant and its partners in the joint venture have been paid from production for an amount equal to 300 percent of the actual costs of drilling. 834 Id. 829 Id. 833 Id. § 377. However. with a lien on the oil and gas rights. 831 If owners cannot agree on the amount to be so charged. they will be deemed a “carried owner. the order may provide for adjustment among owners of their investments in production equipment and services attributable to the unit operations. 830 Also.” 829 Costs should be shared in the same proportion as production is distributed. if he drills a dry hole.247(2). 832 [e] Royalty Distribution. 832 Id. Id.

in payment of the costs and expenses allocated among the tracts.248(9). The Division may limit the total amount of oil or gas that may be produced in the state when the total amount produced by all pools therein exceeds the amount necessary to meet reasonable market demand for the state.” 840 [g] Limitation on Production. or contracts and combinations in restraint of trade. 837 Otherwise. The same standards used to distribute the allowable for the 836 837 Id. § 377. The Code provides that approval by the Division of agreements for co-operative development and operation of units in the interest of oil and gas conservation or for the prevention of waste will not be held to violate any state statutes related “to trusts. and upon the unleased oil and gas rights. § 377. § 377. together with a reasonable amount of oil for storage and working stocks. 836 Minority owners who the operator cannot locate may be appointed a receiver. not including a one-eighth royalty. 841 Id. 840 Id. monopolies.247. 838 Orders requiring integration and pooling do not make note of a royalty due to interest holders. § 377. 841 Reasonable market demand is defined as “the amount of oil reasonably needed for current consumption.2411(2)(b).19(15).248(3)(e). § 377. 839 [f] Agreements Not Restraint of Trade. Id. § 377. the operator must forward the bonus and royalty to be held for the unlocatable owner. the operator has a lien upon the leasehold estate.29. 161 . and producing the well.” 842 The Division must fix allowables in a way that avoids undue discrimination and prevents waste.developing.30(1). 842 Id. 838 Id. 839 Id. not including the royalty interest provided in the lease. In that case. § 377.

Id. The term oil is defined as “crude petroleum oil and other hydrocarbons. or natural gas which does not contain the heavier fractions which may easily condense under normal atmospheric conditions.19(25). 849 Otherwise. § 377. Code Ann. default rules apply to the spacing of wells. 845 Id. 62C-26. 846 Id.” 847 Dry gas means “natural gas obtained from formations that produce gas only. § 377.30(1). etc. either after it leaves the reservoir or while still in the reservoir.” 846 The rules provide additional definitions. 850 The default spacing provisions for gas wells do not provide variations based on depth. the Division.004(1) (2010). 849 Fla.02 Types of Florida Pooling Statutes. to a reasonable extent. [1] – Mineral Distinctions.30(2). but oil wells are spaced based 843 844 Id.19(16). § 377. white oil. They define condensate as “the liquid hydrocarbons produced by the condensation of a vapor or gas. r. 162 . Wells drilled in existing fields will be spaced according to special field rules adopted by the Department. not casinghead gas. and which are not the result of condensation of gas after it leaves the reservoir. Admin.19(4).19(5). § 377. which are produced at the well in liquid form by ordinary production methods.state shall be used for similar reserves. including casinghead gas. drips. Condensate is often called distillate. § 377. must prorate the allowable production among producers in the pool to prevent or minimize avoidable drainage that is not equalized by counter-drainage and to afford each producer the opportunity to produce its just and equitable share. 850 Id. when limiting production within a single pool. 848 Id. 847 Id. § 377. regardless of gravity.” 845 Gas means “all natural gas. and all other hydrocarbons not defined as oil in subsection (4) above.” 848 [2] – Spacing and Depth Rules. 843 Also. 844 § 10.

a well is considered to be in a nonroutine location and the operator must apply for a nonroutine location as provided in the rules. 62C-26. and if the location was not approved as a condition of the drilling permit. Routine drilling units are based on the U. 62C-26-004(4) (2010). the applicant should include the names and addresses of all “substantially affected parties (offsetting mineral-interest owners.004(3)(b). the length of the longest diagonal not to exceed 125 percent “of the length of a diagonal of a square containing the same number of acres as the unit.004(6).” 858 The Department should base the determination of whether to grant the nonroutine well or unit on whether doing so is necessary to prevent waste or to protect 851 852 Id. 62C-26. operators. r. r. 857 Id.004(3). Code Ann. 855 For wells with a bottom hole location that is not in conformity with the spacing requirements in Administrative Code section 62C-24. 858 Id. r. and wells should be placed where they cause the least amount of surface disturbance and where they do not cause other environmental issues. 62C-26-004(4)(c). r. 62C-26. Admin. and lessees).S. 854 Fla.004. 852 Routine drilling units should be shaped so that the diagonals lie completely within the unit. Government Surveyed Township and Range system. 853 Id.004(6)(a).25(3) (2010). Stat. 854 The surface location is determined by the surface conditions. which will be used to space wells. r. § 377. Id. 857 To apply for a permit for nonroutine wells or drilling units. horizontal wells have their own spacing rules. 856 Id.004(2)-(6). 62C-26. r. 856 The Department may grant drilling permits that allow for less distance between unit boundaries when it is necessary. r.” 853 Each well should be drilled roughly in the center of a drilling unit unless the Division determines that conditions require otherwise. 855 Fla.upon whether they are drilled to a depth of greater than or less than 7.000 feet. 62C-26. 851 Additionally. 163 .

164 . Routine spacing for oil wells are quarter-quarter sections for wells less than 7. are quarter-quarter or quarter sections (depending on well depth) and for gas wells of any depth. Government surveyed township and range lines and. (31) HORIZONTAL WELL shall mean any well within a horizontal or nearly horizontal borehole within the production interval. or composed of odd sized lots other than 40. (39) NONROUTINE SPACING shall mean that the required amount of land surrounding an oil or gas well is uncommon in its size.004(6)(b). 859 For purposes of this section. for oil wells.S. 62C-26. (38) NONROUTINE DRILLING UNIT shall mean any drilling unit composed of unsurveyed land not divided into townships and sections. r. (47) ROUTINE SPACING shall mean well spacing based on the U. A routine gas well of any depth has a bhp no closer than 1360 feet to the nearest drilling unit boundary. full sections. 62C-25. 860 [a] Gas Wells.000 feet deep and quarter sections for wells greater than 7.000 feet has a bottom hole position no closer than 460 feet to the nearest drilling unit boundary while an oil well drilled to a greater depth has a bhp no closer than 920 feet to the nearest drilling unit boundary. r. 859 860 Id. regardless of depth. shape. A routine oil well drilled to a depth of less than 7.004(1) through (4). Gas wells. and does not conform to 62C-26. composed of irregular townships and sections. are assigned 650 acres. etc.004(4). the Florida Administrative Code provides the following pertinent definitions: (24) DRILLING UNIT shall mean the block of land surrounding and assigned to a particular well and into which no other like well may be completed. Government Township and Range System as described in 62C-26-004.000 feet deep. (45) ROUTINE DRILLING UNITS are those units based on U.correlative rights. or 640 acres..S. (46) ROUTINE LOCATION OR WELL shall mean an oil or gas well whose bottom hole position complies with 62C-26. 160. Id.002.

004(5)(b). r. r. r. 866 Id. 867 Id. 62C-26. r. 867 If a horizontal well with productive sections penetrates within the 400-foot square in the center of a routine drilling unit.840 feet to another productive well. r.000 feet should be located on 160acre units.Exploratory gas wells. 861 [b] Oil Wells Less Than 7.004(4)(b).004(2).000 feet should be located on 40-acre units. 62C-26. r. 861 862 Id. 62C-26. All routine gas test wells or gas condensate wells should have a bottom hole location not closer than 1. 864 All routine oil test wells drilled below that depth should have a bottom hole location no closer than 920 feet to the nearest unit boundary. 863 Id. 62C-26. 62C-26. r. 868 [3] – Minimum Operator Control. 865 [d] Horizontal Wells and Associated Drilling Units. 863 [c] Oil Wells Greater Than 7. Id. 862 All routine oil test wells drilled above that depth should have a bottom hole location no closer than 460 feet to the nearest drilling unit boundary.004(5)(a). r.004(2). 62C-26.000 Feet Deep. should be located on 640-acre units.320 feet to the nearest drilling unit boundary. The special requirements for nonroutine drilling units also apply to horizontal wells.004(5)(f). regardless of depth. 865 Id. 62C-26. that well should include the entire 160-acre unit.000 Feet Deep. 62C-26. Exploratory oil wells of less than 7.004(4)(a). 868 Id. 866 All 10-acre blocks whose nearest boundary is within 920 feet of the productive section of a horizontal well needs to be included in the unit. 864 Id. 165 . No producing section of a well may be closer than 1.004(4)(a). Exploratory oil wells drilled to a depth of more than 7.

875 Id. which is “a well completed with the wellbore in a horizontal or nearly horizontal orientation within 10 degrees of horizontal within 869 870 Fla. 869 If a party is responsible for costs and also a royalty interest holder. 874 Orders that extend or add to an existing unit area are only effective upon ratification by the appropriate percentage. given above. 871 Id. 872 Id. For example.28(5)(a). but not as both. The statute provides a definition of horizontal well. 872 The Board may amend or add to orders providing for unit operations by entering a new order or by amending an order. 166 . 870 Additionally. the party may cast its vote as one or the other type of interest holder. § 377.28(4)(a) (2010). Stat. and production should then be reallocated among the tracts. Id. that party’s percentage interest as a royalty holder will be excluded when calculating the percentage of consenting and non-consenting royalty holders. if the party votes its cost allocation percentage toward the 75 percent required approval. 873 No order that changes the percentage of oil and gas allocated to each separately owned tract will be retroactive. 875 [4] – Directional Drilling. the order is automatically revoked. 874 Id. § 377. or within a department-granted extension period. § 377. of interested parties in the tracts to be added. 873 Id.28(4)(b). 871 If the required approval does not take place within six months of the order date.28(6). § 377.Unit operations orders do not become effective until the unitization agreement is ratified or approved in writing by the owners of at least 75 percent of the cost allocation and by 75 percent of the holders of production allocated to royalty owners.28(5)(b)(2). parties responsible for at least 75 percent of the costs must ratify a contract incorporating the operation arrangements. § 377.

62C-26.” 882 Finally. Code Ann.002(31) (2010). 879 The rules also request that horizontal wells should be unitized as soon as possible after testing is finished. 62C-26. 880 A Directional survey should be taken from the surface casing shoe to full depth to be filed with the Oil and Gas Administrator within 30 days. r. r. 878 Id. r. Admin.002(1). Stat. 881 Id.004(5)(b).” 876 The Administrative Code gives a slightly different definition: “any well within a horizontal or nearly horizontal borehole within the productive interval. 884 Fla. Those wells with productive sections that penetrate the 400-foot square in the center of a routine drilling unit will include the entire 160-acre unit. 62C-25.004(5)(c).004(5)(e). or (2) owners of mineral leases which have not entered into a farmout agreement or any other agreement to drill or produce with the operator. 881 The Oil and Gas Administrator is “the State Geologist and Chief of the Florida Geological Survey. Fla. 878 All 10-acre blocks within the 160-acre routine drilling unit whose nearest boundary is within 920 feet of the productive section of a horizontal well is to be included in the unit.” 877 The rules provide regulations for the drilling units and spacing of horizontal wells.2411(1)(a) (2010). § 377. 879 Id. 880 Id. no producing section of a horizontal well may be within 1.the producing formation. 883 [5] – Options. 62C-25. The notice must 876 877 Id. § 377. r. 882 Id. the special nonroutine drilling unit and well requirements apply to horizontal wells. Specifically. r. 883 Id.840 feet of another productive well. 62C-26.19(25). 62C-26.004(5)(f). r.004(5)(a). Any operator who has gotten a permit to drill must give notice to owners holding a minority interest within the drilling unit and who are: (1) unleased. 62C-26. 167 . 884 The notice must include an offer to allow the owner to participate in its pro rata share of costs of drilling or to lease or farm out its interest. r.

Id.2411(2)(a). § 377. 886 885 886 Id.include the bonus and royalty as previously noted. § 377. 885 The notified owner has 30 days to make the election.2411(1)(b). 168 .

(2) protect environmentally sensitive areas. § VI. or Camden. 889 The purpose of these rules is to establish the administration and enforcement procedures of the Georgia Oil and Gas and Deep Drilling Act of 1975 (“Act”). Code Ann. There is one member from each congressional district in Georgia and five members from the state at large. Const.§ 11. art. §§ 12-4-43(1). consists of a total of eighteen members. These rules are promulgated in order to: (1) protect the health.01 Analysis of Georgia Regulatory Framework. 169 . McIntosh. one of whom must be from one of the following counties: Chatham. The Board of Natural Resources (“Board”) is a Constitutional Board that is empowered by the legislature with specific authority to regulate pooling of oil and gas resources in the state. Glynn. as amended. [1] – Name of the Governing Body. and (3) encourage oil and gas exploration to identify new sources of energy. [3] – Scope of Authority. Liberty. & Regs. IV. (4) (2010). 889 Ga.01 (2010). The Board. 391-1-1-. The Board shall have authority to make such inquiries as it may deem necessary into any matter over which it has jurisdiction and to adopt and promulgate rules and regulations. safety and welfare of the citizens of Georgia by requiring that adequate protection of underground fresh water supplies be assured in any drilling operation which may penetrate through any strata which contains fresh water. 887 [2] – Membership on the Governing Body. 890 888 887 888 Ga. which is appointed by the Governor of Georgia and subject to approval by the State Senate. 890 Ga. The members will each serve a term of seven years and shall represent all areas and functions encompassed within the Department of Natural Resources (DNR). and to carry out the purposes and requirements of the Act. R. Id. Bryan. Comp.

excessive or improper use or dissipation of reservoir energy. § 12-4-45(a). 891 892 Ga. the Board has the power to integrate drilling units to prevent waste. (3) the inefficient storing of oil.800 feet. 892 The Board has the authority to establish drilling units and operation units. It shall include. equipping. (3) any exploration or production well drilled to a depth sufficient to interfere with the fresh-water aquifer system in an environmentally sensitive area of the coastal zone. unnecessary or excessive surface loss or destruction of oil or gas. spacing.800 feet for any other mineral. production. operating or producing of any oil or gas well or wells in a manner causing. 170 . and to allocate production within a drilling unit. 894 Waste. (2) any exploration or production well that is drilled to a depth of 1. § 12-4-43 (2010). and.The Board has jurisdiction and authority over the drilling of and subsequent use of any exploration. (4) any underground storage well that is used for disposal of waste. (5) abuse of the correlative rights and opportunities of each owner of gas or oil in a common reservoir due to nonuniform. equipping. but is not limited to: (1) the inefficient. (5) any fresh water production well drilled deeper than 1. means “physical waste” as that term is generally understood in the oil and gas industry. (4) the locating. 893 Additionally. in a reduction in the quantity of oil or gas ultimately to be recovered from any pool in this State. in addition to its ordinary meaning. operating. or tending to cause. (2) the locating. spacing. drilling. or producing of any oil or gas well or wells in a manner which results or tends to result. jurisdiction and authority for: (1) the drilling of and subsequent use of any exploration or production oil or gas well. 894 Id. or storage well. 893 Id. 891 This includes. drilling. but is not limited to. (6) any salt water or brine exploration or production well. Id. Code Ann.

(4) to limit and prorate the production of oil or gas. plants. 171 . and (4) grant a new or amended operational unit order. or both. structures. and. including the filing of drill cutting samples. and copies of all logs. refineries. 895 The Board has authority to adopt and promulgate rules and regulations dealing with the control of matters over which it has jurisdiction as above stated. of gas in excess of the amount which is necessary in the efficient drilling or operation of the well.disproportionate and unratable withdrawals causing undue drainage between tracts of land. Such rules and regulations shall include. producing leases. tanks. the following purposes: (1) to require the making of reports showing the location of all wells regulated under this part. however caused and whether or not defined as the same relates to any activity regulated by the provisions of these Rules. and spillage as same relates to any activity regulated by the provisions of this part. (11) the escape into the open air. (10) the creation of unnecessary fire hazards as the fire relates to any activity regulated by the provisions of these Rules. among others. (12) permitting gas produced from a gas well to escape into the air. rules and regulations for. (2) to prevent fires. from a well producing both oil and gas. (9) underground waste. the Board has the authority to: (1) investigate. and to further require that the operator submit the name classification used for each of the subsurface formations penetrated and the depth at which each such formation was penetrated. from any pool or field for the prevention of waste. To fulfill the duty of waste prevention. (7) the operation of any oil well or wells with an inefficient gas-oil ratio. (2) hold a hearing. § 12-4-45. (3) to identify the ownership of all oil or gas wells. 895 Id. cores. except where approval of such a project has been granted by the Director. and all storage and transportation equipment and facilities. waste. but are not limited to. (6) the production of oil or gas in such a manner as to cause unnecessary water channeling or zoning. (3) grant reasonable and practicable drilling unit and operation unit orders after notice and hearing. (8) the drowning with water of any stratum of part thereof capable of producing gas or oil. except for testing.

but not limited to. (9) to regulate the issuance. if the operator makes a written request for the same stating the length of the extension desired and the reasons therefore. which records shall be reported to the director within the time specified in such rules and regulations. account for. and to establish the amount of bond for such persons. (6) to prevent. subsurface samples. plan. including. § 12-4-48. or. including the Environmental Protection Division. (7) to require that accurate records be kept on forms to be prescribed by the director. and lithologic and geophysical logs. The Commissioner has the authority to supervise. administer and execute all the respective statutory functions of the DNR and the Divisions. 896 Lastly. any rule or regulation adopted and promulgated pursuant to this part. 172 . to appoint and remove the Commissioner of Natural Resources (“Commissioner”) and the Director of the Environmental Protection Division (“Director”). denial. insofar as is practical. direct.(5) to regulate the spacing of wells and to establish drilling units. (8) to require that geologic and testing information obtained from a well regulated under this part be held in confidence by the director for a period of at least six months from the time of drilling to total depth. avoidable drainage from each developed unit which is not equalized by counter drainage. (10) to regulate the issuance of permits to persons who have been found to have violated any provision of this part. The Commissioner has authority. The reports shall include such information as the director may prescribe. subject to the Governor’s approval. if the director approves. subject to the approval of 896 Id. rule or regulation. except to persons found to have violated any provision. the Board has authority. information concerning cuttings. and revocation of permits and to regulate bonds required under this part. (11) to regulate the cooperative development or operation of all or part of an oil or gas pool as a unit. or any order or permit issued under this part. (12) to regulate the underground storage or disposal of substances other than those substances covered by The Underground Gas Storage Act. This will only be grant if the guarantee of confidentiality provided for in this paragraph shall in no way impair the ability of the board or the director to enforce this part. or any order or permit. a longer period.

to appoint the director of the remaining DNR Divisions: Wildlife Resources. 899 Ga. and (4) avoid the drilling of unnecessary wells. whether ordered by the Board or created by voluntary agreement among owners and operators. § 12-4-45(a). of the pool or area. and Program Support. 901 Id. [a] Authority to Integrate Production. & Regs. and operation plan. All drilling units and operating units. plans and enforces the rules and regulations made by the Board under the Act. 173 . Comp. Coastal Resources. to consider and issue permits to drill wells and to establish drilling and operation units. Parks. accounts for. 901 More specifically. § 12-4-45(b). 900 Id. Pollution Prevention Assistance.01 (2010). operators. are established to: (1) conserve gas and/or oil. when two or more separately owned tracts of land are contained within an established drilling unit. 900 The owners.the Board. Id. (3) ensure the ultimate hydrocarbon recovery. § 12-4-43(5) (2010). 897 The Director of the Environmental Protection Division supervises. 902 Id. and royalty owners who have separate holdings in the same oil or gas pool or in any area that appear from geological or other data to be in the same reservoir can voluntarily agree to enter into and carry out a cooperative development. if delegated to him. the owners may voluntarily agree to combine or integrate their tracts or interests for the development or operation of that drilling unit. organizes. 902 897 898 Ga. Historic Preservation. directs. R. (2) prevent waste. 391-1-1-. 898 The Director may have the power. Recreation and Historic Sites. 899 [4] – Process for Pooling and Matters Covered. Code Ann.

06. then each owner embraced within the drilling unit may drill on his own tract. 908 The plan may be mailed to the Director. if the owners have not agreed to integrate their interests. § 391-3-13. which effectively reserves the non-agreeing owners’ rights to drill and produce proportionately on their respective tracts. the Director may enter an order that requires the owners to integrate all tracts and interests in the drilling unit. § 391-1-1. voluntarily agreed upon by an owner or operator. Code Ann. 904 If the Director does not have the authority to require integration and there is no owner agreement. in DNR’s rules and regulations. Rules and Regs. The allowable production on the single owner’s tract or tracts is limited in proportion of those tracts to the full drilling unit. 907 The plan for a drilling unit. or both must be submitted to the Board for approval. § 12-4-45(b). 174 . 909 See Ga. 903 904 Id. after an investigation and hearing. 906 See Ga.04(d). establish operation units. 903 All orders requiring integration of drilling units are subject to the Director’s discretion of what is reasonable and practicable.However. the reservoir will not be fully drained. Id. 908 Ga. 907 Id. 906 As an alternative to a drilling unit. Dep’t of Natural Res. 909 The need of a petition for approval of a drilling unit involuntarily formed or any further information on a petition for approval of a plan is not provided in the Act. Rules and Regs. Dep’t of Natural Res. the Director shall. § 12-4-45(a)(1). 905 Id. The Director will then allocate the production of the unit and. or in Georgia’s Administrative Procedure Act. must afford the owner and/or producer of each tract or interest in the drilling unit the opportunity to use its just and equitable share of the reservoir energy. 905 Thus. after discovery of an oil and gas pool and after due investigation and a hearing.

after due investigation and a hearing. Code Ann. as a result of the unit operation. among the separately owned tracts in the unit area. To grant an operation unit order. or both. § 12-4-45(a)(2)(B). such contribution can not be altered except to correct mathematical errors or clerical errors. § 12-4-45(a)(2)(D)(i)–(iii). 911 All orders for unit operation must be fair and reasonable and must protect the rights of all interested parties. including investments. past and prospective. or both. Ga. either to approve or to disapprove the drilling unit agreement(s) made between owners or operators. in DNR’s rules and regulations. § 12-4-45(b). he may grant an order for a drilling unit or operation unit to the owners or the operators. After the Director has concluded a hearing. and 4) a fair and equitable formula. or in Georgia’s Administrative Procedure Act. The procedure that the Board must follow when conducting a hearing is not discussed in the Act. to be charged to the separately owned 910 911 Ga. 912 Id. which will protect the correlative rights of all interested parties. the Board shall have the power.The Board shall have power. for the allocation of oil or gas. 914 The order shall contain a provision requiring the costs and expenses of unit operations. the Director must find that the unit operation is necessary to prevent waste or to increase ultimate recovery of oil or gas by additional recovery methods and that the estimated additional cost. after notice and hearing. 914 Id. 3) a statement of the nature of the operations contemplated. 2) a description of the pool or pools affected and lying within the unit area. Code Ann. 913 Id. 913 If at any time the contribution of a separately owned tract with respect to any unit pool has been established. for an operation unit. to grant an order to the owners or operators. § 12-4-45(a)(2)(G). will not be more than the estimated value of the additional recovery of oil or gas. § 12-4-45(a)(2)(D). 910 Additionally. or both. 912 The order requiring unit operation must include: 1) a description of the unit area. 175 .

The unit operation order also must contain the designation of. Id. However. the order must contain a provision for adjustment among the owners of the unit area. or other interest who is not primarily responsible for the debt will be subrogated for any lost payment or deduction from his share. 915 An order requiring unit operation shall not become effective unless and until all of the appropriate persons. oil and gas payment. The charges are to be made in the same proportions that such tracts share in unit production. 176 . materials. and the manner in which and the circumstances under which. or a provision for the selection of. and any surplus from the sale will be proportionally distributed to those from which it was taken. of their respective investments in wells. The amount to be charged for any item will be determined by the unit area owners. At any time after the initial operation unit has been approved and ordered.tracts. and unless and until the Board has made a finding that those contracts have been signed. Also. the unit operation will terminate. if the owners are unable to agree upon the amount or correctness of such charges. the unit operation order must contain when the unit operation will become effective. the Board may enter a new or amended order to add new portions of pools or new pools to the operation unit 915 916 Id. ratified. pumps. The owner of any overriding royalty. § 12-4-45(a)(2)(D)(iv)–(viii). or approved. § 12-4-45 (a)(2)(E). Lastly. machinery. discussed infra. 916 [5] – Modifications. tanks. have signed or ratified or approved in writing the appropriate contract. equipment. and other items and services of value for the unit operation. not including royalty owners. a unit operator to be governed by the terms and provisions of the unitization agreement. the Board shall determine the amount.

177 . Id. 918 The newly modified operation unit will take effect at 7:00AM on the first day of the month next following the day on which the order becomes effective.and may extend the unit area to fit the new unit operation boundaries. the Board may extend the time period past six months to fulfill the required provisions. A portion of the total production of oil or gas. 920 If these provisions are not met within six months of the order. the amended order will provide new allocations. or both. The allocation to the new portions of a pool(s) must be allocated based on a formula that is fair and equitable. The procedure that the Board must follow when making modifications is not discussed in the Act. from all pools affected within the unit area as enlarged will first be allocated to the new portions of a pool(s) or a new pool(s). 919 Id. § 12-4-45(a)(2)(F)(ii). The previously established unit area interest holders will divide the remaining portion of unit production in the same proportions as specified in the original order. § 12-4-45(a)(2)(F)(i). If this six month window passes without a signed agreement. in DNR’s rules and regulations. and the appropriate persons have agreed to the changes in writing. or in Georgia’s Administrative Procedure Act. 917 When a modification is made. then the order will automatically be revoked. 921 Id. a new or amended order to add portions of a pool(s) or a new pool(s) will not become effective unless and until: all of the terms and provisions of the unitization agreement relating to the changes have been fulfilled and satisfied with submitted evidence to the Board. the errors will be corrected. then the order will 917 918 Id. unless such proportions are shown to be erroneous. 920 Id. 921 If these provisions are not met within six months of the order. If this occurs. 919 However.

a pool is defined as an underground reservoir containing an accumulation of crude petroleum or natural gas.automatically be revoked. Id. which has commercial value. [2] – Split by Depth. which are produced at the well in the liquid form by ordinary production methods and which are not the result of condensation of gas after it leaves the reservoir. 178 . or both. 926 There is no mention of coalbed methane in the Georgia pooling statutes. If this six month window passes without a signed agreement. the Board may extend the time period past six months to fulfill the required provisions. 923 Oil is defined as crude petroleum oil and other hydrocarbons. 925 Moreover. [1] – Mineral Distinctions. and field and pool mean the same thing when only one underground reservoir is involved. § 12-4-42(13). a mineral means any naturally occurring substance found in the earth. § 12-4-42(10). but not fresh water. including casing head gas. The term pool also covers each zone of a general structure which is completely separated from any other zone in the structure. 924 Further. a field is defined as the general area that is underlaid or appears to be underlaid by at least one pool. § 11. 922 [6] – Royalty Distribution. A field may relate to two or more pools. 926 Id. or both. In Georgia. regardless of gravity. § 12-4-42(5). 922 923 Id. Gas is defined as all natural gas. mineral includes oil and gas. and all other hydrocarbons not defined as oil. The Act or DNR’s rules and regulations do not specify the royalty interest to be received by the mineral interest owner or the producer. § 12-4-42(4). 925 Id. 924 Id. a field includes the underground reservoir or reservoirs containing crude petroleum oil or natural gas.02 Types of Georgia Pooling Statutes.

from any lease boundary. The Board may adopt spacing provisions after notice and a public hearing. Dep’t of Natural Res. place of public gathering.800 feet for any other mineral. dwelling. shall be governed by special rules for that particular field or area. 929 Id. The distance must be great enough to ensure an adequate safety buffer to the public. See Ga. 179 . § 46-4-50. (2) any exploration or production well drilled to a depth sufficient to interfere with the fresh-water aquifer system in an environmentally sensitive area of the coastal zone. or for which a permit shall have been granted to drill to the same pool. Gas wells not covered by special rules shall be located 660 feet from the exterior boundary of the 927 928 Id.800 feet. The process for notice and a public hearing is not address in the rules and regulations. in proven oil and/or gas fields or in areas that the Board may designate. 927 The Act does not address any other depth requirements. The spacing of wells. § 391-3-13.The Act specifics that the Board shall have authority to regulate: (1) any exploration or production well that is drilled to a depth of 1.05. 929 Oil wells not covered by special rules shall be located 330 feet from the exterior boundary of the drilling unit and at least 660 feet from the every other well drilling to or producing from. Rules and Regs. [3] – Spacing Rules. 928 Wells drilled in areas not covered by special rules shall be drilled a minimum of 330 feet or any other distance determined by the Director. or producing oil or gas well to provide an adequate safety buffer to the public. The rules and regulations adopted by the DNR do not address what the content of or procedure for adopting the special rules. property line. and (3) for any fresh water production well drilled deeper than 1.

incorporating the unitization agreement. § 12-4-45(a)(2)(F)(ii). [5] – Minimum Operator Control.drilling unit and at least 1. §12-4-45 (a)(2)(E).867 feet from every other well drilling to or producing from. and the royalty owners in the unit area controlling 75 percent in interest. Id. Code Ann. the new or amended unit order must be approved in writing by 75 percent of interest holders that share costs in the new portion of the production unit and 75 percent of royalty owners. 930 [4] – Size. 180 . Gas wells drilled in areas not covered by special rules shall be drilled on a drilling unit consisting of 160 surface contiguous acres. must be signed or ratified or approved in writing by the owners of at least 75 percent interest as costs are shared. 933 931 930 931 Id. additionally. 932 Ga. 933 Id. a written contract. Oil wells drilled in areas not covered by special rules shall be drilled on a drilling unit consisting of 40 surface contiguous acres. as production is to be allocated. 932 To add portions of a pool(s) or a new pool(s) to a previously established unit. For a unit operation order to become effect. or for which a permit shall have been granted to drill to the same pool. a second contract that incorporates the required arrangements for operations needs to be sign or ratified or approved in writing by the owners of at least 75 percent in interest as costs are shared.

who is the executive head of the Department. § 182-2(a) (2010). or liquid. mine. 935 The Board convenes twice monthly to review and take action on department submittals. in. Id. The Board is composed of seven members: one from each of four land districts. 2011). and other materials suitable for use and used in general construction. Stat. 935 934 181 . Rev. Board of Land and Natural Resources.” 938 A purchaser or lessee of such lands acquires no right. on. [2] – Membership on the Governing Body. gravel.§ 12. oversees mining and exploration of mineral interests.gov/dlnr/boards (last visited Jun. gas. but only where state lands are involved.01 Analysis of Hawaii Regulatory Framework. or under any land. and the Chairperson. Rev. 938 Id. including all geothermal resources. In Hawaii. 937 Haw. In Hawaii. and Haw. all minerals in. Resources. § 182-1 (2010). two at large.…[and] all other mineral substances and ore deposits whether solid. including land leases and Conservation District Use Applications (CDUAs). § 171-4. within the Department of Land and Natural Resources (the “Department”). 934 There are no statutes or regulations governing mineral interests on privately-held property. [1] – Name of the Governing Body. 936 [3] – Scope of Authority. Stat. http://hawaii. coal. of Land & Nat. on or under state lands are reserved to the State. title or interest in or to the minerals and the rights of any purchaser or lessee shall be subject to the conditions and limitations prescribed by law providing the state and persons authorized by it to prospect for. rock. 7. but does not include sand. the State Board of Land and Natural Resources (the “Board”). gaseous. 937 “Minerals” means “any or all of the oil. § 182-1. 936 Dept. fast or submerged.

945 Id. 942 The Board must give the lessee notice of default and allow the lessee six months or such other time as provided by the regulations to remedy the default. 943 Id. 947 If 939 940 Id. 945 No minerals beyond that reasonably required for testing and analysis shall be extracted and removed from state lands during exploration. 940 Anyone holding such a lease of mineral rights must file with the Board a bond. conditioned upon the faithful performance by the lessee of all requirements of relevant law. 943 The Board also oversees the assignment of any lease. 944 Id. 942 Id. § 182-4(a). 946 Upon termination of the exploration permit. 946 Id. the drill logs and the results of assays shall be turned over to the Board. or if the lessee wholly ceases all mining operations for reasons other than force majeure or uneconomic operation for a period of one year without the written consent of the Board.remove minerals and occupy and use so much of the surface as is required for reasonably removing the minerals. Id. 182 . in whole or in part. in a form and amount approved by the board. 944 [4] – Process. and also upon payment by lessee of any damages to occupiers of the land. Any person wishing to conduct exploration on state lands shall apply to the Board for an exploration permit. § 182-10. § 182-2(a). 939 The State can lease its mineral rights to others. of the lease. §182-3(a). 941 The Board may also revoke leases if the lessee fails to pay rentals when due or if any of the terms of the lease or the law are not complied with. and must approve such assignment. § 182-6. 941 Id. § 182-11. 947 Id. payable to the State.

describing the lands and the minerals to be leased. § 182-4(a). anyone interested can apply to the Board for a mining lease. the Board shall publish a notice in a newspaper of general circulation in the State at least once a week for three weeks. 951 Id. 950 Id. minerals involved. cash bonus. 953 Id. 949 The notice shall be accompanied by a $100 fee together with a description of the land desired to be leased. 952 The Board may also determine if the present use of the land is more valuable or of greater benefit to the State than the proposed mining use of the land.the person conducting the exploration does not apply for a mining lease within 6 months. 950 The Board shall then cause a notice to be published in a newspaper of general circulation where the lands are located at least once per week for three successive weeks. 954 The Board determines the area to be offered for lease and can modify the boundaries of the land area. 956 Bidders at the public auction may be required to bid on the amount of annual rental to be paid for the term of the lease based on an upset price fixed by the Board. and under such terms and 948 949 Id. 952 Id. a royalty based on gross proceeds or net profits. Id. 951 The Board may hold a public auction for the mineral lease within 6 months after the date of the first notice. 183 . or any combination or other basis. 955 Id. and such additional information and maps as the board may prescribe by regulation. or such further time as may be reasonably necessary. 954 Id. 953 The Board can disapprove an application for a lease without holding an auction if it determines the present use is of greater benefit. the information can be released publicly by the Board. 955 At least thirty days prior to a public auction. 956 Id. 948 If any minerals are discovered or known to exist on state lands.

959 Id. 961 Id. the Board may grant a mining lease without holding a public auction to the occupier of those lands if two-thirds of the Board members agree. § 182-5. 960 However. No lease may grant and include an area of land larger than four contiguous square miles. 964 957 958 Id. and if that person bids at auction and is unsuccessful in obtaining the lease. 963 The Board is authorized to impose a limitation on the number of leases or acres that a mining lessee may hold. 958 A slightly different process exists for “reserved lands. § 182-4(b). 962 Id. in which the longest dimension of the area shall exceed its narrowest by more than six times. 962 For any oil or gas lease. 964 Id. and pay the $100 fee. 961 Such a lease can also be granted to someone other than the occupier of the lands. Id. 963 Id. if the occupier has assigned his or her rights to apply for a mining lease to that other person. § 182-7. unless the Board approves otherwise.conditions as may be set by the Board. but in which the State has reserved to itself the minerals or the right to mine minerals. § 182-8. that person shall nevertheless be reimbursed by the highest bidder for the direct or indirect costs incurred in the exploration of the land. imposing such terms and conditions as the Board determines are in the State’s best interest. with reserved lands. the Board and lessee will negotiate and fix a fair royalty to be paid on production under the lease. 960 Id. 957 If the person who discovered the minerals did so as a result of an exploration permit issued by the Board.” which are those lands that are owned or leased by someone other than the State. 959 Anyone seeking a mineral lease for reserved lands must also apply for a mining lease. excluding salaries. 184 . attorneys fees and legal expenses.

Code R. 965 The Board has developed regulations only for geothermal extraction and development. Rev. if the Board finds that such a plan will prevent the waste of any mineral. a cooperative or unit plan of development. in its discretion. 967 Haw. the Act’s sole provision concerning pooling or unitization is: “upon motion by the Board or petition filed by any mining lessee. digging or excavating of any unnecessary well. increase the ultimate recovery. As the statutory language particular to mining suggests. 965 966 See Haw. the Board. Stat. Neither the Act nor Board regulations specify requirements relative to well spacing.02 Types of Hawaii Pooling Statutes. the primary focus of energy regulation in Hawaii is limited to development of the state’s substantial geothermal resources. Hawaii law does not address conservation. or for such other reason that would encourage and promote the development of mineral resources.” 967 Other than this single provision allowing the Board to order compulsory unitization under an existing mining lease. Id. 185 . and operate under. §§ 13-7-184 et seq. may order lessees or owners of mineral rights on adjoining properties to collectively adopt. 966 Further. § 182-9. (2010). unit size. pooling or unitization of interests for production of other resources. minimum operator controls. or directional drilling for oil and gas.5 (emphasis added) (2010). avoid the drilling.§ 12.

§ 47-317 (2010). 971 The Commission is authorized and it is its duty to prevent waste of oil and gas. 971 Id. drilling.01 Analysis of Idaho Regulatory Framework. and otherwise to administer and enforce oil and gas law. to protect correlative rights. has the power and authority to make and enforce rules. and superintendent of public instruction are members of the Idaho State Board of Land Commissioners as enacted in Section Seven of Article IX of the Constitution of the state of Idaho. secretary of state. public and private. 186 . necessary to enforce the provisions of Idaho oil and gas law. control. regulations. § 47-319(b). state controller. § 47-317(b). 969 The governor. and disposition of the public lands of the state and exercise those constitutional functions through the Department of Lands. 968 [2] – Membership on the Governing Body. The Board shall have the direction. The Commission has jurisdiction and authority over all persons and property. and has the power to do whatever may reasonably be necessary to carry out its responsibilities. and orders. The State Board of Land Commissioners (“Board”) acts as the Oil and Gas Commission and regulates the exploration. 970 Id. attorney general. The Oil and Gas Conservation Commission (“Commission”) of the state of Idaho oversees pooling and related issues. 972 It has jurisdiction 968 969 Idaho Code Ann. 972 Id. Id. and production of oil and gas resources. The Commission has jurisdiction to hear and determine any question relating to the administration of oil and gas law. 970 [3] – Scope of Authority. [1] – Name of the Governing Body.§ 13.

the Commission has the specific authority to require the following: (1) identification of ownership of oil or gas wells. 187 . operation and plugging of wells in such manner as to prevent the escape of oil or gas out of one (1) pool into another. Id. producing leases. however. conditioned upon the performance of the duty to comply with the requirements of this law and the regulations of the Commission with respect to the drilling. (8) metering or other measuring of oil. gas. (4) the taking of tests of oil or gas wells. plants. shall be available for examination by the Commission or its agents at all reasonable times within said period. and fires. provided. 973 In the event of a conflict. (7) that wells not be operated with inefficient gas-oil or water-oil ratios. § 47-319(c). Idaho Code. 975 Without limiting its general authority. seepages.over all persons and property necessary for that purpose. 973 974 Id. casing. and waste. the detrimental intrusion of water into an oil or gas pool that is avoidable by efficient operations. structures. (5) the furnishing of a reasonable performance bond with good and sufficient surety. 975 Id. blow-outs. gas. cavings. tanks. title 9. or certified copies thereof. or salt water. that logs of exploratory or wildcat wells marked confidential shall be subject to disclosure according to chapter 3. 974 The Commission is authorized to make such investigations as it deems proper to determine whether action by the Commission is necessary. operating. (6) that the production from wells be separated into gaseous and liquid hydrocarbons. and that every such person file with the Commission such reasonable reports as it may prescribe with respect to such oil or gas production. (9) that every person who produces oil or gas in the state keep and maintain for a period of five (5) years complete and accurate records of the quantities thereof. and that each be measured by means and upon standards that may be prescribed by the Commission. the pollution of fresh water supplies by oil. and to limit production from wells with inefficient gas-oil or water-oil ratios. which records. or product. and facilities for the transportation or refining of oil and gas. and plugging of each well drilled for oil or gas. and to fix these ratios. the duty to prevent waste is paramount. maintaining. (2) the taking and preservation of samples and the making and filing with the Commission of true and correct copies of well logs and directional surveys both in form and content as prescribed by the Commission. (3) the drilling.

976 The Commission also has authority to regulate the drilling and plugging of wells and all other operations for the production of oil or gas. Anyone who wants to drill a well must first notify the Commission and obtain a permit. controls.(10) the filing of reports of plats with the Commission that it may prescribe. 978 [4] – Process for Pooling. 188 . rules. the spacing or locating of wells. or regulations attached thereto for the protection of fresh water supplies. or condensate wells and has authority to make and enforce rules. 979 Id. 979 No permit may be issued by the Commission until it has notified the Director of the Department of Water Resources. operations to increase ultimate recovery. Id. 981 The Commission may act upon its own motion. or upon the petition of any interested person. regulations. to govern the practice and procedure before it. § 47-319(d). 980 Upon issuance of any permit. who has 15 days from the date of receipt of such notification to recommend conditions he believes necessary to protect fresh water supplies. conditions. and the introduction of gas. the shooting and treatment of wells. including any limitations. 981 Id. § 47-324(c). 982 Id. shall be forwarded to the Director of the Department of Water Resources. or condensate pools. 982 On the filing of a petition for a hearing concerning any matter within the jurisdiction 976 977 Id. § 47-320. 977 The Commission can also classify and reclassify pools as oil. protect correlative rights. such as cycling of gas. and the disposal of salt water and oil-field wastes. a copy thereof. 978 Id. 980 Id. gas. or other substances into a producing formation. or wells as oil. and orders reasonably necessary to prevent waste. gas. water. the maintenance of pressure.

[a] Spacing. or when there are separately owned interests in all or a part of a spacing unit.340 (2010).07. it shall promptly fix a date for a hearing and provide public notice.988 Notice of a hearing on the application shall be publishes in a newspaper of general circulation in Ada County. 986 Id. may prescribe the terms and conditions upon which the royalty interests in the unit or units shall. shall file an application with the Director for approval of such agreement. The hearing shall be held without undue delay after the filing of the petition. 985 The Commission. 988 Idaho Admin. the interested persons may integrate their tracts or interests for the development and operation of the spacing unit. attaching a copy of the agreement to the application. Code r. 20. in the absence of voluntary agreement. 986 Each such integration order shall be upon terms and conditions that are just and reasonable. Id. 983 When two or more separately owned tracts are embraced within a spacing unit. 189 . cooperative development. 989 Id. Idaho. the Commission. shall make an order integrating all tracts or interests in the spacing unit for the development and operation thereof and for the sharing of production therefrom. 983 984 Id. 985 Id.of the Commission. and the county of the unit operation. as a part of the order establishing a spacing unit or units.02. § 47-322(a). upon the application of any interested person. 987 Id. 989 [5] – Matters Covered. or operation of a field or pool or a part of either. be deemed to be integrated without the necessity of a subsequent separate order integrating the royalty interests. 987 Any person desiring Commission approval relating to any method of unit. 984 In the absence of voluntary integration.

the Commission is authorized to make an order permitting the well to be drilled at a location other than that prescribed by such spacing order. 993 Spacing orders should direct that no more than one well shall be drilled to and produced from the common source of supply on any unit and shall specify the location for drilling the well in accordance with a reasonably uniform spacing pattern. § 47-321(b). 993 Id. the Commission may order temporary spacing units until enough information is gathered to determine what the ultimate spacing should be. which.The Commission shall promptly establish spacing units for each pool except in those pools that have been developed to such an extent that it would be impracticable or unreasonable to establish spacing units at the existing stage of development. 190 . 990 An order establishing spacing units shall specify the size and shape of the units. 992 If insufficient evidence is available to determine the appropriate unit size. in the opinion of the Commission. 995 Application for an exception shall be filed with the Director of the Idaho Department of Lands and may be granted by him where it is shown that good cause for an exception exists and that consent to an exception has been given by the owners of all drilling units directly or diagonally offsetting the drilling unit 990 991 Idaho Code Ann. § 47-321(d). result in the efficient and economical development of the pool as a whole. or for other good cause shown. § 47-321(a) (2010). 995 Id. with necessary exceptions for wells drilled or drilling at the time of the filing of the application. 994 Id. 992 Id. Id. 991 The unit sizes should not to be smaller than the maximum area that can be efficiently and economically drained by one well. 994 If the Commission finds that a well drilled at the prescribed location would not be likely to produce in paying quantities. or that surface conditions would substantially add to the burden or hazard of drilling the well.

§ 47-321(g). no additional well shall be commenced for production from the pool until the order establishing spacing units has been made. no well shall be drilled on the drilling unit except in accordance with the order establishing drilling units.1001 § 13. Id. 998 Id. 999 An order establishing spacing units may also be modified by the Commission to change the size or shape of one or more spacing units. 999 Id. § 47-321(f). 997 Where an exception is not granted by the Director or where an objection to the action of the Director is filed with the Commission within 10 days after he has granted or denied the application. 1000 Upon the filing of an application to establish spacing units. 191 . and may be modified by the Commission from time to time to include additional lands determined to be underlaid by the pool or to exclude lands determined not to be underlaid by the pool. [1] – Mineral Distinctions. 996 As to lands upon which drilling units have not been established. 996 997 Id. if the order were extended to include those additional lands. 998 An order establishing spacing units for a pool shall cover all lands determined or believed to be underlaid by the pool. unless and until the Commission grants an exception.02 Types of Idaho Pooling Statutes.for which the exception is requested. § 47-321(e). unless the commencement of the well is authorized by order of the Commission. consent must be given by the owners of those lands that would be included in directly or diagonally offsetting drilling units under the order. 1001 Id. or to permit the drilling of additional wells on a reasonably uniform pattern. 1000 Id.

1004 [b] Spacing Units—Gas. with a tolerance of 200 feet in any direction from the center location.330. and of which no part is attributed to. or no oil well shall be completed in a known pool unless it is located more than 920 feet from any other well completed in and capable of producing oil from the same pool. 20. Every well drilled for oil must be located in the center of a 40-acre governmental quarter section.“Oil” means “crude petroleum oil and all other hydrocarbons. § 318(f). but does not include liquid hydrocarbons that were originally in a gaseous phase in the reservoir. or combination of lots or tracts substantially equivalent thereto as shown by the most recent governmental survey. Id. Idaho law does not appear to differentiate based upon depth.02. the following default rules apply: [a] Spacing Units—Oil. upon which there is not located. 192 . [3] – Spacing Rules.01(2010). including condensate because it originally was in the gaseous phase in the reservoir. Every well drilled for gas must be located on a drilling unit consisting of approximately 640 contiguous surface acres. regardless of gravity. Code r. lot or tract. which shall be one governmental section or lot(s) equivalent thereto. In the absence of an order by the Commission setting spacing units for a pool.” 1002 “Gas” means “all natural gas and all other fluid hydrocarbons not hereinabove defined as oil. that are produced in liquid form by ordinary production methods.07. 1004 Idaho Admin.” 1003 [2] – Split by Depth. provided that no oil well shall be drilled less than 920 feet from any other well drilling to or capable of producing oil from the same pool. any other well 1002 1003 Idaho Code Ann. § 47-318(e) (2010).

330.07. The center of such square shall coincide with the geometric center of the section. a drilling unit must: (1) be bounded by four sides intersecting at angles of not less than 85 degrees or more than 95 degrees. 193 . 20. each side of which is one 1. or under application for spacing where there is sufficient evidence to indicate that the pool or reservoir spaced or about to be spaced may extend beyond the boundary of the spacing order or application. after notice and hearing. an exception to the above spacing requirements or any order of the Commission establishing well spacing for a pool.completed in or drilling to the same pool. (2) be such that the distance between two points farthest apart thereon shall not exceed 8. 20. and the uniformity of spacing patterns is necessary to insure orderly development of the reservoir pool. 1007 If for any reason the Commission fails or refuses to approve such an exception.07. 1008 1005 1006 Id.02.07. (3) contain at least 600 contiguous surface acres.500 feet. Upon proper application.330. The Commission shall have the discretion to determine the pattern location of wells adjacent to an area spaced by the Commission. r. In areas not covered by United States Public Land Surveys.660 feet in length and parallel to a center line of the section.02. 1005 [c] Well Locations Adjacent to Spaced Areas. 20. the Director may.03.02. Each well drilled for gas shall be located within a square.02. and. r. In areas covered by United States Public Land Surveys.04. such drilling unit shall consist of one governmental section containing not less than 600 surface acres. the Director may approve.330. 1007 Id. Id. 1008 Id. as an administrative matter. r. grant the exception. 1006 [d] Exceptions to Spacing Orders.

04(c). § 47-321(c). that if. 1012 Id. 1013 Id. above. r. § 47-321(b) (2010). the location at which the applicant requests permission to drill. 1011 Except where circumstances reasonably require. at locations permitted by applicable Commission rule or order.330. The size of spacing units shall not be smaller than the maximum area that can be efficiently and economically drained by one well. 1009 No exception will prevent any owner from drilling an oil or gas well on adjacent lands.The application for an exception shall state fully the reasons why such an exception is necessary or desirable and shall be accompanied by a plat showing: the location at which an oil or gas well could be drilled in compliance with the rule. and the location at which oil or gas wells have been drilled or could be drilled.02. at the time of a hearing to establish spacing units. provided. 1012 The Commission may establish spacing units of different sizes or shapes for different parts of a pool or may grant exceptions to the size or shape of any spacing unit or units or may change the sizes or shape of one or more existing spacing units. directly or diagonally offsetting the exception. 1009 1010 Id. 1010 [4] – Size. Id. 1013 [5] – Minimum Operator Control. there is not sufficient evidence from which to determine the area that can be efficiently and economically drained by one well.07. 1011 Idaho Code Ann. the Commission may make an order establishing temporary spacing units for the orderly development of the pool pending the obtaining of the information required to determine what the ultimate spacing should be. spacing units shall be of approximately uniform size and shape for the entire pool. or the applicable order. directly or diagonally offsetting the proposed exception. 20. in agreement with the provisions above or the applicable order. 194 .

02(h). 20. signature of representative of operator. or correct other mechanical difficulties. no well drilled may be intentionally directionally deviated from the vertical unless the operator first files an application and obtains a permit from the Commission.01 (2010). 20. to straighten the hole. r. 1015 Except for the purposes recited above. well number.170.02. r. [6] – Directional Drilling. r. 1016 Id. sidetrack junk. 20. Code r. name of field and reservoir and county.Idaho law appears not to contain a provision requiring approval of operators or royalty interest holders prior to unitization.07. 1014 Deviation is permitted without special permission to remedy blowouts and. reason for intentional deviation.170. 20. 1018 Id. 1018 The plat shall be drawn to a scale that permits facile 1014 1015 Idaho Admin. 195 . for short distances. 1017 Id.1016 Such an application shall contain the following information: Name and address of the operator.07. accurate plat or sketch of the lease and all offset leases showing the names of all offset operators and the surface and proposed producing interval locations of the well.02(a)-(g). lease name.07. notification to offset operators that any objection they may have to the proposed intentional deviation of the well must be filed with the Commission within fifteen days of receipt of a copy of the application. description of surface location and proposed location of the producing interval (footage from lease and section or block and survey lines).170.07. list of offset operators and statement that each has been furnished a copy of the application by registered mail.02.02. Id. The maximum point at which a well penetrates the producing formation shall not unreasonably vary from the vertical drawn from the center of the hole at the surface.02.170. 1017 The application shall be accompanied by a neat.02.

05.02. a copy of the application and the plat shall be forwarded by registered mail to all offset operators to the lease on which the well is to be drilled. proper applications shall be made to obtain approval of exceptions to such rules.02. 1019 At the time the application is filed with the Commission. r. Id.07. 20.170. 1023 Id. 1024 Upon completion. r.07.06. the Commission may immediately approve the application without waiting fifteen days. 1021 Id. 1026 Id. 1021 If objection from any offset operator to the proposed intentional deviation is received within 15 days of receipt of the application. 196 . 1026 Such approval shall be granted or denied at the discretion of the Commission and shall be accorded the same consideration and treatment as if the well had been drilled vertically to the producing interval. the application shall be approved and a permit issued by the Commission. 1023 If written consent of the offset operator(s) is filed concurrently with the application to drill directionally. 1024 Id. together with other regularly required reports. 1022 If no objection from either an offset operator or the Commission is interposed within the fifteen-day period.07. 1025 Id. the application shall be set down for public hearing.03.170. 1020 Upon receipt.04.170.02.02. 20. the Commission will hold the application for fifteen days. location of the producing interval of the directionally deviated well is not in agreement with spacing or other rules of the Commission applicable to the reservoir. 1025 In the event the proposed. or if the Commission is not in agreement with the proposed deviation. r. 1027 1019 1020 Id. 1022 Id. 20. 1027 Id. r.07. a complete angular deviation and directional survey of the well obtained by an approved well surveying company shall be filed with the Commission.170. or final.observation of all pertinent data. 20.

until the market value of the other person’s share of the production. if not agreed upon. shall prescribe the time and manner in which all the owners in the spacing unit may elect to participate therein. and operation. shall be determined by the Commission. and operating. of a well may elect to surrender his leasehold interest to the participating owners on some reasonable basis and for a reasonable consideration which. of the well. 197 . or operating a well. and operate. exclusive of a royalty not to exceed one-eighth of the production. or operation. a well for the benefit of another person as provided for in an order of integration. each integration order shall provide for one or more just and equitable alternatives whereby an owner who does not elect to participate in the risk and cost of the drilling and operation. equipping. equipping. and shall make provision for the payment by all those who elect to participate therein of the reasonable actual cost thereof. the Commission shall determine such costs. 1031 In instances where a well is 1028 1029 Idaho Code Ann. 1029 If one or more of the owners drill. equipping. equip. or operation. 1030 Id. of a well on the spacing unit. shall provide who may drill and operate the well. Each integration order shall authorize the drilling. 1030 If there is a dispute as to the costs of drilling. then those owners or owner shall be entitled to the share of production from the spacing unit accruing to the interest of that other person. on a limited or carried basis upon terms and conditions determined by the Commission to be just and reasonable. § 47-322(c) (2010). or operation. or operating. plus a reasonable charge for supervision and interest. or may elect to participate in the drilling and operation. or pay the costs of drilling. Id. equals the sums payable by or chargeable to the interest of the other person. 1031 Id. exclusive of the royalty. 1028 If requested. or operate.[7] – Options.

1032 1032 Id.completed prior to the integration of interests in a spacing unit. credit shall be given for the value of the owner’s share of any prior production from the well. except that. 198 . in calculating costs. the sharing of production shall be from the effective date of the integration.

The Department of Natural Resources (“Department”) was statutorily created by the legislature with specific authority to regulate pooling in the state of Illinois. 1035 Id. With these recommendations in mind. 1034 [2] – Membership on the Governing Body. Comp. oil and gas operations and production. The Board acts solely as an advisory body to the Department and its recommendations have no binding effect on the Department. Stat. 199 .§ 14. The Director. and may be reappointed for additional terms provided that no member may be reappointed for a term which would cause his continued service to exceed eight years. The 1033 1034 225 Ill. When the Director appoints the six members representing the oil and gas industry. at 725/1. and the servicing of oil and gas operations and production. the Director of Natural Resources (“Director”) also appoints the Oil and Gas Board (“Board”) to advise the Department. [1] – Name of the Governing Body. Any appointment to fill a vacancy shall be for the unexpired portion of the term. The final member is appointed by the Director upon consultation with the Illinois Farm Bureau and must be active in production agriculture. petroleum geology. he has to give due consideration to the recommendations of organizations and associations representing the various interests of the oil and gas industry. 1035 Board members are be appointed to two year terms beginning on the third Monday in January of odd numbered years. the Director will appoint individuals in such a manner as to assure the representation of petroleum engineering. 725/4 (2010).01 Analysis of Illinois Regulatory Framework. 1033 However. who is appointed by the Governor of Illinois. Six of the members need to be actively engaged in the oil and gas industry.2. is charged to appoint a sevenmember Board. Id.

1039 Id. 1039 Waste.1. 200 . casing and plugging of oil wells. 1038 In this vein. (7) advise and consult with the Director on any and all other subjects about which the Department should seek information in relation to the oil and gas industry. at 725/1. The Board. (3) review technical information and operations concerning the improvement of methods. (5) review the methods and procedures for the issuance of proper permits to drill oil and gas wells. (2) advise and consult with the Director concerning the adoption of rules pertaining to the conservation of oil and gas. in addition to its ordinary meaning. means "physical waste" as that term is generally understood in the oil and gas industry and expressly includes: 1036 1037 Id. [3] – Scope of Authority. and equipment for the production of oil and gas. (4) advise and consult with the Director concerning the proper drilling. at 725/3. at 725/4.Director may remove any member who fails to attend two consecutive meetings of the Board without sufficient excuse or for any other good cause as determined by the Director. conditions. by a majority vote on record. 1037 The Department is charged with the duty of enforcing this Act and all rules. 1038 Id. The Department has jurisdiction and authority over all persons and property necessary to enforce effectively the Oil and Gas Act (“Act”). regulations and orders promulgated pursuant of the Act. Id. 1036 The Board shall meet at least quarterly to: (1) review all federal and State rules and laws affecting the oil and gas industry in Illinois. and. may make specific recommendations to the Department on any of the above matters. the Department has the duty to prevent waste. (6) advise and consult with the Director in the administration of the Oil and Gas Well Site Plugging and Restoration Program.

thereby ultimately resulting in the loss of recoverable oil. Id. 201 . workable coal seams. soil. (4) the unreasonable damage to underground. within 90 days after drilling ceases. and drilling records.(1) the locating. or water from the stratum in which it is found. at 725/8. (4) examine. if cores are required. This includes the authority to adopt rules and to hold hearings in order to: (1) require the drilling. (5) hold hearings. animal. (2) make investigation and inspections. (2) permitting the migration of oil. 1041 To further the purpose of waste prevention. (2) require the filing with the State Geological Survey of all geophysical logs. production. fresh or mineral water supply. exists or is imminent. (6) permitting unnecessary fire hazards. gas or coal strata. at 725/1. drilling and producing of any oil or gas well or wells drilled contrary to the valid order. or other mineral deposits in the operations for the discovery. leakage or fire…. a well drilling report and drill cuttings or cores. development. casing and plugging of wells to be done in such a manner as to prevent the migration of oil or gas from one stratum to another. and (6) take any other action reasonably necessary to enforce the Act. (7) permitting unnecessary damage to or destruction of the surface. (3) the drowning with water of any stratum or part thereof capable of producing oil or gas. (5) the unnecessary or excessive surface loss or destruction of oil or gas resulting from evaporation. over which it has jurisdiction. fish or aquatic life or property from oil or gas operations. rules and regulations adopted by the Department under the provisions of this Act. seepage. the Department has the authority to make such inquiries as it may think proper to determine whether or not waste. gas or both. except for secondary recovery purposes. check and test oil and gas wells. 1040 To fulfill the duty of waste prevention and to enforce the Act. and to 1040 1041 Id. to prevent the intrusion of water into oil. into other strata. gas. (3) examine properties. or handling of oil and gas. the Department has the authority to conduct hearings and make reasonable rules and regulations to ensure proper enforcement of the Act. In the exercise of such power the Department has the authority to: (1) collect data.

tanks. (8) regulate the spacing of wells. (7) regulate or prohibit the use of vacuum. and require operations to increase the ultimate recovery of oil and gas. conduct inspections and require compliance with health and safety standards for the protection of persons working underground in connection with any oil and gas operations. or after the plugging of the well. 1043 An ‘owner’ is any person having an interest in the right to drill and produce oil or gas from any pool. refineries. Pool-wide drilling units may be created by voluntary agreement or Department order. (9) regulate directional drilling of oil or gas wells. structures. Id. (4) prevent fires. 1042 [4] – Process for Pooling. at 725/6. "caving" and "seepage" in the same sense that conditions indicated by such terms are generally understood in the oil and gas business. plants. prevent the waste of oil and gas. 202 . as defined in this Act. (10) prohibit waste. and protect correlative rights of the owners of the oil and gas.3. (3) prevent "blowouts". the issuance of permits. and to appropriate the production for such owner or others. at 725/23. 1044 Id. and the establishment of drilling units. authorize. (11) require the keeping of such records.file a completion report with the Department within 30 days after the date of first production following initial drilling or any reworking. (12) prescribe rules. 1044 1042 1043 Id. (5) ascertain and identify the ownership of all oil and gas wells. the furnishing of such relevant information and the performance of such tests as the Department may deem necessary to carry into effect the purposes of this Act. The Department will designate and establish pooled units when reasonably necessary enable. and all storage and transportation equipment and facilities. at 725/22. if a dry hole….2(a). [a] Drilling Units. producing leases. (6) regulate the use of any enhanced recovery method in oil pools and oil fields.

at 725/22. 1047 Id. at 725/22. the owners of all oil and gas interests therein may validly agree to integrate their interests and to develop their lands as a drilling unit. [b] Authority to Integrate Production. and the pool or pools in the field where the proposed drilling unit is located. establish a drilling unit or units for the production of oil and gas or either of them for each pool. 1045 1046 Id. 203 . or when there are separately owned interests in all or a part of such units. (4) any other information relevant to protect the correlative rights of the parties sought to be affected by the integration order. (2) the respective interests of the parties in the drilling unit sought to be established. and. the Department may issue a permit and. will prevent or minimize unreasonable drainage. 1047 Where such owners have not agreed to integrate their interests and where at least one of the owners has drilled or has proposed to drill a well on an established drilling unit. As discussed in the next section. when two or more separately owned tracts of land are embraced within an established drilling unit.2(e).Generally. 1045 The orders requiring integration will be upon terms and conditions that are just and reasonable. (3) any parties' prior or present compliance with the Act and the Department's rules. the Act provides default size and spacing characteristics of a standard drilling unit.2(b). 1046 In making the determination of integrating separately owned interests the Department may consider: (1) the reasons requiring the integration of separate interests. More specifically. at 725/22. the Department. The terms and conditions have to afford to the owners of all oil and gas interests ion each tract in the drilling unit the opportunity to recover or receive their just and equitable share of oil or gas from the drilling unit without unreasonable expense. upon application of any interested person.2(c). Id.

2(f). at 725/22.upon the application of an owner. in the absence of voluntary agreement. testing. may prescribe the terms and conditions upon which the royalty interests in the unit or units shall. 204 . 1049 Should an owner not elect to voluntarily participate in the risk and costs associated with unit operations. be determined to be integrated without the necessity of a subsequent separate order integrating the royalty interests. and. (3) prohibit the drilling of more than one well on any drilling unit for the production of oil or gas from the particular pool with respect to which the drilling unit is established. The Department. as a part of the order integrating interests. based on the criteria set forth above. 1050 For the Department to issue a unitization order. then each order must: (1) authorize the drilling. at 725/22. (3) prescribe the time and manner in which all the owners in the drilling unit may elect to participate therein. (2) cover all lands determined or believed to be underlaid by such pool. there must be two or more separately owned tracts of land that are embraced within a pool or a portion of a pool suitable for any 1048 1049 Id. the order must: (1) specify the size and shape of the unit. In addition. shall require such owners to do so and to develop their lands as a drilling unit. (2) provide who may drill and operate the well. plus a reasonable charge for supervision and interest. (4) make provision for the payment by all those who elect to participate therein of the reasonable actual cost thereof. at 725/21.2(b). equipping. These options are discussed in the following section.2(b). to integrate the owners’ interests in one drilling unit. 1050 Id. Each such integration order shall be upon terms and conditions that are just and reasonable. and operation of a well on the drilling unit. 1048 If the Department decides. which must be sufficient to result in the efficient and economical development of the pool as a whole. Id. the order must specify options available to such non-consenting owners. completing. and.

the Department will return the petition to the applicant with a statement describing the deficiencies. When this occurs. If after the petition is filed. or parts thereof.3. (2) the value of the estimated ultimate additional recovery of oil and gas will exceed the estimated additional cost.2(a). at 725/23. equipment and other properties of the working interest owners is fair. the Department finds the petition deficient relative to the requirements. pools. reasonable and equitable. 1052 An interested person may petition the Department to hold a public hearing to consider the need for operating a pool.enhanced recovery method. and prior to setting a hearing date. if any. or parts thereof. (3) the areal extent of the pool or pools. (4) the allocation of unit production to each separately owned tract is fair. (6) the compensation or adjustment for wells. that (1) the unitized management and operation is economically feasible and reasonably necessary to increase the ultimate recovery of oil and gas. or any portion thereof. The petition will be deemed filed when received by the Departments' Division of Oil and Gas. 1054 A valid petition must provide the following information: 1051 1052 Id. Id. 1053 Id.5. Illinois. the owners may validly agree to unitize to integrate their interest and to develop their land as a unit. reasonable. and equitable to all owners of oil and gas rights in the unit area. at 725/23. at 725/23. 1051 The Department will issue an order providing for the unit operation of a pool or pools. if it is determined. 205 . and to protect correlative rights. as a unit. The petition for an order to unitize must be filed with the Department office located in Springfield. to prevent waste. incident to conducting the unit operation. and the unitization and operation of such will have no substantially adverse effect upon the remainder of the pool or pools. has been reasonably defined and determined by drilling operations. reasonable and equitable to the working interest owners. 1054 Id. (5) the determination and allocation of unit expense is fair. or parts thereof. 1053 Each petition must be signed by the petitioner or a representative and provide relevant contact information.

within the proposed unit area. and allowing the unit operator. including a provision for carrying or otherwise financing any working interest owner who has not executed the proposed plan of unitization and who elects to be carried or otherwise financed. In particular. (3) A procedure and basis upon which well equipment. (3) A statement of the type of operations contemplated for the unit area. (2) A provision indicating how unit expense shall be determined and charged to the several owners. (2) The names of all persons owning or having an interest in the oil and gas rights in the proposed unit area as of the date of filing the petition. with interest. (4) A plan for maintaining effective supervision and conduct of unit operations. pools.3(1). the petition shall so indicate. reasonable and equitable. for development and operating costs of the unit. together with such other sums provided for herein. it must provide the following: (1) A plan for allocating to each separately owned tract in the unit area its share of the oil and gas produced from the unit area and not required or consumed in the conduct of the operation of the unit area or unavoidably lost. and their addresses. as disclosed by the records in the office of the recorder for the county or counties in which the unit area is situated. and other properties of the several working interest owners within the unit area are to be taken over and used for unit operations. Recovery of the money advanced to owners wishing to be financed. for the benefit of those working interest owners who have paid the development and operating costs. including the method of arriving at the compensation therefor. the recovery of not more than 150% of such person's actual share of development costs of the unit plus operating costs. 1055 The proposed unitization plan must indicate clearly any details relevant to the Department’s approval. And. at 725/23. or parts thereof. which the petitioner considers fair. 206 . If the address of any person is unknown.(1) A description of the land and pool. (4) A copy of a proposed plan of unitization signed by persons owning not less than 51% of the working interest underlying the surface within the area proposed to be unitized. shall only be recoverable from such owner's share of unit production from the unit area. in respect to which each working interest owner 1055 Id. if known.

3(2). and other oil and gas property interests. and (3) a legal description of the lands. oil and gas lease or leases. Any person whose interest or lien is not shown of record at the time the notice is filed will be deemed a subsequent purchaser and will be bound by the proceedings before the Department to the same extent and in the same manner as if he were a party to the hearing. it will fix the time and place for a public hearing. Id. which may be affected by the proposed unitization. The public hearing will not be less than 30 days nor more than 60 days after the date of the filing of the petition.shall have a vote with a value corresponding to the percentage of unit expense chargeable against the interest of such owner. and directed to the persons named in the petition at their last known addresses 10 days prior to the hearing. 207 . 1058 Id. at 725/23. The first notice must appear at least 10 days prior to the hearing in a newspaper of general 1056 1057 Id. (2) By publication of such notice for service on those persons whose addresses are unknown or whose names are unknown. (2) general statements of the purpose of such proceedings. 1056 When the petitioner files the petition with the Department. postage prepaid. Such notice must convey (1) the type of proceedings before the Department. 1057 Upon issuing adequate notice. all transfers of title to oil and gas rights will be subject to the final order of the Department. The Department. at petitioner's expense. once each week for 2 consecutive weeks. he may also be asked to file relevant notice of the petition among the appropriate land records where the affected property lies. And. shall give notice of the hearing at least ten days prior to the hearing in the following manner: (1) By mailing such notice by United States Mail. 1058 After Department receives a petition for unitization. and the notice shall be constructive notification to every person subsequently acquiring an interest in the affected property.

1060 [d] Impact on Existing Agreements and Orders.circulation that is published in each county containing some portion of the proposed unit area. (2) the time and place of the hearing. 1062 Additionally.4(2). (5) a legal description of the lands contained within the proposed unit area. 1061 Id. Id. 208 . Adjoining owners within the same pool portions thereof may create a new unit. The new order will not alter the proportionate allocation of unit production among the separately owned tracts included in the previously established unit area or unit areas. and. (3) the purpose of the hearing. at 725/23. at 725/23. 1061 Once the Director issues the order to create a new unit. the owner must file a petition. It may be modified to include additional lands determined to be underlaid by such pool. including a unit area of another or other units. Such notices will specify (1) the number and style of the proceedings. Any new working interest owner whose interest is added to the new unit area and who becomes liable for his proportionate share of the unit expense will not be liable for any unit expense incurred prior to that person's entry in the new unit.12. (4) the name of the petitioner.4(1). at 725/23. Then a notice will be issued and a hearing will be held following the same procedure that was followed for the creation of a unit in the first instance. the new unit will supersede the existing unit or units. a drilling unit may be modified after the order has been issued. 1062 Id. To do so. to change the size 1059 1060 Id. 1059 All notices for public hearing under this Section shall issue in the name of the State of Illinois and shall be signed by the Director.

such owners may negotiate with proposed operators to enter into a leasehold relationship and secure a more favorable royalty payment. gas is defined as all natural gas. it will not be held or construed to violate any Illinois law that relate to trusts. the drilling and operation of any well in the pool that underlies the ordered drilling unit is prohibited. or to permit the drilling of additional wells. [f] Agreements Not Restraint of Trade. which is These option-based rights are 1063 1064 Id. [1] – Mineral Distinctions. and all other hydrocarbons not defined as oil.2(g). underground reservoir containing in whole or in part. 1066 Id. at 725/22. thereby securing a default seven-eighths working interest and a one-eighth royalty from production. Unless otherwise specified by agreement or Department order. including casinghead gas. 1065 In the alternative. Oil is defined as natural crude petroleum oil or petroleum and other hydrocarbons. regardless of gravity. 1066 § 14. Id.of the drilling unit. or any combination thereof. The term pool also covers each productive zone or stratum in general. Once the Department approves an agreement. at 725/21. 1063 Otherwise. a mineral owner of unleased interest may elect to participate in risk and expense of operation. contracts. at 725/23. a pool is defined as a natural.2(e). discussed further in the following section. a natural accumulation of oil or gas. Further.2(c). monopolies. 1065 Id. or both. which are produced at the well in liquid form by ordinary production methods or by the use of an oil and gas operator and which are not the result of condensation of gas after it leaves the underground reservoir. In Illinois. 1064 [e] Royalty interest. 209 .02 Types of Illinois Pooling Statutes. at 725/21.2(b).

Admin. 1069 225 Ill. a field is defined as that general area which is underlaid or appears to be underlaid by one or more pools. As such. Notwithstanding this setback. with the depth division resting at 4. [3] – Spacing Rules.” Those gas wells not reaching this depth threshold are defined as “shallow wells. 62. Comp. Code tit. Moreover. Stat. 1070 [a] Unit Size.” 1068 There are similar distinctions for oil wells.completely separated from any other zone or stratum in the structure.000 feet. Ill. Oil and gas wells must comply with standard unit dimensions differentiated by well depth.000 feet or at the top of the Trenton formation. Department regulations specify a depth split for gas wells at 5. any gas well drilled deeper 5.000 feet or the top of the Trenton formation is considered a “deep well. 725/21. 1069 Additionally. wells may be located within such restricted areas agreed to by relevant and mine and well operators or owners. § 240. Drilling units shall be of approximately uniform size and shape for each entire pool. except that where circumstances reasonably require. the size of a drilling unit shall not be smaller than the maximum area that can be efficiently and economically drained by one well. However. at 725/1. 1070 Id. which ever is greater. All shallow oil wells must be located on: (a) 10 acres of surface area lying within the 1067 1068 Id. 1067 [2] – Split by Depth.1(b) (2010). the Department may grant exceptions to the size or shape of any drilling unit or units.410 (2001). 210 . at 725/20. no oil or gas well shall be drilled nearer than 250 feet to any opening to a working coal mine used as a means of ingress or egress for the persons employed therein or which is used as an airshaft.

(d) 160 surface acres lying within a quarter section of land for all deep gas wells. but not yet drilled. 1073 [b] Setback Rules. nor less than [660] feet from the nearest location of a producing well. Or. and 40-acre limitations as follows: (a) 10 surface acres lying within the quarter-quarter-quarter section for gas wells less than 2. Id. or a well for 1071 1072 Id. 211 . or a well for which a permit has previously been issued.000 or the top of the Trenton formation. All oil wells must conform to the following spacing rules: (a) For an area of [10] or [20] surface acres.000 feet deep and producing from a limestone/dolomite reservoir (c) 40 surface acres of lying within a quarter-quarter section for gas wells with a depth between 2. Department regulations provide default spacing rules based on unit size and mineral produced.quarter-quarter-quarter section of land for 4.000 feet beneath the surface. (b) [20] acres of surface area lying within the east-west or north-south one-half of a quarter-quarter section. which is deeper. a well being drilled. for a well to the same individual reservoir. 1073 Id. the location of the well shall not be less than [330] feet from the nearest external boundary lines of the drilling unit. 1071 Gas wells are subject to similar 10. For deep oil wells. (b) 20 surface acres lying within the quarter-quarter-quarter section for gas wells less than 2. a well being drilled. the well spacing must conform to the drilling unit requirements of 10 acres of surface area lying within a quarter-quarter-quarter section of land. (b) For an area of [40] surface acres the location of the well shall be not less than [330] feet from the nearest external boundary lines of the drilling unit. 20. the applicable unit size is 40 acres. or.001 and 5.000 feet deep and not producing from a limestone/dolomite reservoir. 1072 For a coalbed gas well that is drilled into an unmined coal seam. nor less than [900] feet from the nearest location of a producing well.

410. the location of the well shall not be less than [330] feet from the nearest external boundary lines of the drilling unit. Admin. 62. 212 . all gas wells must comply with the following: (a) For an area of [10] or [20] surface acres. under the order. but not yet drilled. 1074 Similarly. If the requisite number of persons and the requisite percentage of interests in the unit area do not approve the plan of unitization within a period of 6 months from the date of the order providing for unitization. nor less than [660] feet from the nearest location of a producing well. with one exception: no deep gas well may be drilled within 660 feet of the nearest external boundary line of the drilling unit. a well being drilled. §240. 1075 The standards affect all applicable wells regardless of depth. 1076 Id. (b) For an area of [40] surface acres. for a well to the same individual reservoir. A unitization order will not become effective until the plan and order from the Director has been approved in writing by those persons who. 1077 Id. Id. the location of the well shall not be less than [330] feet from the nearest external boundary lines of the drilling unit nor less than [900] feet from the nearest location of a producing well or well being drilled or for which a permit has previously been issued but not yet drilled for a well to the same individual reservoir. or a well for which a permit has previously been issued. but not yet drilled. will be required to pay at least 51 percent of the unit expense.1076 The only codified spacing rule for coalbed gas wells requires a minimum setback 330 feet from the nearest external boundary lines of the drilling unit. Or. then the Department will revoke the order. for a well to the same individual reservoir.which a permit has previously been issued. and also by the persons owning at least 51 percent of the unit production or proceeds. 1077 [4] – Minimum Operator Control. Code tit. But if 1074 1075 Ill.

completing and operation of the well plus a penalty to be determined by the Department of not less than 100 percent nor more than 300 percent of such actual costs. [5] – Options. Stat.8 (2010). If any owner refuses to participate in the risk and costs of the drilling. testing. Id. or. it may extend the time for an additional period of time that may not exceed one year. (2) the nonparticipating owner shall share in a proportionate part of the production of oil and gas from the drilling unit determined by the Department. 1079 1078 1078 1079 225 Ill. completing and operation of a well as determined by the Department. 725/23. and pay a proportionate part of operation cost after the participating owners have recovered from the production of oil or gas from a well all actual costs in the drilling. testing. 213 . Comp. All unitization orders must specify the treatment of non-consenting owners. the integration order shall provide either that: (1) the nonparticipating owner shall surrender a leasehold interest to the participating owners on a basis and for such terms and consideration the Department finds fair and reasonable.good cause can be shown to the Department.

Code §§14-8-2-67. is the ultimate authority on administrative orders and procedure. § 14-9-1-1. 1086 Id. -9-4-1 (2010). 1085 The Commission members include the: (1) commissioner [or designated representative] from the department of transportation. which is also established by statute. 1084 Id. 1082 Id. 1083 Id.§ 15. § 14-10-1-1. (3) director [or designated representative] from the office of tourism development. -9-1-1. The Department consists of a director appointed by the governor. [1] – Name of the Governing Body. and any other personnel necessary to adequately perform Department functions. 1082 however. § 14-11-1-6. § 14-9-4-1. four deputy directors. (2) commissioner [or designated representative] from the department of environmental management. the Indiana Natural Resources Commission (“Commission”). (6) president [or designated representative] from the non-profit Indiana Academy of Science. 1085 Id. and (7) six citizen members. Id. 1081 The Department’s Oil and Gas Division (“Division”) directly administers the Act. Indiana’s Department of Natural Resources (“Department) is the statutorily created body empowered to enforce the state’s Oil and Gas Conservation Act (“Act”) 1080 and foster the conservation and development of the natural resources of Indiana. 1083 [2] – Membership on the Governing Body.01 Analysis of Indiana Regulatory Framework. 1084 The Division Director is selected by the Commission to oversee the Division’s enforcement of the Act. § 14-10-2-3. § 14-9-7-4(a). 1086 1080 1081 Ind. (4) Department Director. 214 . (5) chairperson of the advisory council under § 14-9-6-1.

§ 14-11-1-6. § 14-11-1-1. § 14-37-11-1. 1092 as well as to investigate. at least two must have knowledge or experience in environmental or natural resource conservation. Id. 1091 In furtherance of this duty. except in 1087 1088 Id. except in accordance with the terms of a permit for an injection well issued under this article. citizen members serve three-year terms on the Commission. 1087 Of the six citizen appointees. (4) injecting fluids into a stratum or part of a stratum capable of producing oil or gas. (2) storing oil in earthen reservoirs except in an emergency to prevent the total loss of that oil. 1094 and includes conduct such as the (1) locating. 1093 Waste is strictly prohibited. 1090 [3] – Scope of Authority. 215 . equipping. § 14-10-1-3. 1090 Id. and a secretary responsible for maintaining Commission records. and no more than three may be of the same political party. 1091 Id. operating. the Department has the authority to make emergency rules. 8-23-2-1. compile and disseminate information and make recommendations in primary pursuit of waste prevention.These positions are filled by governor appointment based on expertise in the relevant areas. drilling.1089 The Commission elects officers annually from its amongst its members. 1089 Id. spacing. or producing a well for oil and gas…in any manner that reduces…the quantity of oil or gas ultimately to be recovered from any well in this state or violates the spacing provisions. 1093 Id. § 14-10-1-5. 1092 Id. The Department has the duty to recommend and secure the enforcement of laws for the conservation and development of the natural resources of Indiana. § 14-10-1-1. including a chairman and vice chairman to preside over Commission meetings. 1088 Unless removed for cause. §§ 13-13-1-1. § 14-10-2-5. (3) producing oil or gas in a manner that will cause water channeling or zoning. 1094 Id. (5) allowing water other than fresh water to flow from any producing horizon located in a producing pool.

it must notify a permit applicant if the application is within the permit boundaries of an underground mine for which a mine plan has been filed or which contains commercially mineable coal resources. (2) assign deputies to aid the other departments in making inspections and in the prevention or detection of crime. 1097 Id. (6) allowing gas from a well that produces only gas to escape into the atmosphere. Admin. 1099 312 Ind. to supervise the work of the Department and of each of the divisions. 1097 The Department Director. (2) associated with an inactive underground mining operation at which mining operations have temporarily ceased and are 1095 1096 312 Ind. with the approval of the commission. Code 16-1-50 (2011). and (3) receive similar assistance from the deputies of any other state department. Ind. appoint and remove all officers and employees of the bureau. Admin. or reconditioning the well. A commercially minable coal resource includes a seam of coal to which the seam is: (1) associated with an underground mine permitted and specifically intended to be mined under the permit. 1096 The Department Director may also appoint and remove deputy directors. among others. 1099 A commercially minable coal resource is a seam of coal that can be mined using generally accepted underground practices and suitable equipment. Code § 16-5-4 (2011). 1095 The Department Director has the duty. and consists of coal in sufficient quantities and of sufficient quality to be commercially saleable. Code § 14-9-2-3 (2010). and upon the recommendation of the deputy director of a bureau. § 14-9-2-2. 216 . 1098 Id. completing the well. 1098 As part of the Division’s authority. and.accordance with the terms of a permit issued under this article. except as is necessary while making or changing connections. may: (1) cooperate with any other department of state government in the enforcement of law. § 14-9-2-4.

The Commission. casing. and culture. 1104 1100 1101 Ind. 1103 Id. (4) at least thirty-six inches thick and located not more than 800 feet below the surface. (3) identified as a commercially minable coal resource by the owner or lessee of the seam by a map accompanied by an affidavit that is filed with the division of oil and gas and states that the coal in the seam is being held for later commercial production. is the ultimate authority of the Department for administrative orders and procedures. and to establish fees. among others. or. 1104 Id. architecture. and abandoning of wells and any related fluid storage to prevent waste and minimize environmental impact of the operations. 1103 Under this power. unless specified elsewhere. 217 . which are discussed further in the following section. § 14-37-3-15. [4] – Process for Pooling. plugging. Code § 14-8-2-47 (2010). 1101 To further these duties. archeology. § 14-10-2-3. in accordance with criteria established by the United States Secretary of the Interior. the Commission is free to delegate powers and duties to other Department employees or divisions. a program of matching grantsin-aid to public agencies for projects having as their purpose the preservation for public benefit of properties that are significant in American or Indiana history. § 14-37-2-2.anticipated to be resumed by the person with the right to develop the seam. the power and duty to establish. operating. 1100 The Commission has. § 14-37-3-5. Id. The Commission oversees the drilling. the Commission has the authority to regulate spacing through lineal and well density requirements.1102 In particular. [a] Commission Procedure. 1102 Id. the Commission may adopt rules to govern any aspect of oil and gas production within its jurisdiction.

Code 16-2-3(a)(2011). 1106 A person may file with the Commission a written request for an informal hearing to consider any matter relevant to oil and gas production. Any order that results from this informal hearing process is subject to administrative review. An informal hearing will be conducted in a manner that will facilitate public participation and is not governed by the rules of evidence or discovery. receive exceptions to spacing requirements. the Division Director must conduct appropriate proceedings. or repeal a Commission rule. 1105 1106 Id. Notification of an informal hearing needs to be made by the Division by first class mail. or both. order or permit. Id. obtain a Commission order integrating all interests within a drilling unit for unitized operation. 218 . 1108 [b] Authority to Integrate Production.The Commission may hold informal hearings to consider any matter that assists in the administration of the Division. and make written findings and recommendations for disposition. at 16-2-3(b)-(e). publication. These informal hearing may relate to various issues. while additional requirements for informal hearing procedures may vary by individual circumstances. § 14-37-3-17. 1105 Any order that is the result of an informal hearing is subject to administrative review. § 14-37-3-16. and purpose of the hearing. modify. place. The Commission may hold or authorize an informal hearing on its own initiative. in particular addressing requests to: amend. Admin. 1107 When a request for an informal hearing has been filed. 1107 312 Ind. The written request must set forth the relief sought and identify in particular or by class the persons who would be affected. and must be reasonably calculated to inform affected persons of the time. 1108 Id.

1111 The Commission will then enter an integration order. or within a pool or part of a pool suitable for secondary recovery methods. Code § 14-37-9-1 (2010) 312 Ind. An order for integration that is issued must be based upon reasonable terms that give the owner of each tract an equitable share of oil and natural gas in the unit or pool. 1113 [c] Protection of Coal Resources. 1109 1110 Ind. 1110 If the owners of separate tracts of land do not agree to integrate their interests. the operator may assess each interested owner for the actual reasonable expenditures required in development and operations. the Commission will require the owners to integrate their interests and to develop the land as a drilling unit. 1112 Id. including charges for supervision. The part of the production allocated to the owner of each tract must be considered as if produced from a well drilled on that tract. then the owners of the separate tracts may agree to integrate their interests and to develop their land as a drilling unit. § 14-37-9-2.If at least two separately owned tracts of land are located within an established drilling unit. 1111 Ind. 1112 If an integration order is entered. then for the prevention of waste or to avoid the drilling of unnecessary wells. The value of the production shall be calculated at the market price in the field when the production is received by the operator or placed to the credit of the operator. The operator is entitled to receive the first production from a well that otherwise would be credited to the other owners of the integrated interests. § 14-37-9-3. Admin. 219 . 1109 A person may file with the Commission a written request for an informal hearing to consider modifying an order. so that the proportionate share owed by the other owners for expenditures is paid to the operator from production. the Commission may not limit well production. 1113 Id. Code 16-2-3(a) (2011). Code § 14-37-9-1 (2010). Under the Act.

When an oil and gas well is drilled on lands underlaid by an inactive underground coal mine or within the permit boundaries of an active underground coal mine. Upon written application to the Department Director by a person that proposes to drill one of these wells. (4) seepages. whether drilled through a pillar or not. If a variance is granted. an owner or operator must provide the Division and the person who filed the mine plan with a copy 220 . (3) cavings. If an oil and gas well is drilled and completed through a commercially minable coal resource and within an area for which a mine plan is filed. and (6) unreasonably detrimental effects upon fish. as documented by a sonic cement bond-variable density log. If the Division determines that the cement bonding failed between fifty feet below and 100 feet above the commercially minable coal resource. and botanical resources. (5) fires. Additionally. an owner or operator must set a production string of casing. the well must be completed in a manner that prevents: (1) waste. Within thirty days of commencing logging operations. The person who filed the mine plan is entitled to be present during logging operations and to examine the log. an owner or operator shall provide at least forty-eight hours notice to the Division and to the person who filed the mine plan before commencing logging operations. (2) fresh water pollution. properly centralized and cemented. then an owner or operator must remediate to ensure adequate bonding. wildlife. the Department Director may grant a variance from the requirement of running an intermediate string of casing if written consent to the variance is given by the permittee or the person that has the right to develop the coal resource or by the coal mine operator. then an owner or operator must run an intermediate string of casing from the surface to a point at least fifty feet below the base of the commercially mineable coal resources or the mine floor.

§ 14-8-2-42. Id. 1121 [2] – Split by Depth. If a well is drilled and completed as a well for oil and gas purposes through a commercially mineable coal resource. 1114 § 15. unless otherwise specified. [1] – Mineral Distinctions. Code 16-5-4 (2011). 221 .02 Types of Indiana Pooling Statutes. 1116 Ind. 1118 Id. § 14-8-2-186. either naturally or as a result of stimulation of the coal seam.2. 1119 And a field means a group of pools that are related to a single geologic feature by structure or stratigraphy. 1121 Id. then that resource will be protected by a properly cemented. 1119 Id. 1116 Oil means all liquid petroleum produced at a well. Code § 14-8-2-176 (2010). unless it is identified and placed into one of the above coal resource categories. 1115 Natural gas means hydrocarbons that when produced in a natural state from an underground reservoir will remain in a gaseous state at atmospheric conditions. § 14-8-2-208. 1117 Id. centralized production string of casing. In Indiana. 1118 Reservoir means an underground geological formation that contains oil or natural gas. gas is defined as natural gas. § 14-37-9-3. 16-1-24. § 14-8-2-239. or (3) the gob created by longwall or other extraction methods of coal mining. 1120 Id. 1114 1115 312 Ind. Admin. The preparation of a log or any remedial action will be at the expense of the owner or operator. 1117 Pool is defined as an accumulation of oil or natural gas that occurs in a separate underground reservoir under a single pressure system.of the sonic cement bond-variable density log. 1120 Coal bed methane is defined as gaseous substances of whatever character lying within or emanating from: (1) unmined coal seams. (2) the void created by mining out coal seams.

If a well is drilled deeper than 1. storage. Drilling units are split by reservoir type as follows: (1) a sandstone reservoir. (2) the Trenton limestone reservoir. For a well that is established in the Trenton limestone reservoir. and (3) all other reservoirs. unless specified. noncommercial and test wells are all exempt from default spacing requirements. 222 . it must be located at least 330 feet from a lease line. Admin. must be located no less than 330 feet from a lease line. or subdivision that separates unconsolidated property interests. or (3) deep wells of 1. these deep gas wells must be no less than 1.000 feet or greater. the Commission has full discretion to grant exceptions after holding informal hearings. However. property line.000 feet for the commercial production of natural gas. (2) Trenton limestone reservoir. -5-2 (2011).320 feet from any other well capable of producing gas from the same reservoir. The spacing rules categorized as (1) general. 1122 [3] – Spacing Rules. property line. Further.The Act splits the spacing and drilling unit requirements by depth or by reservoir type. 1123 Again. or no specified depth. it cannot be located less than 165 feet from a lease line. at 16-5-1. the Division Director may modify the location of any well not more than fifty feet from the location shown in the survey or the plat in the permit application. Code 16-5-1. all injection. property line. 1122 1123 312 Ind. Id. As a matter of course. or subdivision that separates unconsolidated property interests and 330 feet from a well for oil and gas purposes that is not included as an exception. or subdivision that separates unconsolidated property interests. and 660 feet from a well for oil and gas purposes and is capable of production from the same reservoir. All wells.

1126 Id. following an informal hearing. then a drilling unit may be established following an informal hearing. quarter section with any portion of another quarter. quarter section of the U. drilling units are to be ten acres for every quarter. 1124 There may be an exception made to the drilling unit size. 223 . 1125 If an area is not covered by the rectangular surveying system of the United States Public Lands Survey. at 16-5-2(g). if the exception is supported by unusual regional or geological characteristics and is conducive to the most efficient and economical recovery of oil and gas. For all other reservoirs. quarter section. For a sandstone reservoir. quarter. A reservoir that is contained within the Trenton limestone needs to have a drilling unit that contains five acres for every half of every quarter. at 16-5-2. more or less. the drilling unit must contain twenty acres. 1126 [5] – Minimum Operator Control. The drilling unit shall conform as nearly as practicable to the drilling unit requirements for reservoirs of similar lithology in those areas covered by the rectangular surveying system. quarter. quarter section. quarter section is prohibited unless approved by the Commission.[4] – Size.S. Id. Neither Act nor any other regulations specify minimum ownership approval requirements for request or issuance of Commission orders. For an irregular section containing more or less than 640 acres. Public Lands Survey. The use of any portion of one quarter. 1124 1125 Id. the Department may establish drilling units other than those defined above of approximately twenty acres or ten acres. for every half a quarter.

6. the Director serves at the governor’s pleasure. 1130 Id. 1130 Within the Department. one member holding a management position for a manufacturing company.4.01 Analysis of Iowa Regulatory Framework. 1133 The Commission must convene no less than four times annually. while Commission membership must include: three members actively engaged in livestock or farming.5-6. four members who are voting residents of Iowa. [1] – Name of the Governing Body.3. 1131 Id. 1129 The Director oversees Department operations from the capitol complex. 458A. § 455A. 1127 1128 Iowa Code §§ 458A. 1129 Id. one member actively engaged in the business or financial sector. 1131 The Commission is comprised of nine gubernatorial appointees who serve staggered four-year terms upon senate confirmation. 1132 Id. the Commission of Environmental Protection (“Commission”) executes Iowa’s oil and gas laws under the Director’s leadership. 1134 [3] – Scope of Authority. § 455A. and.2. and may not pursue other political positions during his tenure. 1133 Id. 1134 Id.§ 16. The Department is led by a Director. appointed by the governor based upon expertise in natural resource and environmental management. Id. 1132 Each nomination is based upon the individual’s knowledge and experience. The Iowa Department of Natural Resources (“Department”) maintains regulatory authority over oil and gas production and unitization within the state. § 455A. 1127 [2] – Membership on the Governing Body. 1128 Subject to state senate confirmation. § 455A. 224 .4 (2010). led by a chairperson and other applicable officers elected by its members.

The Director may enact regulations and issue orders to effectively enforce the Act and encourage efficient production. drilling. (3) the location. spacing.1.The Iowa Oil and Gas Conservation and Unitization Statute (“the Act”) is grounded in the state’s policy to “foster and promote” oil and gas production in a manner that will prevent waste and “result in the greatest possible economic recovery of [oil and gas] to the end that the land owners. or producing of any oil or gas well or wells in a manner which causes. or the unnecessary dissipation of reservoir energy. 1138 For example. (4) the inefficient storing of oil. the royalty owners. 1136 Waste. and.4. operation…of wells in such manner as to prevent 1135 1136 Id. 225 . . and the general public realize and enjoy the greatest possible good from these vital natural resources. reasonable market demand. (2) the inefficient. the producers.” 1135 [a] Matters Governed. excessive. § 458A. (5) the production of oil or gas in excess of transportation or marketing facilities or . § 458A. 1138 Id. or improper use of. the Director may require “identification of [well] ownership…making and filing of mechanical well logs and…surveys. .4. 1137 Id. as…generally understood in the oil and gas industry. equipping. includes: (1) physical waste.2 (19). or tends to cause. the Director has a duty to make proper investigation to determine the existence or possibility of waste. which is explicitly prohibited by statute. operating. § 455A. Id. or which causes or tends to cause unnecessary or excessive surface loss or destruction of oil or gas. § 458A. To accomplish these goals. 1137 The Director is granted broad authority to combat waste. reduction in the quantity of oil or gas ultimately recoverable from a pool under prudent and proper operations.

[and maintenance] of complete and accurate [production] records. 226 .” 1139 In addition. the Director is authorized to regulate nearly all aspects of oil and gas production. shall be signed by the Director. shall specify the style and number of the proceeding.” 1140 The Commission may also promulgate rules to preserve surface and subsurface integrity. 1144 Upon petition. or upon the petition of “any interested person.” 1144 Id.…chemical treatment…. [and] spacing of wells. the time and place of the hearing. 1143 Id. including but not limited to the “drilling. the Department will cause notice of the hearing to be given. and shall briefly state the purpose 1139 1140 The Statute specifies notice Id. The Department must provide notice and a hearing prior to entering an order. Id. and thereby affect the scope of Director authority.”1143 No order may be issued without a least ten days notice and the Department must afford any interested person the opportunity to be heard at the public hearing. is situated. The Act does not define “interested person.the escape of oil or gas out of one stratum into another. 1142 The Department may act upon its own motion. hearing relevant challenges to Department action. 1141 Id.11. The notice shall issue in the name of the state. and restricting waste disposal. § 458A. or some part thereof. A majority of the Commission constitutes a quorum needed to achieve Commission decisions such as rule making. 1141 [b] Procedure. requirements particular to Council actions: Any notice required by this chapter shall be given at the election of the Department either by personal service or by letter to the last recorded address [of those persons affected] and one publication in a newspaper of general circulation in the state capital city and in a newspaper of general circulation in the county where the land affected. 1142 Id.

Id. 1147 Id. it must “allocate or distribute the allowable production among the pools in the district on a reasonable basis” and prevent “premature abandonment of…wells in the pool. Neither the Act nor Department regulations define or clarify what constitutes a “marketing district. Among the Department’s statutory duties is the requirement that it determine market demand for each “marketing district” and limit production within such areas to avoid waste. 1145 A Department order must be written and kept by the state geologist as public record. 1146 Neither the Act nor Department regulations specify appellate procedure for those adversely affected by an order. § 458A. certified copies of which are receivable in evidence in all Iowa courts. § 458A. 1149 Id. Should the Department elect to give notice by personal service.” 1148 Id.” 1149 If a particular pool is limited to produce less than it otherwise would without restraint. in the same manner as is provided by law for the service of original notices in civil actions in the district court of the state. 1148 When the Department restricts oil and gas production. or by any agent of the Department.of the proceeding. preventing or minimizing reasonable avoidable drainage. Proof of service by such agent shall be by the affidavit of the person making personal service.6.1147 “Reasonable market demand” is defined in the Act to mean that “demand for oil or gas for reasonable current requirements for consumption and use within and without the state. 227 . the service may be any officer authorized to serve process.” together with that amount needed to build and maintain reasonable reserves of those products. so that each property will have the opportunity to produce or receive its just 1145 1146 Id. the Department “shall allocate or distribute the allowable production among the several wells or producing properties in the pool on a reasonable basis.2 (18). [4] – Process for Pooling and Matters Covered.

respective to each person. 1155 Id. 1158 In that event.” 1151 [a] Spacing.” 1155 An order to establish spacing units for a pool must specify unit dimensions and proposed well location(s) to comprise a “reasonably uniform spacing plan.and equitable share. the state geologist may enter its own order to change the Department’s prescribed location. 1158 Id. the state geologist’s order must include 1150 1151 Id. each spacing unit within a pool should be uniform in size and shape. 1154 Id. 228 . or may cause substantial burden or hazard for drilling. which “may differ in size and shape from those established in any other zone. 1153 Id. “that part of the authorized production from the pool that is substantially in the proportion that the amount of recoverable oil [and] gas…in the developed area of the person’s tract or tracts in the pool bears to the recoverable oil [and] gas in the total developed area in the pool. 1157 Id. The Department must establish spacing units for a pool when necessary to prevent waste. 565-51. 1156 Id. 1153 However. subject to the…prevention of waste. 1152 Iowa Code § 458A. Iowa Admin. spacing units must be set in aims of “the efficient and economical development of the pool as a whole.1(19) (2010).” 1154 Whether or not zonal subdivision is needed.7 (2010). the order must cover all land “determined or believed to be underlain by such pool. Code r. 1152 In general.” 1157 If the state geologist finds that a proposed well site will not prove sufficiently productive. avoid unnecessary drilling. if necessary to achieve the abovestated goals.” 1150 The Department defines “just and equitable share” to mean. or protect correlative rights.” 1156 In addition. the Department may divide a pool into zones and establish spacing units for each zone.

8.” 1167 1159 1160 Id. the Department may “enter an order pooling all interests in the spacing unit for the development and operations of the [entire] unit. 1163 In addition. avoid needless drilling. a just and equitable share. upon the application of any interested person. 1162 Id.” 1161 Any person may appeal an order from the state geologist to the Department within 30 days.” 1159 The state geologist may amend a spacing plan to include additional lands later found to overly an identified pool. 1163 Id. § 458A. 1160 When necessary to prevent waste. 1166 Id. 1165 Otherwise. § 458A. 1164 Id. 1161 Id. or any zone thereof. 1165 Id. 1167 Id. and its terms must “afford to the owner of each tract or interest in the spacing unit the opportunity to recover or receive. Owners within the same spacing area may pool their interests voluntarily.“suitable provisions to prevent the production from the spacing unit of more than its just and equitable share of the oil and gas in the pool.14. without unnecessary expense. 229 .” 1166 The Department must provide notice and a hearing prior to issuing a pooling order. a petition for review may be filed in Polk County or in any Iowa district court in which the affected property lies in whole or in part. or to permit the drilling of additional wells on a reasonably uniform plan in the pool. 1164 [b] Authority to Integrate Production. the state geologist may modify an existing spacing order “to increase the size of spacing units in the pool or any zone thereof. 1162 A Department order or other action is subject to judicial review under standard administrative procedure stated in Chapter 17A of the Iowa Code. Id. or protect correlative rights.

be deemed for all purposes to have been produced from such tract by a well drilled on it. the Department defines “correlative rights protection” to require that applicable 1168 1169 Id.10.In Iowa. a pooling order must “make provision for the drilling and operation of a well on the spacing unit. have a lien on the share of production from the spacing unit accruing to the interest of each of the other owners for the payment of his proportionate share of such expenses. [c] Allocation of Production and Costs. Iowa treats royalty interests like other ownership interests. the Act and Department regulations do not provide specific facts required for a pooling order.” 1170 Likewise. 1171 Id. then [that] owner…shall. In regard to pooling.” 1168 Other than this information. 1169 Thus.” 1171 The Act similarly allocates drilling costs among owners within a pool. plus a reasonable charge for supervision. 1170 Id. In the event that an “owner shall drill and operate. for all purposes. and for the payment of the reasonable actual cost of the well by the owners of interests in the spacing unit.e. 1172 Id. For example. operations on a part of a pooled unit are considered. Id. spacing] unit by the several owners of the unit. upon [perfection]. 230 . “[t]hat portion of the production allocated to each pooled tract included in a spacing unit covered by a pooling order shall. § 458A. when produced. or pay the expenses of drilling and operating the well for the benefit of others. All operation related to oil and gas drilling that occurs on a portion of any spacing unit covered within a pool is deemed to have occurred on all portions.” 1172 [d] Royalty Distribution. “the conduct of operations upon each separately owned tract in the drilling [i.

1178 [2] – Split by Depth. without being required to drill unnecessary wells or incur other unnecessary expense to recover or receive such oil or gas or its equivalent. 1175 Iowa Code § 458A. or the equivalent thereof. an agreement for operation of a pool or other cooperative unit for the production of oil and gas will not be considered a violation of any Iowa statute or regulation relating to restraints of trade. which are produced at the wellhead in liquid form. Code § 565-51.1(30) (2010) (emphasis added).” 1177 This does not include gas produced in association with oil. royalty owners may arrange terms through voluntary pooling agreement.02 Types of Iowa Pooling Statutes. The Act defines “gas” to include “all natural gas and all other fluid hydrocarbons which are produced at the wellhead and not [otherwise] defined as oil.2(12). If approved by the Department.” 1176 “Oil” encompasses “crude petroleum oil and other hydrocarbons.2(7). 231 . [1] – Mineral Distinctions. 1178 Id. or be subject to compulsory pooling and maintain those rights and obligations pertaining to other forms of ownership interest. § 458A. 1176 Id. regardless of gravity. [including] those liquid hydrocarbons known as distillate or condensate recovered or extracted from gas. 1174 [e] Agreements Not Restraint of Trade.” 1173 In line with this definition. or tracts.Department action must “afford a reasonable opportunity to each person entitled therein to recover or receive the oil or gas in the person’s tract. Id. 1173 1174 Iowa Admin. There is no distinction under Iowa law based on the proposed or actual depth of drilling operations. 1177 Id.9 (2010). 1175 § 16. often referred to as casinghead gas. § 458A.

S. “nor closer than 600 feet to the nearest well drilling to or capable of producing from the same pool on the same lease or unit. 1181 Id. § 458A.[3] – Size and Spacing Rules. Iowa Admin. Code r. wells within the same pool and on the same lease or unit may not be located within 3. 1184 Id.” 1181 An oil well may not be located closer than 330 feet to any boundary line of such an area. public land surveys.320 feet to any boundary line of said governmental or arbitrary tract. or arbitrarily designated tract contain less than 36 acres. For gas wells. in areas not covered by U. no well shall be drilled thereon except by special order of the Department. governmental lot. r.7. 1179 Absent an order to impose specific spacing requirements. an arbitrarily designated 640-acre tract. No more than one well drilled for oil may be located “upon any tract of land other than a governmental quarter quarter section or governmental lot corresponding thereto. well location must comply with the following default regulatory standards.15(2).” 1182 Further. 565-51. 232 . for lands not covered by United States Public Land Surveys.750 feet of one another if both are in operation 1179 1180 Id.” 1183 [b] Gas Wells.” 1184 Wells may not be drilled closer than 1. 1183 Id. The Department has authority to regulate the spacing of wells.” or. 1185 Id. 1185 In addition. “[s]hould [the] governmental quarter quarter section. 565-51. 1182 Id.15(1) (2010). upon “an arbitrary 40-acre tract. or. “not more than one well shall be drilled…upon any tract…other than a governmental section. 1180 [a] Oil Wells.

in the event a governmental section or arbitrarily designated tract contains less than 600 acres.9.” 1190 The Department may order that a well be straightened if necessary to protect correlative rights.or capable of production. [5] – Directional Drilling. The Act does not specify a requirement for approval from a certain proportion of relevant owners in order to effectuate a Department order. 233 . 1191 [6] – Options. sidetrack junk. r. 1186 Similar to oil well restrictions. or correct other mechanical difficulties.” 1188 Special permission is not needed if deviation occurs “for short distances. Under Department regulation. “no well shall be drilled thereon except by special order of the Department. Id. to straighten [a] hole. 565-51. 1186 1187 Id.” 1187 [4] – Minimum Operator Control.” 1189 The Department has explicitly established that the “maximum point at which a well penetrates the producing formation shall not vary unreasonably from the vertical drawn from the center of the hole at the surface. 1191 Id. 1189 Id. “[n]o well may be intentionally directionally deviated from the vertical without written approval of the Department. 1188 Id. 1190 Id. The Act does not address the issue of election rights recognized by some jurisdictions in pooling situations.

1192 [2] – Membership on the Governing Body. Corp. 2011). The Commission is comprised of three members who serve four-year staggered terms. Ann. 1196 See Kan. § 74-601(a). Admin.state. Id. Stat. which is led by a Commission-appointed director who oversees daily activity of oil and gas production.§ 17. Regs. § 55-150(a) (2010). 1197 The conservation division acts as the ‘face’ of the Commission’s regulatory authority over oil and gas production. 1199 Kan. 1195 The Commission has extensive jurisdiction over resource and economic development in Kansas. 1193 Each commissioner is appointed by the governor and confirmed by the state senate. [1] – Name of the Governing Body. and Utilities. § 74-630 (2010). Ann.01 Analysis of Kansas Regulatory Framework.” 1199 This advisory committee contains twelve members appointed by various bodies throughout the state government and relevant industries as follows: (1) Kansas Petroleum Council. 1194 No more than two commissioners serving simultaneously may belong to the same political party. 1194 Id. 1192 1193 Kan. § 82-3-101(17) (2011). Stat. 1198 The Commission may not promulgate any rule or regulation without first obtaining formal recommendation from the “advisory committee on regulation of oil and gas activities. Stat. 234 .us (last visited June 10. 1195 Id. Commission. Transportation.kcc. http://www.ks. The Kansas State Corporation Commission (“Commission”) and its internal divisions regulate all matters related to oil and gas production throughout the state. 1198 Kan. Energy. which is carried out through four divisions: Conservation. Ann. 1196 The oil and gas conservation statute (“statute” or “Act”) is administered by the Commission’s Division of Conservation. 1197 Kan. § 55-152(a) (2010).

. 1202 For clarity. (9) Kansas Geological Survey. (7) Jointly by presidents of each groundwater management district (to represent the districts collectively).(2) Kansas Independent Oil and Gas Association. Id. [and] both economic 1200 1201 Id. (3) Eastern Kansas Oil and Gas Association. include[s] economic waste. The Commission maintains jurisdiction over all matters related to oil and gas production and unitization throughout Kansas. §§ 55-150. 55-603. §§ 55-601. 55-1301. 55-701. Division of Water Resources. (appointee must be a member of the general public). The Act does not provide the “ordinary meaning” of waste. § 55-153. (11) Department of Agriculture. . (12) State Corporation Commission. [3] – Scope of Authority. 1203 The statutory prohibition of waste supplies the foundation of the Commission’s authority under the Act. . waste of reservoir energy. the production of [oil or gas] in excess of transportation or marketing facilities or reasonable market demands. “Commission” will hereinafter indicate this collective source of authority under the Act. . .1200 Each appointee serves at the pleasure of the respective represented body. 1202 Id. 235 . . . and “in addition to its ordinary meaning. 1204 Waste is defined throughout the Act. (4) Jointly by the Kansas Farm Bureau and Kansas Livestock Association (appointee must own surface interest within the state). . underground waste. (8) Department of Health and Environment. (10) Kansas Water Office. (6) Governor of Kansas. 1201 The person designated by the Commission (‘number twelve’) serves as the chairperson of the advisory committee and organizes quarterly meetings. 1203 Id. (5) Jointly by the Southwest Kansas Royalty Owners Association and Eastern Kansas Royalty Owners Association (appointee must own mineral interest within the state). 1204 Id. 55-703. surface waste. .

the attorney general. Otherwise. 1210 Id. 236 . “the notice requirements [outlined below] apply to each hearing arising under any rule[. 1207 In pursuit of these goals. regulations and orders for the prevention of waste. § 55-704. it is authorized to “ascertain[] the several factors entering into the determination of the productive capacity of each well [and] the total productive capacity of all wells in [any] common source of supply. § 55-604(a)(2). Id. 55-702. A proceeding to initiate any Commission action under the Act may be instituted by the Commission itself. the Commission has established procedural requirements relevant to certain situations.” 1206 and has an affirmative duty to prevent the inefficient and inequitable taking of oil of gas. §§ 55-602.” 1208 The Commission has broad jurisdiction to “establish[]…such other standard[s] as [it]…may find proper to determine the productive capacity of…all wells…and…carry out the spirit and purpose” of the Act. The Commission may “make and enforce rules. 1208 Id.and physical waste resulting from the development and operation separately of tracts that can best be operated as a unit. 1211 If applicable. particular procedural rules will be discussed alongside the substantive law to which they apply. § 55-606(a). 1209 Id. 55-1302(d). Admin. § 55-603. Regs. 1211 Kan.] regulation or 1205 1206 Id. or any other person. 1209 [b] Commission Procedure. 1210 Within its authority to promulgate rules. § 82-3-135a (2011). such language controls for the relevant issue(s) involved.” 1205 [a] Matters Governed. If a regulation contains application and notice standards therein. 1207 See id.

and.”1212 If any person submits an application to the Commission for an order or permit under the Act. 1218 Id. a written statement. and. or pollute [state waters]. 1219 Id. § 82-3-135(a). 1218 A valid protest must contain the following information: (1) the protester’s name and address. § 82-3-135a(d). or offer to 1212 1213 Id. § 82-3-135a(e). including specific allegations as to the manner in which the grant of the application will cause waste. (2) the title and docket number of the proceeding. § 82-3-135b(c)(1)(A). 1215 Id. § 82-3-135a(b). Id. the protestor must provide evidence of injury. 1217 The protest must be served upon the applicant either at the same time or before filing it with the Commission.statutory provision for the conservation of crude oil and natural gas…heard by the Commission. § 82-3-135b(d). 237 . 1213 In addition.” 1214 Upon adequate notice of application. § 82-3-135b(a). 1215 A written protest may be filed by “any person having a valid interest in the application” 1216 within 15 days of notice thereof.” 1219 To ensure the Commission’s consideration. 1217 Id. violate correlative rights. (3) a “clear and concise statement of the direct and substantial interest of the protester in the proceeding. 1216 Id. (2) each mineral owner of record in unleased acreage within that same one-half mile radius. the applicant must give notice of such on or before the date the application is filed by mailing or delivering a copy of the application to: (1) each operator or lessee of record within a one-half mile radius of the subject well and/or acreage. there will be a short abeyance period to afford time for any affected party to file a protest. § 82-3-135b(a). the applicant must publish notice of the application “in at least one issue of the official county newspaper of each county in which the lands affected by the application are located” and “in at least one issue of the Wichita Eagle newspaper. 1214 Id.

regulation or statute which applies to the hearing or is necessary to provide due process to any person whose property may be affected by the hearing. 1220 If the Commission finds that a protest is valid.participate in the hearing. Id. Notice of the hearing shall also be published in the official county newspaper of each county in which the lands affected by the hearing are located. notice may be published in any newspaper satisfying the requirements of § 64-101 in a county in which the lands affected by the hearing are located. § 82-3-135(c). notice of such hearing must comply with the following: (1) Notice of the hearing shall be published by the Commission in the Wichita Eagle newspaper and in the Kansas Register. 64101 in a county in which the lands affected by the hearing are located. notice must be given as follows: (1) Anyone who initiates a hearing shall publish notice of the hearing in the Wichita Eagle newspaper and in the official county newspaper of each county in which the lands affected by the hearing are located. (2) A copy of the notice of the hearing shall be mailed by the Commission to each person who has filed for the purpose of receiving notice. 1222 1220 1221 Id. The copy of the notice shall be mailed not less than 10 days prior to the hearing date. § 82-3-135b(e). if that county does not have an official newspaper. 238 . 1221 If the hearing is initiated by any other person. regulation or statute which applies to the hearing or which is necessary to provide due process to any person whose property may be affected by the hearing shall be provided by the Commission.S. If that county does not have an official county newspaper. (3) Anyone who initiates a hearing shall provide any additional notice required by any rule. The notice shall be mailed not less than 10 days prior to the hearing date.A. If the Commission or the state’s attorney general initiates a hearing. Anyone who initiates a hearing may publish notice in any newspaper satisfying the requirements of K. 1222 Id. § 82-3-135(b). (3) Any additional notice required by any rule. a hearing will be held. and the applicant must publish notice of the hearing as specified below. (2) A copy of the notice of the hearing shall be mailed by the commission to each person who has filed for the purpose of receiving notice.

(Production & Conservation of Natural Gas). Admin. 1226 On the other hand. the Commission may grant an exception to the requirements of any regulation upon application. Regs. Ann. §§ 82-3-300 et seq (Gas Conservation Rules). § 82-3-135(d) (2010). there is no compulsory pooling per se. Kan. Kan. The disjointed structure of the Act and regulations provides separate rules pertaining to oil and gas respectively in different articles or sections. this discussion will not distinguish between oil and gas whenever possible. (Oil Conservation Rules). the Commission regulates oil and gas production through a system of allowable calculations and proration among relevant Kan. 1227 Further. Further. Kan. § 82-3-100(a) (2011). Admin. any provision for unitization references oil and gas simultaneously. (Oil Production & Sale). Rather. Stat. Stat. “order” means “special order. notice and hearing. If another person must publish notice. See generally Kan. 1228 In Kansas. 1224 Despite this format. § 82-3-100(b). and shall prevail over general rules” if conflict arises. Regs. §§ 82-3-200 et seq.” as compared to general rules. 1224 1223 239 . The regulatory scheme in Kansas is two-fold: the Commission has established general rules governing allowable production that are “statewide in application” unless otherwise stated. 1225 For clarity. 1225 See generally Kan. §§ 82-3-100 et seq. as will be discussed herein. 1223 [4] – Matters Covered. Admin. Regs. 1228 Id. §§ 55-1301 et seq.If the Commission is required to publish notice. 1227 Id. Admin. Admin. and will signify circumstances where the laws’ distinctions merit attention. (General Conservation Rules). §§ 55-701 et seq. the applicant for said hearing must provide a sworn affidavit of perfection. it must establish proof that such was properly given in the form of an affidavit sworn by a staff member that notice is perfected. Kan. Ann. (Unitization). Ann. 1226 Kan. “special orders shall be issued when required. For the purposes of this discussion. Regs. Stat. Regs. the rules often govern the two products on identical or similar grounds. §§ 55-601 et seq.

” 1231 In other words. the Commission will limit the amount of production within the state. 240 . § 82-3-101(58) (2011). The Commission will classify wells “by the common source of supply [or pool] from which they produce. and (3) “unreasonable discrimination” among pools and wells therein. Kan. § 55-603 (2010). Admin. 1231 Kan. § 82-3-102. through a system of allowable production standards. The Act states that “[t]he drilling and completion of a…well shall not itself entitle 1229 1230 Id.] in a manner that would favor any one pool [over another]: undue drainage between developed leases. or unreasonable discrimination between or among operators. 1230 The following discussion should be prefaced by highlighting some key terms used below.] or to prevent any of the following[. producers. § 55-603 (2010). (2) “the inequitable or unfair taking” of oil and gas. proration refers to the Commission’s general authority and duty to control oil and gas production on efficient and equitable grounds. Kan. “proration” means the “regulation of the amount of allowed production to prevent waste[. Ann. unratable taking. Pursuant to its statutory duty. [a] Allowable Production System. and royalty owners who are within a common source of supply. and among the pools and wells therein. Regs.” 1229 The Commission has the authority and responsibility to regulate the taking of oil and gas from any pool as to prevent: (1) waste. As defined by the Commission. Stat. A “pool” is “any common source of supply” of oil and/or gas.areas. 1232 Id.” 1232 The Commission defines a well’s attributable acreage as one factor used to determine the allowable production to be granted to a particular well. The phrases “attributable acreage” and “acreage-attribution” are used interchangeably by the Commission to mean “the acreage assigned to a well in accordance with the well spacing program for each of the prorated fields. Ann. Stat. as well as to a certain well pool or field under an order. § 82-3-101(7).

1236 Kan. The Commission will grant an allowable to each gas well within a prorated pool upon an operator’s application that provides the following: (1) a written request for an allowable on a form prescribed by the Commission. an “allowable” is “the amount of oil or gas authorized to be produced by order of the Commission. Admin. However. the Commission will consider waste prevention and correlative rights protection. 1239 Id. Regs. the “standard daily allowable…shall be limited to 50% of the well’s actual open-flow potential. § 82-3-312(a). § 82-3-300(a). Additional information is required if request is for a replacement well. 1235 Id. (2) an acreage plat displaying well location and a description of such well’s attributable acreage. Ann. Ann.” 1238 For gas wells. Equations to calculate open-flow potential are stated in this provision. 1237 This broad statutory guidance will be involved in the Commission’s allowable determination. § 55-703(a). Regs. Stat. 1238 Kan. §55-703a (2010). Admin.said well to an allowable for production. 1236 The Commission will base its calculation of market demand upon “the reasonable current requirements for current consumption and use within and without the state. gas wells are subject to regular testing of production upon which the Commission will calculate each well’s “actual open flow potential. § 82-3-101(2) (2011). Kan. § 82-3-303 (2011). 1237 Id. and such other factors.” 1233 As such. 241 . Stat. it “shall be entitled to a minimum allowable of 250 mcf per day.” 1240 1233 1234 Kan. and. (3) results of the Commission-supervised test as required under the applicable pooling order. as well as “market demand” for the product. 1235 In determining an allowable for each well. conditions.” 1234 [b] Default Allowable—Gas Wells.”1239 So long as a gas well operator complies with regulatory testing requirements. 1240 Id. or circumstances that would aid” in this evaluation. § 55-703 (2010).

(2) no interference with drainage of adjacent wells can be shown by competent evidence. the Commission may make exceptions or modifications to an allowable to prevent waste or protect correlative rights. it will prorate that amount among the several wells within each pool based on the following considerations: (1) the “productivity of each…well. generally speaking. it then must allocate allowable production among the prorated pools and wells within the state 1245 in a manner that “prevent[s] unreasonable discrimination in favor of any one pool as against any other. Id.” 1247 Once the Commission determines allowable production for the various pools. The Commission will hold a monthly hearing to determine the statewide oil allowable for the coming month. 1243 Id.” 1244 Once the Commission establishes this amount. and without discriminating between pools. § 82-3-200(c) (2011). an allowable will be the “amount of oil which may be produced currently…without causing waste or injury to correlative rights. 1245 Id. Ann. 1241 Regardless of attributable acreage. § 82-3-200(b)(3). § 82-3-200(b)(1). 1246 Kan. or ‘proration period’. Stat. during the next succeeding proration period.” and (3) the “efficient utilization of the 1241 1242 Id.” 1242 [c] Default Allowable—Oil Wells. or (3) actual interference is less than the reduced allowable. § 82-3-200(b)(2). 242 . Admin. 1244 Id. the Commission may a grant a well “the full allowable if any of these conditions exist: (1) location exceptions have been granted for man-made structures or topographic features.In addition to applicable exceptions discussed below. § 82-3-312(f). 1243 The overall allowable will be that amount which “can be produced daily throughout the state. 1247 Kan. Regs. without causing waste. § 55-603 (2010).” 1246 Therefore.” (2) “the acreage of each well owner which is reasonably attributable to each of the owner’s wells.

000+ Daily Allowable (barrels/well/day) 100 200 300 Upon application. § 82-3-200(a) (2011). 1254 1248 1249 Kan. Regs. § 82-3-203(c)-(d).” 1249 For a particular oil well in a prorated pool. 1253 In addition. any interested party may file an application for an exception to an allowable assigned by the Commission by initiating a hearing in compliance with the procedures outlined above. each operator and/or lessee of record and each unleased mineral owner within a one-half mile radius of the proposed well. § 55-604(b) (2010). 1253 Id. 82-3-202. it is unlawful for any person to produce more “than the allowable specified by the Commission. (2) the allowable requested. allowables “shall be assigned on an individual well basis” based on a depth schedule as follows 1251: Producing Interval Found Between (depth in feet) 0-4000 4. and. (5) an affidavit indicating the date that applicant provided proper notice of the application to. Admin. (6) any other information the Commission may require. 243 . the Commission will consider the results of initial and annual productivity testing.001-6. 1251 Id.000 6. the application must provide: (1) the exact location of the well and the acreage attributed to the well. §§ 82-3-200(c). Ann.” 1248 As the Act expressly prohibits waste. and any applicable overages or underages from the previous proration periods. Kan. Stat. and the names and addresses of. (3) the geological name of the producing formation. § 82-3-203(c). § 82-3-203(a). 1252 For non-prorated wells. 1250 Id. 1252 Id. (4) the top and bottom depths of the producing formation.reservoir energy in the pool. 1250 For a well not covered by proration agreement or order. the Commission may assign an allowable and attributable acreage to a given oil well that varies from the applicable default allowable shown above.

Admin. subject to available individual exceptions in some circumstances. 1256 Kan. as shown by the applicant's books and records. in terms of well location and common source production. (6) the name and address of each operator or lessee of record in the subject acreage. a well spacing or basic proration order. § 82-3-203(d). Ann. (4) the proposed well location restriction and proposed provisions for any exceptions thereto. a certificate of mailing indicating the date service of a copy of the application was made to each. (5) the proposed configuration of producing units for acreage attribution purposes. Stat. depth.” 1255 Thus. the law provides default restrictions for all wells within the state. or on which the applicant has a lease or an interest in the lease. and. a description of the nature of the amendment sought. and a certificate of mailing indicating the date service of a copy of the application was made to each. and a certificate of 1254 1255 Id. § 55-703a (2010).” 1256 These applications must contain the following: (1) if the application is for amendment. of each person owning the royalty or leasehold interest in the subject acreage and operated by the applicant. 244 . (3) a description of the acreage subject to the application. The Commission has discretionary authority to establish “well spacing [requirements] in any…common source of supply and provide for the orderly development thereof. Kan. and common source of supply from which a well or wells in the subject acreage are producing. . (7) the name and address of each owner of record of the minerals in unleased acreage within the subject acreage. a person may petition the Commission to enter a special order defining well-spacing and proration rules for an applicable pool. with an affirmation that all of the acreage is reasonably expected to be productive from the subject common source of supply. (2) the location. Any person having an interest in oil or gas production within a particular area “may file an application for . in the absence of such order. (8) the name and address. Regs. . § 82-3-109(a) (2011).[d] Spacing and Proration Orders.

1261 Id. the Commission may require that “the well…be permanently capped or plugged and abandoned. 1257 1258 Id.” and will hold a hearing to consider an exception. the Commission may issue a “show cause order to determine whether the [unlawful] drilling…was necessary to protect correlative rights or prevent waste. § 82-3-110(a). the specific factors proposed to be utilized in the allocation of production. (9) if a proration formula is sought.” or permit “production at a reduced rate…to ensure the protection of correlative rights and the prevention of waste.” 1263 [e] Exceptions to Special Orders.1257 The applicant must file the original and four copies of the application with the Commission. “any well drilled or being drilled in violation [thereof] shall be considered…unlawful [and]…presumed to be in violation of correlative rights[.” 1261 Upon such violation. Regs. 1258 The applicant must then publish notice of the hearing under the terms outlined above.] and to constitute waste. Id. Id. 1262 Kan. § 82-3-110(a) (2011). § 82-3-110(b). which will set a hearing to consider the action sought. unless that “well location conforms to the most restrictive location provisions sought in the pending application. 245 . § 82-3-109(d). no well may be drilled within the area sought to spaced or prorated by the application until the hearing concludes. and (11) such other information which may be required by the Commission. § 82-3-109(c).mailing indicating the date service of a copy of the application was made to each.” 1260 If a special order is entered. 1263 Id. 1259 Id. Admin. 1259 Upon adequate notice. 1262 If good cause is not sufficiently established. 1260 Id. The Commission may grant exceptions to temporary drilling ban after notice and hearing. (10) the applicant's license number.

A. and a certificate of mailing indicating the date on which service of a copy of the application was made to each person. (3) The name and address of the purchaser. (10) The names and addresses of all owners of record of the minerals in. (8) The names and addresses of all operators of producing acreage abutting or adjoining the acreage to be attributed. and a certificate of mailing indicating the date on which service of a copy of the application was made to each person. and a certificate of mailing indicating the date on which service of a copy of the application was made to each owner. (2) The common source of supply from which the well is producing. 82-3-135b. and a certificate of mailing indicating the date on which service of a copy of the application was made to each lessee. the acreage to be attributed. (7) The names and addresses of each person owning a royalty or working interest in the acreage to be attributed.Any gas well located within a prorated pool that requires exceptions to any provision of a proration order “may be granted an allowable by the Commission only after an application has been filed. (5) A plat showing the location and approximate depths of all wells and dry holes that have been drilled within one mile from the acreage to be attributed. (4) A statement of the exception being requested and the reasons the exception should be granted. (6) The applicant's license number. or royalty of unleased acreage abutting or adjoining. if known. and a certificate of mailing indicating the date on which service of a copy of the application was made to each operator.” 1264 An application seeking such exception must contain the following information: (1) The exact location of the well and the acreage attributed to the well. and 1264 Id. 246 . (12) A statement advising each person listed in paragraphs (7) through (11) of this subsection that the person has 15 days in which to file a protest to the application with the conservation division pursuant to the provisions of K. § 82-3-300(c).R. (9) The names and addresses of all lessees of record of nonproducing acreage abutting or adjoining the acreage to be attributed. (11) The names and addresses of all persons owning the royalty or leasehold interests in acreage abutting or adjoining the acreage to be attributed that is operated by the applicant or on which the applicant has a lease or an interest in the lease.

§ 55-1317(b) (2010). in writing. 247 . the application will be held in abeyance for 15 days to allow potential protests as discussed above. 1269 The notice must inform those owners that each has 30 days to institute 1265 1266 Id. § 55-1317(c). Under the Act. In the absence of special order. persons holding oil and gas interests within a shared pool may establish a terms for unitization by agreement. “if all mineral and royalty owners[. 1268 Id.”1267 A “working interest owner” is an “owner of tracts or interests who. such agreement “shall become effective without application to or order by the Commission.] and not less than 90% of the working interest owners” approve. those seeking unitization must file a copy of the agreement with the Commission and “notify all working interest owners of the intention to conduct the unit operation” in the same manner required for notice of an application for unit operation. would have the right to drill and operate a well or wells on the separately owned tracts comprising the unit. the applicant must also publish notice “in at least one issue of the official county newspaper of each county in which lands affected by the application are located and in the Wichita Eagle newspaper. Ann. 1269 Id. in the absence of a unitization order.” 1268 Prior to such a contract becoming effective. 1267 Kan. Stat. 1265 In addition to providing notice to each person as outlined above.(13) Any other relevant information that the commission may require. § 55-1302(e).” 1266 Upon such notice. a contract for unit operation. Id. § 82-3-300(d). [f] Unitization.

abandonment of oil or gas wells is imminent. (4) A copy of a proposed operating plan covering the manner in which the unit will be supervised and managed and costs allocated and paid. 1270 If no such proceedings occur. reasonable and equitable.1274 After notice and a hearing. the contract for unitization becomes effective after that 30-day period. (5) An allegation of the facts required to be found by the Commission [provided below]. or. and. § 55-1303. without introduction of artificial energy. 1273 The facts to be alleged in the application must all be found accurate by the Commission. the Commission will grant a unitization order only if the following conditions exist: (a)(1) The primary production from [the applicant pool or part thereof] has reached a low economic level and. and. 1272 must contain the following: (1) A description of the land and pool or part thereof to be so operated. (3) A copy of a proposed plan of unitization which the applicant considers fair. or any portion thereof. 1275 1270 1271 The application Id. (c) The proposed operation is fair and equitable to all interest owners. termed the unit area. 1271 The Act allows any working interest owner to file an application with the Commission for an order establishing unit operation of a pool. 248 . Id. 1272 Id. 1274 Id. 1273 Id. (b) The value of the estimated recovery of oil or gas substantially exceeds the estimated additional cost incident to conducting [unitized] operations. § 55-1304. operation and further development of [the applicant pool or part thereof] is economically feasible and reasonably necessary to prevent waste within the reservoir and thereby substantially increase the ultimate recovery of oil or gas. (2) the unitized management. (2) A statement of the type of operations contemplated for the unit area.proceedings before the Commission challenging the agreement.

1276 A unitization order issued by the Commission will not come into effect without formal approval from a proportion of relevant interest-holders. (emphasis added). abandonment of oil or gas wells is imminent. under the commission's order. 1278 Id. and also by the owners of at least 75% of the production or proceeds thereof that will be credited to royalties. 1280 1275 1276 Id. and also by the owners of at least 63% of the production or proceeds thereof that will be credited to royalties. operation and further development of [the applicant pool or part thereof] is economically feasible and reasonably necessary to prevent waste within the reservoir and thereby substantially increase the ultimate recovery of oil or gas. 1279 Kan. § 55-1305. If the Commission grants the order upon finding that “primary production from [the applicant pool or part thereof] has reached a low economic level and. 1279 If the order is granted because “the unitized management.” 1278 then the order must be approved in writing by those persons who. without introduction of artificial energy. Id. 249 . § 55-1305 (2010). § 55-1304(a)(1). excluding overriding royalties or other like interests which are carved out of the leasehold estate.If the Commission determines that such facts are true. Stat. Ann. excluding overriding royalties or other like interests which are carved out of the leasehold estate. 1280 Id. under the…order. will be required to pay at least 63% of the costs of the unit operation. it may grant an order for unit operation. 1277 The percentage of ownership approval required will depend on the findings of the Commission in granting the order. 1277 Id. will be required to pay at least 63% of the costs of the unit operation.” the order must be: approved in writing by those persons who.

pumps. (c) An allocation to the separately owned tracts in the unit area of all the oil and gas that is produced from the unit area and is saved. but not more often than once a month. (e) A provision providing how the costs of unit operations. (b) A statement of the nature of the operations contemplated. the Commission must make a formal finding that the plan for unitization has been so approved. payable out of production. or to the interest of such owner. machinery. how and by whom the unit production allocated to a working interest owner who does not pay the share of the cost of unit operations charged to such owner. Id. 1281 If the proposed order has not been approved within six months of entry. (f) A provision whereby a non-operating working interest owner shall be furnished. reasonably detailed information regarding the nature and amount of the various items of costs and expenses. tanks. chargeable against the interest of the non-operating working interest owners. including capital investments. This ‘good cause’ extension period may be no more than 60 days. termed "the unit area". shall be determined and charged to the separately owned tracts and how such costs shall be paid.In either case. upon terms and conditions determined by the Commission to be just and reasonable. including a provision providing when. (d) A provision for the credits and charges to be made in the adjustment among the working interest owners in the unit area for their respective investments in wells. 1282 A unitization order must be “upon terms and conditions that are just and reasonable” and provide a unit operation plan that includes the following: (a) A legal description in terms of surface area of the pool or a part thereof to be so operated. (g) A provision for carrying any non-operating working interest owner on a limited. it “shall cease to be of further force and effect and shall be revoked” unless the Commission finds good cause for extending the approval period. carried or net-profits basis. including capital investments. materials and equipment contributed to the unit operations. and may hold supplemental hearings to obtain such approval. or otherwise financing any non-operating working interest owner who elects to be carried or otherwise financed or who does not meet the owner's financial obligations with the unit and a provision for establishing a 1281 1282 Id. 250 . may be sold and the proceeds applied to the payment of such costs.

and the circumstances under which. and shall be the property of such owners in the proportion that the expenses of unit operations are charged. 1283 [g] Allocation of Production and Costs. the terms upon which production and costs are distributed among interest-holders in the unit area must be stated in the applicable unitization order. the same are allocated or payable under the order providing for unit operations. and the proceeds from the sale thereof.” 1285 1283 1284 Id. all real and personal property “acquired in the conduct of unit operations…shall be acquired for the account of the working interest owners within the unit area. removal or substitution of an operator from among the working interest owners to conduct the unit operations. (h) A provision for the supervision and conduct of the unit operations. 1285 Id. As expressed above. and (l) Such additional provisions that are found to be appropriate for carrying on the unit operations and for the protection of correlative rights.reasonable rate of interest and a penalty on all unpaid expenses. The Act provides that “[t]he portion of the unit production allocated to any tract. § 55-1306. (j) The time when the unit operations shall commence and the manner in which. the unit operations shall terminate and for the settlement of accounts upon such termination. in amounts established by rules and regulations adopted by the Commission. Id. 251 . (i) A provision for a voting procedure for the decision of matters to be decided by the working interest owners in respect to which each working interest owner shall have a vote with a value corresponding to the percentage of the costs of unit operations chargeable against the interest of such owner. shall be the property and income of the several persons to whom. (k) A provision specifying the particular records the unit operator shall keep and the detailed accounting procedure that the unit operator shall follow. including the selection.” 1284 Further. or to whose credit.

1288 Id.” 1287 Further. shall in all events be and remain free and clear of any cost or expense of developing or operating the unit. . . 252 . or charged to his or her interest in the separately owned tract pursuant to the order. Id. If no agreement exists. the Commission will “determine the relative value of the separately owned tracts in the unit area. § 55-1308. for more than the amount apportioned .” 1289 In general terms. As such. . and a working interest owner of the oil or gas rights in [each] separately owned tract shall not be . 1289 Id.” 1288 Production that is saved (not used in operation or unavoidably lost) will be allocated in accordance with any controlling agreement among all interest owners. § 55-1305. if a lease pertaining to a tract or interest stipulates a royalty or other payment or obligation in excess of one-eighth of production. whether operator or nonoperator. then “the working interest owner subject to such excess payment or other obligation shall bear and pay the same. “at all times shall be several and not joint or collective.The obligation of each working interest owner within the unit.” 1290 [h] Modification and Effect of Orders. 1286 1287 Id. “[a] plan of unitization shall not be considered fair and reasonable if it contains a provision for operating charges which include any part of district or central office expense other than reasonable overhead charges. obligated or liable . . and the [saved] production allocated to each tract shall be the proportion that the value of each tract so determined bears to the total value of all tracts in the unit area.” 1286 The Act stipulates a one-eighth minimum production right for any owner subject to a unitization order. “a [one-eighth] part of the production allocated to each tract under an order . . . exclusive of physical equipment. . . for development of oil and gas by unit operations. 1290 Id.

the Commission is not bound to extend the coverage of an order so far if “the unit area is of such size and shape” that a smaller scope is preferable.” 1298 In that event. the later order “shall first treat the unit area previously established as a single tract. 1297 Id. the Commission may only issue an order covering a portion of a pool if operations thereon “will have no adverse effect upon other parts of the pool. 1291 First. Id. 1296 Id. the amendment may not alter the percentage allocation of costs stated in the original order. subject to three primary exceptions. 1296 In addition. 253 . 1294 The Act clarifies that an order “may provide for unit operations on less than the whole of a pool. 1295 Id.” 1293 Third.” 1299 Once a portion of 1291 1292 Id.” 1297 The Commission may also order unitized operation of a pool “that embraces a unit area previously established either by voluntary agreement or order. 1293 Id. modification of an existing order may not change the percentage allocation of production expressed therein unless the Commission obtains “consent of all persons owning oil and gas rights in such tract. 1294 Id.” 1295 While inclusion of an entire pool may be most efficient in some cases. 1299 Id. 1298 Id.” 1292 Second. the approval of the royalty owners shall not be required. “except with the consent of all working interest owners” in the unitized area.The Commission may amend an order to unitize operations under the same terms and conditions necessary to enter the original order. if the amendment to be made “affects only the rights and interest of the working interest owners.

1305 Id. 254 . 1301 Further. “but otherwise shall remain in full force and effect. Under the Act. § 55-1308. § 55-1306.] and a royalty owners to the extent of the remaining [one-eighth] interest therein.” 1302 Although not terminated. 1303 Kan.”1305 However.” unless otherwise agreed among relevant parties. Ann. the Commission is authorized to alter this presumption if. as “[o]perations conducted pursuant to [a unitization] order…shall constitute a fulfillment of all the express or implied obligations of each lease or contract covering lands in the unit area to the extent that compliance with such obligations cannot be had because of the order. Stat.” 1304 [i] Royalty Distribution. § 55-1308 (2010). existing contracts or other obligations “shall be regarded as amended and modified…to the extent necessary to conform to the provisions and requirements” of the Act and applicable unitization orders. Id. 1300 A unitization order “shall [not] be construed to result in a transfer of all or any part of the title of any person to the oil and gas rights in any tract in the unit area. no such order will terminate an existing contract “relating to the sale or purchase of production from a separately owned tract” within the unit area. 1302 Id. 1304 Id.” 1303 The Act protects subject owners facing conflict with existing contracts. “under the prevailing 1300 1301 Id. an owner who maintains oil and gas rights in an unleased tract “shall be regarded as a working interest owner to the extent of a [seven-eighths] interest in and to such rights[. it will then be distributed among the separate owners within that ‘single tract’ under the terms of the previous order. § 55-1306.production is allocated to that ‘single tract’ under the later order. which remains enforceable and “appl[ies] to oil and gas allocated to such tract until terminated in accordance with the provisions of such…contract.

§ 82-3-101(45). 1309 Id. § 55-1302(c). § 55-1311. casinghead gas. 1307 [j] Agreements Not Restraint of Trade.industry practice in the area where the unit is located. 1312 Id.02 Types of Kansas Pooling Statutes. condensate. regardless of its chemical analysis. however.” 1311 A notable mineral distinction among the regulations is the exemption of coalbed natural gas wells from annual wellhead production testing for calculation of standard daily allowable. natural gas. 82-3-312(b).” 1309 Commission regulations define “gas” as a general reference to any “gas obtained from gas or combination wells.” 1308 § 17. oil and gas leases contain…higher…than [a one-eighth] royalty interest. Article 13 governing unit operations defines “oil and gas” to mean “crude oil. 255 . Regs. Id. At no point does the Act clearly define oil or gas individually. the regulatory structure in Kansas distinguishes between oil and gas. §§ 82-3-304(f). § 82-3-101(35) (2011). the Commission may increase the royalty presumption to be consistent with relevant industry standards.” 1310 In turn. 1308 Id. Admin. 1312 1306 1307 Id. “oil” includes “any petroleum hydrocarbon that is produced from a well in liquid phase and that existed in a liquid phase in the reservoir. 1310 Kan. An agreement for unit operations entered into by lessees or owners in accordance with the Act “shall [not] be held to violate any [Kansas]…statute [or other law]…prohibiting monopolies or [other] restraint of trade or commerce. [1] – Mineral Distinctions. 1311 Id. or any combination thereof. As outlined above. except those provisions applying to unitization.” 1306 Under such circumstances.

” 1313 [2] – Split by Depth. [a] General Rules. as well as any oil well drilled less than 2. 256 .000 feet and located in one of 27 specified counties. the Commission has established dimensional spacing requirements for oil and gas wells. 1316 Id. nothing in the Act or regulations suggests that the Commission’s authority to restrict depth by order is limited. Id. or “natural gas produced from coal seams or associated shale. 1315 Id. In general. § 82-3-108(a). [3] – Size and Spacing Rules. 82-3-155(d).” 1316 In addition to general setback rules. “shall not be [located] nearer than 165 feet from the nearest lease or unit boundary line. § 82-3-101(11). this rule does not apply to oil wells of certain depths located in eastern Kansas.500 feet deep in Chautauqua County. The only default depth restrictions or distinctions are found in the drilling lessened setback rules for oil wells drilled in eastern Kansas. Any oil well drilled to a total depth of less than 2. and the amount required for a performance bond shown below. § 82-3-108(b).A coalbed natural gas well is one that produces only coalbed gas. the “standard drilling unit shall be 10 1313 1314 Id. §§ 82-3-108(b). The Commission has established general rules for well spacing to prevent waste and inequitable taking.” 1315 However. no oil or gas well may be drilled “nearer than 330 feet from any lease or boundary line. The regulations provide minimum setback requirements to provide each well an opportunity to obtain the oil and gas lying reasonably below its attributable acreage. In both cases. 1314 However.

82-3-312(c). the Commission may grant a well location exception to setback rules. § 82-3-101(7) (2011). 1319 Id. the Act and Commission regulations impose minimum amounts that each well must be allowed to produce.” 1318 The acreage attribution unit will have an identical length and width. §§ 82-3-207(a). Id. Ann.” 1317 This is the default attributable acreage for each well that satisfies the 330-foot setback requirement. 1322 Id. 1320 Id. If necessary to prevent waste or protect correlative rights. 82-3-312(e). § 55-604(b) (2010). § 82-3-207(b).” 1319 In order to properly allocate production. see also id. § 55-604(b)(3) (2010). 1323 Kan. as well as to an excepted well’s attributable acreage and Id. §§ 82-3-207(c). Stat. § 55-604(b)(3). Kan. Unless otherwise excepted (and apart from those counties in eastern Kansas noted above). Admin. a well with attributable acreage of less than 10 acres will be granted an allowable that is “reduced in the same proportion that the acreage attributable to the well bears to 10 acres.acres. “each [oil or] gas well located nearer than 330 feet to any lease or unit boundary line shall have acreage attributed to it by the establishment of an acreage attribution unit. “the 25 barrels per day minimum…may be reduced in the proportion that the acreage attributable to the well bears to 10 acres. 82-3-312(d). if the “acreage attributable” to a well is less than 10 acres. 1318 1317 257 . “Attributable acreage” generally refers to the surface area from under which a single well may produce. 1321 For a well located on a spacing unit or attributable acreage of 10 acres or more. §§ 82-3-207(b). § 82-3-312(d). or the “acreage assigned to a well in accordance with [a] well spacing program” for a prorated pool or field. Ann.” 1320 While equitable factors must be considered in determining allowable production. 1322 However. Regs. 1321 Kan. each defined “as being twice the distance from the well to the nearest lease or unit boundary. the minimum allowable that the Commission may set is 25 barrels of oil per day. Stat.” 1323 [b] Exceptions.

A voluntary agreement to unitize operations will be valid and effective without a Commission order “if all mineral and royalty owners[. 258 . § 55-1317(b) (2010). Regs. and. 1326 Id. depending on the grounds for granting the order. and (3) all adjacent properties and wells. Stat. 1328 If the Commission grants the order upon finding that “primary production from [the applicant pool or part thereof] 1324 1325 Kan. and (C) The applicant’s lessor or lessors. 1324 An exception will only be granted upon proper application containing the following: (1) A brief explanation of the exception or exceptions requested. 1327 A unitization order issued by the Commission requires approval of a certain percentage of relevant owners. (3) A list of the following: (A) Each offset operator whose lease line is located less than the required distance from the proposed location. (4) The acreage attributable to the well. (2) The proposed location of the well. 1327 Kan.allowable production. (5) The allowable requested. § 82-3-108(e). the application must be accompanied by a notice of intent to drill and a plat displaying: “(1) the property on which the well is sought to drilled. Admin. § 82-3-108(c) (2011). partially drilled or permitted wells on the property. 1325 In addition.] and not less than 90% of the working interest owners” approve. a contract expressing such intent. Ann. (B) Each unleased offset mineral owner whose property boundary is located less than the minimum distance required by subsection (a) or (b) from the proposed locations. (2) all other completed.” 1326 [4] – Minimum Operator Control. 1328 Id. including the distance to the nearest lease or unit boundary line. § 82-3-108(d). Id. if the applicant operates any lease that will be situated less than the minimum distance required by subsection (a) or (b) from the proposed well location. in writing.

” the order must be approved in writing by those persons who. abandonment of oil or gas wells is imminent. without introduction of artificial energy. (emphasis added). under the commission's order. § 55-1304(a)(1). under the…order. will be required to pay at least 63% of the costs of the unit operation. 1331 If the applicable percentage of owners have not approved the order within six months of issuance. § 55-1305.” 1329 then the order must be approved in writing by those persons who. and also by the owners of at least 63% of the production or proceeds thereof that will be credited to royalties. An operator or other person responsible for operation must submit a written application to the Commission prior to drilling “any hole where [the] intended deviation from the surface to 1329 1330 Id. 1330 If the order is granted because “the unitized management. will be required to pay at least 63% of the costs of the unit operation. 259 . 1331 Id.has reached a low economic level and. excluding overriding royalties or other like interests which are carved out of the leasehold estate. Id. it will not go into effect unless the Commission finds good cause to extend the approval period for an extra 60 days. operation and further development of [the applicant pool or part thereof] is economically feasible and reasonably necessary to prevent waste within the reservoir and thereby substantially increase the ultimate recovery of oil or gas. excluding overriding royalties or other like interests which are carved out of the leasehold estate. and also by the owners of at least 75% of the production or proceeds thereof that will be credited to royalties. 1332 Id. 1332 [5] – Directional Drilling.

Regs. § 55-1305 (2010). 1337 Id. payable out of production. The Act acknowledges rights of election and optional carrying for those owners who refuse or are unable to pay drilling and operating costs.” 1333 The Commission may only approve such deviated drilling after sufficient notice and a hearing. must include: a provision providing when. 1335 See Kan. Stat. Id. 1336 Id. carried or net-profits basis.1336 In situations where an operator or owner carries a non-contributing owner.’ 1337 The terms must remain just and reasonable to all 1333 1334 Kan. or to the interest of such owner. the agreement or order may also specify a ‘risk-penalty. if applicable. § 82-3-103a(b). 1334 [6] – Options. they may do so and provide for the terms of such in the applicable agreement or order. 260 . how and by whom the unit production allocated to a working interest owner who does not pay the share of the cost of unit operations charged to such owner. Admin.the top of the producing formation exceeds seven degrees. in amounts established by rules and regulations adopted by the Commission. If parties involved choose to establish a system to carry non-contributing working interest owner. upon terms and conditions determined by the Commission to be just and reasonable. 1335 The options available for nonconsenting owners and any other terms of election must be stated in the unitization agreement or order that. or otherwise financing any non-operating working interest owner who elects to be carried or otherwise financed or who does not meet the owner's financial obligations with the unit and a provision for establishing a reasonable rate of interest and a penalty on all unpaid expenses. Ann. § 82-3-103a(a) (2011). The Act requires that an order or agreement include: A provision for carrying any non-operating working interest owner on a limited. may be sold and the proceeds applied to the payment of such costs….

pumping equipment and piping. rigging up. deepening or plugging back. 261 . plus 100% of the unpaid portion of the owner's share of the cost of operation of the unit.parties affected and reimbursement will be taken from the non-contributing owner’s share of production. well site preparation. all subject to the rate of interest established. treaters. such penalties may not exceed: (1) One hundred percent of the unpaid portion of the owner's share of the cost of aboveground surface equipment beyond the wellhead connection. (2) Three hundred percent of the unpaid portion of the owner's share of the costs and expenses of drilling wells in the unitized area. including. separators. and (3) Three hundred percent of the unpaid portion of the owner's share of the costs and expenses of underground pipeline systems. including staking. expenses for injected substances and any other non-recoupable expenses incurred. or drilling. stock tanks. and reworking. Id. but not limited to. 1338 Under the Act. testing and completing wells. 1339 1338 1339 Id.

1341 Id. the director may not acquire a financial interest in any activity related to oil and gas production within the state. §§ 349. the Department also includes the Oil and Gas Conservation Commission (“Commission”). Nat. 1346 See Dep’t. Resources. § 355.ky. Rev. The Division is led by a director. The Division and Commission work in tandem to implement the Act. and 18.005 et seq (2010). administer and enforce the provisions of §§ 353. which has express authority to administer those sections under the state’s oil and gas conservation statute (“Act”) particular to deep-well pooling and unitization. who is appointed by the secretary of the Energy and Environment Cabinet. 1340 However. the Department of Natural Resources’ Division of Oil and Gas (“Division”) oversees the majority of oil and gas production in the state. the significance of coal production to Kentucky’s economy prompted the legislature to codify statutes particular to the coalbed methane regulation in 2004.500 to 353. 1346 Ky. § 353. 1344 While in office.”). § 355. § 353.530.01 Analysis of Kentucky Regulatory Framework. 1345 Id. 1342 See Ky. 1344 Id. 1343 The director must have at least five years field experience oil and gas production or exploration when appointed. 1342 The Kentucky coalbed methane laws will be discussed separately in §§ 18.530(2) (LexisNexis 2010) (The Division director shall “administer the provisions of §§ 353.651 and 353. 1341 While the Act discusses issues relevant to the protection of coal rights. In Kentucky. [2] – Membership on the Governing Body. 1340 262 .§ 18. 2011) (“The Division of Oil and Gas currently employs 14 field inspectors. 1345 The director may employ staff to carry out daily Division activities. Ann. Ann. 1343 Id.02.565(7) (“The Commission shall execute and carry out. 3 field supervisors. [1] – Name of the Governing Body.gov/Pages/AboutUs/aspx (last visited June 15. http://oilanggas. Div. Rev.”). Stat. and 9 administrative staff personnel. Oil & Gas.530. Stat.652.01.720…”).

or derive more than 50% of [his or her] income” from such activity. The director may cast a deciding vote in the event of deadlock among the four voting Commission members. which are …to foster conservation of all mineral resources. the Division and Commission will hereafter be referred to collectively as the Department of Natural Resources (“the Department”). § 353. to encourage exploration for such resources. 1351 Id. 1355 Id.540 (LexisNexis 2010). 1352 Id.500(2). 263 . 1348 The four gubernatorial appointees serve staggered four-year terms. Stat. 1347 The fifth member is the director of the Division. with two hailing from eastern Kentucky and two from western Kentucky. § 353. 1350 Id. § 353.” 1355 The Department acts pursuant to the public interests stated in the Act. “such as the fixing of statewide spacing patterns. 1354 The Department may promulgate rules and regulations and “take all actions necessary to assure efficient oil and gas operations.The Commission is comprised of five members. Ann. Id. to prohibit waste and unnecessary surface loss and damage and to encourage the maximum recovery of oil and 1347 1348 Ky. to protect correlative rights of land and mineral owners. however. 1350 No more than one of these four may be “directly employed in the exploration for or the production of oil and gas. with which all authority rests under the Act. four of which are appointed by the governor. 1349 Each must be a state resident. Stat. a member may not participate in deliberation or vote on any matter in which such financial interests exist. who serves as the Commission’s non-voting chairman. Rev. 1349 Id. 1354 Id. Rev. 1353 [3] – Scope of Authority. 1352 For clarity. all members may be involved in general matters. 1353 Ky. The Department maintains “jurisdiction over all persons and property necessary” to enforce the Act.565(1) (LexisNexis 2010).” regardless of an interest therein. Ann. 1351 If applicable.

” and in particular includes: (a) The locating. or wells drilled. 1359 Ky. drilling. except for secondary recovery purposes. 1358 The Act explicitly states that it “shall not be construed to authorize any limitation of production of oil or gas…to prevent or control [solely] economic waste[.” 1359 In discharging its duties. production or handling of oil and gas.720(1) (LexisNexis 2010). and (f) The drilling of more wells than are reasonably required to recover efficiently the maximum amount of oil and gas from a pool. or contrary to any provision of. § 353. a reduction in the quantity of oil or gas ultimately recoverable from a pool under prudent and proper operations. gas or water from the stratum in which it is found into other strata. The Act expressly prohibits waste. (c) The drowning with water of any stratum or part thereof capable of producing oil or gas in paying quantities. Stat. operating or producing of any oil or gas well. the Department may require: identification of mineral ownership. Rev.gas from all deposits thereof now known and which may hereafter be discovered.] or to limit production to market demand. deepened. (e) The unnecessary or excessive loss of oil and gas by spillage or venting or destruction of oil or gas or their constituents. 1356 [a] Matters Governed. and to promote safety in the operation thereof. development. or reopened in a manner that causes. 264 . or other mineral deposits in the operations for the discovery.500(1). equipping. drilling and operation [as to] prevent the 1356 1357 Id. 1357 “Waste” means “physical waste as that term is generally understood in the oil and gas industry. rule or regulation promulgated [under the Act]. thereby ultimately resulting in the loss of recoverable oil or gas. or in hydraulic fracturing or other completion practices. § 353. (b) Permitting the migration of oil. fresh or mineral water supply. § 353. or any order. the making and filing of logs and surveys. or tends to cause.520(2). (d) The unreasonable damage to underground. 1358 Id. Ann. workable coal seams. Id.

at a time specified by the Department. Id.001 et. § 353. 1369 Id. an interested party may petition for a public hearing at which all such “interested person[s] shall be entitled to be heard. 1364 805 Ky. 1367 and in particular must provide “the time and place of the hearing. Regs. § 353. and the docket number. 1362 [b] Department Procedure.560(1). or in violation of any well-spacing requirements specified therein. 1360 Further. 1363 805 Ky. the nature thereof. 1:100 (2010).escape of oil and gas from one pool into another. or.” 1368 If applicable. the name of the party requesting the hearing. Any rule. Ann. 1366 Id. or into mineral bearing stratum. 1:100 (2010).” 1361 The Act expressly prohibits production from any well without a valid permit. Kentucky.550.670(1). Admin. the Commission will provide personal notice by registered mail to certain parties potentially affected by the action sought. the interest of the applicant [therein]…the action sought. 1365 Id. and all other aspects of well operation and production. § 353. Rev. Regs. regulation or order “other than those of general…statewide effect” may be adopted only after notice and a hearing. §§ 434.” 1365 Unless otherwise stated. (LexisNexis 2010). 1:100 (2010). the Department has the authority and duty to regulate “the spacing or locating of wells. 1369 1360 1361 Id.520(3). all hearings will be held in Lexington. 1366 Notice of a hearing must be published in accordance with state administrative law.” 1364 An application to initiate a hearing may be filed with the Department to provide a brief and concise written statement of “the matter upon which [Department] action is desired. 1368 805 Ky. the action sought. seq. and the reasons therefor. 1367 See Ky. Stat. § 353. Regs. 1362 Id. 265 . 1363 The Department may act upon its own motion. Admin. Admin. see also id.

“and in the event no suit is filed within the thirty-day period. the hearing will commence within 30 days of filing. § 353. Rev. or in the Franklin Circuit Court. 1378 An operator may not produce from any deep well without first filing and application and obtaining a certificate of compliance from the Department. Stat. 1379 The application must provide such information necessary to establish that the operator has complied with all rules and 1370 1371 Id. copies of which are receivable into evidence in all state courts. deep wells are permitted and regulated under the formation of drilling units.510(19).700(2). 1372 Ky. 1370 The Department will issue an order or take other necessary action no more than 30 days following the hearing’s conclusion.670(4) (LexisNexis 2010).1372 Any person aggrieved by a Department order may appeal to “the circuit court of the county in which the premises or any portion thereof affected by the order is located.” 1377 Pursuant to this duty.” 1373 Any appeal must be brought within 30 days of the relevant order’s entry. 1378 Id. Rev. § 353.”1376 After notice and a hearing. Ann. 1375 Id. the Department has a duty to regulate the location of deep wells “as to reasonably prevent avoidable net drainage…so that each owner in a pool shall have the right and opportunity to recover his fair and equitable share of the recoverable oil and gas in such pool.651(1). the Department will establish drilling units for each pool in order to prevent waste. 1374 Id.651(1) (LexisNexis 2010). 1377 Ky. 1371 All entries all are maintained by the Department as public record. Id. Stat.” 1374 In Kentucky. § 353. § 353. 1375 A “drilling unit” is the “maximum area in a pool which may be drained efficiently by one well so as to produce the reasonable maximum recoverable oil and gas in such area. 1379 Id. and avoid unnecessary drilling. the order shall be final. 1373 Id. § 353. Ann. protect correlative rights. 266 . 1376 Id.Once the Department receives a valid application.

1382 The Department may create and enforce special rules applicable to a particular pool or field.560(1). . pool. the Department may force owners to pool or unitize if certain criteria are met. Id. § 353. and. . Ann.610. 1383 In the absence of special rules. 1384 Id. as a unit. . § 353. [a] Spacing Rules. 1383 Ky.” or “the well may produced without violating the correlative rights of any owner in the unit. or area .565(9). The Department regulates the location and spacing of wells throughout the state. and also grants the Department the authority to compulsorily pool or unitize separately-owned interests under certain conditions. 1381 Pursuant to that power.651(1) (LexisNexis 2010).” 1385 In the absence of such agreements.regulations governing oil and gas conservation in the state. the Department has enacted rules to provide uniform boundary and distance standards for each class of wells. and for establishing . a plan for the cooperative development and operation thereof. 1380 1381 Id. 267 . 1385 Id. § 353.…or have been pooled [either] by voluntary agreement or [Department] order. The Act supports the ability of owners and/or operators to voluntarily pool and/or unitize their respective interests “for the purpose of bringing about the development and operation of [a] field. Kentucky law recognizes voluntary pooling and unit operating agreements. § 353. .” 1380 [4] – Process for Pooling and Matters Covered. 1382 Id. 1384 [b] Authority to Integrate Production. Rev. one of the following conditions is satisfied: (1) “all working interest in the drilling [or proposed] unit are identically owned. spacing restrictions are governed by general statewide regulation. Stat.

the Department will order pooling if either: (1) the operator has secured the written consent of owners holding no less than 51 percent of operating interests in the relevant area. 1391 Id.” 1391 This published notice must: 1386 1387 Id. an operator’s application for a pooling order must provide “a list…of all persons reasonably known to own an oil or gas interest in any tract. or reopen a well that would require the pooling of interests as above. § 353. Ann. the Department may order.630(1). or portion thereof.630(1). . after notice and a hearing.If a separately-owned tract of land is so situated that it is impossible to locate a well thereon without violating spacing requirements. proposed to be pooled is located. with all like interests in a contiguous tract or tracts . one notice in the newspaper of largest circulation in each county in which any tract. 1388 Id. as [is] necessary to afford the pooled tracts one location” for such drilling.” 1387 If one of these conditions is satisfied. proposed to be pooled. the operator must publish. or portion thereof. the Department may issue the permit and “require the development and operation of all pooled acreage as a single leasehold estate. . “at least 20 days prior to the hearing. “the pooling of all oil and gas interests in the separate tract . Stat. .640(1) (LexisNexis 2010).” 1389 The Department will not issue an order until after it has provided such owners with notice and held a public hearing to consider pooling of their interests. § 353.630(2)-(3). 268 . 1390 Id. deepen. 1386 Upon an operator’s application to drill. Id. included in the proposed pooled acreage. . . § 353. § 353. .” 1388 For an existing well. deepening or reopening in compliance with spacing rules. Rev. (2) the operator “owns or controls the right to develop the oil and gas underlying 100% of the interests each tract. or portions thereof. 1390 In the event that relevant owners are unknown or unable to be located. . or. 1389 Ky.

Id. (d) In the case of an non-locatable owner. § 353. including a reasonable charge for supervision. (2) Designate the operator to drill and operate the well. (5) Make provision for the payment of the reasonable actual cost thereof. § 353. by all those who elect to participate therein. or reopening. identify the owner and owner’s last known address. by all owners of operating interests in proportion to the net mineral acres in the pooled tracts owned or under lease to each owner. deepening. and abandoning the well shall be borne. Ann. identify the name of the last known owner. (4) Provide that all reasonable costs and expenses of drilling. and. 1393 Any person who has transferred his or her to oil and gas rights under a lease or other contract is not considered an owner requiring notice. Rev. and the completing. proposed to be pooled. 1395 1392 1393 Id. In particular. (3) Prescribe the time and manner in which all owners of operating interests in the pooled tracts or portions thereof may elect to participate therein. 1394 Id. 269 . and the operation of a well for the production of oil or gas on the tracts or portions thereof pooled. the order must: (1) Authorize the drilling. 1395 Ky. § 353. plugging. and.640(2). 1392 A pooling order must provide certain information to govern the development and operation of the pooled area.(a) State that an application for a pooling order is being filed …. or reopening.640(7) (LexisNexis 2010).640(6). (e) State that any party claiming an interest in any tract. Stat. operating. and all production from the well shall be shared. 1394 A certified copy of a pooling order may be recorded in the clerk’s office of any county or counties in which all or a portion of the pooled area rests. or portion thereof. proposed to be pooled should contact the operator at the published address and provide a copy of the notification [to the Department] within 20 days of the date of publication. or portion thereof. deepening. (c) In the case of an unknown owner. (b) Describe any tract.

operating. 1399 Id.651(2).651(1). Id. . and. “for the production of oil and associated gas in order to increase their ultimate recovery . by all owners of operating interests in proportion to the acreage in the pooled tracts owned or under lease to each owner. the Department may “enter an order pooling all tracts or interests in the drilling unit for the development and operation thereof and for the sharing [of] production therefrom.” and a hearing is held. . 1398 Id. (2) Designate the operator to drill and operate such deep well. § 353. (5) Make provision for payment of all reasonable costs thereof. completing. including reasonable charge for supervision and for interest on past due accounts. and in particular must: (1) Authorize the drilling and operation of a deep well for the production of oil or gas from the pooled acreage. or upon the application of a lessee or owner within a proposed unit. equipping. and all production therefrom shared.” 1397 In the alternative. 270 .” 1399 A pooling order must establish “just and reasonable” terms to govern the operation.The Act also provides specific procedure for pooling particular to deep wells. 1398 After notice is given “to all persons reasonably known to own an interest in the oil or gas in the drilling unit. the Department may hold a hearing to consider the necessity for unit operations of all or part of a pool. multiple owners may voluntarily “pool their tracts or interests for the development and operation of the drilling unit. plugging. any operator having an interest in the drilling unit may file an application to request a pooling order. 1400 By its own motion. § 353. (3) Prescribe the time and manner in which all owners of operating interests in the pooled tracts or portions of tracts may elect to participate therein. so that each owner in the [unit area] shall have the opportunity to recover his fair and equitable 1396 1397 Id. 1400 Id. 1396 In this case. by all those who elect to participate therein. (4) Provide that all reasonable costs and expenses of drilling. and abandoning the deep well shall be borne.

The Department may require an application fee from the applicant for the cost of notice.645(3). (b) A statement of the nature of the unit operations contemplated. 1401 1402 Ky. § 353. § 13B. . deepening. reopening. to be included within the unit.645(1) (LexisNexis 2010). (c) Approve a unit operating agreement. 1402 A unitization hearing will be conducted under the terms of state administrative procedure. conversion to injection wells. 1405 Id.” 1401 An application for proposed unit operations must provide the following: (a) A description of the area to be included in the unit. 1403 Id.645(2). § 353. Id.share of . and operation of all wells within the unit for the production of oil and gas from the unit: (b) Designate the unit operator of the operation. § 353. (d) Provide for the allocation of production and reserves among all separately owned tracts and interests in the unit. 1405 If granted. 1403 The Department will provide notice “to all persons reasonably known…to be a lessee or owner of an oil and gas interest in a pool or pools within a proposed unit. 1404 Id.” 1404 After notice and a hearing. (e) Documentation that the application is approved by at least [51%] ownership in the interests proposed for inclusion in the unit. or portions thereof. or. (d) The procedure upon which wells and equipment of the separately-owned tracts and interests are to be used and compensated for in unit operations. (c) A proposed allocation of production and reserves among the separately owned tracts and interests contributed to the unit. and a description of the pool or pools. the Department will enter an order “establishing a unit and requiring unit operation and development” thereof if: (1) unitization is reasonably necessary to increase ultimate recovery and the estimated value of additional recovery exceeds to additional cost of unit operations. including drilling.008 et seq.. Rev. 271 . a unitization order must: (a) Authorize the unit operation of a pool or pools. Ann. and. (2) unitization is needed to prevent waste and protect correlative rights of owners in the unit area. . with a map attached. see also id. oil and gas [therein]. Stat.

Ann.652(1).645(6)-(7) (LexisNexis 2010). the Department will provide notice “to all persons reasonably known to own an interest in the oil or gas in the pool. Ky. § 353. and is economically feasible. (2) the proposed unit operating plan will increase oil and gas recovery from the pool.652(2). 1410 Id. § 353.640(3). 1408 Id. § 353. Upon the application of “any operator in a deep well pool” productive of oil and/or gas. §§ 353. 1406 Any pooling or unitization order must offer information outlining the rights and obligations of any owner who does not desire to participate in the joint operation. 1408 A unitization order will only be granted if the Department finds that: (1) unitization is reasonably necessary to prevent waste. the Department must also receive written consent to the unitization agreement by the owners of at least “75% in interest as production is to be allocated of the royalty in the unit area. Rev.” and conduct a hearing to determine whether a compulsory unitization order should be issued. 272 . Stat. (3) the production of oil and gas “from the unitized pool can be allocated in a manner to insure the recovery by all owners of their just and equitable share of the production.(e) Provide for the proportionate allocation of all reasonable costs and expenses of unit operations as these costs and expenses are set out in the approved operating agreement. 1407 The Act also provides specific provisions governing unitization of interests within a drilling unit. 353. 1409 Id. 1411 Id.” 1411 [c] Modifications and Exceptions. both the unitization agreement and “a contract incorporating the required arrangements for operations” must be approved by owners of “at least 75% in interest as costs are shared under the terms of the order.” 1410 Further.” 1409 Prior to entering the order.652(1). and (f) Establish the spacing approved for the unit. 1406 1407 Id. and.

” 1414 This modified distribution scheme will “supersede and be in lieu of the allocation of production provided for in any previously-established unit [order]. Rev. the Department must re-allocate production among the several owners in the enlarged unit area “in proportion to the contribution of [each] tract or interest to the unit during the remaining course of unit operations.652(3). the Department may amend or vacate an order to establish a unit upon “a demonstration by affected persons of a significant change of circumstances supporting the amendment. or pay the cost thereof. for the benefit of others in the pool.” 1416 An new or amended order to alter the scope of an existing unit will only be effective if: (1) such enlargement and any conditions thereto are stated in the existing unit agreement and duly satisfied. 1414 Id. § 353. If one or more working interest owners in a pooled tract drill and operate. the Department may provide notice and conduct a hearing to “enlarge [a] unit area by approving agreements [which incorporate] a pool or any portion or combinations thereof not previously included. as well as 75 percent of royalty interests therein.645(8) (LexisNexis 2010). Stat. 1415 Id.” 1413 Further.645(8).After notice and a hearing. 1417 Id.” 1412 Any amendment to enlarge the unit area must “be agreed upon in writing by documented owners of at least a 51% ownership in the interests in the pool or pools in the unit. and (2) the owners of tracts to be added approve the order with the same 75 percent threshold of interests sharing in costs. § 353. Ann. Ky. 1417 [d] Allocation of Production and Costs. 1416 Id. 273 . upon extending the size of a unit. § 353. such paying owner or owners are entitled to the 1412 1413 Id. 1415 Similarly.” and become effective as of the date specified in the supplementary order for amendment.

650(1). § 353.” 1424 This allocation will be “in the proportion that the separately-owned tracts share in the production from the unit.652(2) (LexisNexis 2010). 1422 Id. Ky.” 1426 In the absence of such agreement. the Department will order that such expenses be shared in the same proportion as the operating costs. Ann.650(1) (LexisNexis 2010). and “intangible drilling costs. § 353. 1421 All operations related to a deep well that occur on any portion of a drilling unit for which a pooling order or agreement exists “shall be deemed for all purposes the conduct of those operations upon each separately owned tract in the drilling unit by the several owners thereof. § 353. Ann.” 1423 A final unitization order must designate one operator as “unit operator” and provide for the “proportionate allocation to all operators of the costs and expenses of the unit operation. “[t]hat portion of the production allocation to a separately owned tract included in a drilling unit shall. 1418 The paying owners are only entitled to recover “until such proceeds equal the sums payable by or charged to the interest of the [non-paying] owner. be deemed for all purposes to have been actually produced from the tract by the deep well drilled thereon. “any operator who has not 1418 1419 Id. this is exclusive of royalties under an existing lease. § 353. which will determine and apportion such costs as it sees fit. equipment. 1420 Id. 274 . 1423 Id. or the statutory default of 1/8th. plus a reasonable charge for interest on such sums. 1425 Id. Rev. 1424 Ky. Stat. including a reasonable charge for supervision.651(2).” 1419 Any dispute over the actual costs of developing or operating a well will be resolved by the Department. § 353. 1421 Id. 1420 As noted below. 1426 Id. Rev. § 353.650(2). when produced.” 1425 The operators may agree on how to share the costs of capital investments in wells.” 1422 As such. however.650(1). Stat.proceeds from the share of production accruing to the interest of non-paying owner(s).

” 1427 Applicable only to deep wells. 1429 Id. 1432 Id. § 353. 1433 Id. either for himself or for himself and others. Stat. to the extent such owner is not an operator” as defined therein. 1430 An “operator” is defined to include “any owner of the right to develop.] or the value thereof[. the Act provides that “[e]ach operator shall have the right to take in kind its share of any oil or gas produced from any [unitized] drilling unit or pool. 1433 However. a “royalty owner” is “any owner of oil and gas in place. § 353. they are entitled to a production share of such non-paying owners. completing and operating costs.” 1429 [e] Royalty Distribution. 1431 Id. except out of the proceeds from the sale of the production accruing to the interest of the operator [and] exclusive of any royalty or overriding royalty interest. Under the Act. or oil and gas rights. Id. . Ann.510(18) (LexisNexis 2010).] if he has not paid his share of drilling. the owner thereof is “considered as ‘operator’ to the extent of [seven-eighths] of the oil and gas in that portion of the pool underlying the tract owned by [said person].” 1428 Each operator is responsible for the expenses related to such taking “and pay or account to the unit operator for the oil or gas[. or to the cost of capital investments .510(17).650(1).consented to the unitization shall not be required to contribute to the costs or expenses of the unit operation. and as ‘royalty owner’ as to [one-eighth] interest in such oil and gas.” 1431 In situations involving unleased rights to oil and gas.” 1432 If owners pay operating costs for the benefit of other owners in a pool. this is “exclusive of any royalty 1427 1428 Id. 1430 Ky. 275 . § 353. operate and produce oil and gas from a pool[.] and to appropriate the oil and gas produced therefrom. § 353. Rev. .653.

1986 Ky. 1435 Ky. gas is defined as “all natural gas. App. § 353.reserved in any lease or leases in [the tracts of non-paying owners]. a “shallow well” is one “drilled and completed at a depth less than 4. Mineral Corp. 1436 Id. Kentucky law provides significant variation based on proposed or actual well depth.5 percent of the well’s total production. which are produced in liquid form by ordinary production methods and which are not the result of condensation of gas after it leaves the underground reservoir.000 1434 See. v. e. Rev. LEXIS 1457 (Ky. is duly “authorized and shall not be held or construed to violate any [Kentucky] laws relating to trusts. Ann. 1437 Id. including casinghead gas. when approved by the Department. monopolies.” 1435 § 18. 1986). . .g. For example. restraint of trade. or exclusive of 1/8th of [the] production attributable to all unleased tracts or portions thereof.02 Types of Kentucky Pooling Statutes. Under the Act. 717 S. the assignor who held a one-eighth overriding royalty interest was only entitled to 60 percent of said interest. the default spacing requirements are different based upon the mineral produced from a given well. § 353.” The proceeds from an oil pool must be apportioned according to each person's contributions to the total production from the pool.565(9) (LexisNexis 2010). Rice Bros.” 1437 As discussed below.W. 276 . Under the Act. An agreement among owners to voluntarily pool or unitize interests. where the property under the lease comprised only 60 percent of a pool. regardless of gravity. [1] – Mineral Distinctions.” 1436 Oil includes “natural crude oil or petroleum and other hydrocarbons.510(8). and all other hydrocarbons not [otherwise] defined as oil. Talbott. or 7. § 353. or .510(7). App. [2] – Split by Depth.. 1434 [f] Agreements Not Restraint of Trade.2d 515. Stat. Ct.

§ 353.feet. § 353. or. 1441 Ky. well spacing is governed by statewide regulation. 1:100 (2010). 1441 The Department will not issue any permit or authorization to drill or operate a well that violates applicable spacing requirements unless through documented exception. Admin. 1:030 (2010). Stat. shallow wells are those which are completed at a depth less than 4. whichever is deeper. determines that drilling and producing at the proposed location does not violate the public policy concerns stated in the Act. Ann. [if so located]. below 4. (2) the Department. Id. non-pooled tracts that overlie separately owned minerals. 1443 [a] Shallow Oil Wells.” 1438 If located east of longitude line 84 degrees 30 minutes.000 feet. 1443 805 Ky. a “deep well” is “any well drilled and completed below the depth of 4. 1438 1439 Id.000 feet or below the base of the lowest member of the Devonian Brown Shale. the majority of these standards vary based the depth of a well and the mineral(s) produced therefrom.” 1439 Thus.651(1) (LexisNexis 2010). In addition to distance requirements for all wells. 1442 Id. shallow well restrictions are based on minimum setbacks from boundaries of adjacent. while deep well spacing is regulated by drilling unit size. § 353. 277 . In the absence of special rules. One exception is a uniform restriction that no oil or gas well may be drilled within 150 feet of any building unless: (1) a waiver of objection the proposed well location is executed by the owner(s) of any building within that distance. or “above the base of the lowest member of the Devonian Brown Shale. 1442 As provided below. Admin. Regs.610. Regs.510(15).” 1440 [3] – Spacing Rules. after notice and a hearing.000 feet or. whichever is deeper. 1440 805 Ky. Rev.

1444 In addition.000 feet deep. § 353.No shallow oil well may be located nearer than 330 feet from the nearest mineral boundary of the premises upon which the proposed operations are to occur.000 feet from the nearest producing gas well within the same pool. 1452 1444 1445 Ky. shallow gas wells must be at least 1.750 feet if the well is to be drilled less than 7. Ann.610(1) (LexisNexis 2010). 1452 Id. Ann. § 353. 1451 Id. 1451 If the well is to exceed 7.610(3).000 feet in depth. § 353. 1449 [c] Deep Oil Wells.610(2). The default drilling unit size for a proposed deep oil well is a square unit with sides of 1. 1447 Id. Stat. No shallow gas well may be located within 500 feet of the nearest mineral boundary of the premises of which said well is to be drilled. Id. 1448 Id.510(3).1445 The Act provides less-restrictive spacing rules for shallow oil wells “completed at a depth of less than 2. in that case. the well may not be drilled within 766 feet of any unit boundary.610(2) (LexisNexis 2010). § 353. Rev. 1450 A deep oil well may not be located within 536 feet of the boundary of the drilling unit on which it rests. Rev. 1446 Id. 1447 [b] Shallow Gas Wells.500 feet.” and. any such wells must be at least 660 feet from the nearest oil producing well within the same pool. § 353.] and the formation from which the oil is expected to be extracted is not appreciably affected by factors…other than natural drainage. 1450 Ky. Stat. deepened or reopened. 278 .000 feet where there are no workable beds of coal at lesser depths[. may be not less than 400 feet from the nearest oil well producing from the same pool. the unit size shall be a square with sides of 2.” 1446 A well fitting these criteria “shall be at least 200 feet from the nearest boundary of the premises upon which the well is to be drilled.1448 Further. 1449 Id.

or.500 feet if the proposed depth is less than 7.[d] Deep Gas Wells. the unit shall be a square with sides of 5. deepened or reopened closer to a boundary than prescribed [above] if a pooling order has been issued” for that unit area. 279 . Upon application for a permit to drill or operate a well that is “closer to a boundary or to another well” than otherwise allowed.620(3) (LexisNexis 2010). Further.000 feet.] or topographical conditions are such as to make the 1453 1454 Id. an existing pooling order will only exempt a proposed well from applicable boundary restrictions. Stat. 1457 Id. The Department may grant exceptions to these spacing requirements for a number of reasons. an exception may be provided if. a well located in accordance with the statewide rules could not reasonably be expected to be productive[. the Department may issue the permit upon receiving “the written consent of all owners of oil and gas interests in the adjacent premises directly affected by the prescribed boundary distances…[and] which will be offset by the proposed well. 1454 If drilling will be in excess of 7. 1456 Ky. the Department finds evidence to determine that “a proposed…or previously formed unit is partly outside of the pool. Id. A proposed drilling unit for a deep gas well is a square with sides of 3.000 feet and the well may not be nearer than 1.” 1456 The Department may “issue a permit for a well to be drilled. 1453 A deep gas well limited to that depth must be at least 1. Rev. for some other reason. 1455 [e] Modifications and Exceptions.072 feet from any unit boundary. § 353. 1457 Sensibly.000 feet deep.610(2) (LexisNexis 2010).532 feet of the boundary. 1455 Id. not from rules relating to distance between wells. after notice and a hearing. Ann. § 353.

000 feet or more may be located no closer than 1.000 feet may be located no closer than 438 feet to the boundary of the proposed unit. 1462 A “wildcat well” refers to either (1) “a deep well drilled with the intent of discovering and producing hydrocarbons from a formation or formations not previously productive of oil or gas[. 1461 Ky. 280 .” 1458 If an exception is sought due to potentially burdensome topographical conditions. if completed successfully. § 353. upon granting such exception. Stat. an approved location must comply with the following limitations for deep wells: (1) A deep oil well at a depth less than 7.000 feet of its location.drilling at such a location unduly burdensome.610(3)(d) (LexisNexis 2010). Ann.000 feet may be located no closer than 875 feet to the boundary of the proposed unit. Rev.” or. produce from a 1458 1459 Id.] from a well within 25. 1460 The Act acknowledges that default spacing regulations to not apply to lands within an incorporated municipality which. Id. by ordinance. 1462 Id. even though located less than 25. will not.000 feet or more may be located no closer than 625 feet to the boundary of the proposed unit.250 feet to the boundary of the proposed unit. the Department must offset any resulting advantage in order to properly protect the correlative rights of other owners or units within the pool. the operator seeking such must establish that the Department is able to effectively offset any advantage that may accrue by virtue of the exception being granted. (2) A deep oil well at a depth of 7. 1459 In turn. has minimum requirements that are “not less than [those] prescribed [herein]. 1460 Id. (4) A deep oil well at a depth of 7.” 1461 Notwithstanding an exception to default spacing rules being granted.000 feet from the nearest deep well previously productive of oil or gas. (2) “a well drilled under such proven geological conditions that. (3) A deep gas well at a depth less than 7.

281 . Id. 1469 805 Ky. 1466 A greater percentage of approval is required to unitize tracts or interests for deep wells. 1:100 (2010). “every well shall be drilled in such a manner that at any measured depth the actual or apparent location of the well bore [is] within a circle whose center 1463 1464 Id. 1467 Ky. Prior to issuing an order for unit operations. 1469 Unless so authorized. 1466 Id. Stat. the Department must find that “a contract incorporating the unitization agreement has been…approved by the owners of at least 75% in interest as costs are shared under the terms of the order[.652(1)(d) (LexisNexis 2010). Ann. 1468 Id. Rev. As discussed in above. § 353. Regs. 1465 Id.630(2). Admin.” 1463 In the event that a deep well “encounters a formation or pool as to which it is not a wildcat well. the Department may grant a pooling order without such formal consent if the application is filed by the operator owning exclusive drilling rights in the lands to be pooled. the Department must find that “a contract incorporating the required arrangements for operations [must be] approved by the owners of at least 75% in interest as costs are shared.” 1468 [5] – Directional Drilling. 1464 [4] – Minimum Operator Control. 1465 In addition. the Act states that the validity of any pooling or unitization agreement or order requires the written consent of owners comprising at least 51 percent of the rights to oil and gas within the proposed area.” such may only produce from such pool if otherwise in compliance with spacing regulations for other wells in that formation or pool. § 353.previously productive pool. A well may not be intentionally deviated from the vertical without Department authorization.] and by 75% in interest as production is to be allocated of the royalty in the unit area. § 353.” 1467 In addition.630(3).

1472 Id. and one or more owners remain unable to be identified or located at the close of the hearing. and must still “comply with all minimum distances from unit lines as prescribed by all statewide orders or applicable field orders.640(3) (LexisNexis 2010). § 353. the interest to a participating operator on a reasonable basis and for a reasonable consideration. 1475 Id. 1475 If the Department enters a pooling order.” 1474 The Act specifies that “[a] person whose interest is subject to an oil or gas lease or other agreement which grants to another the right to operate or conduct operations shall not own an operating interests” for the purposes of election rights. 282 .640(6).640(4).” or. and shall not be entitled to make the election” as provided above. by means of sale or lease. § 353. 1470 1471 Id. Any pooling order must establish a procedure for a working interest owner who does not become a participating operator of the pooled acreage.087156. exclusive of 1/8th of the production attributable to the unleased interest. 1473 Ky. Rev. 1476 Similarly. Ann.” 1472 [6] – Options. such absentee owners “shall be deemed to have elected to lease [their] interest[s] to the…operator.” 1470 The actual or apparent horizontal deviation of the well bore may not exceed 5 degrees at any depth. 1474 Id. § 353. 1473 Such an owner may either: “surrender. Stat.is the surface location and whose radius is equal to the measured depth multiplied by a factor 0. Id. 1471 An application to deviate from the vertical must provide extensive surveys as specified in the Department regulations. if an owner does not make an election within 30 days of the order’s entry. “share in the operation of the well as a non-participating operator on a carried basis after the proceeds allocable to his or her share equal 200% of the share of costs allocable to his or her interest. 1476 Id.

shall be determined by the Department. Id. 1478 A unitization order must provide for the proportionate allocation of costs of unit operations as set out in the approved unit operating agreement.” or. Ann. any person disputing an 1477 1478 Id.645(7) (LexisNexis 2010). and if the owner of the operating interest does not make an election under the pooling order. 1480 Id. § 353.645(7).640(5).645(6).” 1481 If a dispute arises as to the costs of operating and developing a unit. to the participating owners on a reasonable basis and for a reasonable consideration. § 353. costs must “be allocated among all participating owners of operating interests who elect to participate in the proportion that the separately-owned tracts and interests. Rev. 1480 As such. shall be determined by the Department to be just and reasonable. (2) “elect to participate in the development of the unit on a carried basis on terms and conditions which. the holder of the operating interest shall be deemed to have elected to share in the operation of the well on a carried basis after the proceeds allocable to his or her share equal 200 percent of the share of the costs allocable to his or her interest. 283 . 1481 Id. then the department shall determine and apportion the costs within ninety (90) days after the date of written notification to the department of the existence of the dispute. which if not agreed upon. if not agreed upon. a unitization order must provide “just and equitable alternatives” whereby a working interest owner who does not elect to participate in the risk and costs of unit development may elect to: (1) “surrender his interest. or a portion of it.he or she “shall be deemed to have leased the oil or interest to the…operator” in the same manner. § 353. 1477 If a holder of an operating interest has obtained the interest by lease or other agreement granting the right to conduct operations to anyone other than the holder of the oil and gas estate. 1479 Moreover. 1479 Ky. however. § 353. Stat.

(2) participate in the operations “on a limited or carried basis on terms and conditions which [are]…just and reasonable. 1484 Id. the Act presumes such exclusion is one-eighth of his entitled production. a pooling order must provide “just and equitable alternatives” by which a working interest owner who does not wish to participate in the risk and cost of the drilling of a deep well may elect to: (1) surrender his interest to participating owners “on a reasonable basis and for a reasonable consideration. § 353. for deep well pooling. 1482 Upon request from any such party.651(2).” 1483 In the event that such owner elects to be carried by an operator. Id.645(7).” 1484 1482 1483 Id. however.” or. If such nonparticipating owner’s interest is not subject to any lease. the operator who incurs costs “shall be entitled to the share of production…accruing to the interest of the nonparticipating owner. Carrying agreements provide a key difference between wells of varying depths: for shallow wells. § 353. that entitlement continues until the market value of the carried owner’s production “equals two times the share of costs payable by or charged to the interest of the nonparticipating owner. 284 . exclusive of any royalty or overriding royalty” reserved in any existing lease agreement. the participating owners are entitled to the other’s production until the market value (exclusive of royalty) of that production equals costs payable for such expenses.actual or proposed expenditure shall file notice of the disputed costs within one (1) year after notice of the actual or proposed expenditure was received by the person filing the dispute.

Ann. The CBM Board is comprised of five members. the significance of coal production to Kentucky’s economy prompted the legislature to codify statutes particular to the coalbed methane regulation in 2004 (collectively. Stat. 285 . 1489 Id.055. 1485 The CBM Act created the Coalbed Methane Well Review Board (“CBM Board”) within the Department of Natural Resources to directly regulate coalbed methane development. respectively. (3) the promotion of commercial development of coalbed methane throughout the state.§ 18. (4) the protection of “correlative 1485 1486 See Ky. [1] – Name of the Governing Body. § 349. 1487 Id. Although the Kentucky Oil and Gas Conservation Act discusses issues relevant to the protection of coal rights. §§ 349.060(4). and the director of the Division of Oil and Gas. 1488 [3] – Scope of Authority. and issue orders relating to the development and production of coalbed methane within the state. 1488 Id. and. 1489 The Board must conduct its procedures pursuant to the public interest stated in the CBM Act. 1487 The two additional CBM Board members are appointed by the governor for four-year terms and are representatives of the oil and gas industry and coal industry. which include: (1) the preservation of coal seams for safe mining. Rev. the director of the Division of Mine Reclamation and Enforcement. § 349.055(2).005 et seq (LexisNexis 2010). (2) the facilitation of expeditious and safe evacuation of coalbed methane from Kentucky’s coal reserves.03 Analysis of Kentucky Regulatory Framework—Coalbed Methane. three of which are from within the Department: the Department commissioner. “CBM Act”). Id. 1486 [2] – Membership on the Governing Body. The CBM Board may promulgate rules and regulations. § 349.

rule or regulation promulgated [under the CBM Act]. or tends to cause. or reopened in a manner that causes. In addition. or contrary to any provision of. (d) The unlawful damage to underground. operating or producing of any coalbed methane well or wells drilled.” 1490 The CBM Board is authorized to rule on objections to proposed location or operation of coalbed methane wells and appeals of coalbed methane well permit denials made by the Department. and. Stat. production or handling of coalbed methane. the CBM Board conducts hearings under the CBM Act. fresh or mineral water supply. Committing or inducing waste of coalbed methane is statutorily prohibited. 1490 1491 Ky. Ann. except for secondary recovery purposes. Rev. (b) Permitting the migration of coalbed methane from the stratum in which it is found into other strata. Id.035(2). or other mineral deposits in the operations for the discovery. or in hydraulic fracturing or other completion practices. and coalbed methane industry. thereby ultimately resulting in the loss of recoverable coalbed methane. deepened. including those for drilling unit applications. a reduction in the quantity of coalbed methane ultimately recoverable from a pool under prudent and proper operations.rights of coalbed methane operators…and owners in a pool…so that each operator and owner obtain his or her just and equitable share of production. requests for pooling or unitization orders. 286 . and the adoption of special field rules. development. (c) The drowning with water of any stratum or part thereof capable of producing coalbed methane in paying quantities.005(4) (LexisNexis 2010). § 349. drilling. § 349. 1492 Id. coalbeds. 1492 “Waste” includes “physical waste as that term is generally understood in the oil. equipping.060(1). 1491 [a] Matters Governed.” as well as: (a) The locating. § 349. gas. (e) The unnecessary or excessive loss of coalbed methane by spillage or venting or destruction of coalbed methane or its constituents. or any order.

(d) The location of any other existing or permitted coalbed methane well or any oil or gas well located within [1. and. the earliest date for Id.160(7). See id.” 1494 [b] Department Procedure. and the names of all oil and gas owners from the surface to [100] feet below the deepest penetration of the coalbed methane well on the tract on which the well is proposed to be located. (e) The outside boundary of the mineral tract from which the coalbed methane is to be produced if within [750] feet of the well. Id. § 349. unless otherwise stated therein. the acreage of the drill site tract.] or to limit production to market demand. 1493 Similar to Kentucky’s Oil and Gas Conservation Act. the earliest date for commencement of drilling. the names of the surface owners of adjacent tracts. § 349. (b) The name of the surface owner of the drill site tract. the CBM Act does not “authorize any limitation of production of coalbed methane from any coalbed methane well. 1495 Id. the names of all coal interest holders from the surface to [50] feet below the deepest penetration of the coalbed methane well on the tract on which the well is proposed to be located. drilling unit. 1494 1493 287 .160(5). field or property to prevent or control economic waste[. No person may conduct operations to extract or produce coalbed methane in the state without first obtaining the applicable permits. relative to [2] permanent points or monuments that appear on the applicable United States Geological Survey [7½] minute topographic quadrangle map. To avoid confusion. 1495 A drilling permit application must include an attached plat displaying: (a) The county in which the coalbed methane well drill site is located.(f) The drilling of more wells than are reasonably required to recover efficiently the maximum amount of coalbed methane from a pool. (c) The proposed or actual location of the coalbed methane well determined by bearing and distance. § 349. pool. the legislature clarified coalbed methane regulation is subject only to the provisions of the CBM Act.035(5). lease. (f) The number to be given the coalbed methane well.500] feet of the well.

§ 349. Ann.010(28). shooting. if the operator fails to supply the Department with an agreement to stimulate. 1501 In addition. Id.015(1) (LexisNexis 2010). acidizing. Rev.” 1499 If a coal interest holder objects to a well permit for proposed stimulation.commencement of any stimulation of the coalbed methane well. coal owners. including but not limited to fracturing.050(1). 1498 Provided that relevant conditions stated in the CBM Act are met. 1496 The applicant must also provide notice of the application and a copy of the plat to all relevant surface owners. 1501 Id. § 349. but excluding cleaning out. and if horizontal drilling of a coalbed methane well is proposed.050(2). 1499 Id. The CBM Act defines “stimulat[ion]” as “any action taken to increase the flow of coalbed methane. Stat. § 349.” 1500 However. the vertical and horizontal alignment and extent of the coalbed methane well. he or she may request a hearing before the Board by filing an affidavit that provides: (1) a statement that the coal interest holder Ky. which will be heard and considered by the CBM Board. or workover operations. or other agreement. deed. 1497 Such notice must inform the relevant parties that each has twenty days from receiving notice to file an objection to the proposed well. the Department will not issue a permit allowing such practices “unless the applicant has obtained…an agreement between the coal interest holders of any workable coalbed within 500 horizontal feet of the proposed coalbed methane well to be stimulated and within the 500 foot horizontal radius and 50 vertical feet above or below the workable coalbed…to be stimulated. and permitted operators noted therein. 1498 Id. such proof is not required if the operator has a contractual right to develop and stimulate by virtue of an existing lease. bailing. § 349. 1500 Id. and no objection is filed within twenty days. § 349.” Id. or the inherent productivity of a coalbed methane well. § 349. the Department will “immediately issue a drilling permit to the well operator[.015. 1497 1496 288 .] approving the location of the well and authorizing the well operator to proceed to drill at that location. or waterflooding.020(4).

Id. haulageway. shaft. the CBM Board will determine whether the Department should issue the permit. 1504 In deciding whether to grant the permit. squeezes. 1502 1503 Ky. the CBM Board will consider the following factors applicable each proceeding: (a) The declaration of public policy and legislative findings as set forth in this chapter. drainageway or passageway. 1504 Id. § 349. or in close proximity to an existing or planned pillar of coal. airway. Stat. or to any proposed extension thereof. taking into consideration the dangers from creeps. (3) a statement that the proposed method of stimulation does not involve the use of explosives.065(3). (2) a statement detailing the efforts undertaken by the operator to obtain such consent. (e) Whether the drilling location is above or in close proximity to any mine opening. or impair mine safety. and. (d) Whether any stimulation of the workable coalbed will have a significant adverse affect on the mineability of that workable coalbed or any other workable coalbeds within [500] feet of the proposed coalbed methane well to be stimulated or within the [500] foot horizontal radius and [50] vertical feet above or below the workable coalbed proposed to be stimulated or impair mine safety. operating coal mine or any coal mine already surveyed and platted but not yet being operated. Ann. Rev. (b) Whether the proposed coalbed methane well can be drilled safely.008 et seq. 289 . travelway. taking into consideration the surface topography. 1502 The CBM Board conducts proceedings under the administrative rules codified in Ky. Rev.has refused to sign a written agreement to stimulate the workable coalbed.050(4) (LexisNexis 2010). pose a significant adverse affect on the mineability of the workable coalbed. 1503 Upon an objection to a permit application. entry. (f) Whether the proposed drilling can reasonably be done through an existing or planned pillar of coal. § 349. and may include any conditions needed to ensure safe and equitable production from the well. any abandoned. or other disturbances due to the extraction of coal. Stat. §§13B. (g) The extent to which the proposed drilling location interferes with the safe recovery of coal or coalbed methane. (c) The feasibility of moving the proposed drilling location to another location.

establish or modify field rules. Ann. The order also provides the CBM Board’s recommended action. Id. and granting modifications or exceptions thereto.065(4). 1508 Ky. 1509 Id. enforcing general orders.” and file it with the Department. Stat. 290 .060(1).065(5). 1509 If possible.(h) The extent to which the proposed drilling location will unreasonably interfere with present or future coal mining operations. and compulsorily pool such interests for the joint development of coalbed methane wells. § 349. (i) The technology and methods proposed for the safe and efficient recovery of coal and coalbed methane. and. 1507 Id. drilling units will be uniform in size and shape for an entire 1505 1506 Id. § 349. (l) Any other factor the review board determines would be considered consistent with [the CBM Act]. The CBM Act authorizes the CBM Board to establish and modify drilling units. The CBM Act defines a “drilling unit” as “the maximum area in a pool which may be drained efficiently by one well so as to produce the reasonable maximum recoverable coalbed methane in the area. the Board may “establish or modify drilling units. pools or fields” in order to prevent waste or protect correlative rights. or unitize coalbed methane wells.070(1). § 349. § 349. 1505 The CBM Board will “enter a written order containing findings of fact and conclusions which address any [of these] considerations. (k) The surface topography and use. 1507 [a] Drilling Units. (j) The practicality of locating the coalbed methane well out of a uniform pattern with other wells.010(10) (LexisNexis 2010). which may include issuing permits. assist in the enforcement of voluntary pooling agreements of separately-owned interests therein. § 349. Rev.” 1508 Upon its own motion. 1506 [4] – Process for Pooling and Matters Covered. or upon the application of an operator or owner of coalbed methane.

(e) Evidence relevant to the proper boundary of the drilling unit. (g) Whether the applicant for the drilling unit proposes to be the operator of the coalbed methane well within the drilling unit. and the need for proper ventilation of any mines or degasification of any affected coal seams. the Board will consider the following factors in making its determination: (a) The area which may be drained efficiently and economically by the proposed coalbed methane well or wells and the spacing requirements of Section 349. § 353. the estimated cost of submitting by each such person for drilling. that drilling units conform to mine development plans. operating and marketing the coalbed methane from any proposed coalbed methane well or wells. (k) The correlative rights of the operators and owners of coalbed methane. so that each operator and owner may obtain his or her just and equitable share of production from the coalbed methane.075. relevant evidence to determine which operator can properly and efficiently develop the coalbed methane within the drilling unit for the benefit of the majority of the coalbed methane owners. (c) The nature and character of any coal seam or seams which will be affected by the coalbed methane well or wells. (b) The plan of development for the coal. and. 1511 1510 1511 Id. (l) Any other factor the review board determines should be considered consistent with KRS Chapters 350 and 352. whether the applicant has a lease or other agreement from the owners or claimants of a majority interest in the proposed drilling unit.pool or field.070(2). (f) The nature and extent of ownership of each coalbed methane owner or claimant and whether conflicting claims exist. (i) If more than one person is interested in operating a coalbed methane well within the drilling unit. 291 . 1510 Upon request for the creation or modification of a drilling unit or applicable field rules. and if so. and if so. completing. (d) The surface topography and mineral boundaries of the lands underlaid by the coal seams to be included in the unit. (h) Whether a disagreement exists among the coalbed methane owners or claimants over the designation of the operator for any coalbed methane well within the drilling unit. Id. (j) Any other available geological or scientific data pertaining to the pool which is proposed to be developed. and this chapter.

coalbed methane lease. pools or fields. 1515 Id. field rules or unitizing coalbed methane wells. § 349. Rev. § 353. the CBM Board will “enter a written order containing findings of fact and conclusions which address any relevant considerations” and file an order with the Department which: (1) establishes or modifies a drilling unit. (2) refuses to establish or modify a drilling unit. 292 . 1513 Certain exceptions may be granted to default spacing rules due to necessary modifications to drilling units if the considerations above dictate such changes. Id. pools or fields. § 349. 1514 Ky. 1512 [b] Spacing Rules. coal lease. 1517 Id. §353.045(1).Like drilling permits. Owners or operators holding separately owned interests in a tract or tracts that are embraced within a single drilling unit “may pool their interests for the development and operation of the drilling unit by voluntary agreement. or (3) attaches certain conditions to the establishment or modification of a drilling unit. 1516 [c] Authority to Integrate Production. § 353. The Board will not issue a permit for coalbed methane well operations unless the proposed location complies with statutory spacing requirements. pools or fields.070(2). 1515 Pursuant to legislative direction under the CBM Act. the Board is charged with enacting regulations particular to horizontal coalbed methane wells. Ann.070(2) (LexisNexis 2010). spacing rules may be varied under a voluntary pooling agreement. or similar instrument. Stat. 1516 Id.” 1517 These agreements may be exercised based on the right to pool or unitize as “granted in any gas or oil lease.070 (3). field rules or unitization of coalbed methane wells. or unitization of coalbed methane wells. field rules. 1514 Further.” 1518 1512 1513 Id. 1518 Id.075.

“at least 20 days prior to the hearing. Ann.” 1522 The Department will provide notice to all relevant owners listed.” 1524 This notice must: (a) State that an application for a pooling order is being filed with the CBM Board. 1523 Id. 1519 1520 Ky. the CBM Act clarifies that pooling orders subject to disputed ownership may only be issued if the proposed pooled well location complies with the spacing rules set out above. 1519 No pooling order will be issued with respect to a certain tract upon which a well is to be located unless request to pool is made prior to commencing drilling operations. and the CBM Board will hold a hearing to consider pooling. 293 . in any tract upon which the coalbed methane well will be located[. § 349. § 349. 1520 Further. If a pooling request comes from a proposed operator or working interest owner.] and all coal interest holders. 1524 Id. the Department may to issue a drilling permit and pool the separately owned interests within the proposed drilling unit. proposed to be pooled is located. any owner or operator may make a formal request to the Department to issue a pooling order. Stat. 1523 In the event that relevant owners are unknown or unable to be located.080(3).] from the surface to a depth of 100 feet below the base of the deepest coal seam to be penetrated. or portion thereof. § 349. 1521 Id. the applicant must publish. The applicant must provide the Department with “a list of all persons reasonably known to own an oil or gas interest[.…one notice in the newspaper of largest circulation in each county in which any tract. the application must also include a reasonable bond or other security determined by the CBM Board. 1521 Pursuant to such conditions.In the absence of voluntary agreement. Rev.085(1) (LexisNexis 2010). Id. 1522 Id.080(2).

identify the name of the last known owner. (c) In the case of an unknown owner. proposed to be pooled should contact the permit applicant at the published address and provide a copy of the notification to the CBM Board within 20 days of the date of publication. (g) Whether the applicant for the drilling unit proposes to be the operator of the coalbed methane well or wells within the drilling unit. Stat. Ann. the CBM Board weighs the following factors that it considers applicable to the proceeding: (a) The area which may be drained efficiently and economically by the proposed coalbed methane well or wells and the spacing requirements of Ky. (e) State that any party claiming an interest in any tract. and if so. (b) The plan of development of the coal and the need for proper ventilation of any mines or degasification of any affected coal seams. identify the owner and owner’s last known address. 294 . and the ownership of the right to produce coalbed methane is in dispute. the Department will refer the application to the CBM Board to consider the issuance of a pooling order for the well. (d) In the case of a non-locatable owner. (d) The surface topography and mineral boundaries of the lands underlaid by the coal seams to be included in the unit. whether the applicant has a lease or other agreement 1525 1526 Ky. 1525 Whenever a permit applicant proposes to drill or conduct operations. or portion thereof. 1527 In making its determination. proposed to be pooled.(b) Describe any tract. Id. Rev.080(1). the Department will issue a permit and require the development and operation of all pooled tracts and interests as a single leasehold estate in accordance with the pooling order.075. Stat. (c) The nature and character of any coal seam or seams [that] will be affected by the proposed coalbed methane well or wells. § 349. § 349. and. Rev. (e) Evidence relevant to the proper boundary of the drilling unit. 1526 If the CBM Board finds pooling reasonable. 1527 Id.080(3) (LexisNexis 2010). § 349. (f) The nature and extent of ownership of each coalbed methane owner or claimant and whether conflicting claims exist. or portion thereof.

1530 If granted. 1528 The CBM Board will render a decision to grant or deny a pooling order. deepening. or reopening. Rev. and marketing the coalbed methane from any proposed coalbed methane well or wells. operating. the estimated cost submitted by each such person for drilling. 1529 The CBM Board will then file this written order with the Department to grant or deny the pooling order. (j) Any other available geological or scientific data pertaining to the [proposed] pool … to be developed. Each pooling order will: (1) Authorize the drilling. 350 and 352. and enter a written statement of factual findings to support its ruling. deepening. and if so. relevant evidence to determine which operator can properly and efficiently develop the coalbed methane within the unit for the benefit of the majority of the coalbed methane owners. (k) The correlative rights of the operators and owners of the coalbed methane. (3) Prescribe the time and manner in which all owners of working interests in the pooled tracts or portions thereof may elect to participate therein. operating. so that each operator and owner may obtain his or her just and equitable share of production from the coalbed methane. 1530 Id. Stat. and the operation of a well for the production of coalbed methane on the tracts or portions thereof pooled.085(3). and the completing. §§ 349. (4) Provide that all reasonable costs and expenses of drilling. a coalbed methane pooling order must provide information to govern the development and operation of the pooled area.085(2). 295 . plugging. (l) Any other factor the CBM Board determines should be considered consistent with Ky. Id. which may be conditioned upon any issues the CBM Board proposes. (2) Designate the operator to drill and operate the well.from the owners or claimants of a majority interest in the proposed drilling unit. § 349. § 349. (i) If more than one person is interested in operating a coalbed methane well within the unit. (h) Whether a disagreement exists among the coalbed methane owners or claimants over the designation of the operator for any coalbed methane wells within the unit. or reopening. completing. and. 1528 1529 Id.

In general. Rev. § 349. 1532 Any person who has transferred his or her to rights to coalbed methane under a lease or other contract is not considered a working interest owner for notice purposes. and. and all production from the well shall be shared. 1534 Id. 1533 Id.085(10). by all owners of working interests in proportion to the net mineral acres in the pooled tracts owned or under lease to each owner.085(4) (LexisNexis 2010). § 349.085(9). which are discussed in the following section. the order must also establish “an interest-bearing escrow account to be maintained by the Department. including a reasonable charge for supervision. 1531 A pooling order must also establish a procedure for election rights for owners who do not wish to participate in the operation.and abandoning the well shall be borne. 296 . 1536 Id.” 1536 The escrow account will “receive deposits and hold payments for costs and proceeds attributable to the conflicting interests” in the following manner: (a) Each participating working interest owner.” 1535 If pooling is ordered despite ownership disputes. the coalbed methane produced from any pooled well is “deemed for all purposes to have been so produced from each tract or portion thereof included in the pool in proportion to the amounts established in the pooling order.080(4).085(5). 1533 A certified copy of a pooling order may be recorded in the clerk’s office of any county or counties in which all or a portion of the pooled area rests.085(8). 1534 [d] Allocation of Production and Costs. Ann. § 349. § 349. shall deposit in the escrow account the owner’s proportionate share of the costs allocable to the ownership interest claimed by each participating working interest owner as set forth in the pooling order. (5) Make provision for the payment of the reasonable actual cost thereof. § 349. § 349. and. except for the unit operator. by all those who elect to participate therein. Id. 1531 1532 Ky. Stat. 1535 Id.

after distribution of amounts described in paragraphs (a). Ann. (f) All amounts remaining in escrow. 1537 The Department will order payment of principal and any accrued interest from the escrow account to all parties entitled thereto within 30 days an agreement among all claiming an ownership interest.085(10) (LexisNexis 2010). and. 1537 1538 Ky. but only to the extent that the costs and expenses described in subsection (10)(b) of this section have not been recouped from production proceeds. and (e) of this subsection. the Department’s final determination will provide the allocation of production and costs as follows: (a) Each legally entitled participating working interest owner shall receive a proportionate share of the proceeds attributable to the conflicting ownership interest. (c) Each person leasing or deemed to have leased its coalbed methane ownership interest to the unit operator shall receive a share of the royalty proceeds as set out in the applicable pooling order attributable to the conflicting interests of the lessees.085(11). § 349. 1538 Unless otherwise consented to by such voluntary agreement among actual or potential owners. (d). less the cost of being carried as a nonparticipating working interest owner as determined by the election of the person under the applicable pooling order. (c). (b) Each legally entitled nonparticipating working interest owner shall receive a proportionate share of the proceeds attributable to the conflicting ownership interest. (b). 297 . § 349. (e) Each participating working interest owner who is determined not to hold an ownership interest shall receive a refund of all amounts placed in escrow pursuant to subsection (10)(a) of this section plus interest earned thereon. or royalty owners and all proceeds in excess of the recovery of all capital costs and expenses and all ongoing operational expenses including reasonable overhead costs and operating fees attributable to conflicting working interests.(b) The unit operator shall collect all proceeds from the sale or use of coalbed methane and deposit in the escrow account all proceeds attributable to the conflicting interests of lessors. Stat. Id. or a final determination of entitlement made by the Department. Rev. (d) The unit operator shall receive the costs contributed to the escrow account by each legally entitled participating working interest owner. lessees.

the owner thereof is “considered as an ‘operator’ to the extent of 7/8th of the coalbed methane in that portion of the pool underlying the tract owned by that owner.04 Types of Kentucky Pooling Statutes—Coalbed Methane.shall be distributed to the legally entitled participating working interest owners in proportion to their interests. operate and produce coalbed from a pool[. Ann. The CBM Act states that “no voluntary pooling agreement between or among coalbed methane operators or owners shall be held to violate the statutory or common law of the Commonwealth which prohibits…[any act] in restraint of trade or commerce. 1541 Absent a coalbed methane lease with respect to a certain tract.045(2).010(20). to the extent such owner is not an operator” as defined therein. §§ 349. Stat. 1544 Id.” 1544 § 18. 1540 An “operator” is defined to include “any owner of the right to develop. 1543 [f] Agreements Not Restraint of Trade. 298 . Id. 1543 Ky. and as a ‘royalty owner’ as to 1/8th interest in that coalbed methane.” either for his own benefit. or by terms stated in a pooling order to govern the escrow account as described above. [1] – Mineral Distinctions. § 349. § 349. or for the benefit of himself and others. 1539 [e] Royalty Distribution.085(10)-(11) (LexisNexis 2010). 1542 Id. 1539 1540 Id.” 1542 Royalty owners are entitled to receive the royalty under their respective leases. Rev.] and to appropriate the coalbed methane produced therefrom. 1541 Id. § 349. The CBM defines a “royalty owner” as “any owner of coalbed methane in place.010(27). or oil and gas rights.

” 1549 Thus. § 349. 1547 [3] – Spacing Rules. a mined-out area. Under applicable permitting rules. § 349. However. no existing well may deepened beyond the depth provided in the permit without Department approval. The CBM Act does not make distinctions based on actual or proposed well depth.010(3). Regs. the Department may require that two vertical coalbed methane wells be subject to more or less stringent spacing requirements. 1546 [2] – Split by Depth. 299 .500 feet from the nearest coalbed methane well. some level of protection exists in the form of broad notice 1545 1546 Id. § 349. 1547 805 Ky. under its general authority to modify drilling unit size.The CBM Act applies only to coalbed methane production. Unless otherwise established by special rule or pooling order. coalbed methane wells are subject to statewide spacing rules. 1549 Id. “unless the Department orders that a different spacing distance shall apply.075. 9:060 (2010). The Department will not issue a permit to drill or operate a vertical coalbed methane well that is to be located nearer than “750 feet horizontally from the nearest mineral boundary upon which the well is to be drilled. the proposed location must be at least 1. Admin.” 1545 This includes gas taken from both workable and unworkable coalbeds. The CBM Act does not provide minimum percentage requirements needed for approval of pooling orders. 1548 Id.010(4). Id. which is defined therein as any “gas produced from a reservoir found in a coalbed. [4] – Minimum Operator Control. or gob.” 1548 In addition.

” 1553 [6] – Options. Stat. Rev.010(15). shaft. the intersection of the well bore and the producing formations. the interest to a participating operator on a reasonable basis and for a reasonable consideration. A pooling order must establish a procedure for an owner who claims a “working interest” in pooled acreage but “does not decide to become a participating working interest owner. Ann. (b) Share in the operation of the well as a non-participating working interest owner on a carried basis after the proceeds allocable to his or her share equal 200% of the share of costs allocable to his or her interest.” 1552 As noted above. 1553 805 Ky. which if not agreed upon will be one-eighth of the production attributable to the well. Admin. 1552 Id.…and operating…a well equal to the proportion which the acreage in the drilling unit he or she owns or holds under lease bears to the total acreage of the drilling unit.requirements to all oil. 9:070 (2010).”1554 This owner has two options under the CBM Act. 300 . Rev. Regs. 1551 The CBM Act defines “horizontal drilling” to include any “intentional act of drilling a borehole. 1555 Id. 1555 1550 1551 Ky. § 349. 1550 [5] – Directional Drilling. Ann. Stat. Id. The CBM Act defines “participating working interest owner” as “a coalbed methane owner or lessee who elects to bear a share of the risks and costs of drilling. or. 1554 Ky. and may either: (a) Surrender. its end point. as well as the Board’s consideration of ownership disputes at a pooling hearing. The Department has established more extensive plat requirements to be submitted with an application for a permit of a horizontal well. § 349.085(5) (LexisNexis 2010). § 349.085(1)-(2) (LexisNexis 2010). by means of sale or lease. horizontal wells must comply with spacing requirements as measured by “the actual drilled course of the well. or hole.” Id. which deviates from the vertical for the purpose of penetrating a coal seam to produce coalbed methane. §§ 349.010(22). and coal owners of proposed pooled tracts. gas.

such an owner “shall be deemed to have elected to lease the interest to the coalbed methane operator. 301 . 1557 These presumptions and election rights only apply to those parties holding coalbed methane interests not subject to a lease or other agreement that grants the right to operate and produce to another party. § 349. 1558 1556 1557 Id.085(8).085(6).085(7). 1558 Id.A coalbed methane owner or claimant who remains unable to be identified or located at the close of the hearing. an owner who does not make an election within 30 days of the order’s entry “shall be deemed to have leased the coalbed methane interest to the…operator” in the same manner. and shall not be entitled to make the election” as provided above. 1556 Further. Id. exclusive of [one-eighth] of the production attributable to the unleased interest. § 349. § 349.

Kramer . §§ 30:4(D). 1560 La. Stat. 1562 See Bruce M. fill the office by appointment for the unexpired term. but other times there is a distinction between the two designations. the terms “Commissioner” and “Assistant Secretary” are used interchangeably. 1566 [3] – Scope of Authority. 36:806. Stat. Kramer . The Louisiana Office of Conservation (“OC”) has primary responsibility for the regulation and conservation of oil. Ann. 1559 The OC was made a part of the Louisiana Department of Natural Resources (“DNR”) in 1983. The Law of Pooling and Unitization § 30. It appears that. The Commissioner of Conservation is the principal state official dealing specifically with pooling and unitization issues. 1561 La. 2007). 302 . § 30:1(A). and other natural resources. 30:5(C) (2011).gov/ (last visited May 27. The OC is directed and controlled by a Commissioner of Conservation (“Commissioner”). see Bruce M. in addition to the generalities of oil and gas conservation. 1563 La. http://dnr. 1564 Id. Rev. the Governor shall. 1566 See La. 1562 [2] – Membership on the Governing Body. 1565 The Assistant Secretary of the Office of Conservation (“Assistant Secretary”) also has authority similar to that of the Commissioner. for a term of four years. 1559 See Office of Conservation. Stat. § 30:1(C). 1560 The jurisdiction of the OC consists of all natural resources of the state that are not within the jurisdiction of other state departments or agencies. with the consent of the Senate. 1563 The Commissioner is appointed by the Governor.18A (3d ed. with the consent of the Senate. 1565 Id. 1564 In the event of a vacancy. Ann. Rev. Rev.18A (3d ed. Department of Natural Resources State of Louisiana. 2011). Stat. Ann. The Law of Pooling and Unitization § 30. Rev. Stat.01 Analysis of Louisiana Regulatory Framework. 2007). gas. [1] – Name of the Governing Body.§ 19. on some occasions. Ann. Ann.louisiana. § 30:359(D) (2011) (“The State Department of Conservation…is transferred to and hereafter shall be within the Department of Natural Resources as provided in Rev. 1561 including oil and gas.”).

§ 30:4 (B). Stat.1. Rev. operating. see id. § 30:3(1). and the location. His authority and jurisdiction extend to “all persons and property necessary to enforce effectively the provisions of this Chapter and all other laws relating to the conservation of oil or gas. § 30:3(1) (a)–(c) (2011). Id.” 1568 Rules and regulations promulgated pursuant to La. after appropriate notice and a hearing. the Commissioner has the authority to make “any reasonable rules. or tending to cause. § 30:4 (C). 1571 Id. may be found in Title 43 of the Louisiana Administrative Code. equipping. § 30:4. the producing of oil or gas from a pool in excess of transportation or marketing facilities or of reasonable market demand. drilling. 1570 “Waste.” 1567 Additionally. drilling. 303 . 1572 La. 1572 1567 1568 Id. or producing of an oil or gas well in a manner that results. is defined to be “physical waste” as it is generally understood in the oil and gas industry.” in addition to its ordinary meaning. excessive. Ann. spacing. or improper use or dissipation of reservoir energy. operating. regulations. The Commissioner specifically has jurisdiction over waste. and orders that are necessary for the proper administration of this Chapter. For laws regarding underground injection control. and (3) the disposal. or tends to result. Stat. in reducing the quantity of oil or gas ultimately recovered from a pool. § 30:2. 1569 Id. storage or injection of any waste product in the subsurface by means of a disposal well. (2) the inefficient storing of oil. § 30:4(A). 1569 which is strictly prohibited by Louisiana law. Rev. Ann. unnecessary or excessive surface loss or destruction of oil or gas.The Commissioner has broad authority under the OC. and the location. spacing. 1570 Id. 1571 This general understanding includes: (1) the inefficient. § 30:1 et seq. equipping. or producing of an oil or gas well in a manner causing.

1579 The Commissioner may even designate a new well operator where a well is not being operated in order to prevent waste. productive of oil or gas. 1580 [4] – Process for Pooling. check. 1580 See EnerQuest Oil & Gas. to hold hearings. 1577 to limit and prorate the production of oil and/or gas from any pool or field. Rev. tanks. 1575 Included within his jurisdiction is the authority to establish drilling units. LLC v. or in 1573 1574 Id. papers. § 30:4(C)(11) (2011). 1577 Id. Asprodites. 1576 to compulsorily pool owner’s oil and/gas interests. and modes of transportation. 304 . leases. 1578 and to regulate the spacing of wells. 1573 In doing so. books. to require the submission of an emergency phone number by which the operator may be contacted in case of an emergency. the Assistant Secretary is authorized to enter an order requiring unit operation of any pool or combination of two pools in the same field. to examine. and gauge oil and gas wells. survey. § 30:5. Ann. to make investigations and inspections. 1579 Id. 1576 Id. to examine properties. 30:9(B). 4/2/03). Upon the application of any interested party.The Commissioner is required to make inquiries to determine whether or not waste exists or is imminent. the Commissioner has the authority: to collect data. 2d 535. water. or both. §§ 30:5.0822 (La. § 30:10(A)(1). unitization and consolidation of oil and gas tracts and/or leases. test.1(C)(13). to provide for the keeping of records and the making of reports. [a] Establishing Drilling Units by the Assistant Secretary. 02.1(C) (13). App. Stat.1(C). and records. or any other extraneous substance. 1574 For the purpose of preventing waste. § 30:5. § 30:4(B). 843 So. 1 Cir. in connection with the institution and operation of systems of pressure maintenance by the injection of gas. 1575 Id. the Commissioner may regulate the pooling. and to take any action as appears reasonably necessary to enforce this chapter. 1578 La. refineries. Id.

305 . but can be from any well within the field. § 30:5. that cited section provides authority to the Commissioner rather than the Assistant Secretary. Ann. The provisions of this Section are intended to and shall affect presently existing units.1(E). 1586 Id. Id. Ann. Id. Stat. as deep oil and gas pools are addressed in a separate action. or a correlative sand outside the field but in the general area of the proposed unit. Ann. § 30:3(6). had been developed to an extent and where conditions exist making it impracticable or unreasonable to use a drilling unit at the present stage of development. or even an adjacent one. 1584 This process impliedly applies to shallow wells. § 30:5 also provides the Assistant Secretary certain powers regarding establishing and regulating units.connection with any program of secondary or tertiary recovery. Rev. the Commissioner is required to establish a drilling unit or units for each pool. § 30:9(B) (2011). 1588 Brent G. Ann. Note that the tests providing such evidence do not have to be in the same reservoir. 1585 A “drilling unit” is defined as the maximum area that may be efficiently and economically drained by one well. Oil & Gas Development and Unitization Laws in Various States 27 (March 2010). Rev. however. as stated above. Rev. § 30:5. § 30:9(B). § 30:5(C)(1)(a). Ann. That section states that it does not in any way modify the authority granted to the Assistant Secretary in La. 1585 See La. Stat. Sonnier. as deep oil and gas pools are addressed in a separate section. 1587 Id. “[E]xcept for those pools which.” the Commissioner has traditionally taken the position that it does not have jurisdiction to form a unit unless there is evidence that the interval is productive. 1586 A “pool” refers to an underground reservoir containing a common accumulation of crude petroleum oil or natural gas or both. § 30:9(B). Stat. 1583 [b] Establishing Drilling Units by the Commissioner. 1583 See La.” Id. Stat. Stat. 1581 The Assistant Secretary is also empowered to require the unit operation of a single pool in any situation where the ultimate recovery can be increased and waste and the drilling of unnecessary wells can be prevented by such unit operation. available at http://www. Stat. § 30:5(C)(1)(b). Ann.hadoa. Rev. In order to prevent waste and to avoid the drilling of unnecessary wells. prior to July 31.org/publications/2010. Rev. 1940.1. Id. Rev.1. Note that La. 1582 This process impliedly applies to shallow wells. 1584 La. 1587 Due to this definition of a “pool. § 30:9. 1588 1581 1582 La.

2d 376 ( holding that the Commissioner of Conservation has authority to issue any order necessary to ensure that the owner of each tract be given the opportunity to recover his equitable share of the gas in a compulsory unit). whether it be the total which could be produced without any restriction on the amount of production. plugging back or deepening operations are being conducted on a well to secure or restore production from the pool for which the unit(s) was 1589 1590 La. any unit established by the Commissioner shall remain in full force and effect so long as: (1) a well is producing from the pool for which the unit(s) was established. 1589 In determining the location. § 30:9(D). 86-0190 (La. Stat. 516 So. extended or otherwise modified. or (3) drilling. Rev. recompletion. reworking.The Commissioner also has the authority to establish the location at which a well may be drilled upon a drilling unit. (2) a well is completed in the pool for which the unit(s) was established. the Commissioner must also fix the well at a location so that the producer thereof shall be allowed to produce no more than his just and equitable share of the oil and gas in the pool. or whether it be an amount less than that which the pool could produce if no restrictions on amount were imposed. which is substantially in the proportion that the quantity of recoverable oil and gas in the developed area of his tract or tracts in the pool bears to the recoverable oil and gas in the total developed area of the pool. 1592 Mineral owners are also entitled to their equitable share of production. Id. 1593 See Amoco Production Co. 306 . and the Commissioner may issue orders to ensure that each owner is able to so recover. although not producing. 9/17/87). Thompson. in so far as these amounts can be practically ascertained. and shall provide for the unit well to be located at the optimum position for the most efficient and economic drainage of the unit. 1590 However. v. and. § 30:9(C) (2011). 1 Cir. has been proved capable of producing. the Commissioner shall consider all available geological and engineering evidence. 1592 Id. 1591 Id. App. 1591 A producer’s “just and equitable share” is defined as …that part of the authorized production of the pool. Ann. 1593 Unless sooner terminated.

§ 30:9.1 (D). reworking. each of the following items are true: (1) a period of five years has elapsed without any production from the unit. the Commissioner may. or deepening operations having been conducted on a well located on the unit in an attempt to obtain or restore production from the pool for which the unit was established. 1598 This includes the power to amend the acreage of a previously established drilling unit. (2) there is no well located on the unit which is capable of producing from the pool for which the unit was established. as of the date of the application for termination. 307 . recompletion. Id. § 30:9. 1598 Id.1 (C)(1)–(4). terminate all units within the pool. 1596 Units may also be terminated by request. 1594 If none of the above conditions have occurred within a time period of one year and ninety days.developed. v. 1597 Id. The Commissioner may. upon application and by order issued after ten days notice. Hussey. by order issued after 10 days legal notice. That issue was addressed in Monsanto Chemical Co. 102 So. plugging back. no public hearing is 1594 1595 La. 1958). 2d 255 (La. v. 1596 Id. Co.1(A)(1)–( 3) (2011). terminate any unit or units when he finds that. rules and regulations as he finds necessary or appropriate to carry out the provisions of the Act. Rev. § 30:9. § 30:9. issue. Hussey. 1599 Absent any objection to such an order. amend and rescind such orders. Ann.1 (B). (3) a period of one year and ninety days has elapsed without any drilling. 1597 The Commissioner has the authority to prescribe. Stat. 1595 required. where the Louisiana Supreme Court held that the Commissioner has the authority to issue an amendatory order increasing the acreage of previously established units to govern the production of gas and condensate. and (4) there is no unexpired drilling permit for the drilling of a new well on the unit to a depth which could penetrate the pool for which the unit was established. 1599 Monsanto Chem.

S. Ann. Holt.(2) (2011). 1941). 1604 Alexander. 87 So. 615 (La. 308 . 1603 La. Ann. 1605 Id. 1601 This limitation to one well has been held to be a valid exercise of the State’s police power. § 30:9(A)(1). 1959) (“[E]ach well is ordinarily limited to one well for developmental purposes. Rev. and thus had expired and prescribed.R. (2) occasion net drainage from a tract unless there be drilled and operated upon the tract a well or wells in addition to the well or wells thereon that can without waste produce the tract’s just and equitable share of the production of the pool. Rev. See Alexander v. App. his mineral servitude had been tolled. see also Childs v. 2d 111 (La. 2d at 532. 1600 1601 La. 2d 532. Stat. & P. V. by virtue of a voluntary unitization agreement. 2d 647 (La.”). 116 So. Holt. 1602 See Robinson v. his authority is expressly subject to the prohibition that any action taken by the Commissioner may not: (1) make it necessary for the producer from. see also Sohio Petroleum Co. defendant Holt sold to plaintiff Alexander a tract of land. at 532–534. Horton. § 30:9(B) (2011).R. or. Plaintiff contended that the mineral reservation had not been used for over ten years. 1603 An example of the Commissioner exceeding his authority can be found in Alexander v. Wash. 2d. the unit is considered a “developed area. or whether it simply approved of the voluntary unitization agreement. or the owner of. so as to toll the ten-year liberative prescription limitation. Defendant countered that. 1604 In that case. a tract of land in the pool. v. The issue at bar was whether the effect of the Commissioner’s Order was to integrate or force pool the entire area. Stat. 1605 Ultimately.. which was approved by the Commissioner of Conservation.Once a producing well is located on a unit. 1602 Although the Commissioner has broad authority. 2 So. 62 So. 116 So. reserving to himself a mineral servitude. the Court held that the Commissioner’s Order was merely an approval of the voluntary agreement and could not function to institute a compulsory unit. in order that he may obtain the tract’s just and equitable share of the production of the pool…to drill and operate any well or wells on the tract in addition to the well or wells that can without waste produce this share. 1952). Ct.” 1600 The effect of a unit being a “developed area” is that no other well can be drilled on the unit into the same pool. 1956).. 534 (La.

1606 When a well is drilled within such a unit. 1607 In Alexander. or tolling. the liberative prescription as to each individual tract of minerals located in the unit because each unit is ordinarily limited to one well in the interest of preventing waste. at 534. App. 1610 Id. 1956). The Court previously considered Order 96—G in Hunter v.Where forced pooling is directed by an Order of the Commissioner. 2d 532. 1611 1606 1607 Id. finding that in the said Order. 309 . including defendant Holt. 536 (La. Holt’s voluntary action in signing the unitization agreement was merely voluntary. and thus he was powerless to extend his mineral servitude.” 1608 The present Court was in “full accord” with this finding. Hussey. ordering the integration or forced pooling of the area was not a proper exercise of the Commissioner’s power under La. at 536–37. Id. Holt. 116 So. of the mineral holders in the area of interest. Stat. Ann. even with the Commissioner’s approval. at 537. 1608 Id. This voluntary agreement was then approved by an Order of the Commissioner of Conservation. 1611 Id. was no more than a voluntary act. 432 (La. but not all. at 535–36 (citing Hunter v. 2d 429. 1609 Alexander v. Rev. known as Order 96—G. 1959). Ct. Ct. § 30:9(A) because the signing of the voluntary unitization agreement. App. 90 So. and held that “there was no integration or forced pooling of the area involved or contemplated by the voluntary agreements. the Commissioner “specifically disclaimed authority to institute a compulsory water injection secondary recovery program” and further provided that no person not a party to the Unit Operating or Unitization Agreements would become subject to such agreements providing for a field-wide water injection secondary recovery program. Hussey. the owners of an established drilling unit must pool their interests. it has the effect of interrupting the running. a voluntary unitization agreement was entered into by most.” 1609 In other words. 1610 Therefore.

Creslenn Oil Co.. When two or more separately owned tracts of land are embraced within a drilling unit established by the Commissioner pursuant to La. Ann. 1952)). 181 So.. 181 So. App. 1617 Id. appeal denied. 1614 which held that an operating agreement executed by working interest owners that provided for the allocation of their interests on the basis of surface acreage did not conflict with was not superseded by a Commissioner’s order that created field-wide units and allocated production on by a ‘60/40 formula’ (60% based on productive acre feet and 40% on productive surface area). Kramer. 2d 74 (La. § 30:9(B). Creslenn Oil Co. 2d 223 (La. v. v. Natural Gas Producing Co.. 1612 where it was held that although the Commissioner’s pooling order could allocate to each tract its pro rata share of production. Oil and Gas Law § 941. Stat. Martin & Bruce M. 2d 9 (La. Ann. v. Gas Producing Co. Martin & Bruce M. 182 So.2 (MB 2008). Williams & Meyers. 1966).. S.Another example may be found in Monsanto Chemical Co. landowners may voluntarily agree to pool their interests. (citing Ark.2 n. 1613 Monsanto was followed by Southwest Gas Producing Co. 1614 Sw. Natural Gas Co. Sw.3 (MB 2008). Gas Producing Co. 1616 Sw. § 30:10(A) (2011).. 2d 63 (La. 181 So. La.. 1618 However. 1615 See 6 Patrick H. See 6 Patrick H. see also Sw. 1965). 2d at 67. Rev. 60 So. Co. 1615 This was true because the action of the Commissioner recognized the distribution of production in accordance with any agreement in effect prior to the effective date of the field-wide unit agreement. Rev.. v. 1618 La. Stat. Gas Co. v. Kramer. it was beyond the Commissioner’s authority to determine who was entitled to that production under the terms of voluntary agreements. Oil and Gas Law § 941.” 1617 [c] Compulsory Pooling by the Commissioner. 1958). 2d at 67. Gas Producing Co. Williams & Meyers. 310 . even if there is no voluntary pooling 1612 1613 Monsanto Chem. Southern Natural Gas Co. 1616 “Private contractual rights are only superseded when they are in conflict with the valid orders of the Commissioner of Conservation. 102 So.

we can find no ground for distinction in its application to a field-wide unit such as that created by the Commissioner in this case.02[3] (MB 2008). Rev. Ann. 1952) (“Although the statute relates to drilling units. La. 1622 Id. 1624 In the event that owners of separate tracts embraced within a drilling unit fail to agree upon the pooling of the tracts and the drilling of a well on the unit. Stat. 1621 These must also be made upon just and reasonable terms and conditions that afford the owner of each tract the opportunity to recover his just and equitable share of the oil and gas in the pool without unnecessary expense. Rev. § 30:10(A)(1)(a). Louisiana law provides the Commissioner the authority to compulsorily pool their interests “if he finds it necessary to prevent waste or to avoid drilling unnecessary wells. The Court has held that this subsection is also applicable to fieldwide units created by the Commissioner. 1625 La.. 1619 The language of the statute provides “little direction [to] the Commissioner in issuing compulsory pooling orders except that they must be just and reasonable. Ann. 1623 The portion of the production allocated to each owner shall. 68 (La. 1623 La. 1620 1619 311 . § 30:10(A)(1)(a). 1622 Additionally. see Ark. 1625 The allowable production therefrom shall be the proportion allowable for the full unit as the area of the separately owned tract bears to the full drilling unit.. Stat. Stat. Martin & Bruce M. Oil and Gas Law § 10. § 30:10(A)(1)(b) (2011).”). Ann. Williams & Meyers. Gas Co.” 1620 All orders requiring pooling shall be made after notice and hearing. 2d 9. Kramer. 1621 La. 181 So. 6 Patrick H. 1626 [d] Pooling by the Assistant Secretary. Id. Ann. Gas Producing Co. the order must prevent or minimize reasonable avoidable drainage from each developed tract that is not equalized by counter drainage. Sw. § 30:10(A) (1).agreement. v. be considered as if it had been produced from his tract by a well drilled thereon. § 30:10(B). Rev. and should it be established by final and irreversible judgment of the court that the Commissioner is without authority to require pooling. Rev. 1626 Id. Stat. 1624 La. when produced. then the owner of each tract so embraced may drill thereon.

the Assistant Secretary has the right to unitize.Where a reservoir is of sufficient size and characteristics that more than one well is necessary to efficiently and economically drain it. available at http://www. 1631 Brent G. available at http://www. Oil & Gas Development and Unitization Laws in Various States 27 (March 2010). Stat. 1630 Id. without needing to obtain subsequent orders for substitute or alternate well approval.org/publications/2010.org/publications/2010.hadoa. the Assistant Secretary should consider all available geological and engineering evidence. 1634 Id. this type of unit is also available in those cases if the requisite statutory requirements can be met. 312 . § 30:5(C)(2)(c). 1627 Although not necessary for primary recovery operations. Sonnier. or where gas injection pressure maintenance or enhanced recovery projects are appropriate. 1631 In making an order. and the order shall be based on the fact that it is reasonably necessary to prevent waste or drilling of unnecessary wells. Stat. pool and consolidate all separately owned tracts and other property ownerships. 1628 Id. 1629 La. 1632 The proposed unit operation must be economically feasible. § 30:5(C). the Commissioner has the authority to create a single. Ann. Stat. Sonnier. “reservoir-wide” unit. Rev. 1633 Id. 1629 Any such order may be issued only after notice and hearing. 1634 1627 Brent G. Rev. Oil & Gas Development and Unitization Laws in Various States 27 (March 2010). § 30:5(C)(4). 1630 Reservoir units authorize the operator to complete as many unit wells as necessary. Ann. Rev. 1633 The order must also provide for the allocation to each separate tract within the unit of a proportionate share of the unit production to insure the recovery by the owners of that tract of their just and equitable share of the recoverable oil or gas in the unitized pool or combination of two pools. Ann. § 30:5(C)(2) (2011).1628 In connection with a unit operation under La. § 30:5 (C)(2)(a)–(b).hadoa. at 29. and will appreciably increase the ultimate recovery of oil or gas from the affected pool or combination of two pools. 1632 La.

1637 La. Sonnier. the plan and terms of unit operation must be approved by at least threefourths of the owners and three-fourths of the royalty owners as to a particular interest. . 1636 Such approval must be evidenced by a written contract covering the terms and operation of the unitization. § 30:5(C)(5). § 30:5(C)(3) (2011). 1637 For the purpose of calculating the required three-fourths approval. “royalty owner” means any interested party other than the owner of an unleased interest or a mineral lessee or the owner of any interest created out of the interest of a mineral lessee. 1640 La.org/publications/2010. physical equipment and intangible drilling costs 1635 1636 La. 313 .hadoa. Stat. a unit cannot effectively be created. Rev. available at http://www. . 1635 The first category of owners here is thought to refer to working interest owners. Sonnier. Ann. Rev. available at http://www. and must also make provision for the proportionate allocation to the owners of the costs and expenses of the unit operation. 1641 Id. the cost of capital investment in wells. Stat. . even if all of the other requirements are met.org/publications/2010 (“[A]t least 3/4ths of royalty owners and 3/4ths of the working interest owners. such as a net operating interest. 1638 Id. 1640 Said allocation shall be in the same proportion that the separately owned tracts share in unit production. signed and executed by the required three-fourths owners and three-fourths royalty owners. Ann.Additionally. § 30:5 (C)(2)(d) (2011). 1639 Brent G. Ann. Oil & Gas Development and Unitization Laws in Various States 27 (March 2010). 1638 Without the necessary percentage of approvals of both royalty owners and working interest owners. 1641 In the absence of a voluntary agreement among the owners. and filed with the Assistant Secretary on or before the day set for hearing. 1639 Any order hereby entered requiring unit operation must designate a unit operator. overriding royalty or production payment. Oil & Gas Development and Unitization Laws in Various States 27 (March 2010). § 30:5(C)(2)(d).hadoa. ”). Brent G. Rev. and even if the evidence is “clear and undisputed” that such a unit is necessary to prevent waste or to avoid the drilling of unnecessary wells. Stat.

to the extent required by the evidence so established. Ann. Id. no person shall produce from a well. he must prorate the allowable production among the producers in the pool on a reasonable basis so as to prevent or minimize avoidable drainage from each developed area that is not equalized by counter drainage. Ann. 1957) (finding the Commissioner has the authority to regulate and control. Stat. Rev. regulation or order of the Commissioner fixing the allowable production of oil or gas or both for a pool. 314 . Woods. 1647 When the Commissioner limits production. 1645 Id. 1645 [e] Limitation and Allocation of Production. nor impose any term or operation upon non-signers of the contract more onerous than the terms and operations set out in the contract(s). Rev. Stat. or to prohibit the production of minerals). 94 So. Rev. Ann. subject to the reasonable necessities for the prevention of waste. 1642 However. the Commissioner may even prohibit the production of minerals. § 30:2. 2d 281 (La. Stat. § 30:11(B) (2011). 1644 Id. 1649 After the effective date of a rule. 1648 He must also ensure that each producer will have the opportunity to produce or receive his just and equitable share. § 30:11(B). The Commissioner has the authority to limit the production of a pool to an amount less than that which the pool could produce if no restriction were imposed. 1646 La. 1646 Pursuant to his charge in preventing waste. 1644 Upon application. 1643 The order requiring unit operation shall not vary or alter any terms of the above referenced contract. see also La. 1648 La. and after notice and public hearing. any owner who has not consented to the unitization shall not be required to contribute to the proceeds of production accruing to the interest of such owner out of production from such unit operation. § 30:5(C)(4). the Assistant Secretary may revise any reservoir-wide unit(s) so created. lease or property more than the allowable 1642 1643 Id. 1649 Id.shall be shared in like proportion. 1647 See Delatte v.

he shall allocate the allowable production among the fields. 315 . Ann. 1653 La. shall be issued by the Commissioner on or before the 23rd day of the month preceding the month for which the order is to be effective. § 30:3(7). 1654 Id. 1658 La. 1651 A “field” is the general area underlaid by at least one pool. or making changes therein. 1655 Id. 1659 At this hearing. detailing the grounds of his complaint. and includes the underground reservoir(s) containing crude petroleum oil or natural gas or both. Id. 1650 Whenever the Commissioner limits the total amount of oil or gas that may be produced. § 30:11 (A). § 30:7 (B)(1). § 30:11(A). Ann. 1652 Distinguished from the definition of a “pool. 1656 In the case of old fields or pools for which schedules had already been issued. § 30:3(7) (2011). 1652 Id. oral or 1650 1651 Id. “field” and “pool” mean the same thing. 1654 An order fixing allowable production of oil or gas. 1655 The order shall be promulgated by immediate publication in the official journal of the state. 1659 Id. an aggrieved producer may. However.1658 The Commissioner shall then hold a hearing within 48 hours. Rev. within 72 hours. 1657 In the event that a schedule is promulgated without prior notice and hearing.production which is applicable. if only one underground reservoir is involved. no hearing is required before the issuance of a subsequent order unless there is a written request for a hearing made by an interested person. § 30:7(A). Id. § 30:3(7) (B)(2) (2011). 1653 This allocation must be made on a reasonable basis. Stat. Rev. 1657 Id. file with the Commissioner a sworn written statement. nor shall any person produce be in a manner different than the manner of production which was authorized. 1656 Id. Stat.” a “field” may relate to two or more pools. § 30:11 (C). giving to each field with small wells of settled production an amount which will prevent a general premature abandonment of the wells in the field.

§ 3917. 316 . Admin. the former order remains in force. 1666 any person intending to apply for a hearing. that order shall be suspended until a decision is rendered. § 3907(A). 1663 A “represented party” is any person who is known to the applicant after reasonable search to presently own an interest within the area of. and interested parties. see id. 1662 [f] Application Process. During such suspension. or proximate to. 1664 An “interested party” is any person other than an interested owner or a represented party who owns an interest within the area of. Id. 1665 Id. but the first item need not be furnished to represented parties or interested owners unless so requested: 1660 1661 Id. 1661 If his decision is not made on or before the effective date of the order complained of. 1667 The following list of items must be furnished to the Commissioner. or proximate to. with a copy to the District Manager and to each interested owner and represented parties. 1663 La. must send a notice outlining the proposal to the Commissioner in duplicate. prior to filing an application. An “interested owner” is defined as any owner who presently owns an interest within the area of. the tracts directly affected by the application. or proximate to. There are three categories of individuals that an applicant must keep in mind in filing any application: interested owners. 1662 Id. 43.documentary evidence may be received in favor of and against the complaint. 1665 Unless pre-application notice is waived. the Commissioner shall summarily render a decision. interested owners and represented parties. 1666 For procedures on waiver. the tracts directly affected by the application. 1664 Id. Code tit. the tracts directly affected by the application. and who is also known to the applicant to have either a consultant or attorney representing him in conservation matters. 1660 After the hearing. represented parties. 1667 Id. § 3903 (2011).

§ 3907(A)–(B)(5). the District Manager. (3) An explanation of the nature of the proposal and a copy of a unit plat for each sand. Admin. 1668 If the applicant has proof that there is no indication of opposition from any person to whom preapplication notice must be sent. and the Commissioner finds such proof acceptable. (4) A day. 317 . § 3903(C) (2011). Admin. 1670 Pertinent data must be made available to interested owners and represented parties sufficiently in advance of any conference so as to allow them reasonable time for review and interpretation. and. shall inform the Commissioner. La. within 15 days after the date of preapplication notice. 1673 The applicant. time and place for a conference which need by held only if notice of a desire to confer with respect to the application is given as herein provided. any requested conference must be held within the state of Louisiana in a city reasonably convenient to the persons involved and shall be scheduled for not less than 20 days after the date of pre-application notice. 1669 Unless otherwise agreed. the applicant may immediately proceed to file his application and need not schedule a conference. § 3911(A). 1671 Reference to the source of data may be obtained at the cost of the requesting party. 1671 Id. any interested owner or represented party may advise the applicant of his desire to confer about his proposal. if units are involved. § 3909. Code tit. and all other persons to 1668 1669 Id. (2) A statement that a reasonable effort has been made to determine to whom the notices as required by this rule must be sent. 1672 Within ten days of receiving preapplication notice.(1) The names and addresses of all interested owners and represented parties to whom it is being sent. 43:XIX. 1673 Id. 43. (5) A definition of the sand proposed for unitization with such sand defined in each reservoir thereof by reference to well log measurements. 1672 Id. § 3903 (B)(4).103. prepared in accordance with La. 1670 Id. Code tit.

43. 1678 Any opponent shall present his position in sufficient detail to allow for the resolution of differences. but 1674 1675 Id. 1677 Id. 1675 Conferences held pursuant to these procedures are designed to promote an open exchange of views among the parties. 1680 Id. Code tit. 1682 The following list of items must be furnished to the Commissioner. reasonably prepared in sufficient size and detail to enable affected parties to determine the location of their lands. 1676 Id. 1674 Any interested owner and represented party may attend and participate. engineering or other bases for his position supported by sufficient data and detail for the conferees to have reasonable opportunity to discuss and attempt to resolve their differences in good faith. La. § 3911(A) (2011). § 3913 (E). Code tit. 1681 The application shall be filed in duplicate with the Commissioner. with a copy to the District Manager and to each interested owner and represented party. 1679 Id. that the conference will be held. § 3915(A) (2011). 1677 Any applicant proposing to create or revise a unit shall also exhibit a map or plat. § 3913 (A). even if he did not request the conference. Admin. 1680 An applicant’s hearing application may be filed immediately after the pre-application conference. nor shall any tape recordings or transcripts made at the conference be admissible. § 3913 (B). interested owners and represented parties. 1678 Id. 43. § 3913 (D). 1681 La. 1676 The applicant shall present the available and appropriate geological. § 3913(E).whom the pre-application notice was sent. in writing. 318 . 1682 Id. Admin. 1679 Any reference to discussions among the parties as to geological. engineering or other basis for the party’s position is not admissible in evidence at any subsequent hearing.

1684 If. Admin. Id. or if any interested owner or represented party wishes to oppose or support a proposal by the introduction of evidence at the hearing. (6) A definition of the sand proposed for unitization with such sand defined in each reservoir thereof by reference to well log measurements. 43 XIX. including a brief report on the conference. the revised unit plats should be filed with the application. as well as the applicant and all persons who attended the pre-application conference. if units are involved. the Commissioner should be furnished an extra copy of the application for each additional sand. the revised proposal should be explained in the application. then not less than 15 days before the hearing such a person must file with the Commissioner and the District Manager. (2) The names and addresses of all interested parties who are known to the applicant after reasonable search. 1686 Id. (3) A statement that a reasonable effort has been made to obtain a complete list of interested parties. an applicant’s proposal is revised. Code tit. as a result of a conference. 319 . § 3915(B). 1686 If units are involved. 1685 If differences are not resolved. prepared in accordance with La. § 3915(C).103. his plan must include a plat of his proposed units. (4) A statement that a conference has or has not been held. interested owners and represented parties. his counter plan or supporting plan. § 3915(1)–(6). § 3915(E). 1683 Requests for separate sands are considered a separate application for each sand. and. 1685 Id. with any geological bases for any unit 1683 1684 Id. (5) A unit plat. and if units are involved. and a list of the parties in attendance.the first two items need not be furnished to represented parties or interested owners unless so requested: (1) The names and addresses of interested owners and represented parties notified. if held.

if requested. hold a conference to discuss the revised proposal prior to the hearing. the District Manager. § 3915(E) (2011). Admin. with evidence to support the revision. 1689 After the application is filed. effective November 19. the applicant must furnish to them a copy of any revised plan and unit plat. 1691 Id. see id. the applicant must present both the original application proposal and the revised proposal at the time of hearing. § 3919(A). 1694 Several relevant fees are as follows: the fee for an Application for Public Hearing is $755 and the fee for an Application for Unit Termination is $252. 1689 Id. 1695 Fees for applications to Permit to Drill. Admin. Code tit. 1693 Statewide Order 29-R-10/11. § 3919(A) (2011). and all parties to whom the application was sent of the revision. sets forth the application fees associated with various activities for the fiscal year 2010-2011. 1690 Id. 1695 Id. or would assist in the conduct of the hearing. 2010. 1693 La. 1692 If appropriate notice has been provided. § 701. 1690 Additionally. Id. he must provide a letter explaining any points of difference between his plan and the applicant’s plan. 1688 The Commissioner has reserved the right to call a pre-hearing conference at any time prior to the hearing if he believes that it would resolve or narrow the issues in controversy. 43. For additional procedures regarding opposition to or support of an application. if the applicant’s proposal is revised. and shall. § 703. the applicant must promptly notify the Commissioner. 1692 Id. 1691 No revised proposal shall be considered at the hearing unless notice of the revision has been provided as required above at least five days prior to the hearing.boundary. if units are involved. 320 . § 3923(A). § 3921. 1694 Id. Code tit. 1687 Finally. 43. as well as to Amend 1687 1688 La.

1701 Id.” 1698 Other hearing matters require only ten days notice. See id. Kramer. Oil and Gas Law § 11. Subpart 17 and Chapter 39 of the La. a copy of the application must be given to each interested owner and represented party. . Code tit. . These procedures are applicable to all hearing applications requiring 30 days notice. § 3905(A) (2011) (“[T]hese rules of procedure shall not apply to applications relating to the initial creation of poolwide units under Section 5C. § 3905 (B). § 3915(A)(2). of Title 30. 1699 6 Patrick H. If the application relates to the creation of a poolwide units under Section 5C. also apply to hearing applications which require ten days notice. 1699 Procedures for conducting hearings before the Commissioner can be found in Title 43. . 321 .Permits to Drill or to Drill Minerals Deeper vary based upon substance and depth. Admin. as well as unit plats. and must provide for the posting of a copy of the legal notice of hearing. If the required 75% of owners have not joined the agreement by the 15th day prior to the date of hearing. or for adoption of any plan for spacing of wells or for cycling of gas. and interested parties of the cancellation. represented parties. 1701 The applicant is required to publish legal notice by the Commissioner in the official state journal. 1700 and. 1703 The applicant must mail copies of the legal notice to all interested owners. Part XIX. Id. . 1697 Whenever any application is made for “creation. 1703 Id. the application shall secure cancellation of the hearing and shall notify all owners. or restoration. with certain narrow exceptions.04[4] (MB 2008). Williams & Meyers. § 30:6(B). Martin & Bruce M. 1702 Id. or modification of any unit or units for production of oil or gas. or other plan of secondary recovery…at least thirty days notice shall be given of the hearings to be held. Code. represented parties and interested parties. to the extent practical.”). in a prominent place in the area affected. 1702 A copy must also be published in a newspaper in the vicinity or general area of the affected field at least 15 days before the hearing. and a copy of the unit plat or plats shall be included if 1696 1697 See id. 1696 There are also regulatory fees and production fees applicable to certain oil and gas production activities. pressure maintenance. revision. Admin. 1700 La. Id. 1698 Id. § 3905 (C). . 43.

not an order of the Assistant Secretary). 622 (La. 1988). 1709 At the hearing.04[4] (MB 2008). Admin. the applicant presents his case first. such failure to give notice does not mean that a resultant order is invalid. 1708 Kaiser Aluminum Exploration Co. 2d 616. 356 So. publication. § 3292(A) (2011). Martin & Bruce M. 1705 Although notice by mailing should be provided as required. Thompson upheld a similar concept. Oil and Gas Law § 11. 1707 Brown. 2d at 972. even though the applicant had made no effort to give notice by mail to certain owners in a non-producing unit.04[4] (MB 2008). 1978) (holding that an order approving a petroleum company’s application for a unitized operation and secondary recovery project under LA. any interested owner or represented party who supports the applicant and has complied with §§ 3915. 1704 Evidence to establish the posting.” 1707 Kaiser Aluminum Exploration Co. he shall present the entire geological.. 1710 Next. and mailing of notice shall be submitted at the hearing. Williams & Meyers. 1710 La. 1711 Any interested party wishing to present evidence supporting the applicant’s proposal shall do so immediately after the applicant and supporting parties have completed their 1704 1705 Id. In doing so.they have not already been provided to the same. Thompson. STAT. 2d 965 (La. engineering or other bases in support of his proposal. 1709 Placid v. 2d 1050 (La. actual notice obtained by an interested party may cure a defect in procedure in giving notice. ANN. holding that. see also 6 6 Patrick H.1708 Furthermore. 1706 See Brown v. 356 So. Oil Co. it has been found that failure to provide notice will not invalidate an order of unitization where the unitization was advantageous to the one who was not notified based upon a presumption that such a person would not have opposed the application had he been notified. § 30:5(C) (2011) was valid because the lack of formal notice to a purported assignee was cured by actual notice and the order was referred to in this case as an order of the Commissioner. Sutton. REV. Cent. it is reasonable to expect one with knowledge of notice of an administrative proceeding affecting his rights not to stand by until the day of the hearing and then for the first time assert lack of notice. engineering or other bases in support of the applicant’s proposal. N. 322 . 525 So. Id. v. Code tit. Williams & Meyers. 1944). 1711 Id. Martin & Bruce M. see also 6 6 Patrick H. Tex. Oil and Gas Law § 11. 3917 and 3921 shall present his entire geological. 1706 “As a general proposition. v. 43. 19 So. Kramer. Kramer.

1720 If the statement involves technical data. the applicant may present rebuttal geological. but they should not include technical matters 1712 1713 Id. 1719 Id. engineering or other testimony.presentations. 1718 There should be no attempt to establish matters that are peculiarly within the knowledge of the witness as such should been presented on direct examination. 1716 Cross-examination should be limited to questions concerning the testimony and exhibits presented by the witness. 43. Any witness shall be subject to cross-examination by the Commissioner or any member of his staff. 1717 Id. Admin. any opponent and any supporting party may make opening or closing statements. engineering or other bases for their opposition. any party shall be afforded an opportunity to make a statement. 1713 After all opponents have completed their presentations. 1716 La. 1712 Opponents who have complied with §§ 3915. 1715 Id. 1721 Id. 1719 After the applicant and any opponents have made their presentations. the party must be sworn in and cross-examined. and by no more than two representatives of a party. 3917 and 3921 will then present their entire geological. Id. § 3929(E). parties are permitted to call witnesses. 1718 Id. § 3292 (B). Code tit. 1715 In making their presentations. § 3929(D) (2011). § 3929 (2). 1717 The witness should not be required to make measurements or calculations or comparisons between his exhibits and those presented by other witnesses. § 3929 (1). 1714 Rebuttal evidence should not be used to prove matters that should have been proven on direct examination. 1714 Id. § 3292 (C). but is strictly limited to a refutation of the matters covered by the opponents. 1721 The applicant. 323 . 1720 Id.

§ 3931(A). application for a new hearing to consider the new evidence must be made as soon as possible. 1725 Id. § 3929 (F) (2011).which have not been presented by sworn testimony. or will prevent an opponent or supporting party from presenting evidence at the hearing. § 3935(A). 43. but the Commissioner. Code tit. 1727 Id. every applicant shall commence proceedings under these rules so as to permit the application to be docketed. § 3937(a) (2011). 1726 If such is the case. 1729 However. Admin. 1730 Id. 1724 Id. 1728 Failure to comply with the provisions or spirit of these rules of procedure will prevent an application from being advertised or heard. 1722 The applicant has the right to make the last closing statement. such evidence shall immediately be made available to all interested owners and represented parties by notice according to § 3909. 1724 Such evidence may be used by any person at the hearing. Admin. 324 . any interested person has the right to submit a written request to have the Commissioner call a hearing for the purpose of 1722 1723 La. 1730 In addition to a hearing based upon the filing of an application. 1727 Unless circumstances indicate that undue hardship would otherwise result. 1723 If new pertinent information becomes available to any person after proceedings have been initiated. 43. may determine that additional time should be affording for its consideration. Id. Code tit. 1725 The Commissioner may also establish a time limit beyond which new evidence may not be submitted in the present proceeding. 1729 Id. an order issued by the Commissioner shall not be invalid by the operation of this rule. 1728 La. heard and properly considered for at least 15 days before the order is issued. 1726 Id. advertised. in his discretion.

3103.1737 Statewide Order 45-I-A includes base gas/oil ratios and amount of allowable production. 3705. Admin. § 30:6(F) (2011). 3105. 3707. 1734 La. §§ 1905. 1740 See id. Chapter 14 of Title 43 of the La. 1731 1732 Id. 43. 1735 See La. § 30:6(F). 1736 whereas Statewide Order 151-A-2 addresses crude oil allowable from both vertical and horizontal wells. Although Chapter 30 of the Louisiana Code does not specifically address matters such as spacing requirements or unit size. 1735 Statewide Order 29-F deals with allowable productions of natural gas. 1731 Upon receiving such a request. in any event within 30 days of the conclusion of the hearing. 1738 See id. 2103 1737 See id. 3505. he may be compelled to do so by mandamus at the suit of any interested party. the Commissioner shall promptly call a hearing. 1907. Statewide Order 29-E specifically addresses oil and gas well spacing. Code. Admin. 1739 See id. 2503. 1732 After the hearing. 325 . and with all convenient speed. 1909 (2011). Such rules and regulations can be found in Part XIX. Code tit. 3509. 1734 [5] – Matters Covered.taking action in respect to any matter within his jurisdiction. 1740 § 19. 43. 1738 New pools are covered under Statewide Order 29-H1. the Commissioner has promulgated rules and regulations pursuant to that Chapter which do address those matters. Admin. [a] Spacing Rules. 3507. Code tit. [1] – Mineral Distinctions. 3511. §§ 2101. §§ 2501. 1733 In the event that the Commissioner fails to issue an order within 30 days. 1739 Termination of Units is discussed in Statewide Order 29-L-3. §§ 3501.02 Types of Louisiana Pooling Statutes. 1736 See id. 1733 Id. the Commissioner shall take whatever action he deems appropriate. 3503. §§ 3703. Id. §§ 3101.

1746 No order may be issued unless interested parties have been given a reasonable opportunity to review and evaluate all data submitted by the applicant to the Commissioner to 1741 1742 La.2(D). Id. 1743 Id. 1743 An order creating a coal seam natural gas unit shall be issued only after notice and public hearing. the Commissioner may enter an order requiring the unit operation of any coal seam natural gas producing area when such unit operation will promote the development of coal seam natural gas. § 30:5. 1745 Id. 1742 In connection with such an order. The Commissioner is authorized to establish a single unit to be served by one or more wells for a coal seam natural gas producing area. 326 . there is little if no distinction made between oil and gas. and (3) sufficient evidence exists to reasonably establish the limits of the coal seam natural gas producing areas. (2) the proposed unit is economically feasible. § 30:5. 1744 It shall also be based on findings that: (1) the order is reasonably necessary to promote the development of coal seam natural gas in a producing area and for the prevention of waste and the drilling of unnecessary wells. Ann. However. despite the statutory specificity toward coalbed gas.2(1)–(3). 1746 Id. Stat. § 30:5. will prevent waste. and will avoid the drilling of unnecessary wells. § 30:5. 1745 The order shall provide for the initial allocation of unit production on a surface acreage basis to each separately owned tract within the unit. Louisiana has not formally addressed the issues surrounding coal seam gas ownership. 1744 Id. pool and consolidate all separately owned tracts and other property ownerships within the unit.2(C). Rev.2 (B). § 30:5. There are separate but similar rules and procedures governing coal seam natural gas.Aside from spacing regulations and allowable production discussed below. the Commissioner has the right to unitize. 1741 Upon the application of any interested party.2(A) (2011).

1750 Furthermore. Section 30:5. Rev. Stat. 1753 La. as well as the cost of capital investment. may create. and after notice and hearing and consideration of all new available geological and engineering evidence. whereas § 30:5. § 30:5.2(H). impliedly relates to shallow oil and gas wells. § 30:5. See id. 1751 Id. rules and regulations as he finds necessary and appropriate to enforce this Chapter. Ann. 1749 Any such order shall provide for the allocation of unit production on a just and equitable basis to each separately owned tract within the unit. 1751 [2] – Split by Depth. revise.2(F). Rev. avoiding unnecessary drilling. 1752 See id. the Commissioner is authorized to establish a single unit to be served by one or more wells for a deep pool. amend and rescind orders. 1750 Id. 1747 The order must designate a unit operator and make provision for the proportionate allocation of costs and expenses. 1753 The Commissioner is further authorized to adopt a development plan for a deep unit.2(E) (2011).2(G). 1754 While this authorization is for the 1747 1748 La. § 30:5. discussed hereinabove.000 feet in depth.establish the limits of the producing area. Stat. Ann. the Commissioner. which are at least 15. to the extent required. § 30:5. discussed hereinabove.1(C)(3). or dissolve any unit. and encouraging production of deep oil and gas pools. issue. § 30:5. 1752 For similar reasons of preventing waste. 1754 Id. the Commissioner shall prescribe.1 makes separate provision for deep wells.1(A) (2011). 327 . 1749 Id. similar to the provisions for oil and gas wells contained in § 30:5(C)(3). § 30:5. or modify any provision of an order. 1748 Upon application.

(5) the plan of development for the unit is reasonable.1(C)(5) (2011). (4) sufficient evidence exists to reasonably establish the limits of the deep pool. force pool and consolidate all separately owned tracts and other property ownerships within the unit.1(E). 1760 No order may be issued unless interested parties have been given a reasonable opportunity to review and evaluate all data submitted by the applicant to the Commissioner to establish the limits of the producing area. 1761 1755 1756 Id. 1759 The order shall provide for the initial allocation of unit production on a surface acreage basis to each separately owned tract within the unit. Stat. Id. 1755 Upon the application of any interested party. 1759 La.1(I).1(C)(1)–(5). prevent waste.000 feet true vertical depth. and. the Commissioner has the right to unitize. § 30:5. (2) the proposed unit operation is economically feasible.creation of a single unit. 1756 In connection with such an order. 1760 Id. 1761 Id. Rev. 1758 The plan should be revised only if approved by the Commissioner after notice and public hearing. 1758 Id. § 30:5. 328 . § 30:5. § 30:5. § 30:5.1(D). 1757 Any order creating a unit shall be issued only after notice and public hearing. and shall be based on findings that: (1) the order is reasonably necessary to promote the development of a deep pool and for the prevention of waste and the drilling of unnecessary wells.1(B). (3) the geologic top of the deep pool was encountered in the initial well for the pool at a depth in excess of 15. there is no limitation on the Commissioner’s authority to approve the drilling of alternate wells on drilling units established pursuant to § 30:9(B). and avoid drilling unnecessary of wells. § 30:5. Ann. 1757 Id. the Commissioner may order the unit operation of any deep pool when such operation will promote the development of deep pools.

Williams & Meyers. 1767 Id. 1766 Furthermore. Oil and Gas Law § 29. discussed hereinabove. to the extent required. similar to the provisions for oil and gas wells contained in § 30:5(C)(3). § 30:5. Ann. may create. 1765 Any such order shall provide for the allocation of unit production on a just and equitable basis to each separately owned tract within the unit. Rev. 1764 Id.” 1763 “Unit Operations” are broadly defined to include “all operations conducted pursuant to this Agreement and the Unit Operating Agreement. expense or indebtedness incurred by Working Interest Owners or Unit Operator pursuant to this Agreement and the Unit Operating Agreement for or on account of Unit Operations.1(F).1(H). 6 Patrick H. Kramer. However. or modify any provision of an order. as well as the cost of capital investment. Spacing regulations in Louisiana make a distinctions based upon the depth of the well to be drilled. 329 . and after notice and hearing and consideration of all new available geological and engineering evidence. as well as between whether the well to be drilled is for the production of oil or the 1762 1763 See id. 1767 [3] – Spacing Rules. 1766 Id. Stat. Martin & Bruce M.17[5] (MB 2008). the Commissioner shall prescribe. amend and rescind orders. § 30:5. issue. revise. 1765 La.1(G) (2011). § 30:5. 1762 The Louisiana statute and regulations do not specifically define what costs and expenses must be considered.” 1764 Upon application. the Commissioner.The order must designate a unit operator and make provision for the proportionate allocation of costs and expenses of the unit operation. rules and regulations as he finds necessary and appropriate to enforce the law. or dissolve any unit. an example of a definition of “unit expense” as contained within a Reservoir-wide Unit Agreement is “all cost.

§ 1907. § 1905(A)(1)–(3). except as provided for in the last Paragraph of this order. Admin. including spacing regulations after notice and public hearing. grant an exception in any case where it appears to be necessary to prevent waste. Sonnier. 1771 Furthermore. After sufficient geological and engineering evidence is available with respect to these pools found at depths of 3. 330 . 1771 See id. in relevant part: (1) No spacing shall be required for wells drilled in search of oil to depths less than 3. 1770 Note that there are several instances in which the Commissioner may grant an exception to the above requirements. In the absence of spacing set by a unit order. drilling to. § 1907 (5). or for which a permit shall have been granted to drill to.000 feet from appropriate rules and regulations. drilling to. 1769 The last paragraph of Statewide Order 29-E provides: “This order also is not intended to eliminate pools shallower than 3.hadoa. 1768 Brent G.org/publications/2010.” La. 43. available at http://www. defined in § 1907(5)(a)-(d) through the district manager. well spacing is governed by Statewide Order 29-E.000 feet subsea shall not be located closer than 330 feet from any property line nor closer than 900 feet from any other well completed in. in addition to such prescribed exceptions. § 1909(C) (2011).000 feet to any other well completed in. 1772 However. the Commissioner may. such an exception may only be granted when the applicant has furnished the proper data and evidence.000 feet subsea. without additional public hearing. the same pool.000 feet or less subsea then the operator or operators owning wells therein are required to petition the Commissioner of Conservation for a public hearing for the purpose of establishing rules and regulations and the creation of drilling units for each such pool. such as when the Commissioner believes that the wells drilled in a certain area will be affected by piercement type salt domes. Oil & Gas Development and Unitization Laws in Various States 27 (March 2010). 1769 (2) Wells drilled in search of oil to depths below 3. 1770 Id. or for which a permit shall have been granted to drill to.production of gas. or where a pool has already been partially developed with a greater density than prescribed by these orders. (3) Wells drilled in search of gas shall not be located closer than 330 feet to any property line nor closer than 2. to prevent inequity or loss of property rights. the same pool. Code tit. 1768 Louisiana Office of Conservation Statewide Order 29-E provides. 1772 Id.

1774 Id. available at http://www. Sonnier.1782 When such data is not available. the Commissioner has approved special field spacing rules that require greater distances from unit boundaries. Sonnier. 1779 Third. 1776 There has been virtually no litigation on the subjects of well spacing and exceptional well locations for several reasons. 1778 Second. the Commissioner will incorporate Statewide Order 29-E in defining spacing requirements within the unit order.02 (MB 2008). in North Louisiana.” 1781 Generally. Oil and Gas Law § 5. “it is well understood in Louisiana that the courts will defer to the Commissioner of Conservation on technical matters. A “drilling unit” is defined as “the maximum area which may be efficiently and economically drained by one well. 1780 Id. special field spacing rules are normally issued for horizontal wells. 1779 Id. the Commissioner sets field rules and spacing requirements as part of the unit order. 1775 Additionally. § 30:9(B) (2011). 1774 However.org/publications/2010. the OC encourages parties to resolve their difference outside of litigation. the Commissioner favors geological boundaries in South Louisiana when there is enough data to reasonably delineate the reservoir limits.When forming units. 1776 Id. 1778 Id. Ann. Rev. Oil & Gas Development and Unitization Laws in Various States 27 (March 2010). 1777 See 6 Patrick H. Williams & Meyers. due to the lower permeability and lateral sands.hadoa. Martin & Bruce M. Kramer. the OC has been consistent in not granting exception well locations until a well has been drilled at a regular location. Oil & Gas Development and Unitization Laws in Various States 27 (March 2010). 1783 Id. drilling units are formed in geographical shapes. 1773 Usually. 1783 Alternatively. 331 . “rectangular or square in shape with a standard 1773 Brent G. 1777 First. available at http://www. 1781 La.” 1780 [4] – Size. 1775 Id. 1782 Brent G. almost all drilling units are formed on a geographic basis.org/publications/2010.hadoa. Stat.

1788 Id. Alexander v. 65 (“[T]he Commissioner of Conservation had developed a program establishing spacing and drilling units in the area involved upon the basis of 320 acre tracts delineated as the North and South Halves of each Section of land.1786 In the case of a single-well reservoir. v. and the Commissioner exercises broad discretion in setting unit sizes on a case-by-case basis. 2d 532.. 1788 In the case of multiple drilling and production units per reservoir. units are 640 acres. but he is bound to act in good faith and to develop and operate the property leased as a reasonably prudent operator for 1784 1785 Id. 1790 Id. Typically. http://dnr.” 1784 Louisiana does not have any defined size or acreage limits.cfm?md=pagebuilder&tmp=home&pid=46&ngid=4 (last visited May 27. 1786 See Ark.number of acres sufficient for one well to drain the unit. Sw. 2011). Department of Natural Resources State of Louisiana. 1785 though smaller units do exist. the size determined by estimating the drainage for the well. 181 So. a lessee is not in a fiduciary relationship with his lessor. 332 . or about one square mile. available at http://www.org/publications/2010. these units are formed when there is enough development to ensure the productive field limits and reservoir fluid contacts have been adequately determined. reservoir-wide units are always governed by the size and shape of the reservoir as defined by its geological boundaries.louisiana. Oil & Gas Development and Unitization Laws in Various States 27 (March 2010). 1787 If those boundaries cannot be determined. geographic units will be formed.”). 1789 Id. In general. 1787 Brent G.gov/index.”). 2d 9. 40-acre spacing or drilling units were established for the field. See Office of Conservation. 1790 [5] – Minimum Operator Control. the Commissioner will consider various economic factors which drive operators to determine how many wells should be drilled to adequately develop the reservoir in determining the size and shape of the units.hadoa. its depth. the reservoir pressure and other characteristics of that particular location. 1789 Finally. Gas Producing Co. however. Sonnier. 116 So. drilling units are determined by the geological boundaries of the reservoir. Holt. 533 (“By virtue of the Commissioner’s Order 96.

§ 3703(A). 1795 For example. a well depth of 12. 1793 La. 1791 Parties are permitted to stipulate what shall constitute reasonably prudent conduct on behalf of the operator.200 BDP. Rev. 43. 1795 Id. measured from the initial point of penetration into such pool. § 3703(A). 1797 Id. Statewide Order 151-A-2 defines a “horizontal oil well” as a well with the wellbore drilled laterally at an angle of at least 80 degrees to the vertical and with a horizontal displacement of at least 50 feet in the pool in which the well is completed for production. § 3707(A). 1793 Similarly. measured from the initial point of penetration into such pool. 1797 Allowables assigned to units in competitive reservoirs shall be subject to adjustment if needed to prevent adverse drainage or to protect correlative 1791 1792 La. and so on. Code tit. For horizontal oil wells. the amount of production allowable for each horizontal well is its maximum efficient rate. § 3705(A)–(B). 1794 Id.000 feet has an allowable of 1. 1796 “Maximum efficient rate” is defined to be the maximum sustainable daily oil withdrawal rate from a reservoir which will permit economic development and depletion without causing waste. Ann. For oil wells other than horizontal wells. § 30:122 (2011). Statewide Order 45-I-A defines a “horizontal well” as a well with the wellbore drilled laterally at an angle of at least 80 degrees to the vertical and with a horizontal well displacement of at least 50 feet in the pool in which the well is completed for production.000 feet has an allowable of 200 BDP. Id. Stat. Admin.1794 This Order establishes allowable schedules for oil wells that are both horizontal. and other than horizontal. 1792 [6] – Directional Drilling. §3501(A) (2011). a well depth of 2. No mention is made of horizontal gas wells. the statewide allowable is a power of ten less than the measured depth of the deepest perforation in the pool. 1796 Id. 333 .the benefit of himself and his lessor.

1805 1798 1799 Id. § 30:10(A)(2)(a)(ii) 1804 Id. production data. 334 . notify all other owners in the unit of the drilling. or the intent to drill. Stat. 1803 Id. 1801 Such notice should include the following: (1) an estimate of the cost of drilling. and (4) all logs. § 30:10(A)(2)(h). (3) a proposed objective depth of the well. 1800 La. Code tit.rights after public hearing based on ten days legal notice. a unit well on any drilling unit created by the Commissioner under La. Ann. 1798 If a unit in a competitive reservoir contains multiple unit wells. to the owner drilling or intending to drill. § 30:10(A)(2)(a)(iii). and give each owner the opportunity to elect to participate in the risk and expense of such well. 1799 [7] – Options. Stat. 1804 If the proposed drilling is not commenced within 90 days after the receipt of the initial notice. Rev. §3501 (C) (2011). 1805 Id. 1802 Id. § 30:10(A)(2)(a)(i) (2011). or intending to drill. 43. 1802 An election to participate must be exercised within 30 days after receipt of the initial notice by mailing written notice by certified mail. La. by certified mail. § 3707(B). testing. core analysis. 1803 Failure to give timely written notice of election will be deemed an election not to participate. and well test data not yet made public. return receipt requested. § 30:10 may. another initial notice must be sent in order for the provisions of this Subsection to apply. 1801 Id. (2) a proposed location of the well. Rev. Ann. Any owner drilling. 1800 The owners required to receive notice are the owners of record as of the date on which the notice is sent. at least one of which is a horizontal well. Admin. completing and equipping the well. § 30:10(A)(2)(a)(i)(aa)–(dd). the allowable will be equal to the greater of the maximum efficient rate for the horizontal well or the applicable depth bracket.

Hallwood Petroleum. 1970). 770 So. 1970). election and participation will be applicable as if a unit well were being proposed by the owner who drilled or was drilling such well. including a charge for supervision. Humble Oil & Refining Co. 1811 If a drilling unit is revised by order of the Commissioner so as to 1806 1807 La. Ann. App. § 30:10(A)(2)(b)(i) (2011).. Stat. or should the owner elect to participate and then fail to pay his share of such expenses within 60 days of receipt of detailed invoices. Ct. and includes one or more tracts as to which the owner(s) thereof has not participated in the risk and expenses of drilling.. 2d 904 (La. Foster. 1810 See Exchange Oil & Gas Co. 37 So. App. See Superior Oil Co. 2d 448 (La. 1807 Furthermore. 1808 Id. 5/24/00). 1809 La. denied. 167 So. v. App. cert. Nov. See Lamson Petroleum Co. Rev. Stat. the above provisions regarding notice. denied . Ann. 1809 In order for [this Subsection] to have any valid effect outside of a Commissioner’s compulsory drilling unit. cert. 2000). 1808 Any owner not notified will bear only his tract’s allocated share of the actual reasonable expenditures incurred. Inc. 165 So. 3 Cir. 1964). § 30:10(A)(2)(c) (2011). v. some conservation measure must thereby be served. Rev. v.If a notified owner elects not to participate in the risk and expense of the unit well. 99-1444 (La. 2d 668 (La. the drilling owner shall be entitled to own and recover out of production from such unit well the nonparticipating owner’s allocated share. denied . cert. 335 . Rev. Ct. 1964) (holding reimbursement from well proceeds was not the exclusive method for the operator to recover the drilling expenses from the co-owners). 775 So. 1810 If a drilling unit is created by order of the Commissioner around a well already drilled or drilling. La. Similarly. Rev. 1806 in addition to any other available legal remedies to enforce collection of such expenses. testing and completing the well. in addition to recovering the nonparticipating owner’s share of actual reasonable expenditures incurred in drilling. said risk charge shall be 200 percent of the tract’s allocated share of the cost of drilling. 2d 709 (La. 237 So. Stat. Ann. a risk charge may also be recovered by the operator. equipping or operating the unit well. testing. however. Ann. completing. § 30:10 is not the sole remedy for unleased land owners. Stat. 2d 786. 27. § 30:10(A)(2)(b)(ii). 2d 905 (La. 1811 La.

1970). § 30:10(A)(2)(d)(i). 1816 See Superior Oil Co. annulled by. 241 So. 226 So. 1814 In the event of a dispute regarding the calculation of unit well costs or depreciated unit well costs. 1812 However. 1952). §30:10(A)(2)(e) (2011). 1818 See Ark. 1969). to determine the share of cost allocable to the subsequently excluded tracts. Ann. the cost of drilling. Id. 1813 If a drilling unit is revised to exclude a tract. 1815 Id. 1817 La. 60 So. 1815 However. completing. Ct. § 30:10(A)(2)(d)(ii). 1817 Royalty owners are entitled to payment on the basis of the amounts realized by their own lessees from the sale of production allocated to the tracts in which they had an interest. the cost of drilling. App. 2d 911 (La.include additional tracts. to determine that share of cost allocable to the subsequently included tracts.. and operating the unit well shall be reduced in the same proportion as the recoverable reserves in the unitized pool have been recovered by prior production. and is reviewable by the District Court of East Baton Rouge Parish. Rev. Stat. § 30:10(A)(2)(f).. v. 336 . equipping and operating shall be reduced in the same proportion as the recoverable reserves in the unitized pool have been recovered by prior production. testing. Humble Oil & Refining Co. 2d 9 (La. if any. the above provisions shall be applicable to such added tracts and the owners thereof as if a unit well were being proposed by the owner who had drilled on the unit. equipping. rather than from the sale of all gas and distillate from the unit. in which said tracts did not participate. v. La. 1818 1812 1813 Id. 2d 565 (La. Natural Gas Producing Co. such a determination amounts merely to a finding of fact. Sw. 1814 Id. 1816 Notwithstanding these provisions. completing. the Commissioner shall determine the proper costs after notice to all interested owners and public hearing. Gas Co. testing. a royalty and overriding royalty owner shall receive that portion of production due to them under the terms of the contract creating the royalty.

337 . Stat. 1822 Id. tit. § 541-A. 12. gravel and water. The director of the survey and the director of the Bureau of Parks and Lands are permitted to “promulgate rules governing exploration and mining of hydrocarbons on all lands within the jurisdiction of the State. Ann. “promulgate rules on all lands in the State to specify the size of the area of 1819 1820 Me.” 1823 The directors are also permitted to. 1822 [2] – Scope of Authority. The bureau consists of the Maine Geological Survey. The executive director of the bureau is the director of the survey. those “minerals” concerned include all naturally occurring mineral deposits. 1823 Id. The Maine Mining Statute (“the statute”). Rev.§ 20. [1] – Governing Body and Structure. and the Natural Areas Program. The following is an analysis of existing substantive law and procedures related to oil and gas in Maine.” 1821 Under the statute the director of the survey is granted power to issue exploration permits. Maine law provides little discussion of oil and gas production. Id. and promulgate rules governing the exploration and mining of hydrocarbons in the state. but excluding sand. including hydrocarbons and peat. public and private. 1821 Id.” 1820 The Bureau is “established within the Maine Department of Conservation and is administered by the commissioner.01 Analysis of Maine Regulatory Framework. none of which references pooling or unitization. § 549-A(6). 1819 Under the statute. in order to prevent the waste of hydrocarbons and to protect correlative rights and natural resources. § 549-B(2). § 549 (2010). grants to the State Bureau of Geology and Natural Areas (“the Bureau”) jurisdiction over all state-owned lands for the purpose of mineral development and mining on that land. regulate the issue of mining leases. § 549-B.

“an examination of an area for the purpose of discovering the presence of minerals with techniques which include all of the manual.” 1830 The statute differentiates between standard exploration and exploration involving machinery or explosives stating: 1824 1825 Id. 1825 The Bureau may grant any individual over 18 years of age the authority to explore state lands. 1829 Id.1829 The holder of an exploration permit is entitled to a renewal of his permit upon expiration of the permit. § 549-A(3). the amount charged for exploration permits and exploration claims. which renewal shall take effect on July 1st and bear the same number as the expired permit. electronic or chemical methods of determining the presence. Id.exploration. 338 . mechanical. 1828 Id.” 1827 An individual is authorized to enter upon state lands for exploration upon “receipt of an exploration permit from the director of the survey for the purpose of exploration. 1827 Id. § 549-B(1). upon making application to the director of the survey on or before June 30th. size and quality of a mineral deposit. including payment of the prescribed fee. 1830 Id. 1826 “Exploration” is defined as. the duration of those permits and claims and other matters related to the exploration and mining of hydrocarbons on State lands.” 1824 [3] – Regulatory Process. The Bureau regulates the surveying of minerals on state lands through the use of exploration permits. § 549-B(1). 1826 Id.” 1828 Exploration permits must meet the following guidelines: “An exploration permit shall bear a number and be dated on the date of issue of the permit and shall expire at midnight on the next June 30th.

1836 The application should include “… a report from a certified geologist or mining engineer containing all information of a geologic. Id. § 549-B(3). by establishing the boundary lines of the claim or claims.” 1831 Upon securing an exploration permit. engineering and operational nature which is required by the director of the survey or the director of the agency having jurisdiction over the state lands on which the mining lease is sought to properly evaluate the application and an accurate survey of the property boundaries 1831 1832 Id. § 549-B(7)(A). 1834 Once a corporation or individual acquires a valid and recorded exploration permit they are permitted to apply for a mining lease with the director of the agency.” 1833 The director of the agency with jurisdiction over the relevant state lands may issue mining leases with the consent of the director of the survey. 1835 Id. § 549-B(1). 1833 Id. § 549-B(7)(D). 1832 The exploration claim is “construed to include all surface found within the surface boundary lines. the methods to be employed and the amount of explosives to be allowed shall first be approved by the director of the survey and the director of the agency having jurisdiction over the state land. The use of machinery or explosives shall be approved only where it will be done in harmony with the activities of the agency having jurisdiction over the state land and will not result in environmental harm. 1835 The director of the agency will grant the petitioner a hearing within 90 days of the application. 339 . 1834 Id. § 549-B(7)(B). any person or corporation is permitted to locate their exploration claim. The exploration claim cannot be smaller than 20 acres. and all ledges throughout their entire vertical depth. but shall not include any portion of the ledges beyond the end and sidelines of the exploration claim or timber or growth on the exploration claim. unless the only available area on a parcel of state land is smaller than 20 acres. 1836 Id.“If machinery or explosives are to be used for exploration on state lands.

1842 Id. 1841 Id. 1843 Id. 1841 The lessee shall also be required to pay royalties annually or more frequently if specified in the lease.” 1839 Once in receipt of a lease. The director of the survey and the director of the agency will determine the “amount of royalty payments. 1840 Id. § 549-B(7)(B)-(C).certified by a registered surveyor and evidence of ability to finance the proposed mining operations” 1837 Upon receipt of a completed application the director of the agency will hold a hearing to determine whether the mining leases should or should not be granted.” 1842 The royalty rate should be reasonably related to the prevailing royalty rates. including minimum royalties and preproduction payments. § 549-B(9). time and place shall be given to the applicant and public notice shall be made by causing publication of the notice twice in a newspaper of general circulation in the proposed locality or. 1840 The bond may be used to “reclaim the area mined and to protect against damage that may be caused to any property located outside the leased area by the lessee's mining operations. § 549-E. Id. 1838 The proceedings must meet the following standards: “The hearing shall be held within 90 days of receipt of the application and notice of the date. 340 .” In lieu of a bond. § 549-B(7)(A). The date of first publication shall be at least 10 days and the last publication shall be at least 3 days before the date of the hearing… A decision…shall be issued within 120 days of the date of the hearing. § 549-B(7)(B). the lessee is permitted to provide other security to be determined by the director of the agency. together with the other terms and conditions of the lease. 1843 1837 1838 Id. 1839 Id. the lessee must provide a bond in an amount to be determined by the director of the agency. in the state paper. if none.

[d] Termination and Injunction. The statute provides the director of the survey or the director of the agency the power to terminate the rights of alleged violators of the statute. 1844 If an explorer or lessee is alleged to have violated the statute: …the director of the survey or the director of the agency having jurisdiction over the state-owned lands shall notify the explorer, claimant or lessee, as the case may be, of the alleged violation and of the nature of the alleged violation, by sending the notice by registered or certified mail to him at his last known address. If the violation is not remedied within 30 days after the date of mailing the notice, the permit, claim or lease of the violator in existence at the time of the violation may be terminated by the State through the director of the survey or the director of the agency having jurisdiction over the state-owned lands by giving written notice of termination in the same manner specified for notice of violation. 1845 If it appears that any person is violating or threatening to violate the statute the state is permitted to seek injunction against the person in Superior Court. 1846 The Superior court has jurisdiction to grant to the state without bond, an injunction as warranted by the facts, “including temporary restraining orders and preliminary injunctions.” 1847 [e] Common and Undivided Interests. The director of the survey and the director of the Bureau of Parks and Lands may together promulgate procedures for the filing of exploration claims and issuance of exploration permits and leases addressing, “state-owned public lands, including public reserved lands, which are comprised of state-owned common and undivided interests.” 1848 The regulations promulgated by the directors may, “condition the issuance of an exploration permit or mining lease and the filing of an exploration claim upon the consent of a majority of the private common and
1844 1845

Id. § 549-B(14). Id. 1846 Id. § 549-B(15). 1847 Id. 1848 Id. § 549-B(8).

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undivided ownership of the parcel of land to which the exploration permit, exploration claim or mining lease relates.” 1849

1849

Id.

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§ 21.01

Analysis of Maryland Regulatory Framework. [1] – Name of the Governing Body.

In Maryland, oil and gas production is regulated by the Department of the Environment (“Department”). 1850 [2] – Scope of Authority. The state’s statutory provisions governing oil and gas conservation (collectively, “Act”) focus primarily on the protection of environmental resources and private property rights. Despite the statutory acknowledgment that “the production and development of oil and gas resources is important to the economic well-being of the state and the nation,” 1851 the regulatory climate emphasizes environmental quality and any allowed drilling requires “the use of the most environmentally sound drilling and production methods.” 1852 Further, the Act states that safe utilization of oil and gas resources demands that circumstances may often require production to be strictly prohibited without exception. 1853 The Department may enact rules and regulations as necessary to enforce the Act. 1854 The Department may act upon its own motion, or the petition of any interested person. 1855 Absent an emergency, the Department will not enter any rule, regulation or order without holding a public hearing upon at least ten days’ notice. 1856 The hearing will be held at a time and place determined by the Department, at which any interested person is entitled to be heard. 1857 All

1850 1851

Md. Code Ann., Envir. § 14-102(d) (LexisNexis 2010). Id. § 14-101. 1852 Id. (emphasis added). 1853 Id. 1854 Id. § 14-103. 1855 Id. § 14-114(d). 1856 Id. § 14-114(a). 1857 Id.

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rules, regulations, and orders must be written and maintained as public records, copies of which are receivable in all state courts. 1858 Any person adversely affected by any Department rule, regulation or order may file a written application for a rehearing within 15 days after the effective date thereof. 1859 The Department will act upon the application within 15 days of filing, and promptly hold a hearing if it so chooses. 1860 If the rehearing is not granted, “any person aggrieved by any action of the Department may apply to the circuit court of the county in which the person resides[,] or the well is located[,] for review of [the Department’s] decision.” 1861 The Department may become a party to such appeal. 1862 The court will review the agency’s decision de novo and determine all matters of law and fact without a jury. 1863 Any party aggrieved by a final decision of the circuit court may then appeal to the Maryland Court of Special Appeals. 1864 [3] – Drilling and Operating Permits. No person may drill a well without first obtaining a permit from the Department. 1865 An application for a drilling and operating permit must include, among other information: (1) The names and contact information of the applicant, operator, and resident agent; (2) An environmental assessment; (3) A copy of the oil and gas lease that gives the applicant the right to enter and drill at the proposed location, and if the mineral rights have been severed, a copy of the right of entry agreement with the surface owner; (4) If a pooled unit, copies of all leases in the unit which shall accompany the application showing the right to pool interests; and,

1858 1859

Id. § 14-114(c). Id. § 14-116. 1860 Id. 1861 Id. § 14-117(a). 1862 Id. 1863 Id. 1864 Id. § 14-117(b). 1865 Id. § 14-104(a)-(b).

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(5) Certification that the applicant has provided written notice of intent to drill to each landowner and leaseholder of property that borders the proposed drillable lease area. 1866 Upon proper application, the Department will notify the public via weekly publication for two consecutive weeks “in a newspaper of general circulation in the county where the proposed permit activity would occur” that a complete application has been received. 1867 The notice must provide an opportunity for any interested person to request a public hearing, which will be held within 45 days the Department’s receipt of such request. 1868 The Department will then publish notice of the hearing in the same fashion, hold a public hearing, and decide whether to approve or deny the permit within 30 days thereafter. 1869 Maryland imposes a statutory ban against drilling for oil or gas in the coastal waters and tributaries of the Chesapeake Bay. 1870 Further, the Department may deny a permit application if the proposed operation poses a substantial threat to public safety, or a risk of environmental damage to: the Chesapeake Bay Critical Area; any wetlands; endangered or threatened species or habitats thereof; designated historic properties; or populated areas. 1871 No permit will be granted if the operation “will constitute a significant physical hazard to” any dwelling, school, church, hospital, commercial or industrial building, public road, or other public or private property. 1872 Further, a permit will be denied if proposed operations will adversely affect the use of any public park, forest, or recreation area. 1873 [4] – Spacing Rules.

1866 1867

Md. Code Regs. 26.19.01.06(C) (2010). Id. 21.19.01.07(B). 1868 Id. 1869 Id. 21.19.01.07(C). 1870 Md. Code Ann., Envir. § 14-107 (LexisNexis 2010). 1871 Md. Code Regs. 26.19.01.09(H) (2010). Lands included in the Chesapeake Bay Critical Area are defined and regulated under Md. Code. Ann., Nat. Res. § 8-1807 (LexisNexis 2010). 1872 Md. Code Ann., Envir. § 14-107 (LexisNexis 2010). 1873 Id.

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No oil or gas well may be drilled on any tract nearer than 1,000 feet from any boundary of said tract without the written consent of all owners of oil and gas underlying adjacent lands. 1874 For coalbed methane wells, the required distance is 500 feet from any property boundary. 1875 The Department is authorized to prescribe the distance required between any two wells located on the same property. 1876 The Department may also allow drilling within general setbacks if necessary due to site constraints, provided that the applicant has notified all landowners and royalty owners within 2,000 feet of the proposed well location. 1877 If the Department grants an exception, it will “notify every landowner, royalty owner, [and] leaseholder within the required minimum of the proposed well, giving them a reasonable opportunity to file objections to the issuance of the permit.” 1878 After notice, the Department will hold a hearing to determine whether an exception is necessary. 1879 Any landowner, royalty owner, or leaseholder within the relevant distance may file for a rehearing or appeal to a court of competent jurisdiction, which stays any authorization granted under the permit until a final determination is made. 1880 The Department may not issue a drilling permit for a gas well nearer than 2,000 feet to any existing gas well in the same reservoir. 1881 Similarly, the Department may not issue a permit to drill an oil well closer than 1,320 feet to any existing oil well within the same reservoir. 1882 For both oil and gas wells, the Department may allow an exception to these distance

1874 1875

Id. § 14-112(a)(1). Id. § 14-112(a)(2). 1876 Id. 1877 Md. Code Regs. 26.19.01.09(D) (2010). 1878 Md. Code Ann., Envir. § 14-112(a)(2) (2010). 1879 Id. 1880 Id. § 14-112(c). 1881 Md. Code Regs. 26.19.01.09(E) (2010). 1882 Id. at 26.19.01.09(F).

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requirements if it is provided “with credible geologic evidence of reservoir separation to warrant granting a spacing exception.” 1883 In addition, unless the Department receives evidence of written consent from all relevant owners, no drilling permit will be issued for any proposed well located within 1,000 feet of any school, church, drinking water supply, wellhead protection area, or occupied dwelling. 1884 [5] – Pooling and Unitization. The Department “may not prorate or limit the output of any gas or oil well.” 1885 Thus, waste prevention and correlative rights protection are sought through drilling permit restrictions and spacing requirements. Waste is not expressly defined or prohibited by the Act or

regulations; however, the Department “may not issue a drilling and operating permit when the proposed drilling or well operation would result in physical and preventable loss of oil and gas through inefficient or careless operating practices.”
1886

Such careless practices include

“operating or producing any oil or gas well in a manner that would result in a reduction of the ultimate quantity of oil or gas to be recovered from a pool.” 1887 The Act does not authorize the Department to order compulsory pooling or unitization, but acknowledges the right to voluntarily pool or unitize production for mutual benefit. For example, the Department defines “pooled unit” as “an area within which permittees of different tracts in the area have voluntarily agreed to participate in a well drilled within the unit.” 1888 Likewise, the Act notes that upon “completion of [an oil or gas] well on any leased lands included under a unit operation agreement, royalties from the producing well shall be paid on all

1883 1884

Id. at 26.19.01.09(E)-(F). Id. at 26.19.01.09(G). 1885 Md. Code Ann., Envir. § 14-103 (2010). 1886 Md. Code Regs. 26.19.01.09(J) (2010). 1887 Id. 1888 Id. at 26.19.01.01(40).

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lands originally included with [said] agreement.” 1889 Then, six months after initial production, “the lands within the unit agreement not included as ‘in pool’ acreage[,] and on which no royalties are payable[,] shall be released,” unless the owners of such lands have provided written consent otherwise. 1890 Notwithstanding these indirect references, Maryland law does not directly address pooling or unitization or specify operator control requirements, restraints of trade, or similar matters contemplated by other states. [6] – Directional Drilling Upon application, the Department may grant a permit for directional, or horizontal, drilling operations. 1891 The application must state (1) the reason(s) for proposed directional drilling; (2) the depth at which deviation from the vertical is planned; and, (3) the horizontal distance and direction of the proposed objective in reference to surface location. 1892 Horizontal operations also require extensive surveys to be taken prior to and during drilling and production. 1893 Absent a permit to authorize directional drilling, “a well may not vary more than 3 degrees from the vertical.” 1894 The Department may grant a permit for greater deviation “in order to straighten the hole, sidetrack impenetrables, or to correct other mechanical difficulties,” so long as correlative rights are not in dispute. 1895 Also, the Department may require the deviation of a particular well to be less than three degrees if necessary to protect correlative rights. 1896 The Department may require a well to be re-drilled, or plugged and abandoned, “[i]f

1889 1890

Md. Code. Ann., Envir. § 14-113 (2010). Id. 1891 Md. Code. Regs. 26.19.01.06(D) (2010). 1892 Id. 1893 Id. at 26.19.01.10(T)-(U). 1894 Id. at 26.19.01.11(A). 1895 Id. at 26.19.01.11(B). 1896 Id. at 26.19.01.11(C).

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an angular deviation and directional survey verifies violations of the approved well location or spacing requirements.” 1897

1897

Id. at 26.19.01.11(E).

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§ 22.01

Analysis of Massachusetts Regulatory Framework. [1] – Governing Body and Structure. Massachusetts law provides little discussion of oil and gas production, none of which

references pooling or unitization. The state Oil and Gas Act (“Act”), which comprises only three statutory sections, 1898 grants authority to the Department of Environmental Protection’s Division of Mineral Resources (“Department”) to oversee mineral extraction within the

commonwealth. 1899 Under the Act, those “mineral resources” concerned include “oil, gas, fossil fuels, sulphur, metal, ores, minerals, rock, soil, sand and gravel.” 1900 The Division of Mineral Resources is led by a Director who, with Department approval, may: (a) license orderly exploration for mineral resources; (b) lease exclusive rights for extraction of such mineral resources as have been discovered; (c) establish…fees for such licenses; and, (d) adopt, after a public hearing, such rules and regulations relating to such exploration and extraction of mineral resources…as will insure the proper utilization of such resources consistent with the harvesting and propagation of other valuable natural resources and the general safety, welfare and convenience of the commonwealth. 1901 [2] – Procedure. The Department may not grant any license or adopt any rule under the Act without holding “a public hearing, notice of which, including a statement of intent, shall be sent, at least thirty days prior to said public hearing, to each city and town bordering on the coastal waters of the commonwealth.” 1902

1898 1899

Mass. Gen. Laws ch. 21, §§ 54-56 (2010). Id. § 54. 1900 Id. 1901 Id. 1902 Id.

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Under the Act, “[n]o lease shall be issued for the extraction of any mineral resource until such time as the Department has obtained reliable information as to the quantities, quality and location of the resource available…and as to the extent of and risk of harm to marine and other natural resources.” 1903 The Department makes this information public prior to the hearing to afford citizens the ability to comment at the proceeding. 1904 Prior to commencing extraction operations, a licensee or lessee must post a bond “guaranteeing faithful performance of the contract with the commonwealth, …observance of any applicable rules, regulations and statutes, and timely payment as provided in said contract for any materials removed.” 1905 The Act does not specify a required bond amount, but only that it shall serve to indemnify the commonwealth against any and all matters “in relation to or in connection with [the applicable] license or lease.” 1906 [3] – Extraction Operations. The Act prohibits a licensee or lessee from operating under its contract “in such a manner as to interfere unreasonably with navigation or fishing, or with the conservation of natural resources.” 1907 The Department may revoke or suspend any active license or lease “upon any breach…by the licensee of any of the terms and conditions of the [contract], or upon any attempt to assign the rights of the licensee to any third party, …or any evidence of [the licensee’s] insolvency or…inability to perform under the contract.” 1908 [4] – Other Matters.

1903 1904

Id. Id. 1905 Id. 1906 Id. 1907 Id. Note that ‘conservation’ herein is not mineral waste prevention per se. In Massachusetts, “natural resources” includes mineral resources, but also all “wild birds,…wild mammals and game; sea and fresh water fish…; forests and all uncultivated flora;… land, soil and soil resources, lakes, ponds, streams, coastal, [and] underground and surface waters.” Id. ch. 21, § 1. 1908 Id.

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The remainder of the Act authorizes and requires the Department to cooperate with other states and political entities regarding off-shore mineral extraction, 1909 and establishes civil penalties for mineral exploration or extraction without a license or lease from the Department. 1910

1909 1910

Id. § 55. Id. § 56.

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§ 23.01

Analysis of Michigan Framework. [1] – Name of the Governing Body.

The Michigan Department of Environmental Quality (“Department”) has the power to regulate unitization and pooling. 1911 The Office of Geologic Survey, which is a division in the Department, oversees the locating, drilling, operating, and plugging of oil and gas wells. 1912 [2] – Membership on the Governing Body. The Michigan Department of Environmental Quality (“Department”) was created by executive order in 1995. The authority to govern unitization, plus many other actions, was then transferred from the Michigan Department of Natural Resources to the Department by the Governor. 1913 The Director of the Department (“Director”) is appointed by the Governor, and may delegate his authority as necessary to adequately perform his duties. [3] – Scope of Authority. Michigan’s stated policy to foster natural resource conservation frames the Department’s goals to prevent waste and promote industry development and ultimate recovery of the maximum production of these oil and gas. 1914 Under direction of a designated supervisor, the Department has jurisdiction over all persons and things necessary for effective enforcement of conservation rules. 1915 Waste is strictly prohibited under the Act 1916 and defined to include: (1) underground waste, as those words are generally understood in the oil business; (2) the inefficient, excessive, or improper use or dissipation of the reservoir energy, including gas energy and water drive, of any pool;
1911 1912

Mich. Comp. Laws § 324.99903 (2011). Department of Environmental Quality, http://www.michigan.gov/deq/0,1607,7-135-3306---,00.html (last visited June 9, 2011). 1913 Mich. Comp. Laws § 324.99903 (2011). 1914 Id. § 324.61502. 1915 Id. § 324.61505. 1916 Id.

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(3) the locating, spacing, drilling, equipping, operating, or producing of a well or wells in a manner to reduce or tend to reduce the total quantity of oil or gas ultimately recoverable from any pool; (4) unreasonable damage to underground fresh or mineral waters, natural brines, or other mineral deposits from operations for the discovery, development, and production and handling of oil or gas; (5) surface waste, as those words are generally understood in the oil business; (6) the unnecessary or excessive surface loss or destruction without beneficial use, however caused, of gas, oil, or other product, but including the loss or destruction, without beneficial use, resulting from evaporation, seepage, leakage, or fire, especially a loss or destruction incident to or resulting from the manner of spacing, equipping, operating, or producing a well or wells, or incident to or resulting from inefficient storage or handling of oil; (7) the unnecessary damage to or destruction of the surface, soils, animal, fish, aquatic life, property, or other environmental values from or by oil and gas operations; (8) the unnecessary endangerment of public health, safety, or welfare from or by oil and gas operations; (9) the drilling of unnecessary wells; and, (10) market waste, which includes the production of oil or gas in any field or pool in excess of the market demand. 1917 In order to prevent waste, the supervisor has broad authority and may promulgate and enforce rules, issue orders of specific or general application, hold hearings, and “do whatever may be necessary [to administer the Act]…whether or not indicated, specified, or enumerated [therein].” 1918 [4] – Process for Pooling. [a] Authority to Integrate Production. To prevent the drilling of unnecessary wells, which is considered waste, the supervisor may establish a drilling unit for each pool. A drilling unit is the maximum area that may be efficiently and economically drained by one well. 1919 All operations on any portion of the unit

1917 1918

Id. § 324.61501(q). Id. § 324.61506. 1919 Id. § 324.61513(2).

354

area shall be considered the conduct of those operations upon each separately owned tract. As such, the portion of the unit production allocated to a single tract is deemed to have been actually produced from a well drilled on that tract. 1920 The voluntary pooling of interests is permitted under the Act. If an agreement cannot be made among owners, the supervisor may require pooling in any case when and to the extent that the smallness or shape of a separately owned tract or tracts would, under the enforcement of a uniform spacing plan or proration or drilling unit, otherwise deprive owners of the opportunity to recover or receive a just and equitable share of oil or gas in the pool. 1921 The owner of any tract that is smaller than the drilling unit established for the field will not be deprived of the right to drill on and produce from that tract, if the drilling and production can be done without waste. If these conditions are met, the allowable production from that tract, as compared with the allowable production if that tract were a full unit, will be in the ratio of the area of the tract to the area of a full unit. A smaller ratio may be required to maintain average bottom hole pressures in the pool, to reduce the production of salt water, or to reduce an excessive gas-oil ratio. The portion of the production allocated to the owner of each tract included in a drilling unit formed by voluntary agreement or by a pooling order will be considered as if it had been produced from the tract by a well drilled on the tract. 1922 Michigan law provides for the orderly development of state-owned resources through an oil and gas leasing program. The pooling of state-owned lands is not required if the supervisor determines the owner of each tract is afforded the opportunity to recover and receive his or her just and equitable share of the hydrocarbon resources in the pool. 1923

1920 1921

Id. § 324.61712. Id. § 324.61513(4). 1922 Id. 1923 Id. § 324.61513(a).

355

The petition needs to contain: (1) a description of the pool. This verified statement need not be part of the petition and may be filed separately prior to the supplemental hearing if the question of whether the plan for unit operations has been approved and is to be considered at a supplemental hearing. pools. § 324. (5) a recommended plan of unitization applicable to the proposed unit area which the petitioner considers fair. (2) the names of all persons owning or having an interest in oil and gas in the proposed unit area. reasonable. pools. if known. If the address of any person is unknown. § 324. (4) a statement of the type of the operations contemplated. the petitioner will give notice to all interested persons. in general circulation in exploratory and developmental branches of the oil and gas industry in this state. place. 1925 Notice of time. § 324. (3) the names of all surface owners in the proposed unit area.61704 (1). and. the petition shall so indicate. (6) a verified statement indicating in detail what action the petitioner has taken to contact and obtain the approval of all persons of record owning or having an interest in oil and gas in the proposed unit area who have not approved the proposed plan of unitization.61726. termed the unit area. and their addresses. 1924 Once the petition is filed. and equitable. 1926 1924 1925 Id. or commercially available scout report. or parts of one or more pools. or newsletter or paper. (2) at least [twenty] days prior to the date set for the hearing in a trade journal.61703. as disclosed by the records in the office of the register of deeds for the county in which the unit area is situated. or parts of one or more pools to be so operated. Id. periodical. 1926 Id. and issues involved must be published: (1) once each week for [two] weeks consecutively in a newspaper of general circulation in the county in which the unit area or any portion of the unit area is located if the date of last publication is at least [twenty] days prior to the date set for the hearing.[b] Application for Pooling Orders. 356 . Any interested lessee may file a verified petition with the supervisor requesting an order for the unit operation of a pool.

an affidavit of service will be filed with the 1927 1928 Id. and of the surface owners. or before the supervisor's order is issued if there is no hearing. 357 . 1930 Id. Undelivered notices that are returned to the petitioner will be filed with the supervisor on or before the date of the hearing. 1929 Additionally. and contiguous to. The notice to all mineral owners who have not approved the plan of unitization shall include a copy of the petition.61727(1). and of the surface owners. or before the supervisor's order is issued if there is no hearing. the Act does not set forth any other procedure to protest the petition. 1927 A person protesting the petition has fifteen days after the completion of the publication of notice to provide the supervisor with written notice of protest and the reason or reasons for the protest. § 324. (2) the last owner of record of the oil and gas mineral interests underlying the lands or areas immediately adjacent to. Id.61704(2). § 324. the lands or areas directly affected by the proposed action. then receipts need to be filed with the supervisor on or before the date of the hearing. address. and phone number of a representative of the petitioner who is available to discuss the petition. § 324.61704(2). § 324. 1929 Id.61704(1). and (3) the last owner of record of oil and gas leases from one or more owners described above. 1928 Other than this requirement. The notice also needs to state that the supervisor may issue an order approving the petition without a hearing if no protests are received within the proscribed period of time. If notice is given by personal service.The petitioner’s notice to interested persons needs to provide the procedure required to file a protest and the name. 1930 If the delivery of the notice is by certified mail. the notice needs to be provided to the last known address of the following interested persons: (1) the last owner of record of the oil and gas mineral interests underlying the lands or areas directly affected by the proposed action.

1938 [c] Unitization Orders. or before the supervisor's order is issued if there is no hearing. no affected rule or order will be effective until a public hearing is held. 1937 The supervisor will prescribe procedural rules in hearings or other proceedings he or she hears. 1935 Id. § 324. 1938 Id. § 324.61727 (2)-(4). Id. 324. 1936 Id. 1937 Id. § 324. § 324. § 324. and is required to do so in response to filed complaint or protest from affected parties. 1931 If no protests are filed. §§ 324. and what action should be taken to prevent that waste. 1936 Public hearings are to be held at such time. 1934 If an adequate filing is made. unless a different time period is provided by a rule. 1932 However. 358 . the supervisor will consider findings and recommendations in issuing rules or orders as necessary to prevent waste. 1931 1932 Id. the supervisor will hold a hearing and promptly make findings and recommendations. 1933 The supervisor may hold a public hearing upon his own initiative.61725. the supervisor may issue an order without holding a hearing. § 324. § 324. and manner and upon notice of not less than twenty days. If the supervisor determines it appropriate.61508(1). 1934 Id. 1933 Id.61507. place.61507.61704(3). 1935 During the hearing.supervisor on or before the date of the hearing.61704(3). the supervisor may call a hearing to determine whether or not waste is taking place or is reasonably imminent.61725. The supervisor will issue an order providing for the unit operation of a unit area if he or she finds that: (1) the unitization requested is reasonably necessary to substantially increase the ultimate recovery of oil and gas from the unit area.61725.

(3) an allocation to the separately owned tracts in the unit area of all the oil and gas that is produced from the unit area and is saved. (7) provisions for supervision and conduct of the unit operations. including a detailed accounting procedure governing all charges and credits incident to the operations. and. equipment. (6) the procedure and basis upon which wells. (9) the time when. and method by which the unit shall be dissolved and its affairs wound up. allowing a reasonable interest and service charge payable out of the person's share of production. (10) additional provisions that are found to be appropriate for carrying on the unit operations and for the protection and adjustment of correlative rights. (4) the manner in which the unit and the further development and operation of the unit area shall or may be financed and the basis. in respect to which each person will have a vote with a value corresponding to the percentage of the costs of unit operations chargeable against the interest of the person. § 324. and will protect correlative rights. including the method of arriving at the compensation therefore. 1939 The order needs to be upon terms and conditions that are fair. (5) provisions for carrying or otherwise financing a person who elects to be carried or otherwise financed. and. (8) the time when the plan of unitization becomes effective and when unit operations commence. and equitable. and equitable share of production shall be measured by the value of the tract for oil and gas purposes and its contributing value to the unit in relation to like values of all tracts in the unit. and other properties of the several lessees within the unit area are to be taken over and used for unit operations. and conditions on which the cost and expense will be apportioned among and assessed against the tracts and interests made chargeable therewith. reasonable. conditions under which.(2) the type of operations contemplated by the plan are feasible. 1940 1939 Id.61704(4). excepting that production that is used in the conduct of operations on the unit area or unavoidably lost. The order for the unit operation plan will provide: (1) a description of the unit area. will prevent waste. (3) the estimated additional cost of conducting such operations will not exceed the value of the additional oil and gas so recovered. terms. reasonable. (2) a statement in reasonable detail of the operations contemplated. 359 . A separately owned tract's fair.

an order providing for unit operations may be amended by an order made by the supervisor in the same manner and subject to the same conditions as an original order for unit operations after approval by the appropriate persons. If the written approval is found. then the supervisor will make a supplemental order declaring the plan effective and setting forth the date for the commencement of unit operations. If a finding of approval by the appropriate person is not made at the time of the order for unit operations. 1942 Id. either in the order providing for unit operations or in a supplemental order. 1940 1941 Id. § 324. An amendment will not change the percentage for the allocation of oil and gas as established for any separately owned tract without the consent of all persons entitled to receive the allocation. the supervisor extends the time for an additional period not to exceed one year. If the written approval is not found within a period of six months from the date on which the order providing for unit operations is made.61705. that the plan for unit operations has been approved in writing by the appropriate persons. for good cause shown. 1941 Operations conducted pursuant to an order of the supervisor for unit operations constitute a fulfillment of all the express and implied obligations of each lease or contract covering lands in the unit area to the extent that compliance with the obligations cannot be had because of the order of the supervisor. will hold supplemental hearings to determine if the plan for unit operations has been approved. Additionally. 1942 [d] Royalty Distribution. the supervisor.61713.An order of the supervisor providing for unit operations cannot be declared or become effective until the supervisor makes a finding. § 324. 360 . § 324. the order will be ineffective and must be revoked by the supervisor unless.61708. Id. after notice and on the supervisor's motion or the motion of any interested person.

§ 324.61501. § 324. 1944 § 23. that are produced at the well in liquid form by ordinary production methods and that are not the result of condensation of gas after it leaves the underground reservoir. The order in providing for the allocation of unit production first will treat the unit area previously established as a single tract. regardless of gravity.61710. [e] Modifications and Exceptions. whether unitized or not. 361 . 1945 The Act also provides a collective definition particular to unitization concerns: 1943 1944 Id. § 324. The supervisor. [1] – Mineral Distinctions. Id. For general application to waste prevention and the creation of drilling units. (2) “Oil” means natural crude oil or petroleum and other hydrocarbons. 1945 Id. by order.61711. the Act defines oil and gas as follows: (1) “Gas” means a mixture of hydrocarbons and varying quantities of non-hydrocarbons in a gaseous state which may or may not be associated with oil.Neither the Act nor any other promulgated rules discuss the royalty interest rate. and includes those liquids resulting from condensation. and the portion of the unit production so allocated thereto will then be allocated among the separately owned tracts included in the previously established unit area in the same proportions as those specified in the previous order.02 Types of Michigan Pooling Statutes. may provide for the unit operation of a unit area that embraces a unit area established by a previous order. 1943 An order may provide for a unit area less than the whole of a pool if the unit area is of such size or shape as may be reasonably adaptable to unit operation and if the conduct of that unit area will not have a substantially adverse effect upon other portions of the pool.

(3) topographical or other conditions are such as to make drilling at the regular location unduly burdensome or imminently threatening to water or other natural resources.61513(5). a well at the location would be unproductive. § 324. for some other reason. § 324. or gas distillate. or township in which the well is located has been notified of the application for the well permit. (2) the owner or owners of all residential buildings located within 450 feet of the proposed well give written consent. a waiver may be granted by the supervisor if: (1) the clerk of the city. the drilling and permitting of an oil and gas well is prohibited if located within 450 feet of a residence lying in a city or township with a population of 70. which may be found in or produced from a common source of supply of oil. or any combination or combinations of these substances.000 or more. to property. or to life. 1948 Id. gas distillate. gas. [3] – Spacing Rules. village. gas. 1948 Also. The Act does not differentiate its default provisions based on well depth. casinghead gasoline. 1946 1947 Id. Each well permitted to be drilled upon any drilling unit shall be located in the approximate center of the drilling unit. (2) the owner or owners of a tract or tracts covering that part of the drilling unit or tract on which the well would be located if it conformed to the uniform well spacing pattern refuses to permit drilling at the regular location. 1947 The well may be located so it does not conform with the uniform well spacing pattern if the supervisor finds that: (1) the unit is partly outside the pool or that. § 324. Id.61701.(1) “Oil and gas” means oil and gas as such in combination one with the other and also means oil. 1946 [2] – Split by Depth.61513(2). or other hydrocarbons. oil and gas. or at such other location on the drilling unit as may be necessary to conform to a uniform well spacing pattern as adopted and promulgated by the supervisor. 362 . However. casinghead gas.

including. (2) those persons who under the supervisor's order will be entitled to at least 75% of all production from the unit area or the proceeds of that production. then the consent of all these persons is required. The Act does not specify the size of a drilling unit. but not limited to. the plan for unit operations needs to have been approved in writing by: (1) those persons who under the supervisor's order will be required to pay at least 75% of the costs of unit operation. [5] – Minimum Operator Control. royalties. and the amendment affects only the rights and interests of those persons responsible for the payment of the costs of unit operations. and production payments. when an order providing for unit operations has been amended. 363 .61506(b). overriding royalties. and also by those persons who under the supervisor's order will be entitled to at least 75% of the production from the unit area or the proceeds of that production that will be credited to interests that are free of cost. § 324. and. If the consent is granted by all person entitled to 1949 1950 Id. royalties. overriding royalties. Id. For an order of the supervisor providing for unit operations to be declared or to become effective. 1949 [4] – Size.61706. including. If an amendment in whole or in part changes the percentage of allocation of cost.(3) the supervisor determines that there is no reasonable alternate location for the well that will allow the oil and gas rights holder to develop the oil and gas. 1950 Additionally. provided that among those persons there must be persons who under the supervisor's order will be entitled to at least 50% of the production from the unit area or the proceeds of that production that will be credited to interests that are free of cost. but not limited to. (4) the well will not cause waste. only 75 percent of these persons are required to effectuate the amendment. or (3) those persons who under the supervisor's order will be entitled to at least 90% of all production from the unit area or the proceeds of that production. § 324. and production payments.

1951 1951 Id.61708. § 324. then the amendment may change the percentage of allocation. 364 .receive the allocation of oil and gas as established for any separately owned tract.

02(5). statute. § 15. the governor determines which takes charge. STAT.06(9). whether the governor’s term ends due to natural expiration or is vacated for other reasons. and unitization of oil and gas. § 15.515 (2010). 1954 Id.” 1955 here. the Commissioner of the Department of Natural Resources (“Department”) is given the authority to adopt rules relating to spacing. 1958 If a vacancy occurs in the Commissioner’s office or the incumbent is not designated at the term’s end. 1952 The Commissioner is the head of the Department 1953 and is appointed by the Appointing Authority with consent of the Senate. § 43A.06(2). [1] – Governance. or executive order to employ persons in or to make appointments to positions in the civil service.06(4). In Minnesota. the Deputy Commissioner fills in until further notice.06(3). § 15. 365 . 1960 Id. If more than one deputy commissioner exists. 1957 No former commissioner or deputy commissioner may participate in a proceeding of the Department representing private interests within one year of leaving the position. 1958 Id. § 15. see also id. 1956 Id. if no deputy commissioner exists.§ 24.06(2). 1957 Id. 1959 Id. 1955 Id. § 93. the governor. § 15.06(1).22(1). Id. § 179A. 1956 The Commissioner’s term expires along with the term of governor. pooling.01 Analysis of Minnesota Regulatory Framework. 1960 1952 1953 MINN. § 15.01(1). the governor will appoint a temporary commissioner. 1954 The Appointing Authority is defined as “a person or group of persons empowered by the Constitution. § 84. 1959 The governor also has the power to appoint someone other than the Deputy Commissioner as the temporary commissioner.

001. 1966 which governs the development and protection of groundwater 1967 and is under the jurisdiction of the Department of Health. 1968 Id. 1969 Id.605. 366 . [a 1961 1962 Id.06(6)(2). §§ 103I. 1969 Although it defines neither oil nor gas. 1966 Id. the Commissioner may organize the Department with approval of the Commissioner of Administration and prescribe the Department’s internal management to the extent procedures do not affect public rights or procedure. § 15.515.06(6)(1).06(8). § 93. 1965 However. § 15. no rules have been promulgated under this authority.001–. § 15. pooling. The statutes contain one section to that end which grants authority to the Natural Resources Commissioner to adopt rules related to spacing. §§ 103I.605. 1965 Id. § 103I. the Act states that exploratory boring means “a surface drilling done to explore or prospect for oil. and unitization. so long as each such delegation is made by written order and filed with the Secretary of State and so long as only a deputy commissioner may have all the same powers or duties of the Commissioner. 1968 regulates exploratory borings. 1963 Id. 1964 Id.601–. Id. 1962 Unless specifically authorized by statute. 1963 Finally.The Commissioner has the authority to appoint all subordinate employees and prescribe their duties. The Minnesota Exploratory Borings Act (“Act”). § 103I. the Department of Natural Resources may not have more than one deputy commissioner. natural gas.06(6)(3)–(4). § 15. 1961 He or she may also delegate to any subordinate employee the exercise of the Commissioner’s statutory powers or duties. 1964 Minnesota dedicates little legislative material to the regulation of oil and gas production. 1967 Id.101(1).

601(3)(a). § 103I. 1974 and complying with several reporting requirements. if requested. 1972 registering with the Commissioner of Natural Resources and providing a copy of the registration to the Commissioner of Health.601(3)(a).1973 providing a bond. The Act provides that no person may make an exploratory boring without an explorer’s license. § 103I. and a drilling or boring for petroleum.” 1978 1970 1971 Id. § 103I.605(1). § 103I. 1975 The registration to be provided to the Commissioners must include the following: “(1) the identity of the firm. § 103I. including the agent’s business address.601(3)–(9). 1971 Requirements for exploratory boring include designating a responsible individual to supervise and oversee the process of exploration. or assurance to the Commissioner of Natural Resources. § 103I.601(3)(b). association. § 103I.005(9). 1973 Id. 367 . § 103I. 1976 Id. [2] – Procedure.601(2)(a). or company engaged in exploratory boring. 1977 Id. 1970 The Department of Health is organized and populated in the same manner as the Department of Natural Resources. 1978 Id.601(2)(d). the Act requires the explorer to submit data obtained in the process of exploratory boring to the Commissioner of Natural Resources. 1975 Id. security. 1974 Id. and (2) the identification of an agent. § 103I. 1977 Data is defined as “samples and factual noninterpreted data obtained from exploratory borings and samples including analytical results.host of other minerals]. 1972 Id.601(1)(b). Id.” 1976 Lastly.

§ 53-1-5(1). The State Oil and Gas Board (“Board”) is the regulatory body vested with the authority and responsibility of carrying out all laws relating to oil and gas conservation in Mississippi. one from each Supreme Court district: one from the First Supreme Court District for an initial term of two years. 1981 To be eligible to serve on the Board. All members are eligible for reappointment at the determination of the appointing officer. the respective appointing officer will fill the unexpired term by appointment. as well as a Mississippi resident. Three members. must be a qualified elector in Mississippi. each with staggered six-year terms. § 53-1-17 (2011). no person who is in the business of buying or selling mineral leases or minerals. Code Ann. After the expiration of the initial terms. refining. and one from the Third Supreme Court District with an initial term of six years. 1982 Id. [1] – Name of the Governing Body. Two members are appointed from the state at large for four-year terms: one is appointed by the Lieutenant Governor.01 Analysis of Mississippi Regulatory Framework. one from the Second Supreme Court District with an initial term of four years. transporting. 1980 All members must be confirmed by the Senate. 1982 Additionally.1979 [2] – Membership of the Governing Body. producing. 368 . non-partisan judgment. and one is appointed by the Attorney General of the State of Mississippi. see also id. are appointed by the Governor. In the event of a vacancy. these three positions each have six-year terms. § 53-1-5. The State Oil and Gas Board consists of five members. 1981 Id.§ 25. a member must be a United States citizen. Id. or 1979 1980 Miss. and must be a person of integrity and sound. who are appointed using two different methods. drilling.

1986 Id. while three affirmative votes are required to adopt or promulgate a rule or order. and utilization of oil and gas. § 53-1-13.” 1987 The Statute states that its policy includes to foster the development. Id. 1987 Id. 1985 Finally. who must be “a competent and qualified administrator” and who will receive a yearly salary to be fixed by law. The Supervisor is charged with enforcement and administration duties and is the ex officio secretary of the Board and give surety conditioned on his truthful accounting of all funds that pass through his hands. Members who are absent from three consecutive regular meetings.1986 [3] – Scope of Authority. 369 . petroleum engineers. production. A majority constitutes a quorum. each of whom must be a resident and qualified elector in Mississippi. will be removed by the Governor. § 53-1-5(2). 1984 The Board will appoint a State Oil and Gas Supervisor (“Supervisor”). the Supervisor is authorized to hire geologists. unless such absence is due to that member’s illness. field inspectors. The Mississippi State Oil and Gas Board Statute (“Statute”) gives the Board jurisdiction and authority over “all persons and property necessary to enforce effectively the provisions of this chapter and all other laws relating to the conservation of oil and gas. 1985 Id. § 53-1-15. § 53-1-7. to protect the public and private interests against waste in the production of oil and gas by prohibiting waste as defined herein. to protect co-equal and correlative rights of owners in a common reservoir such that each may obtain his just and equitable share of production 1983 1984 Id. 1983 The Board must meet and have hearings at a time and place decided on by the Board. § 53-1-17(1).distributing oil or gas in any state will be eligible to serve on the Board as a member or employee. and other essential personnel to carry out his responsibilities.

it is not the State’s intent to prorate oil and gas production on the basis of market demand. disproportionate. except sour gas. (9) The use of gas from gas wells. (5) The drowning with water of any stratum or part thereof capable of producing oil or gas. 1988 Further.therefrom. (6) The creation of unnecessary fire hazards. from a well producing both oil and gas. (2) Abuse of the correlative rights and opportunities of each owner of oil or gas in a pool due to non-uniform. subject to the prohibition of waste and subject to protection of correlative rights. Id. and to obtain the full development of all producing pools or those which may later be brought into production. but rather to allow each pool in the State to be produced to its maximum efficient rate of production. 1990 1988 1989 Id. equipping. 370 . operating or producing of any oil or gas well or wells in a manner causing or tending to cause unnecessary or excessive surface loss or destruction of oil or gas. (7) The escape into the open air. drilling. (3) Producing oil or gas in such manner as to cause unnecessary channeling of water or gas or both or coning of water. or unratable withdrawals causing undue drainage between tracts of land or resulting in one or more owners in such pool producing more than his just and equitable share of the production from such pool. The Statute defines “waste” as follows: (1) The inefficient storing of oil. (8) Permitting gas produced from a gas well to escape into open air. spacing. and the locating. § 53-1-3(l). (4) The operation of any oil well or wells with an inefficient gasoil ratio. 1989 Waste is explicitly made unlawful in section 53-3-3 of the Statute. of gas in excess of the amount which is necessary in the efficient drilling or operation of the well. § 53-1-1. except and unless the board shall find that there are no adequate pipeline connections to otherwise market the gas. for the manufacture of carbon black. 1990 Id.

hold hearings. (l) To allocate and apportion the production of oil or gas. In exercising that authority. and do all other things reasonably necessary to enforce sections 53-1-1 through 53-1-47 and 53-3-1 through 53-3-21 of the Statute. from any pool or field for the prevention of waste as herein defined. § 53-1-17(2). (m) To prevent. books and records. § 53-1-17(3). refineries. (k) To regulate the spacing of wells and to establish drilling units. or both. drainage which is not equalized by counterdrainage)” so that all 1991 1992 Id. tanks. check. papers. 1991 The Board also has the authority and duty to make reasonable rules and orders for the following purposes. test and gauge oil and gas wells. . 1992 The Board has the authority to regulate the drilling and location of wells in pools and to regulate the production from those wells so “to prevent reasonably avoidable net drainage from each developed unit (that is. the Board may do the following: collect data. among others: (c) To require adequate proof of financial responsibility in a form acceptable to the board and conditioned for the performance of the duties [of drilling in an environmentally responsible manner] as outlined in paragraphs (a) and (b) of this subsection . 371 . including drilling records and logs. leases. .The Board has the authority and duty to discover whether or not waste exists or is imminent. examine properties. . so far as is practicable. examine. and modes of transportation. and to allocate such production among or between tracts of land under separate ownership in such pool on a fair and equitable basis to the end that each such tract will be permitted to produce not more than its just and equitable share from the pool. require recordkeeping and report-making. Id. make investigations and inspections. reasonably avoidable drainage from each developed unit [that] is not equalized by counter-drainage.

the Board should establish a drilling unit or units for each pool. § 53-3-101. upon the application of an interested person. § 53-3-5(b).owners might be able to receive their fair and equitable share of production from the pool. However. 1994 The Board has the authority to require owners of separate tracts and/or separate interests within those drilling units to integrate or pool their interests for development. to increase the ultimate recovery of oil and gas and to prevent waste. 1996 [4] – Process for Pooling. Such an order must be made after notice and hearing and should be upon terms that are just and reasonable and that will give owners the ability to recover their just and equitable share of oil and gas in the pool without unnecessary cost. 1998 Id. or an entire pool or pools. Id. 1997 The Board. § 53-3-7(1)(a). 1995 Id. 1995 Additionally. or a portion or combination thereof. the Board. § 53-3-5(a). upon application of an interested person. § 53-3-7(1). 1996 Id. should be operated as a unit in the interest of preventing waste and of preventing the drilling of unnecessary wells. or both. may hold a hearing to determine whether an entire field. 1993 In carrying out all of its duties to prevent waste and protect correlative rights. § 53-3-101. within a field. 1997 Id. should be operated as a unit for production of oil or gas. Integration of interests and development of lands as a drilling unit may be appropriate when an established drilling unit covers two or more separately owned tracts or embraces separately owned interests. or a pool or pools. in the event such owners have not so agreed. the Board may require integration in order to prevent waste or to avoid drilling unnecessary wells. or any portion or portions or combinations thereof. The persons owning such tracts or interests may agree to integrate their interests. may also determine whether or not an entire field. 1998 1993 1994 Id. 372 .

2002 A petition for hearings should be in written letter form and should state the generalities of the matter upon which action is requested. Id. (6) Creation or Amendment Special Field Rules. 1999 Any interested person. § 53-1-21. (5) Approval of Voluntary and Compulsory Unitization. 373 .” 2000 may request that the Board hold a hearing. 2005 Id. and the reason for said relief. the interest of the applicant. as well as in a general circulation paper in the county or counties in which the lands involved are located. § 2. (3) Establishment or Amendment of Allowables. the relief sought. (2) Amendment to Established Drilling or Developed Units. and the Board must act promptly after it receives such request. which term is to be “interpreted broadly and liberally and shall include all mineral and royalty owners. § 53-1-29. § 53-3-119. and (11) Exception from Unitization Orders. 2003 Id. the Board must call the hearing within 30 days after proper notice of the hearing. (7) Determination of Reasonable Well Costs. 2005 1999 2000 Id. (9) Authorization of Down Hole Commingling. 2001 Id. (4) Petitions for Forced Pooling. § 1 (LexisNexis 2011). the Board may not make any rules or orders without first holding a public hearing upon a minimum of 10 days’ notice. § 4(B). 2004 Id.In the absence of an emergency. (10) Operation of Injection Wells. 2002 60-040-001 Miss Code R. Mississippi general circulation daily publication. Notice by publication must be given at least 20 days prior to the hearing date in a Jackson. (8) Operation of Multiple Wells on a Unit. 2003 Notice should be given by publication unless otherwise required by law. 2001 According to the Rules of Order and Procedure for Hearings before Board (“Hearing Rules”). § 4(A). 2004 Notice of the hearing by personal service is required for a petition seeking any of the following action: (1) Location Exception and Intentional Deviation.

if the Board finds that the person in question had actual notice at least 10 days prior to the hearing date. the Board may issue an order requesting unit operations based on the following findings: (a) Unit operation of the field or of any pool or pools. 2012 Id. 2007 Any type of notice sufficient for ordinary business purposes. 2009 Id. § 4(C)(8) 2013 Miss. § 4(C)(6). such as first class mail. 2008 Id. however. the Board may hold the hearing nevertheless. notice may be waived in writing as to an individual’s interest only. § 53-3-5(b) (2011). 2012 The Board must base its decision whether or not to establish a drilling unit or units for each pool on whether doing so will prevent waste. Code Ann. Id. 2010 Id. § 53-3-7(1)(a). 2011 Also.The requirements for personal notice are that such notice be given in writing in the same form and with the same content as the published notice. 2008 may be used. 2011 Id. § 4(C)(2). 374 . 2006 It should be given 25 days prior to the hearing date unless more time is required for another reason. A copy of the petition should be attached to the notice. If reasonable diligence does not yield that information. 2014 Id. § 4(C)(4). is 2006 2007 Id. the Board may require integration of interests within a drilling unit when doing so would prevent waste and require fewer wells to be drilled. § 4(C)(3). and avoid the changing and accumulation of risks arising from the drilling of excessive wells or the reduced recovery that might result in too few wells being drilled. § 4(C)(1). 2010 Even if the petitioner does not give proper notice. 2014 Finally. protect and enforce correlative rights of owners. publication will be a sufficient means of notice. 2009 The petitioner should make a diligent effort in determining the proper name and address of each person to whom personal notice is due. or of any portion or portions or combinations thereof within the field. § 4(C)(5). 2013 Also.

reasonably necessary in order to effectively carry on secondary recovery. (b) One or more method of unitized operation as applied to such common source of supply or portion thereof is feasible and will prevent waste or will with reasonable probability result in the recovery of substantially more oil or gas. 2019 Id. 375 . 2018 60-040-001 Miss. or to prevent waste as defined [herein]. § 53-3-103. or both. 2017 Id. 2019 Unitization orders should be fair and reasonable under all circumstances and must include the following: 2015 2016 Id. Id. which order must specify the findings of fact and conclusions of law. § 10(A) (LexisNexis 2011). cycling operations. or any combination thereof. from the unit so formed. 2017 The prevailing party must draft a proposed order for the Board to review and approve. Code R. pressure maintenance. (d) The correlative rights of interested parties will be protected. 2018 The signed order must then be filed with the Board not more than 30 days after the final decision.” 2016 Field unitization may not be approved until each of the field’s drilling units have been drilled. repressuring operations. 2015 Unit operators must have drilled enough wells to a sufficient depth and at such locations “as may be necessary for the board to approve the boundaries of the unit and determine that the field. from the unit so formed than would otherwise be recovered. or any other form of joint effort calculated to substantially increase the ultimate recovery of oil or gas or both. unless the Board waives this requirement after finding that it is not economically feasible for a certain drilling unit to be drilled. pool or pools have been reasonably developed according to a spacing pattern approved by the board. § 10(D). water flooding operations. (e) The estimated additional cost incident to conducting such operation will not exceed the value of the estimated additional recovery of oil and gas and such cost of oil operation shall not be borne by the royalty owners. (c) The plan of unitization and the agreements effectuating same are fair and reasonable under all of the circumstances and protect the rights of all interested parties.

(f) The designation of. A transfer or conversion of any owner’s interest or any portion thereof. The cost of dry holes drilled within the unit area before the effective date of an order of the Board is not chargeable as investment unless used in the unit operation. then all of that owner’s interest in the unit production and equipment may be foreclosed in the same manner and under the same procedures provided for the foreclosure of mortgages in chancery court. the unit operation shall terminate. The owners of the unit area will determine the amount to be charged. the conduct of whom is governed by the terms of the unitization agreement. (h) A requirement that all oil and/or gas contained in a unit area shall be produced and sold as rapidly as possible without decreasing the ultimate recovery of such oil and/or gas causing damage to the reservoir. (d) A provision for the adjustment among the owners (not including royalty owners) of their respective investment in drilling materials and services for unit operations. 2020 2020 Miss. if those owners cannot agree to the amount. will be borne by the owner or owners (not entitled to share in production free of operating costs and who in the absence of unit operation would be responsible for the expenses of developing and operating) of each tract in the same proportion that such tract shares in unit production. or a provision for the selection of a successor to the unit operator. 376 . shall not relieve the transferred interest of said operator’s lien on said interest for the cost and expense of unit operations. If any owner fails to pay his part when due. past or prospective. The unit operator has a lien thereon to secure payment of such share. in which event its value to the unit shall be charged as investment. (g) The time the unit operation shall become effective and the manner in which. being the proportionate part of the unit production value contributed by his or her tract as said tract bears to the total of all like values of all tracts in the unit. and the circumstances under which. (b) A statement of the nature of the operations contemplated. Code Ann. including investment past and prospective. (c) A formula for allocating production from the unit. (e) A provision that the costs and expenses of unit operation. the Board must determine appropriate charges after notice and hearing. however accomplished after the effective date of the order creating the unit.(a) A description of the unit area. which allocation should provide each person with his or her just and equitable share of unit production. § 53-3-105 (2011).

not more than one well may be producing from or drilled to the same pool in a unit. Also. the Board must have found that the requisite approval has been given in the initial order or in a supplemental order. §§ 7–9 (LexisNexis 2011). § 53-3-107. [a] Number of Wells. 2022 Board orders may be appealed to the chancery court of the county where the land involved is located. 2024 60-040-002 Miss. 2024 [b] Depth and Spacing Rules. it will be automatically revoked. 2021 The Board may extend or add new portions of pools to an existing unit area to be approved by the same percentage of interest holders of the area to be added. If the required percentage of interest holders does not give such approval within 12 month of the order. a petition may be filed to obtain permission to drill multiple wells within a single unit. Id. § 53-3-109. Appeals must be made within 30 days from the date the order is filed with the Board. 2023 Id. As noted above. Unless such an exception is granted. Code R. § 53-3-119. 377 . 2023 [5] – Matters Covered. The Statewide Rules and Regulations (“Statewide Rules”) provide detailed spacing and depth requirements. as well as based 2021 2022 Id. Spacing rules differ based upon which pool is drained.Orders requiring unitization do not become effective until the plan and agreement have been signed or ratified in writing by the owners or lessees of at least 75 percent in interest in proportion to the surface acreage content of the unit area and by at least 75 percent (exclusive of royalty interests owned by lessees or by subsidiaries or successors in title of any lessee) in interest of the royalty owners on the basis of the surface acreage content.

[c] Allocation of Production and Costs. Orders requiring unit operation must provide a formula for allocating the production among the separately owned tracts. § 53-3-105(d). which may be foreclosed on in the event of nonpayment. These adjustments may be provided for in a separate agreement from the unitization agreement. if a lease covers land partially in and 2025 2026 Miss. the Board may make the determination. but in the absence of such an agreement. 378 . 2026 Additionally. orders may call for adjustment among the owners (not including royalty owners) of their respective investments attributable to unit operations. Code Ann. § 53-3-105(e). Such formula must be reasonably suited to allow each owner to receive the benefit of the equitable and reasonable share of production from his tract. The unit operator has a lien on each tract’s production to pay the owner’s share. 2027 Id. 2027 The portion of unit production to be allocated to each tract is deemed to be actually produced from that tract. The amount charged against the owner of a tract will be considered expenses of unit operation chargeable against his tract. Id. § 53-3-105(c) (2011). These rules are covered in greater detail in Section IV. However. infra. The owners must agree upon the amount charged for each such item. which is “that proportionate part of unit production that the contributing value of such tract for oil and gas purposes in the unit area and its contributing value to the unit bears to the total of all like values of all tracts in the unit. and operations conducted thereon will similarly be considered operations actually conducted on each tract.upon whether the well is a gas well or an oil well.” 2025 Orders will also provide that the costs and expenses of unit operations must be borne by the owners (not entitled to share in production free of operating costs) of each tract in the same proportion that such tracts share in unit production.

. objective formation. (iii) ascertain the address of each non-consenting owner. Id. the location. the unit agreement and production on the unit does not have effect on those lands that are outside of the unit. and the operator has “made a good faith effort to (i) negotiate with each non-consenting owner to have said owner’s interest voluntarily integrated into the unit. § 53-3-7(1)(a). 379 . renders such lease on said outside lands void unless the lessee otherwise obtains production on that land. § 53-3-7(1)(b). development and operation costs of the pooled unit are limited to the actual expenditures. 2031 If one or more owners owning at least 33 percent of drilling rights in the drilling unit has consented to the drilling unit. (iv) give each nonconsenting owner written notice of the proposed operation. all production allocated to each tract within that unit is considered to have been produced from such tract by a well drilled thereon. and estimated cost of the proposed operation. failure of lessee to drill on such outside lands within one year or during the term of the lease. proposed depth. 2030 Id. 2029 Unless “alternate charges” are allowed. specifying the work to be performed. and (v) offer each non-consenting owner the opportunity to lease or farm out on reasonable terms 2028 2029 Id. 2031 Id. .partially out of the unit area. 2028 If an order requires integration of interests in a drilling unit. after the date of creating the unit area. § 53-3-111. (ii) notify each non-consenting owner of the names of all owners of drilling rights who have agreed to integrate . whichever is longer. . which may not be more than a reasonable amount. 2030 In no event will the operator or the appropriate consenting owners be entitled to recover less than the charges provided for in section 53-3-7(1)(b) of the Statute. The operator may charge to the other owners their proportionate amount of those charges. including a reasonable charge for supervision. § 53-3-7(2)(g).

2036 Id. 2035 Additionally. or stating that after diligent search. Id. by agreeing in writing. 2036 If a pooling order is issued.” then said operator may make a petition to the Board to allow alternate charges. 2034 Id. in a state general circulation newspaper. and if the well is actually completed as a well capable of production. . § 53-3-7(2)(a). then “the operator and/or the appropriate consenting owners shall be entitled to receive as alternate charges. if none exists. § 53-3-7(2)(d). 380 . personal notice by certified mail must be provided to each non-consenting owner whose address is known sufficiently before the meeting to allow 30 days to pass between the date of mailing and the date of the meeting. § 53-3-7(2)(c). 2034 Notice for parties with unknown addresses must be made once each week during the three successive weeks in a public county newspaper where drilling is proposed or. if operations are commenced within 180 days after the order is issued. § 53-3-7(2)(b). Only parties with actual or constructive notice may be subject to alternate charges. a party’s address is still unknown. if non-consenting owners do not agree to the order in writing. 2032 The petition to the Board must include the names of all nonconsenting real parties of interest in the drilling unit as of not more than 90 days before the petition was filed. 2033 The Board should publish notice for parties to appear before the Board. on reasonable terms. . The Statute provides a form notice. the share of production from the well attributable to the non-consenting owner’s non-consenting interests in the unit established or subsequently reformed for production therefrom. 2035 Id. if known. until the point in time when the proceeds from 2032 2033 Id. . giving the parties’ names and addresses. which notice must be early enough to allow 30 days between the last publication and the date of the meeting. § 53-3-7(2)(e).or to participate in the cost and risk of developing and operating the unit well involved.

2038 2037 2038 Id. and [250%] of that portion of the cost of newly acquired equipment in the well. and the payment required herein” is equal to the sum of the following: (a) [100%] of the non-consenting owner’s non-consenting share of the cost of any newly acquired surface equipment beyond the wellhead connections including.the sale of such share. when a mineral interest that is severed from the surface estate is owned by a non-consenting owner or when a mineral interest is subject to an oil and gas lease that is owned by a non-consenting owner. Id. the payment under this subparagraph shall be [300%]. (b) [250%] of that portion of the costs and expenses of operations provided for in the pooling order. . or the market value thereof if such share is not sold. the operator must furnish to non-consenting owners who make a request an itemized statement of the costs of production. separators. however. . provided. . 381 . . or the operator may submit detailed monthly statements of its costs instead of an itemized statement. including wellhead connections. 2037 Within 60 days after completion of operations on which alternate charges were ordered. and (c) [100%] of the non-consenting owner’s non-consenting share of the cost of operation of the well commencing with the first production and continuing to such point in time. . treaters. § 53-3-7(2)(h). which would have been chargeable to the non-consenting owner’s non-consenting share thereof. it must be paid to the non-consenting owner. stock tanks. . Amounts realized from the sale or disposition of equipment obtained in connection with operations which would have been owned by a non-consenting owner had that owner participated will be credited against the total unreturned costs of the work done and equipment purchased in determining when the interest of that non-consenting owner will be owned by that non-consenting owner. after deducting production and excise taxes. pumping equipment and piping. but not limited to. § 53-3-7(2)(g). If there is a credit balance.

“the first person who purchases oil or gas production from the interest owners after the production is severed and may include the operator if the 2039 2040 Id. 382 . purchase contract. If a leased interest is subject to a pooling and integration order. the lessor of the lease will be paid royalties. 2042 The first purchaser. defined as “that person who. Thereafter. as that owner would have owned had it participated in the drilling. Id. The operator may take such charges from that owner’s portion of production. 2039 [d] Royalty Distribution. material. and the operator and/or consenting owners are entitled to alternate charges. including a reasonable charge for supervision. and equipment. 2041 Id. the royalty owner will have a lien to secure payment of royalty. assumes the responsibility of paying royalty proceeds derived from a well’s oil and gas production to the royalty owner or owners legally entitled thereto. that is. When a disbursing agent. or within 120 days following the date the disbursing agent receives the proceeds from such production if the disbursing agent is not the first purchaser. and the production therefrom. that owner will then own the same interest in the well. the operator will be entitled to charge the non-consenting owner’s proportionate part of all reasonable costs of operation. 2040 No other specifics are provided regarding the amount of royalty to be paid.” 2041 has not disbursed royalty proceeds to the royalty owner within 120 days after the date of the first sale if the disbursing agent is a first purchaser. § 53-3-41(2). operating agreement. not to exceed an amount of three/sixteenths of the proceeds attributable to the non-consenting owner’s share of production. pursuant to an oil and gas lease.After the costs due in section 53-3-7(2)(g) have been paid by said non-consenting owner. § 53-3-41(1)(d). 2042 Id. or otherwise. § 53-3-7(2)(i).

2047 Id. pool or area. § 53-3-41(3). 2045 Id. 2046 [e] Agreements Not Restraint of Trade.” 2043 is not considered the “disbursing agent” unless he or she expressly assumes that responsibility in the purchase contract. monopolies. or contracts and combinations in restraint of trade. or both. and for establishing and carrying out a plan for the cooperative development and operation thereof. The Board may do so on its own motion or at the request of any interested party and must call a hearing to determine the “maximum efficient rate 2043 2044 Id.” if such agreement is approved by the Board. Id. 2045 and expires one year after the effective date unless the royalty owner has taken action against the disbursing agent or unless the time period is tolled due to insolvency proceedings against the disbursing agent. may not “be held or construed to violate any of the statutes of this state relating to trusts. 2046 Id. for the purpose of brining about the development and operation of the field. The Statute provides that agreements made “in the interest of conservation of oil or gas. § 53-3-41(1)(e). or in any area that appears from geologic or other data to be underlaid by a common accumulation of oil or gas. or both. or any part thereof. § 53-3-7(8). 383 . or for the prevention of waste. 2044 The lien held by the royalty owner begins after a financing statement is filed in conformity with section 75-9-401. § 53-3-41(1)(d). owning separate holdings in the same field or pool. and agreements between and among such owners or operators. or both.operator acts as a purchaser of production attributable to other interest owners. § 53-3-41(4).” 2047 [f] Limitation on Production. as a unit. the Board must regulate production in all common oil and gas sources of supply as warranted by the facts. or both. and royalty owners therein. As soon as possible. between and among owners or operators.

the reasonable minimum amount of productive acreage which would underlie such drilling unit under the minimum conditions 2048 2049 60-040-002 Miss. the Board must offset advantages that a producer may have from securing the exception.” 2049 Unless otherwise provided. Code R. Code Ann.” 2050 Where exceptions are granted to allow a well to be drilled out of conformity with the spacing patterns created by the Board. the well will be allocated “a reduced daily production allowable” unless the operator is able to satisfy the Board that “the productive acreage underlying such drilling unit is equal to. which may be done when a party has shown after notice and a hearing that the unit is partly outside of the pool or that it would otherwise be inefficient to drill in conformity with such rules. the Board must also allocate the allowable amount among producers in that pool on a reasonable basis “so as to prevent reasonably avoidable drainage from each developed unit which is not equalized by counterdrainage. 2051 Id. 2050 Id. § 53-3-5(c). § 53-3-9(a) (2011). Miss. allocations of production should be made “on the basis of and in proportion to the surface acreage content of the drilling units prescribed for the producing horizons for the pools so that each such prescribed unit shall have equal opportunity to produce the same daily allowable. 2051 If the exception is granted because a portion of the drilling unit upon which the well is located is partly outside the pool. 384 .at which the several pools in the state can produce oil and gas without waste. or more than.” 2048 When the Board fixes the amount of production allowed from any pool. and so that each producer will have the opportunity to produce or receive his just or equitable share. § 53-3-5(d). and any special unit of less than the prescribed amount of surface acreages shall be allowed to produce only in the proportion that the surface acreage content of any such special unit bears to the surface acreage content of the regular prescribed unit. § 32 (LexisNexis 2011).

§ 25.000 feet below the surface.” and “condensate. 385 . nitrogen.02 Types of Mississippi Pooling Statutes.” 2054 The Statewide Rules add definition for “casinghead gas. which are produced at the well in liquid form by ordinary production methods and which are not the result of condensation of gas. whether hydrocarbon or nonhydrocarbon or any combination or mixture thereof. [a] Oil Wells. . regardless of gravity. helium. existed in the gaseous state in the reservoir. carbon-dioxide.” 2053 Gas is “all natural gas.” each oil well must be 2052 2053 Id. Id. infra. Code R. casinghead gas. § 53-1-3-(d).” which is “liquid hydrocarbons which. .which would permit the drilling of a well thereon so located as to comply with all applicable footage limitations. occluded natural gas from coal seams. (f) (LexisNexis 2011). [1] – Mineral Distinctions. and in the Pennsylvanian and older formations with respect to each pool occurring in the discovery well. at the time of discovery.” 2055 [2] – Spacing Rules. indigenous to an oil pool and produced from such pool with oil. or both gas and vapor. including hydrocarbons. compressed air and all other hydrocarbons not defined as oil . . with the spacing requirements. 2054 Id.” which is “any gas or vapor. The Statute defines “oil” as “crude petroleum oil and all other hydrocarbons. hydrogen. “With respect to each pool occurring in the discovery well.” 2052 Those minimum footage limitations are set out in Section IV. 2055 60-040-002 Miss. the top of which is encountered below a measured depth of 3. hydrogen sulphide. § 2(e). § 53-1-3(c). the top of which is encountered below a measured depth of 12.500 feet below the surface.

upon 2056 2057 Id. so long as no island acreage is thereby created. and. (c) each well must be at least 1.640 feet by 3. § 7(1)(a). 2060 Id.000 feet below the surface. Id. “Contiguous” as used in this section means “bordering each other at more than one point. 386 . § 7(2) (LexisNexis 2011). 2061 60-040-002 Miss. the top of which is encountered below a measured depth of 12. 2059 For each pool “occurring in the discovery well. 2060 All wells drilled in such pools must be (a) on a drilling unit of four contiguous quarter-quarter sections of not less than 144 nor more than 176 acres upon which no other well producing from or drilling to the same pool is located.” 2056 Any drilling unit that is not composed of two governmental quarter-quarter section must be wholly encompassed by the “perimeter of a rectangle 1600 feet by 2725 feet. 2058 Id.on a drilling unit that consists of 80 contiguous surface acres or two contiguous governmental quarter-quarter sections containing not less than 72 acres nor more than 88 acres on which no drilling or producible well is located. § 7(1)(b). 2058 The wells must be at least 500 feet from every exterior boundary of the drilling unit.” However. all oil wells must be on a drilling unit of 40 contiguous surface acres or a governmental quarter-quarter section of not less than 36 acres nor more than 44 acres.” the Supervisor may allow 160-acre units for those pools if the unit size will foster the orderly development of the pool. 160 surface acres. 2057 Wells must be at least 1. 2061 For all other pools. § 7(2).500 feet. (b) if not made of four contiguous quarter-quarter sections. Code R.500 feet from other wells drilling or producing from the same pool and not less than 750 feet from all exterior boundaries of the drilling unit. § 7(1)(c). 2059 Id. no such unit may create island acreage. which must be completely encompassed by the perimeter of a rectangle 2. § 7(1)(d).000 feet from other drilling wells or wells producing from or completed in the same pool.

000 feet below the surface.” so long as no island acreage 2062 2063 Id. 2064 No part of a drilling unit where a well is positioned should be attributed whatsoever to any other drilling or producible well in the same pool. or (3) 16 contiguous governmental quarter-quarter sections which have a total acreage of not less than 600 acres nor more than 680 acres. § 7(3)(a).which no other producible or drilling well is positioned. 2065 Id.500 feet below the surface. § 7(4). § 8(1)(a) (LexisNexis 2011). 2065 If a well drilled under the spacing rules for oil wells is completed as a gas well. 2066 [b] Gas Wells. the top of which is encountered below a measured depth of 3. Code R. 2067 Gas drilling units must be wholly surrounded by the “perimeter of a rectangle 5580 feet by 6245 feet. 2064 Id. No other well producing from the same pool may be located on such unit.” each gas well must be on a drilling unit made of: (1) 640 contiguous surface acres. For each pool in the discovery well. 2067 60-040-002 Miss. or (2) a governmental section containing not less than 600 acres nor more than 680 acres. 2063 The well must be at least 660 feet from all other wells producing from the same pool and must not be closer then 330 feet from all exterior unit boundaries. (d). 2066 Id. Id. 2062 If a drilling unit is not a governmental quarter-quarter section. and in the Pennsylvanian and older formations with respect to each pool occurring in the discovery well. § 7(3)(b). it must be totally surrounded by “the perimeter of a rectangle 1810 feet by 1445 feet. 387 . § 7(3)(c). § 7(5).” so long as no island acreage is created. “the top of which is encountered below a measured depth of 12. it may only be produced for a test period of not more than 45 days and only thereafter if in compliance with special field rules or if the Board has granted authorization after notice and hearing.

2070 Id. so long as no unit creates island acreage.500 feet. § 8(2)(b). 2071 Id. 2068 The well must be at least 3. or (2) a governmental half-section of not less than 300 acres nor more than 340 acres. and it must not be placed closer than 750 feet from each exterior drilling unit border. § 8(2). 2072 The well must be at least 1. the top of which is encountered in the discovery well above a measured depth of 5.is created. § 8(2)(a). 2072 Id. § 8(3)(b). Id. 2073 60-040-002 Miss. so long as no island acreage is created. 2074 A drilling unit so created must be wholly surrounded by a perimeter of a rectangle 3.000 feet below the surface. 2075 The well must be at least 2068 2069 Id. 2069 Regarding all pools “occurring in the Oligocene and younger [f]ormations. § 8(1)(c). (d) (LexisNexis 2011).000 feet from each other well drilling to. 388 .500 feet from each well drilling to.380 feet. each gas well must be on a drilling unit of: (1) 320 contiguous surface acres. Code R. § 8(2)(c). or producing from the same pool. 2070 Each gas well drilled on such a pool must be on a drilling unit that is: (1) 160 contiguous surface acres.500 feet from each exterior boundary of the drilling unit. (d). completed in.735 feet by 5. 2074 Id. completed in. so long as no well on the same drilling unit is producing from the same pool. § 8(1)(b). 2071 Any such gas unit must be wholly contained in the perimeter of a rectangle 2. or producing from the same pool.640 feet by 3. and it must not be less than 1. § 8(3)(a). or (3) eight contiguous governmental quarter-quarter sections totaling not less than 300 nor more than 340 acres. or (2) a governmental quarter section containing not less than 144 acres nor more than 176 acres. and no other producing well may be located on the unit. 2073 Regarding all other pools.” the Supervisor may allow 160-acre units for those pools if the unit size will foster the orderly development of the pools. 2075 Id.

for some other reason. The Board may allow exceptions to any spacing rules after notice and hearing if it finds that “the unit is partly outside the pool. Id. and permitted wells on the property. The exceptional unit must only 2076 2077 Id. 2080 When such an exception is granted. 2077 If a well is drilled according to the gas spacing rules but is completed “in the gas cap of a pool productive of oil[] or . and all surrounding properties and wells. 2079 60-040-002 Miss Code R. 2078 Id. § 8(5). 2080 Id. . all other completed. (d). or created from the same pool. the Board must act to offset any advantage that may be had by the person obtaining the exception over other producers. . completed in.” 2079 Applications for such exceptions must be accompanied by a plat or sketch showing the property. drilling. § 9 (LexisNexis 2011). 2076 No part of the drilling unit on which a well is positioned may be attributed whatsoever to any other well drilling to or producing from the same pool. or. The action must prevent or minimize drainage from developed units to the exceptional tract. and must not be less than 990 feet from each exterior boundary of the drilling unit. § 8(3)(c). The sketch should be verified by someone who is familiar with the facts.” it may not be produced except for a test period of not more than 45 days without authorization granted by the Board or without special field rules applicable to it. 2078 [c] Modifications and Exceptions.980 feet from each other well drilling to. a well so located on the unit would be non-productive or topographical conditions are such as to make the drilling at such location unduly burdensome. is productive from or completed in an oil pool. § 8(4).1. 389 .

2086 Id. the order will become void. Compulsory unitization orders are not effective until after the unitization plan and agreement are signed or ratified in writing by the owners or lessees of at least 75 percent in interest in proportion to the surface acreage content of the unit area and by at least 75 percent (exclusive of royalty interests owned by lessees or by subsidiaries or successors in title of any lessee) in interest of the royalty owners on the basis of the surface acreage content. Code Ann. The Statute states that the State’s policy is to have full development by “progressive drilling” of all wells in all producing pools. 2085 60-040-002 Miss. § 14(k). but not limited to. including. The Board must make a finding that the requisite approval has been given in either the initial order or in a supplemental order. 2084 The Statewide Rules add that except in three scenarios. 2083 [4] – Directional Drilling. all directional deviations must be authorized first by the Board after notice and hearing. § 14(c) (LexisNexis 2011). 2084 Id.” 2081 [3] – Minimum Operator Control. 2085 As used herein. 390 . Miss. to be approved by the same percentage of interest holders of the area to be added. those which are horizontal. Code R. 2082 The Board may extend or add new portions of pools to an existing unit area.be permitted to produce “in the proportion that the acreage content of such special unit bears to the acreage content of the regular prescribed unit. § 53-3-109. “deviation” means “any intentional directional change in a well’s normal course of any degree. 2083 Id. If the requisite percentage of interest holders does not give such approval within 12 month of the order. § 53-3-107 (2011). § 53-1-1.” 2086 The exceptions are as follows: (1) short intentional deviations may be had without a permit if done to 2081 2082 Id.

391 . 2088 [5] – Options. Pooling orders must provide each non-consenting owner an opportunity to participate in the development and operation of the well in the unit as to all or any part of the owner’s interest “on the same basis as the consenting owners by agreeing in writing to pay that part of the costs of such development and operation chargeable to said non-consenting owner’s interest. the operator must finance a “complete angular deviation and directional survey” of the finished well.” so long as he first notifies the Board and after completion applies for a permit from the Board on notice and hearing for approval of the deviation. The operator may use his or her own tools but must charge not more than the prevailing rate for such equipment. filing a certified copy of the survey with the Board within 30 days. 2089 The order must state that the well is to be drilled on a competitive. Code Ann. 2090 2087 2088 Id. sidetrack junk. § 14(h). § 53-3-7(2)(g) (2011). arm’s length basis. proposed bottomhole location. 2089 Miss.” The acceptance must be in writing and filed with the Board within 20 days after the pooling order is filed with the Board. or to enter into such other written agreement with the operator as the parties may contract. 2087 Where deviation is had. surface location. and all perforations still comply with spacing requirements or special field rules. or correct other mechanical difficulties. 2090 Id. although the Board must be notified. and (3) if an operator commences drilling in good faith and thereafter deviates directionally “for reasons acceptable to the operator. (2) so long as the unit configuration. no notice and hearing is required.“straighten the hold. § 14(d)–(f). Id.

2095 Agency heads may designate a replacement from within their staff to sit on the Council in their stead. Stat. The Council is comprised of five state agencies. 2091 [2] – Membership on the Governing Body.030 (2010). 2096 The University of Missouri is represented by a professor of petroleum engineering currently employed by the school. Stat. [1] – Name of the Governing Body.§ 26. each represented by its respective executive head. 2093 The state geologist serves as director of the Division of Geology and Land Survey and supervises the Council.020. 392 . In particular. tit. Id.01 Analysis of Missouri Regulatory Framework. the Missouri Public Service Commission. these goals include: 2091 2092 Mo. 2095 Id. The State Oil and Gas Council (“Council”). Ann. 2093 Id. the Division of Commerce and Industrial Development. within the Missouri Department of Natural Resources. 2094 Mo. who are appointed by the governor. 2094 In addition to the state geologist. Code Regs. regulates oil and gas production within the state under authority conferred by the Oil and Gas Conservation and Unitization Statute (“Act”). The Council acts on behalf of stated public interests related to natural resource conservation and protection.. 2097 Id. § 259. § 259.010 (2001). Mo. § 259.070 (2010). the Council elects a chair and vicechair from its members. 10.020. and the University of Missouri. 2096 Id. § 259. 2097 [3] – Scope of Authority. 2092 The agencies are: the Division of Geology and Land Survey. as well as two Missouri residents with knowledge and interest in the oil and gas industry.010 to -. the Clean Water Commission. Rev. § 50-1. Rev.

Rev. and in doing so may require the “identification of [well] ownership. the Council has broad statutory authority to foster oil and gas development in Missouri and prevent waste. . production and utilization of natural resources of oil and gas. operation . drilling. producing and abandonment procedures in all wells. or tends to cause. 2099 “Waste” is defined to include: (a) Physical waste. Ann. operating. . seepage. of wells in such manner as to prevent the escape of 2098 2099 Mo. spacing. Stat. (b) The inefficient. (c) The location. or production of any oil or gas well or wells in a manner which causes. 393 . § 259. to encourage and to promote the orderly and economic development. but not including unavoidable or accidental waste. 2098 Under the state geologist’s supervision.(a) To foster. as…generally understood in the oil and gas industry. . (d) To provide for complete protection of…fresh water…. . or improper use of.070 (2010). 10. § 50-1. 2100 Id.060 to -. leakage or deliberate combustion. tit. or the unnecessary dissipation of. (e) To provide for the elimination of surface or subsurface pollution or waste during and after drilling. (d) The inefficient storing of oil. or which causes or tends to cause unnecessary or excessive surface loss or destruction of oil and gas. 2100 The Council must engage in reasonable investigation to determine existing or potential waste. (b) To authorize and to provide for the operation and development of oil and gas properties in a manner that a greater ultimate recovery of oil and gas be had and that the correlative rights of all owners be fully protected. and. Mo. § 259. reservoir energy. . the unnecessary or excessive surface loss or destruction of oil or gas resulting from evaporation.050 (15). (c) To encourage and to authorize the development and use of physical processes to obtain the greatest possible economic recovery of oil and gas. which is explicitly prohibited. making and filing of all mechanical well logs. . reduction in the quantity of oil or gas ultimately recoverable from a pool under prudent and proper operations. and.020 (2001). excessive. (f) Through negligence. . . (e) The production of oil or gas in excess of transportation or marketing facilities or in excess of reasonable market demand. Code Regs. equipping.

The notice shall issue in the name of the state. the ability “to limit and [] allocate the production of oil and gas from any field. among other things. 2101 In addition. and plugging of wells. shall specify the style and number of the proceeding. and shall briefly state the purpose of the proceeding. and orders to effectuate the purposes and intent” of the Act. Should the Council elect to give notice by personal service. 2105 The Council may act upon its own motion. the Council must provide notice and a hearing prior to entering an order. . the Council may regulate “[t]he drilling. §§ 259. 259. 2106 Id. producing. or area” within the state. 2104 Id. . then it shall be published in a newspaper of general circulation which is published in Jefferson City. or some part thereof. .070.” and other related practices pursuant of waste prevention. or by any agent of the Council. .” 2102 This encompassing authority includes. the spacing of wells. in the same manner as is provided by law for the service of 2101 2102 Id. the Council will promptly cause notice of the hearing to be given. § 250.oil or gas out of one stratum into another. regulations. such service may be made by any officer authorized to serve process. 2103 Id. and all other operations for the production of oil and gas. 2104 Except in emergency situations. [and] operations to increase ultimate recovery . § 259.” 2106 If a petition is filed. shall be signed by the state geologist. . pool. the time and place of the hearing. Id. .” 394 .140.070. Neither Missouri statute nor regulation related to oil and gas define “interested person. the Council is authorized and required to “promulgate and enforce rules. If the notice is applicable throughout the state. is situated. 2103 In general terms. or upon a petition of “any interested person. 2105 Id.140. The Act specifies notice requirements particular to Council actions: Any notice required by this chapter shall be given at the election of the Council either by personal service or by letter to the last recorded address of the person to whom the order is directed and one publication in a newspaper of general circulation in the county where the land affected.

§ 259. 2111 Id. the state. 2107 A Council order must be in writing and entered within 30 days following the hearing. the Council shall allocate allowable production reasonably among pools within the state. As defined in the Act. 2108 Once entered. 2112 The Council must limit production to that amount which can be produced without waste and without exceeding market demand. “reasonable market demand” is “the demand for oil or gas for reasonable current requirements for consumption and use. . 2114 Subject to aims of waste prevention. Further. 395 .original notices in civil actions in . together with the quantity needed to maintain reliable reserves of each product. 2110 Id. all orders are kept by the state geologist as public record. Proof of the service by such agent shall be by the affidavit of the person making personal service.160. § 259. 2112 Id. copies of which are receivable into evidence in all Missouri courts. 2109 Id.” both within and outside Missouri. To avoid waste.050 (14). § 259. .090. 2110 The Council may deny such application. allocation within a pool should minimize avoidable drainage to ensure that “each property will have the opportunity to produce 2107 2108 Id. § 259. 2109 Any person adversely affected by an order may. 2113 If restrictions are needed. the Council consistently assesses market demand for oil and gas. Id. if the Council limits production within a particular pool. move the Council for a rehearing. 2111 [4] – Process for Pooling and Matters Covered. it must distribute allowable production among the various wells or producing properties on a reasonable basis.170. 2113 Id. 2114 Id. within 30 days of its effective date. in which case the applicant may appeal to the Circuit Court of Cole County or any locality in which a portion of the affected property rests.

2119 Id. § 259. 2118 Id. spacing units “may differ in size and shape from those established in any other zone.” 2119 In all circumstances. 2118 If zonal subdivision is proper. however. 2123 Upon such a finding. or protect correlative rights.050 (11). spacing units are to be set in a manner that “will result in the efficient and economical development of the pool as a whole. The Council has express authority to establish well-spacing standards for a pool when needed to prevent waste. so long as the order 2115 2116 Id.” 2120 An order to establish spacing units for a pool must include all land under which said pool is known or believed to lie. 2120 Id. § 259. [a] Spacing Rules. 396 . 2122 Id.” 2115 Although undefined. if its conservation-based goals so require. the Council may divide any pool into zones and establish spacing units for each zone. 2117 Each spacing unit within a pool should be uniform in size and shape. avoid unnecessary drilling.100. 2121 and contain unit dimensions and the location of wells therein in accordance with a reasonably uniform spacing plan. 2123 Id. § 259. Id. 2117 Id.100. 2121 Id. an owner’s share may be ‘just and equitable’ if it reasonably affords him or her benefit proportional to a respective ownership interest. or conditions will cause substantial burden or hazard for drilling. 2116 The Missouri Act defines “pool” as “an underground reservoir containing a common accumulation” of oil and/or gas. the state geologist may enter a unilateral order to relocate the proposed well.or receive its just and equitable share. 2122 Proposed well may be altered by the state geologist upon finding that the prescribed location will not prove sufficiently productive.

“include[s] suitable provisions to prevent the production from the spacing unit of more than its just and equitable share of the oil and gas in the pool. avoid unnecessary drilling. 2127 If no voluntary agreement is reached. [the Council] shall enter an order pooling all interests in the spacing unit for the development and operations thereof. the state geologist may amend a spacing plan to include additional lands determined to be underlaid by a pool.” 2128 If necessary to prevent waste. or protect correlative rights. 2125 Any order by the state geologist may be appealed to the Council within 30 days of entry. 2130 If a unit agreement is reached and one or more applicable owner fails or refuses to join in execution. Separately owned tracts or interests within a spacing unit may be pooled by voluntary agreement or by compulsory order from the Council. 2126 Id. the state geologist may modify an existing spacing order to increase the size of a pool (or any zone therein). “upon application of any interested person. 2128 Id. 2131 Such a petition may be filed by any number of consenting owners and must contain: “(1) a 2124 2125 Id.” 2129 A proposed agreement to pool among a portion of relevant owners may be presented to the Council to force a non-consenting owner to comply. § 259. 2127 Id. 2131 Id.120. the agreeing owners may petition the Council to hold a public hearing to consider the necessity of pooled operation.110. 397 . or permit additional wells to be drilled within the pool.” 2124 In addition. 2126 [b] Authority to Integrate Production. 2130 Id. § 259. If needed to prevent waste. 2129 Id. Id. the Council will issue a compulsory pooling granting each owner a fair opportunity to recover his or her “just and equitable share.

and. (4) A provision that a part of the expenses of unit operation. including capital investments. (2) pooling is reasonably necessary to avoid waste. (3) A provision for the credits and charges to be made in the adjustment among the owners of the unit area for their respective investments in wells. (3) the value of additional oil and gas recoverable under the proposed plan outweighs the costs needed to effectuate the proposal.description of the proposed unit area. pumps. § 259.” 2132 The Council will require the refusing owner’s incorporation into the proposed pooling agreement if. 2133 Once so ordered. be charged to each separately owned 2132 2133 Id. 2136 Id. each order must include the following: (1) A description of the unit area. materials and equipment contributed to the unit operation. in that under the allocation each separately owned tract receives its fair share of all of the oil and gas produced from the unit area and not required or consumed in the conduct of the operation of the unit area or unavoidably lost. upon the basis agreed upon by the provisions of the unit applicable agreements. plus a reasonable charge for supervision. 2135 Each pooling order shall account for the drilling and operation of a well on the spacing unit. 2135 Id.110. increase recovery. (2) a statement of the nature of the proposed unit operation. the Council determines that: (1) at least 75 percent of interests in the right to drill and produce from the proposed unit agree to pool. the proposed agreements bind all parties owning interest in the unit area or any oil or gas produced therefrom. 2134 Id. Id. and payment of costs required for operation. machinery. after notice and hearing. and found by the council to be fair and equitable to each separately owned tract in the unit area. and (3) conformed copies of the applicable unit agreements. 398 . (2) An allocation. and protect correlative rights. 2136 In particular. tanks. 2134 A compulsory pooling order must be fair and reasonable under all circumstances.

2142 Id.120. (5) Designation of the unit operator and the time at which the unit operation shall commence. 2140 Id. would be responsible for the expense of developing and operating such tract. in the absence of unit operation. which the Council determines to be appropriate for the prevention of waste and the protection of all interested parties. 2139 Id.” 2137 [c] Allocation of Production and Costs. 2141 Id.110.tract in the same proportion that the tract shares in the unit production. 2138 In turn. (6) Those additional provisions.120. 2142 The obligation of each interest-holder within a pool “shall at all times be several and 2137 2138 Id. § 259. All operation related to oil and gas development that occurs on any portion of a pooled area is deemed to have occurred on all portions. § 259. or inconsistent with. not in conflict with. the applicable unit agreements. Expenses incurred by owners within a pool are similarly apportioned amongst the group. “expenses chargeable to a tract shall be paid by the person or persons who. 399 .” 2140 Further. Id. and. be deemed for all purposes to have been produced from such tract by a well drilled thereon. § 259. each owner within a pooled unit is entitled to production proportional to his or her respective ownership interest of the entire pool.” 2139 In other words. when produced. “the net amount charged against the owner or owners of a separately owned tract shall be considered expenses of unit operation chargeable against such tract.” 2141 Liability for expenses is allocated to each owner based on that party’s respective interest. “that portion of the production allocated to each tract included in a spacing unit covered by a pooling order shall. In compulsory pooling situations.

” 2147 Oil. An agreement for development or operation of a pool for oil and gas production that is approved by the Council is does not violate any Missouri statute or regulation relating to restraints of trade. Under Missouri law. § 259. more than the amount apportioned. encompasses “crude petroleum oil and other hydrocarbons regardless of gravity which are produced at the wellhead in liquid form[. 2146 Id.02.” 2144 [d] Royalty Distribution. 2147 Id. assessed or otherwise charged to his interest in such separately owned tract pursuant to the plan of unitization. on the other hand. Types of Missouri Pooling Statutes. 400 . and “in no event shall an owner of the oil and gas rights in [a] separately owned tract be chargeable with.” 2143 The interest distribution is established in the relevant pooling order or agreement. Id. Royalty owners may contract for reasonable terms under a voluntary pooling agreement. 2145 Id. directly or indirectly.050 (4). 2145 [e] Agreements Not Restraint of Trade. obligated or liable. those holding royalty interests subject to forced pooling maintain similar rights and obligations pertaining to other interests.] and the liquid hydrocarbons known as 2143 2144 Id. likewise. Missouri does not treat royalty interests differently than other ownership or production interests in regard to pooling. [1] – Mineral Distinctions. 2146 § 26. for.not joint or collective. gas is defined to include “all natural gas and all other fluid hydrocarbons which are produced at the wellhead and not [otherwise] defined as oil.

2152 A well for oil may not be located closer than 500 feet to any boundary line of such an area. No more than one oil well may be drilled on a governmental quarter quarter section of land covered U. The Council has authority to regulate the spacing of wells.S. 10.” 2153 Further. § 259. 2150 Id.070. [3] – Size and Spacing Rules. or arbitrarily designated tract contain less than thirty-six (36) acres. §§ 259. 2150 Absent an order to impose specific spacing requirements. governmental lot. an arbitrary 40-acre tract. As outlined below. tit. “nor closer than approximately one thousand feet (1000’) to the nearest well drilling or capable of producing from the same pool on the same lease or unit. Missouri law provides an exception from spacing requirements for wells which do not extend below a certain depth.” 2148 This does not include gas produced in association with oil.” 2154 2148 2149 Id. 2151 Mo Code Regs Ann. no well shall be drilled thereon except by special order of the Council. 259. Public Land Surveys. § 50-2. or. “[s]hould the governmental quarter-quarter section. often referred to as casinghead gas. if not so covered.070 (2001). 2153 Id. [2] – Split by Depth. 2151 [a] Oil Wells. 2152 Id.distillate or condensate recovered or extracted from gas. 2149 The Act does not explicitly reference other hydrocarbons which may be extracted in liquid or gaseous form. 401 . 2154 Id. well location must comply with default regulatory standards.050 (9). Id. such as coal bed methane.100.

or an arbitrary tract containing 640 acres. the required distance between wells extends to a full section of surveyed public land. in the event the governmental section or arbitrarily designated tract contains less than 600 acres. 2157 Id. Wells “whose gas-producing formations may be reasonably expected to be less than one thousand five hundred feet (1500’) in depth may be excepted from the six hundred forty (640)-acre spacing requirement” if the Council so decides.The Council has developed an exception to this spacing requirement based on depth. 2158 Similar to oil well restrictions.” 2155 In no case may a well eligible for this exception be located closer than 165 feet to any lease boundary or property line.220 feet to any boundary line of said governmental or arbitrary tract.500 feet of one another if both are in operation or capable of production. these requirements “may be waived…to 2155 2156 Id.” 2159 Gas wells are also afforded an exception to these spacing requirements. “no well shall be drilled thereon except by special order of the Council. Upon application to the state geologist. 2156 [b] Gas Wells. The Council allows spacing and lease-line rules stated above to be waived in some circumstances. 2160 Id. For gas wells. 402 . Those “[w]ells whose oil-producing formations may be reasonably expected to be less than one thousand two hundred feet (1200’) in depth may be excepted from the forty (40)-acre spacing requirement at the discretion of the Council. In addition. wells within the same pool and on the same lease or unit may not be located within 4. 2157 Wells may not be drilled closer than 2. 2159 Id. Id. 2160 [c] Waiver. 2158 Id.

Stat. 2161 [4] – Minimum Operator Control. codified at Section 259 of the Missouri Revised Statutes. royalty. The Act. 403 . Neither the Act nor Council regulations distinguish or reference vertical or horizontal drilling. the Council will not grant a compulsory unitization order unless it receives approval from the owner(s) of at least 75 percent of the interests in the drilling and production rights from the total proposed unit area. as well as the owner(s) of at least 75 percent of production payments. was enacted in 1965.120 (2010). As noted above. and overriding royalty that is payable with respect to oil and gas produced from the area to be covered by the order.protect against offset drainage in the event offset wells were drilled prior to the enactment of” the Act. Missouri statutes and regulations do not address the issue of election rights related to oil and gas production. [6] – Options. 2162 [5] – Directional Drilling. Mo. 2161 2162 Id. § 259. Rev.

Envir. Code Ann. et seq. § 2-15-3303 See Montana Board of Oil and Gas. Envir. Three members must be from the oil and gas industry and have at least three years of experience in the production of oil and gas. 2165 Two members must be landowners residing in oil. [2] – Membership on the Governing Body. Code Ann. 2164 The members must meet certain qualifications prior to serving on the Board. In the state of Montana. 2163 The Governor of Montana. 2168 Id.V.. 2169 Id. http://bogc. one must be a landowner who owns the mineral rights with the surface. The Board is made up of seven members. According to a case that has interpreted this statute.or gas-producing counties of the state but not actively associated with the oil and gas industry. 2168 Each Board member serves four-year terms. 1. U. the primary purpose of the Act is to prevent the waste of oil and gas by vesting power in the Board of Oil and Gas 2163 2164 Mont.01 Analysis of Montana Regulatory Framework. 2011). The statute at issue is Montana Code Annotated section 82-11-101.gov/ (last updated Jan. 2166 Id. Two years later. the Governor appoints the three remaining Board members. 2169 [3] – Scope of Authority.mt. appoints four of the Board members when he or she takes office. 2167 Id. Danielson. § 2-15-3303. Industries v.dnrc. 2166 Of these two members. and the other shall be a landowner who does not own the mineral rights. 2167 The final member of the Board must be an attorney. 404 . the Oil and Gas Conservation Act of 1953 (“Act”) created the Board of Oil and Gas Conservation (“Board”) as a quasi-judicial agency to oversee the use of the state’s natural resources.. [1] – Name of Governing Body. upon his or her election.§ 27. 2165 Mont.

(b) for purposes of enhancing the ultimate recovery of oil or natural gas. suspend. the Board has exclusive jurisdiction over all Class II injections wells 2172 and all pits and ponds in relation to those wells such that it may issue. Code Ann. revoke.Conservation to regulate the drilling. 602 P. (3) order involuntary pooling of interests within such units.V. 602 P. modify. producing. excessive. (2) establish well spacing units. 2173 Id. . 2171 2170 405 .2d 571 (1979). (iii) the location. Danielson. 2170 Generally. or producing of any oil or gas well or wells in a manner which causes or tends to cause reduction in the quantity of oil or gas ultimately recoverable from a pool under prudent and proper operations or which causes See U. § 82-11-101(3).V. Indus. may clearly specific limits as to volume and characteristics of the fluids to be injected and the operation of the well. that injects fluids: (a) that have been brought to the surface in connection with oil or natural gas production. and spacing of wells and the pooling and utilization of oil and gas interests. . operating. drilling. as that term is generally understood in the oil and gas industry. 184 Mont. Inc. 203. or (c) for purposes of storing liquid hydrocarbons. and may authorize staff to enter upon any public or private property to inspect and investigate conditions relating to violations of permit conditions. equipping. v.” 2171 Further. Mont. § 82-11-121 (2010). Code Ann. § 82-11-111(5)(a)–(d). 2174 U.” 2174 Waste of oil and gas or either of them is prohibited. regulations. at 212. the Montana Legislature has empowered the Board to “make investigations that it considers proper to determine whether waste exists or is imminent .. or improper use of or the unnecessary dissipation of reservoir energy. Inc.. and orders to prevent waste. or deny permits to operate such wells.2d at 578. 184 Mont.. 2175 “‘Waste’ 2176 is defined as the following: (i) physical waste. 2175 Mont. Indus. “the Board of Oil and Gas Conservation has broad powers to (1) conduct evidentiary hearings. 2173 Specifically. (4) grant or deny permission to drill wells. "Class II injection well" means a well. and (5) issue rules. 2172 Id. (ii) the inefficient. as defined by the federal Environmental Protection Agency or any successor agency. spacing. § 82-11-111(1) (2010). 2176 The loss of gas to the atmosphere during coal mining operations is not waste within the meaning of this definition. .

Admin. . oil. . . (The production of oil or gas from any pool or by any well to the full extent that the well or pool can be produced in accordance with methods designed to result in maximum ultimate recovery. as determined by the [B]oard. after hearing. 2180 Id.” A temporary spacing unit must remain in effect until the Board issues another order or until a permanent spacing unit is established.” 2180 [4] – Process for Pooling.or tends to cause unnecessary or excessive surface loss or destruction of oil or gas. is not waste within the meaning of this definition. and the size shall be the area that can be efficiently drained by one well. . the Code allows the Board. gas. § 82-11-201(2). § 82-11-201 (2010). upon its own motion or upon application of an interested person. to establish well spacing units (through the size and shape 2178) for a pool of oil or gas and to grant exceptions in appropriate cases to allow for a well to be drilled outside the location generally authorized by the Board’s spacing orders. and (b) permanent spacing units for a discovered pool . or oil and gas wells drilled to varying depths. may increase or decrease the size of a temporary or permanent spacing unit or permit the drilling of additional wells in a spacing unit to (1) prevent 2177 2178 Mont. and hearing. 406 . notice. § 36-3-18(10)-S18040 (2010). . and (iv) the inefficient storing of oil or gas. (b) (2010). upon application. may order and establish (a) temporary spacing units on a statewide basis or for defined areas within the state . Code Ann. 2179 “The size and shape of spacing units shall be such as will result in efficient and economic development of the pool as a whole.) 2177 Furthermore. Code Ann. R. 2179 Mont. [a] Spacing units. in the interest of preventing waste. Mont. The Board. § 82-11-101 (16) (a). The Board.

2184 Furthermore. § 82-11-20 (2010). or (3) protect correlative rights. Id. § 82-11-214. the conduct of the several owners of the tracts as if they were operating on each separately owned tract. When two or more separately owned tracts are embraced within a temporary or permanent spacing unit or when there are separately owned interests in all or a part of the spacing unit. § 82-11-202. or stimulation. the formation of such a unit shall not create a relationship between the parties 2181 2182 Id. proposes to drill a well. or proposes to conduct other operations on a well. 2183 However. 2184 Id. 2181 [b] Pooling. upon the application of an interested person. 407 . for all intents and purposes. 2183 Id. (2) avoid the drilling of unnecessary wells. an order providing for unit operations or pooling of resources does not result in a transfer of all or any part of the title of any person to the oil and gas rights in any tract of the unit area. then the persons owning those interests may pool their interests for the development and operation of the spacing unit. may enter an order pooling all interests in the permanent spacing unit for the development and operation of the permanent spacing unit and the allocation of production if the applicant has made an unsuccessful. deepening.or assist in preventing waste of oil or gas prohibited by this chapter. 2182 Operations incident to the drilling of a well upon any portion of a permanent spacing unit covered by a pooling order are considered. The Board. The applicant must be a person who owns an interest in the oil or gas underlying the permanent spacing unit or who has drilled a well. § 82-11-202(1)(b). good faith attempt to voluntarily pool the interests within the permanent spacing unit. including recompleting.

association. notify all known persons owning an Id. $150. by registered or certified mail.001 feet and deeper. § 82-11-204(2) (2010).mt. an interested individual must submit his or her application by noon on the date of the hearing.dnrc.501 feet to 7. credit shall be given therefor. 2191 Id. § 36. Admin. § 82-11-216.00. http://bogc.mt. undertaking. adventure.thereto which would be deemed to be a joint endeavor. 2189 According to the rules promulgated by the Board. 2187 However. shall. 2187 Id. (c) 7.22.gov/ (last updated Jan.000 feet. or mining or other partnership. § 36. See Montana Board of Oil and Gas. 2188 Mont. 1. $25. 2011). 2186 In order to be heard at such a hearing. 2188 Applications are available to be downloaded from the Board’s website.602 9 (2010). “(1)(a) for each well whose estimated depth is 3. (2) Permits for deepening wells shall require the payment of fees for the estimated new total depth. where fees have been paid for the previous depth. the applicant shall furnish the operator with copies of any exhibits to be submitted to the Board at the time of the hearing. the applicant must notify all known persons owning an interest in the oil and gas within the proposed unit area at least 60 days prior to application of the applicant’s intent to apply for the order.gov/ (last updated Jan. Upon written request of an operator of a lease which is in whole or in part within the confines of the proposed area.00. 2191 For the Board to hold a hearing to consider the need for the operation of one or more pools or parts of the pools in a field as a unit.603. http://bogc.” 2186 2185 408 . 1. The applicant. at least 60 days prior to application. (b) from 3. 2185 [c] Applications and Hearings. $75.00. 2190 Mont. the persons owning leasehold interests underlying 60 percent of the surface within the unit must apply for a hearing.22.dnrc. 2011).500 feet or less. 2189 See Montana Board of Oil and Gas. The Board holds approximately six pre-scheduled hearings a year to hear drilling applications from interested persons. Code Ann. a notice of intention and application for permit to drill must include a survey plat certified by a registered surveyor that shows the location of the proposed well with reference to the nearest lines of an established public survey. 2190 The permit should be accompanied with payment of the applicable fee which is calculated pursuant to the proposed well’s depth. R.

602 P. producers must be furnished with a plan of unit operations. the Board may make an order on a smaller scale by specific order upon application of an interested party. covers a specific area overlying a pool or reservoir of oil or gas.2d at 578. 2193 This type of order is done on the Board’s own motion and without the necessity of notice or a hearing. at 212... The Board may first establish well spacing units by a statewide spacing order. R. Mont.V. The notice will be sent to these persons' last known addresses. Admin. At the same time as notification. § 36-3-18(10)-S18040 (2010). Upon written request of an operator for a lease that is in whole or in part within the confines of the proposed delineated area. 2195 Such an order can essentially alter the obligations of performance under a previously-executed lease: “[o]perations conducted pursuant to an order of the [B]oard providing for unit operations shall constitute a fulfillment of all the express or implied obligations of each lease or contract covering lands in the unit area to the extent that the 2192 2193 Mont. the Court discussed the order of the Board in 1972 which dictated that one well could be drilled and operated on each quarter section (160 acres) and the subsequent order of the Board which provided that one well could be drilled and operated on each half section (320 acres). 602 P. 2195 See id. See U. Indus. Code Ann. 184 Mont. in the U.2d at 578. These known persons are those on record in the county or counties where the proposed unit area is situated. The Board has the authority to regulate the size and shape of the pool of resources to be developed on both a statewide scale and on a smaller scale. Industries case. 2192 [d] Orders. § 82-11-204 (2010). 2194 Or. 2194 The size—in terms of acreage—and number of wells can vary depending on the Board’s current order in place. [i] Shaping Unit Orders. Inc. at 212. the applicant shall furnish the operator with copies of any exhibits to be submitted to the Board at the time of hearing.interest in the oil and gas within the proposed unit area of the applicant's intention to make the application. Such a specific order. For example. 409 .V. which is issued after notice and a hearing before the Board.

obligations cannot be performed because of the order of the [B]oard. Indus. (5) a provision providing how the costs of unit operations. 2198 (2) a statement of the nature and purpose of the plan and operations contemplated.. Danielson. 184 Mont. may not be included in the unit area without the written consent of the majority in interest of the working interest owners of the spacing unit and well. materials. Code Ann. 203.2d 571. (7) a provision by which the unit operator.” 2196 Furthermore. after having operated for a minimum period of 2 years. (8) the time when the unit operations must commence and the manner in which and the circumstances under which the unit operations must terminate. and equipment contributed to the unit operations. must be determined and charged to the separately owned tracts. (3) a plan for allocating to each tract in the unit area its fair share of the oil and gas produced from the unit area and not required or consumed in the conduct of the operation of the unit area or unavoidably lost. That plan must include the following: (1) a description of the pool or pools or parts of a pool or pools to be operated. 2198 If the unit is formed solely for production of gas. Code Ann. Mont. 212. in respect to which each owner has a vote with a value corresponding to the percentage of the costs of unit operations chargeable against the interest of the owner. 602 P. machinery. a spacing unit on which is located a well producing or capable of producing gas on March 1. See U. 1971. tanks. pumps. 578 (1979).V. and Mont. Inc. v. but only so much of a pool as has reasonably been defined and determined by drilling operations to be productive of oil or gas may be included within the unit area. 2197 2196 410 . and it must prescribe a plan for unit operations. 2197 The order must be upon terms and conditions that are just and reasonable. § 82-11-211(2) (2010). (6) a provision for the supervision and conduct of the unit operations. orders of the Board of Oil and Gas Conservation are incorporated into oil and gas leases as a matter of law. § 82-11-206 (2010). (4) a provision for the credits and charges to be made in the adjustment among the owners in the unit area for their respective investments in wells. including overhead and capital investments. termed the unit area. may be challenged by any other owner in the unit. together with a copy of the proposed unit agreement and unit operating agreement.

and the portion of the unit production allocated to that tract must then be allocated among the tracts included in the previously established unit area in the same proportions as those 2199 2200 Id. § 82-11-201. the Board finds that the spacing unit is located on the edge of a pool or field and adjacent to a producing unit or.(9) additional provisions that are found to be appropriate for carrying on unit operations and for the protection and adjustment of correlative rights. 2201 However. and hearing. 411 . § 82-11-206. in providing for the allocation of unit production. notice. The well must be drilled at a location authorized by the order. an order establishing temporary or permanent spacing units for a pool must cover all lands determined or believed to be underlaid by the pool and may be modified after notice and hearing by the Board to include additional areas subsequently determined to be underlaid by the pool. The order. The well location exception may be included in the request to establish permanent or temporary spacing units if. with an exception as may be reasonably necessary. the requirement to drill the well at the authorized location on the spacing unit would be inequitable or unreasonable. 2199 An order establishing temporary or permanent spacing units may permit only one well to be drilled and produced from the common source of supply on any spacing unit. Id. The Board shall take action to offset any advantage that the person securing the exception may have over other producers by reason of drilling the well as an exception. upon application. 2201 Id. must first treat the unit area previously established as a single tract. 2200 Additionally. the Board may provide by an order for the unit operation of a pool or pools or parts of a pool or pools that embrace a previously established unit. The order must include provisions to prevent production from the spacing unit from being more than its just and equitable share of the producible oil and gas in the pool. for some other reason.

that the plan for unit operations has been approved.2205 [ii] Pooling orders. § 82-11-210. 2204 If the requisite number of owners and persons and the requisite percentage of interests in the unit area do not approve the plan for unit operations within a period of six months from the date on which the order providing for unit operations is made. the Board shall. upon application and notice. the Board shall revoke the order unless. is not liable for any unit operating costs incurred prior to the person's entry in the unit. 2203 An order of the Board providing for unit operations may not become effective unless the plan for unit operations prescribed by the Board has been approved in writing by the required persons and the Board has made a finding. 2204 Id. either in the order providing for unit operations or in a supplemental order. 2205 Id. The specific criteria considered by the Board when it considers whether it is appropriate to order the pooling of resources is whether (1) such operation is reasonably necessary to increase the ultimate recovery of oil or gas. (2) the value of the estimated additional recovery of 2202 2203 Id. Id. 412 . § 82-11-209. the Board extends the time. 2202 Additionally.specified in the previous order. whose interest by the order is added to the unit area and who becomes liable for the owner's proportionate share of the costs of unit operations. A new owner. an order may provide for unit operations on less than the whole of a pool where the unit area is of such size and shape as may be reasonably required for that purpose and the conduct thereof will have no adverse effect upon other portions of the pool. If the plan for unit operations has not been approved at the time the order providing for unit operations is made. hold supplemental hearings that may be required to determine if and when the plan for unit operations has been approved. § 82-11-207. for good cause shown.

2206 2207 Id. excluding royalty or other interest.oil or gas less royalties or. be considered for all purposes to have been produced from the tract by a well drilled on the tract. the conduct of the operations upon each separately owned tract in the spacing unit by the several owners of the tracts. for all purposes. 413 . which may include a reasonable charge for supervision. § 82-11-202(2)(a). if a well has not been drilled prior to the hearing on the application. exceeds the estimated additional cost incident to conducting such operations. That portion of the production allocated to each tract included in a permanent spacing unit covered by a pooling order must. Operations incident to the drilling of a well upon any portion of a permanent spacing unit covered by a pooling order are considered. § 82-11-205. 2206 It must provide for the drilling and operating of a well on the permanent spacing unit and for the payment of the cost of the well. 2207 The pooling order must be upon terms and conditions that are just and reasonable and that afford to the owner of each tract or interest in the permanent spacing unit the opportunity to recover or receive without unnecessary expense a just and equitable share of the oil or gas produced and saved from the spacing unit. If an owner refuses to pay that owner's share of the costs of development or other operations. when produced. and (3) the full areal extent of the pool or pools or part thereof has been reasonably defined and determined by drilling operations. the order must provide for payment of the owner's share of the cost out of and only out of production from the well allocable to the owner's interest in the permanent spacing unit. If a well has not been drilled prior to the hearing on the application. Id. as to gas pools only. the pooling order must provide for the drilling and operating of a well on the permanent spacing unit and for the payment of the cost of the well. the value of the economies to be affected.

plus 100% of the refusing owner's share of the cost of operation of the well commencing with first production and continuing until the agreeing owners have recovered the costs. 2209 [iii] Amendments. subject to royalty or similar obligations. 2208 2209 Id. after written demand. after notice and hearing. drilling. § 82-11-202. shall determine the proper cost. including but not limited to stock tanks.handling. testing. separators. all of the owners in the permanent spacing unit are entitled to receive their respective shares of the production of the well as their interest may appear after deducting their respective shares of current operating costs. and (ii) 200% of the refusing owner's share of the costs and expenses of staking. unless they agree otherwise. Id. rigging up. obtaining rights-of-way. the Board by subsequent order. and piping. and 200% of that portion of the cost of equipment in the well. treaters. 2208 If a well has been drilled prior to the hearing on the application and an owner. including the wellhead connections. pumping equipment. If a dispute arises as to the cost. 414 . all of the production of the well until they have recovered all of the costs out of the production. the order must also include the following as costs: (i) 100% of the refusing owner's share of the cost of newly acquired surface equipment beyond the wellhead connections. reworking. entitled to receive. deepening or plugging back. After all costs of drilling and operation are recovered. has failed or refused to pay the owner's share of the costs of development or other operations or if a well has not been drilled prior to the hearing on the application and an owner refuses to agree to pay the owner's share of drilling and completion costs. and completing the well. and storage. after deducting any cash contributions received from the refusing owners by the agreeing owners. The order may provide in substance that the owners who agree to share in the cost of drilling and operating the well are. well site preparation.

2210 [5] – Matters Covered. surface facilities. if such an amendment affects only the rights and interests of the owners. except with the consent of all owners in the tract. § 82-11-208. and production payments. [a] Royalty Interest and Election Rights. 2212 Id. Any interest in production from the spacing unit to which the interest of the refusing owner may be subject must be deducted from the royalty considered to be owned by the refusing owner. Id. however. upon demand. 2211 After costs have been recovered by the agreeing owners. and an order of amendment may not change the percentage for the allocation of oil and gas as established for any tract by the original order. 2211 2210 415 . the approval of the amendment by the persons owning interests which are free of costs. or change the percentage for the allocation of cost as established for any tract by the original order. such as royalties. and production and is liable for further costs as if the refusing owner had originally agreed to drill the well. the refusing owner owns the refusing owner's proportionate share of the well. § 82-11-202. 2212 [b] Coalbed Methane. overriding royalties. § 82-11-202(2)(d). An owner who refuses to lease his or her oil and gas interest in a spacing unit or contract for the development oil and gas is considered to own a landowner royalty equal to one-eighth of the owner’s proportionate share of production from the well until such time as the consenting owners recover costs. The operator of a well under a pooling order which is subject to a refusing owner shall. furnish the refusing owner with a monthly statement of all costs incurred. is not required. except with the consent of all persons owning oil and gas rights in the tract. together with the quantity of oil or gas produced and the amount of proceeds realized from the sale of production during the preceding month. Id.An order providing for unit operations may be amended by an order made by the Board in the same manner and subject to the same conditions and notice as an original order providing for unit operations.

or (d) managed through other methods allowed by law. The mitigation agreement is not required to address a loss of water well productivity that does not result from a reduction in the amount of available water because of production of ground water from the coalbed methane well. however. chapter 2. “gas” was defined at Montana Code Annotated section 82-11-101(9) 2213 Id. it must be managed in any of the following ways: (a) used as irrigation or stock water or for other beneficial uses in compliance with Title 85. § 82-11-175. (c) discharged to the surface or surface waters subject to the permit requirements of Title 75. chapter 2. 2213 § 27. The mitigation agreement must address the reduction or loss of water resources and must provide for prompt supplementation or replacement of water from any natural spring or water well adversely affected by the coalbed methane well. Prior to the development of a coalbed methane well that involves the production of ground water from an aquifer that is a source of supply for appropriation rights or permits to appropriate under Title 85. [1] – Mineral Distinctions. chapter 5. (b) reinjected to an acceptable subsurface strata or aquifer pursuant to applicable law. that is for ground water and for which the point of diversion is within (i) one mile of the coalbed methane well or (ii) one-half mile of a well that is adversely affected by the coalbed methane well. there was no specific reference in the Montana statutes to coal seam methane gas.02 Types of Montana Pooling Statutes. the developer of the coalbed methane well shall notify and offer a reasonable mitigation agreement to each appropriator of water who holds an appropriation right or a permit to appropriate under Title 85. part 3. 416 .Coalbed methane production wells that involve the production of ground water must comply with Code section 82-11-175. Prior to 1993. That section specifies that if ground water is produced in association with a coalbed methane well. chapter 2.

. the legislature inserted a new section into the Montana Code to insure that all instruments regarding coal. . . § 1-4-110 (1993). unless the clear and express terms of the instrument provide otherwise. gas. each zone of a structure which is completely separated from any other zone in the same structure is a pool . § 82-11-101(9) (1991). the Montana Legislature deleted the definition of gas from the Code and added a new section that defines coal. (2) “Gas” means all natural gases and all other fluid hydrocarbons. Code Ann.(1991) as “all natural gases and all other fluid hydrocarbons as produced at the wellhead and not defined as oil .” 2217 Within Code section 82-11-101.” 2218 2214 2215 Mont.” and “oil” must be construed as defined in 82-1-111. coalbed methane is included in the definition of “gas. oil. § 82-1-111 (1993). the terms “coal. and oil. Section 82-1-111 provides as follows: (1) “Coal” means a combustible carbonaceaous rock formed from the compaction and induration of variously altered plant remains.” “‘Pool’ means an underground reservoir containing a common accumulation of oil or gas or both. “‘[f]ield’ means the general area underlaid by one or more pools.” “gas. including methane gas or any other natural gas found in any coal formation. § 82-11-101 (2010). 2215 (3) “Oil” means crude petroleum oil and other hydrocarbons. Thus.” 2214 In 1993. 2218 Mont. 2217 Id. Coal does not include: (a) methane gas or any other natural gas that may be found in any coal formation.” 2216 Mont. . provides that “[w]hen used in any instrument. Section 1-4-110 of the Code. Code Ann. . that are produced at the wellhead in liquid form by ordinary production methods and that are not the result of condensation of gas before or after it leaves the reservoir. 417 . regardless of gravity. Code Ann. or (c) gilsonite. and gas are interpreted according to this section of the Code. . as produced at the wellhead and not defined as oil in subsection (3). (b) oil shale. 2216 In addition.

§ 82-11-201.001 feet and deeper. 418 . Admin. Mont. 2221 Id. § 36. and (c) 7. 2221 The Board may divide a pool into zones and establish spacing units for each zone if necessary to prevent waste and promote efficiency or to facilitate production through the use of innovative drilling and completion methods. These different depths are (a) 3. [3] – Spacing Rules.603 (2010). § 82-11-201(3). 2220 Conversely. The spacing units within the zone may differ in size and shape from spacing units in any other zone but may not be smaller than the maximum area that can be efficiently and economically drained by one well.000 feet.[2] – Split by Depth. 2222 Id. a permanent spacing unit need not be uniform in size or shape. 2223 Id.501 feet to 7. but must result in the efficient and economic development of the pool as a whole. 2219 The Board does not otherwise distinguish between well depths except that the depths of a well must be designed to promote the orderly development of unproven areas. The size and shape of temporary spacing units must be established to promote the orderly development of unproven areas and must be uniform throughout the surface area including depths covered by the unit. R. (b) from 3. the acreage to be embraced within a unit and the shape of the unit must be determined by the Board based upon evidence introduced at the hearing.22. The Board distinguishes between well depths by requiring differing permit fees based on the depth of the well to be drilled. Code Ann. 2222 In establishing permanent spacing units. 2219 2220 Mont.500 feet or less. § 82-11-201(2) (2010). 2223 [4] – Size.

who is entitled to production or proceeds of the production that will be credited to interests free of costs. such as royalties. the unit operations plan must have been approved in writing by those persons who under the Board's order will be required to pay at least 70 percent of the costs of the unit operations and also by the persons owning at least 60 percent of the production or proceeds of the unit operations that will be credited to interests that are free of cost. who is obligated to pay costs of the unit operation. § 82-11-201(5). the acreage to be included within the unit and its shape must be determined by the Board based on the evidence introduced at the hearing. some exceptions to this rule exist. scientific method of determining this data would be received into evidence by the Board. [5] – Minimum Operator Controls. Additionally. 2224 When establishing the size and shape of the permanent spacing unit. it is likely that any reasonable. owns 70 percent or more. owns 60 2224 2225 Id. Id. if one person. and production payments. However. the approval of that owner and at least one other owner is require. 2225 The statute does not speak to the specific method for determining what area over the pool is covered by the Board’s jurisdiction.An order establishing either temporary or permanent spacing units for a pool must cover all lands determined or believed to be underlaid by the pool and may be modified after notice and hearing by the Board to include additional areas subsequently determined to be underlaid by the pool. but less than 100 percent. overriding royalties. 419 . however. In order for a unit operations plan that is issued by the Board to become effective. If one owner.

percent or more but less than 100 percent. 2226 2226 Id. 420 . the approval of that person and at least one other owner is required. § 82-11-207.

§ 57-905 (2010). 2235 The Director also is the 2227 2228 Neb. Stat. 2227 [2] – Membership on the Governing Body. 2231 Id. the Act provides that a Director shall be employed.§ 28. § 57-904. Rev. 2234 The Director must be a qualified petroleum engineer with at least three years of field experience in drilling and operating oil and gas wells. 2229 Id. 421 . to serve as the body’s chief administrator. 2233 To better enable performance of the Commission’s duties. Id. 2232 Thus. § 57-917. any two commissioners constitute a quorum for voting purposes. The Nebraska Oil and Gas Conservation Commission (“the Commission”) regulates oil and gas production within the state under authority conferred by the state’s oil and gas conservation and unitization statute (“the Act”). 2231 The director of the State Geological Survey serves as a technical advisor to the Commission but has no voting power in that capacity. 2230 Commission members today serve four-year terms subject to removal for cause. [1] – Name of Governing Body. 2233 Id. 2232 Id. § 57-904. 2229 Each of the other two members must have resided in the state for at least three years. 2228 At least one Commission member must have experience in oil and gas production and have resided in Nebraska for one year or more. 2230 Id. which must be initiated by the governor and approved by the legislature. 2234 Id. 2235 Id.01 Analysis of Nebraska Regulatory Framework. in addition to the Commission members. The Commission consists of three individuals appointed by the Nebraska Governor.

to authorize and to provide for the operation and development of oil and gas properties in such a manner that the greatest ultimate recovery of oil and gas be had. the royalty owners. 2237 The Act further states that its “intent and purpose [is] . so that each common owner may obtain his just and equitable share of . surface waste. subject to the prohibition of waste. In particular. as applied to oil. . or dissipation of reservoir energy. open pit storage. . and waste incident to the production of oil in excess of 2236 2237 Id. and to encourage and to authorize . . 2236 [3] – Scope of Authority The Commission’s statutory jurisdiction stems from the Act’s declared public interests. recovery operations in order that the greatest possible economic recovery of oil and gas be obtained within the state to the end that the landowners. to permit each and every oil and gas pool in Nebraska to be produced up to its maximum efficient rate of production. the producers and the general public realize and enjoy the greatest possible good from these vital irreplaceable natural resources. . to encourage and to promote the development. As expressed above. . production and utilization of natural resources of oil and gas in the state in such a manner as will prevent waste. shall include underground waste.“secretary” of the Commission and maintains minutes and records. [and] the enforcement and protection of [owners’] correlative rights. . for which he or she must hire necessary assistants to support the Director and members. 2239 “Waste” is prohibited under the Act and defined to include the following: (a) Waste. and that the correlative rights of all owners be fully protected. the Commission’s authority stems from its primary aim of waste prevention. 2239 Id. including gas energy and water drive. production” from a pool. or improper use. these goals are as follows: to foster. 2238 [a] Matters Governed. Id. . inefficient. . . § 57-901. . excessive. 2238 Id. . 422 . .

and various other aspects of oil and gas development. the pollution of fresh water supplies. .”. . . into the open air of gas from wells productive of gas only. . but excluding gas that is reasonably necessary in the drilling. and sale. use. (b) waste. or excessive withdrawals of oil or gas therefrom causing reasonably avoidable drainage between tracts of land or resulting in one or more owners in such pool producing more than his or her just and equitable share of the oil or gas from such pool. 2242 Id.. . 2241 Pursuant to that duty. .the producer's aboveground storage facilities and lease and contractual requirements. the Commission may require the “[i]dentification of [well] ownership . completing. . reasonably necessary for building up or maintaining crude stocks and products thereof for consumption. directly or indirectly. or gas from wells producing oil or both oil and gas and (ii) the production of gas in quantities or in such manner as will unreasonably reduce reservoir pressure or unreasonably diminish the quantity of oil or gas that might ultimately be produced. and (c) waste shall also mean the abuse of the correlative rights of any owner in a pool due to nonuniform. . § 57-905(2). the making and filing of directional surveys[] and reports on well location . 2242 Among its powers. . . to regulate the “drilling. . and producing of wells and gas unavoidably produced with oil if it is not economically feasible for the producer to save or use such gas. § 57-905(1). testing. 2243 Id. . within the state. § 57-903(1) (emphasis added). § 57-905(3). for the sake of waste prevention. . . the Commission maintains jurisdiction over all persons subject to service and property. the Commission has direct authority. but excluding storage. . 2240 2241 Id. public and private. unratable. the intrusion of water into oil or gas strata. and all other operations for the production of oil or gas. other than open pit storage. Id. as applied to gas shall include (i) the escape. blowing. . producing and plugging of wells .. 2240 The Commission has an affirmative duty to investigate “to determine whether waste exists or is imminent or whether other facts exist which justify action” within its authority. 2243 Moreover. or releasing. disproportionate. [all matters of well operation] in such manner as to prevent the escape of oil or gas. . 423 . the furnishing of a reasonable bond .

. . the Commission must hold a public hearing prior to any order or rule entered. 2245 2244 424 . or by any agent of the Commission. . and the purpose of the proceeding.”) (emphasis added). . 2245 [b] Commission Procedure. regulations. § 57-905(5) (“Commission shall not have authority to limit . is situated. the time and place of the hearing.00 filing fee. § 57-905(4). Proof of the service by such agent shall be by his or her affidavit and proof of service by an officer shall be in the form required by law with respect to service of process in civil actions. . 2248 Unless deemed an emergency. 2246 Id. except to prevent waste. in the same manner and extent as is provided by law for the service of summons in civil actions in the district courts of this state. regulation. The notice shall be issued in the name of the state.” 2247 A petition for public hearing must include a $250. . and orders to effectuate the purposes and intent” of the Act. 2246 The Commission may act upon its own motion. the spacing of wells. 2247 Id. 2249 Id. . Should the commission notice be by personal service. shall be given at the election of the Commission either by personal service. 2249 All hearings must be preceded by at least 15 days notice in accordance with the following: Any notice required [hereunder] . or some part thereof. . § 57-911(7). The Commission may “promulgate and enforce rules. or order of the commission is being violated. . notice of Id. In all cases where a complaint is made by the Commission or the Director of the Nebraska Oil and Gas Conservation Commission that any part of any provision of sections 57-901 to 57-921. such service may be made by any officer authorized to serve summons. . The Act does not define “interested person. or upon a petition of “any interested person. § 57-911(6). . § 57-911(2)–(3). 2244 The Commission may only limit production of oil and gas in a pool or field if necessary to prevent waste therein. [and all] operations to increase ultimate recovery” of oil and gas. § 57-905(7).[the] chemical treatment of wells. and shall specify the style and number of the proceedings. shall be signed by a member of the Commission or its secretary.” 2248 Id. production . . Id. or any rule. or one publication in a newspaper of general circulation in the county where the land affected. registered or certified mail.

. § 57-907(1). 2253 Id. § 57-907(2).” 2256 Although undefined in the Act.” 2255 If waste prevention so requires. § 57-911(5). 2256 Id. Id. The Commission has a statutory duty to “limit the production of oil and gas from each pool to that amount which can be produced without waste in such pool. . [to ensure] that each property will have the opportunity to produce or . copies of which are deemed original and receivable into evidence in all Nebraska courts. § 57-913.the hearing to be held on such complaint shall be served on the interested parties in the same manner as is provided in the code of civil procedure for the service of process in civil actions in the district courts of this state. a “just 2250 2251 Id. 2250 The Commission will enter a written order within 30 days after a hearing. 2252 Any person holding an interest in property affected by a Commission rule or order may appeal under the process established in the Nebraska Administrative Procedure Act. § 57-911(4). receive its just and equitable share. 2253 [4] – Process for Pooling & Matters Covered. the Commission may provide for further notice of hearing in such proceedings as it may deem necessary in order to notify all interested persons of the pendency of such proceedings and the time and place of hearing and to afford such persons an opportunity to appear and be heard. In addition to notices required by this section. 2255 Id.” 2254 The Act defines “pool” to mean “an underground reservoir containing a common accumulation” of oil and/or gas and includes that “each zone of the structure which is completely separated from any other zone in the same structure is a pool. 2254 Id. § 57-903(6). 2251 Any rule or order issued is maintained by the Commission as public record. . 2252 Id. the Commission “shall allocate or distribute the allowable production among the several wells or producing properties in the pool on a reasonable basis . . § 57-911(6). 425 .

If needed to prevent waste. § 57-908(1). . 2257 An order to establish spacing units must “cover all lands determined or believed to be underlai[n] by such pool.and equitable share” should reasonably afford an owner his or her entitled benefit proportional to a respective ownership interest. the Commission may “divide any pool into zones and establish spacing units for each zone. [a] Spacing of Wells. § 57-908(3). .” 2259 Notwithstanding the need for such subdivision. § 57-908(4). 2260 Id.” or conditions pose a substantial burden to drilling operations. may differ in size and shape from those . if these same considerations require. . 2261 Id. 2262 Id. § 57-908(1). 2259 Id. 2261 Upon application from any person with drilling rights therein. Id. an order to change well location must include provisions to prevent inequitable production as a result of modifying the spacing 2257 2258 Id. the Commission will enter an order to establish spacing units for a pool. which . 426 . avoid unnecessary drilling. however. § 57-908(2). § 57-908(3). or protect correlative rights. in any other zone.”2258 Spacing units within each pool should be uniform in size and shape. the Commission will specify unit dimensions and corresponding well locations in accordance with a reasonably uniform spacing plan. the Commission will always set the dimensions of spacing units to an area “that can be efficiently and economically drained by one well” and “will result in the efficient and economical development of the pool as a whole.” 2260 In a spacing order. . 2262 If necessary. the Commission may modify the location prescribed in the order if it finds that a well there will “not produce in paying quantities.

2268 The Commission will consider an application and other information provided at the hearing. 2268 Id. or parts thereof to be so operated . 2266 Upon the application of any interested person. the Commission may require owners to do so through compulsory pooling order.01. 2264 [b] Authority to Integrate Production. if known. § 57-910.plan. (3) A statement of the type of the operations contemplated in order to effectuate the purposes of [the Act]. and (5) A proposed operating plan covering the manner in which the unit will be supervised and managed and costs allocated and paid.” 2267 An application must contain the following information: (1) A description of the land and pool. Id. unless . 2266 Id. the Commission may “order pooling [of] all interests in the spacing unit. [already expressed in an applicable operating agreement]. .. . as disclosed by the public records . unknown. and equitable. 2263 The Commission is further authorized to amend spacing orders whenever required to prevent waste. § 57-908(4). and after notice and hearing. . . . . and their addresses.” 2265 If no such agreement exists. . avoid the drilling of unneeded wells. and will accept proposed unit agreements upon satisfaction of certain factors. pools. § 57-909(1). 2267 Id. or protect correlative rights. (2) The names of all persons owning or having an interest in the oil and gas in the proposed unit area or the production therefrom. including mortgagees and the owners of other liens or encumbrances. (4) A proposed plan of unitization applicable to the proposed unit area which the petitioner considers fair. The Act specifies conditions which must be present for the Commission to issue a compulsory pooling order: 2263 2264 Id. reasonable. the application shall so indicate. 2265 Id. 427 . . If . One or more persons owning interest in production within the same spacing unit may voluntarily agree to integrate such interests “for the development and operation of the spacing unit.

2271 Id.03. (c) Establishes. (3) The value of the estimated additional recovery of oil or gas will exceed the estimated additional costs incident to conducting unit operations. 2272 Id. or both. 2269 In addition. a fair and equitable method for carrying or otherwise financing any owner who elects to be carried. § 57-910. in the unit area. allowing a reasonable interest 2269 2270 Id. § 57-910. . . that plan must be similarly approved “by those persons who will be required to pay at least sixty-five percent of the costs of unit operation. Id. if necessary.03(5)(d). 2272 However. and establishes a fair and equitable method for allocating such costs to the separately owned tracts and for payment of such costs by the owners of such tracts. or both. either directly or out of such owner's respective shares of unit production. each such tract's just and equitable share of the oil and gas. or otherwise financed. (2) Such unit operation is feasible. the Commission will only do so if the proposed plan does the following: (a) Makes a fair and equitable adjustment among the owners within the unit area for their respective investments in [all] equipment .” 2271 If there is any person with oil and gas interests in an area covered by the proposed plan who has not agreed thereto at the time of hearing. 428 .(1) The material averments of the application are true. so far as can be practicably determined. including capital investment. § 57-909. contributed to the unit operation. will prevent waste. see also id. § 57-910. the Commission must receive written notice to establish that a proposal has been agreed upon by “those persons who own at least seventy-five percent of the unit production or proceeds thereof. the Commission may nonetheless issue the order and thereby bind all such persons to its terms. and (4) The oil and gas allocated to each separately owned tract within the unit area under the proposed plan of unitization represents.” 2270 If the application includes a proposed operating plan. and can reasonably be expected to increase substantially the ultimate recovery of oil or gas. (b) Provides for a fair and equitable determination of the cost of unit operations.

the Commission may hold “supplemental hearings . the Commission extends that time. for good cause shown.charge for such service payable out of such owner's share of the unit production. . 2277 [c] Contents of Pooling Order. 2273 If the percentage requirements are not met. satisfactory recordation of a pooling order constitutes constructive notice thereof.03. 2278 Id. .” 2276 A certified copy of any active pooling order may be filed with the appropriate clerk or register for recording among the real property records in the county or counties where the affected property lies. § 57-909(2). § 57-910. Like other applicable documents. Each pooling order must account “for the drilling and operation of the authorized well on the spacing unit. § 57-909(3). 2276 Id. § 57-910. 2278 The Act provides that a pooling order must “determine the interest of each owner in the unit” and contain specific measures to dictate allocation of 2273 2274 Id. and for the payment of the reasonable actual cost thereof. as may be required to determine if there has been such consent so that a supplemental order authorizing the commencement of unit operations can be entered. 2275 If the consent needed has still not been obtained within six months of Commission approval. and. 2277 Id. (d) Provides that each owner shall have a vote in the supervision and conduct of unit operations corresponding to the percentage of the costs of unit operations chargeable against the interest of such owner. 429 .03(5)(d). Id.” 2274 Notice of any supplemental hearing will be delivered by mail at least ten days prior to such hearing. including a reasonable charge for supervision. 2275 Id. the order is “ineffective and shall be revoked by the Commission unless.

2280 As such. the Act clarifies that allocation will be dictated by order: “[t]he portion of the unit production allocated to any tract. 430 .02[6]. shall be the property and income of the several persons . “[t]hat portion of the production allocated to each tract included in a spacing unit covered by a pooling order shall. 2283 Id. for those who refuse to do so. the Commission’s order will account for allocation through a ‘risk penalty’ discussed in Section 27.02[6]. when produced.2284 2279 2280 Id. 2283 In the event that owners subject to a pooling order refuse to cover their respective shares of such costs. All operations incident or related to oil and gas development which occur on any part of a pooled area are deemed to have occurred on each separately-owned portion within the unit. This situation is outlined in more detail below in Section 27.” 2282 In theory. § 57-909(2). However. 2284 Id. the order will supply applicable “risk penalties” as stated in the Act. Id. expenses incurred by applicable owners within a pool are similarly apportioned among the group. § 57-906.” 2281 This equitable allocation of production is the foundation of pooling schemes. 2279 These terms may be agreed upon by consenting owners who contribute to operating costs.07. Consenting owners may agree to reasonable terms regarding allocation of drilling and operating costs. [d] Allocation of Production and Costs. to whose credit the same are allocated or payable under the [pooling] order. be deemed for all purposes to have been produced from such tract by a well drilled thereon. as each owner is entitled to production proportional to his respective interest in the entire pool.production and cost among such owners. . 2281 Id. and the proceeds from the sale thereof. 2282 Id. . § 57-910.

” as the latter maintains no obligation for such expenses. . An agreement to develop and operate a pooled unit for oil and gas production does not violate any Nebraska law relating to restraints of trade. 2285 Under the Act.” 2289 The Act also protects certain owners in providing that “[o]perations conducted pursuant to [a pooling] order . § 57-910.” 2288 In addition. protective of correlative rights.] and . 2289 Id. Id. . 2288 Id. .09. § 57-910. § 57-910. .[e] Royalty Distribution. In providing statutory allocation of operating costs. 2287 Id. and reasonably necessary to increase ultimate recovery or to prevent waste of oil or gas. so long as its terms “are in the public interest. § 57-910. no such order will terminate an existing contract “relating to the sale or purchase of production from a separately-owned tract” within the unit area. which will remain in force and apply to oil and gas allocated to such tract until terminated in accordance with the provisions thereof. a royalty owner to the extent of one-eighth of such interest free from such costs. the Act distinguishes between “owners” and “royalty owners.” 2286 [f] Restraint of Trade.11.” 2287 [g] Impact of Order on Existing Contracts. 431 . shall constitute a fulfillment of all the express or implied 2285 2286 Id.08. an owner of such interest is deemed “an owner obligated to pay costs of unit operations to the extent of seven-eighths of such interest[. The default royalty amount is one-eighth as presumed for unleased interests within a pooled area. A pooling order issued under the Act “shall [not] be construed to result in a transfer of all or any part of the title of any person to the oil and gas rights in any tract in the unit area.

432 . [2] – Split by Depth. 2290 2291 Id. “gas” includes “all natural gas and all other fluid hydrocarbons not defined as oil. 2292 § 28. 2293 Id.obligations of each lease or contract covering lands in the unit area to the extent that compliance with such obligations cannot be had because of [Commission] orders.” and the portion of production allocated thereto under the later order will then be distributed amongst the various owners within that ‘single tract’ under the terms of the previous order. § 57-910.” 2290 The Commission may enter an order for pooled operation of an area that “embrace[] a unit area established by a previous order.06. [1] – Mineral Distinctions. § 57-903(5). the later order’s allocation provisions will “treat the unit area previously established as a single tract. The Act does not provide any distinctive reference to well or pool depth. 2293 On the other hand. [3] – Spacing Rules.” 2291 In that situation.” 2294 The Act does not provide for distinct spacing or pooling rules based on hydrocarbon produced.05. The Act defines “oil” as “crude petroleum oil and other hydrocarbons regardless of gravity which are produced at the wellhead in liquid form[. 2292 Id. referred to as casinghead gas. § 57-903(4). 2294 Id.] and the liquid hydrocarbons known as distillate or condensate recovered or extracted from gas. Id.02 Types of Nebraska Pooling Statutes.” but not including gas produced in association with oil. § 57-910.

[6] – Election. unless he has agreed otherwise. the Act does not otherwise specify any default spacing requirements. 433 . the Act states. In supplying the required contents of a Commission order to establish pooling. The Act acknowledges the right of election in forced pooling situations.” 2297 [5] – Directional Drilling. in relevant part. Prior to an order for unitization becoming effective. which generally allows those subject to a pooling order to agree or refuse to contribute up-front operating costs and remain entitled to shared production. The Act does not reference or distinguish between vertical and horizontal drilling practices. that plan must be similarly approved “by those persons who will be required to pay at least sixty-five percent of the costs of unit operation. the Commission must receive written notice to establish that a proposal has been agreed upon by “those persons who own at least seventy-five percent of the unit production or proceeds thereof.2295 Outside of the general guidelines discussed in Section 27. 2298 2295 2296 Id.03(5)(d).” 2296 If the application includes a proposed operating plan. subject to royalty or similar obligations. Id. 2297 Id. such owner. [4] – Minimum Operator Control. § 57-908. 2298 Id.The Commission has authority to regulate the spacing of wells through rule or order. shall be entitled to receive. the share of the production of the well applicable to the tract of the consenting owner. the following: [A]s to each owner who agrees with the person or persons drilling and operating the well for the payment by the owner of his share of the costs. § 57-909(2). § 57-910.01[4][a].

2299 Nebraska incentivizes voluntary pooling arrangements by offering unattractive terms to owners who refuse to contribute operating costs. the order shall provide for reimbursement for his share of the costs out of. he will only receive such benefit once the operator and contributing owners are adequately “reimbursed” for up-front costs: As to each owner who refuses to agree upon the terms for drilling and operating the well. 2300 Any dispute over the existence or amount of drilling costs may be resolved by the Commission. . As such. after the person or persons drilling and operating said well have recovered two hundred percent of that portion of the costs and expenses of [any aspect of well construction or operation] and other intangible expenses approved by the Commission chargeable to each owner who does not agree. Id. For example. [A]s to each owner who does not agree. he shall be entitled to receive from the person or persons drilling and operating said well on the unit his share of the production applicable to his interest.A non-consenting owner will likewise remain entitled to recover production proportionate to his share. production from the unit representing his interest. 2301 For the purpose of formulating cost allocation under this method. however. 434 . but includes a “risk penalty” owed to the operator and carrying owners. plus one hundred percent of the nonconsenting owner's share of the cost of operation and a reasonable rate of interest on the unpaid balance. The Act provides that “reimbursement” is not limited to the actual expense put forth for operation. . (emphasis added). and one hundred percent of all [drilling and operating] equipment . and only out of. upon production the contributing owners or operators may recoup over and above the monetary value of their initial investment from non-contributing owners. excluding royalty or other interest not obligated to pay any part of the cost thereof. the Act presumes that an owner of unleased oil and gas rights within a pool “shall be regarded as a lessee 2299 2300 Id. 2301 Id.

” 2302 2302 Id.to the extent of a seven-eighths interest in and to such rights[. 435 .] and [as] a lessor to the extent of the remaining one-eighth interest therein.

who must be appointed by the Commission. Rev.01 Analysis of Nevada Regulatory Framework. drilling. 2306 Id. Stat. be in the unclassified service of the state.040(2). § 522. The Chief Administrative Officer of the Division is the Administrator. 2304 [3] – Scope of Authority. equipping. The Division has jurisdiction over all persons and property. excessive or improper use of or unnecessary dissipation of reservoir energy. and may not pursue any other business or occupation or hold any other office for profit. (2) The locating. 2306 “Waste” is defined to include the following: (1) The inefficient. 2303 2304 Nev. public and private. spacing.040(1). pooling is regulated by the Division of Minerals (“the Division”) of the Commission on Mineral Resources. In Nevada. The Administrator of the Division must be a graduate of an accredited college or university and have substantial administrative or industry experience. necessary to effectuate the purpose and intent of the Act. operating. 2305 Pursuant to the Act’s prevention of waste. pursuant to the state’s oil and gas conservation statute (“the Act”). 2303 [2] – Membership on the Board. must devote his or her entire time and attention to the Administrator’s duties as a public officer. (3) The inefficient aboveground storage of oil. § 522. [1] – Name of Governing Body. 436 . § 522.§ 29. Id. § 513.083. or producing of any oil or gas well in a manner which results or tends to result in reducing the quantity of oil or gas to be recovered from any pool in this state under operations conducted in accordance with good engineering practices in an oil field. 2305 Id. the Division may investigate or take other action as required to determine whether waste exists or is imminent.040 (2009).

operating or producing of any oil or gas well in a manner causing or tending to cause unnecessary or excessive surface loss or destruction of oil or gas. (4) The furnishing of a reasonable bond with good and sufficient surety conditioned for the performance of the duty to plug each dry or abandoned well or the repair of wells causing waste.039. (7) The drowning with water of any pool or part thereof capable of producing oil or gas. 2307 2308 Id. drilling. 437 . casing and plugging of wells in such a manner as to prevent the escape of oil or gas out of one stratum into another. and to prevent blowouts. seepages and fires. spacing. of gas in excess of the amount which is reasonably necessary in the efficient production of the well. plants and drilling structures. § 522. (6) The gauging or other measuring of oil and gas to determine the quality and quantity thereof. 2308 Among its powers. (5) Producing oil or gas in such manner as to cause unnecessary water channeling or coning. except as provided for in this chapter. (2) The making and filing of reports. producing leases. except insofar as and to the extent authorized by the Commission under this chapter. and (11) The use of gas for the manufacture of carbon black. Logs of exploratory or “wildcat” wells marked “confidential” must be kept confidential for 6 months after the filing thereof. from a well producing oil or gas. gas or salt water. unless the owner gives written permission to release those logs at an earlier date. equipping. the pollution of fresh water supplies by oil. (9) The creation of unnecessary fire hazards. § 522.040(3). (6) The operation of an oil well with an inefficient ratio of gas to oil. (8) Underground waste. 2307 The Division is authorized to promulgate rules and regulations and issue orders to conserve Nevada’s oil and gas resources. (3) The drilling. well logs and directional surveys. (10) The escape into the open air. Id.(4) The locating. the intrusion of water into an oil or gas stratum. the Division may require the following: (1) Identification or ownership of wells. cavings. tanks. (5) The operation of wells with efficient gas-oil and water-oil ratios and to fix these ratios.

the spacing of wells. 438 . If necessary to prevent waste. 2315 Id. § 522. or avoid the drilling of an excessive or insufficient number of wells. § 522. or topographical conditions are such as to make drilling at such a location unduly burdensome. 2312 Id.060(1). and the contamination or waste of underground water.040(4)(a). Id. 2314 The Department may grant exceptions to such rules after notice and a hearing. 2313 Each well permitted on a drilling unit is subject to the regulations and spacing patterns that the Division prescribes for the relevant pool.(7) That every person who produces oil or gas in Nevada keep and maintain for a period of 5 years complete and accurate record of the quantities thereof. § 522. 2313 Id. 2311 Id. and minimize drainage from developed units to the tract 2309 2310 Id. protect correlative rights. 2311 The drilling of a well without a permit is prohibited. which must be available for examination by the Division or its agents at all reasonable times. 2312 [4] – Process for Pooling & Matters Covered.” 2315 If an exception is granted. 2314 Id. § 522.040(4)(b). [a] Drilling Units. or for some other reason a well so located on the unit would be non-productive. 2309 The Division regulates the drilling.050(1). the Division will hold a hearing to establish one or more drilling units for each pool within the state.060(2). § 522. the shooting and chemical treatment of wells. producing and plugging of wells. 2310 The Division issues permits to drill in search of oil or gas and collects a fee for each permit application. if a party shows that “the unit is partly outside the pool. the Division must offset any advantage accruing to the excepted well.

2323 Id. 2321 If no such agreement is reached. § 522. 2317 [b] Authority to Integrate Production. persons owning the drilling and production rights therein may agree to pool their interests and develop their lands as a pooled drilling unit. after notice and a hearing. the Act provides procedural guidelines for the unitization of operations within a particular pool or field. the Division may.0824(1). separately-owned tracts are within an established drilling unit. 2319 A pooling order must be “upon terms and conditions which will afford [each] owner . 2322 Id.” 2323 2316 2317 Id. Id. 439 . . 2318 In the absence of voluntary pooling.” 2320 In addition to voluntary and compulsory pooling. enter an order to integrate their interests for the development of their lands as a drilling unit. and must have attached thereto a recommended plan of unitization applicable to the proposed unit area and which the petitioner considers to be fair. When multiple. 2320 Id. the opportunity to recover or receive [his or her] just and equitable share of the oil and gas in the pool without unnecessary expense. § 522. must allege the existence of [certain] facts required to be found by the Division [to order unit operations]. § 522. an owner may file a petition to seek a unitization order. 2322 The petition must provide “a description of the proposed unit area with a map or plat thereof attached. 2321 Id. development and operation of those tracts of land as a unit. 2316 A producer who obtains an exception for well location will be allowed to produce no more than a just and equitable share of the oil and gas in the pool. . 2318 Id. 2319 Id.with the exception.0824(2). Persons owning tracts of land may voluntarily integrate their interests to provide for the unitized management.060(3). reasonable and equitable.

§ 522. will prevent waste and will. of conducting those operations will not exceed the value of the additional oil and gas so recovered. safeguard and adjust the respective rights and obligations of the several persons affected. including royalty owner.083(1). 440 .0828. the Division will order unitization and establish any terms and conditions thereon “which are necessary or proper to protect. 2326 Id. lien claimants and others.Upon a valid petition.” 2326 A unitization order must define the pool or portion thereof to be included in the unit area and outline the accepted plan for unit operations. 2324 The Act specifies the grounds required to issuing such an order. operation and further development of a pool or portion thereof is reasonably necessary in order effectively to carry on pressure control. 2327 The scope of the unit area will only include those lands which have been determined to be productive by actual drilling operations and will 2324 2325 Id. pressure-maintenance or repressuring operations. mortgages. or any combination thereof. (2) One or more of the unitized methods of operation as applied to the pool or portion thereof are feasible. result in the increased recovery of substantially more oil and gas from the pool than would otherwise be recovered. 2327 Id. as well as the lessees. and the Division must make the following findings: (1) The unitized management. § 522. the Division will provide notice and hold a hearing to determine whether a unitization order should be granted. owners of overriding royalties. and (4) The unitization and adoption of one or more of the unitized methods of operation is for the common good and will result in the general advantage of the owners of the oil and gas rights within the pool or the portion thereof directly affected. oil and gas payments. Id. or any other form of joint effort calculated to substantially increase the ultimate recovery of oil and gas from the pool. (3) The estimated additional cost. with reasonable probability. if any. 2325 If such conditions exist. carried interests. waterflooding operations. cycling operations.

or by one or more of the lessees within the unit area as the unit operator subject to the supervision and direction of the unit. and that unitized operation will have no material adverse effect upon the remainder of the pool. Id. the quantity of oil and gas recoverable. equitable and reasonable share of the unit production must be measured by the value of each tract for oil and gas purposes and its contributing value to the unit in relation to like values of other tracts in the unit. or such other factors as may be reasonably susceptible of determination. terms and conditions on which the cost and expense thereof will be apportioned among and assessed against the tracts and interests 2328 2329 Id.083(2). (3) The manner in which the unit and the further development and operation of the unit area will be financed and the basis. equitable and reasonable share of the unit production or other benefits thereof. location on the structure. reasonable. 441 . the burden of operation to which the tract will or is likely to be subjected.cover portions of a single pool only where the Division finds that such limitation “is reasonably required for the successful and efficient conduct of the unitized operation. its probable productivity of oil and gas in the absence of unit operations. A separately owned tract’s fair. taking into account acreage. each plan of unitization must contain fair.” 2328 Each unitization plan will be tailored to the specific needs of the particular unit area covered thereby. § 522. in lieu thereof. The designation of the unit operator must be by vote of the lessees in the unit in a manner provided in the plan of unitization and not by the Division. (3) The division of interest or formula for the apportionment and allocation of the unit production among and to the several separately owned tracts within the unit area as will reasonably permit persons otherwise entitled to share in or benefit by the production from such separately owned tracts to produce and receive. Under such a plan the actual operations within the unit area may be carried on in whole or in part by the unit itself. 2329 In addition to such other terms and conditions that the Division finds necessary or proper. and equitable provisions for the following: (1) The efficient unitized management or control of the further development and operation of the unit area for the recovery of oil and gas from the pool affected. their fair. dependent upon what is most beneficial or expedient.

operation. A new unit created for the unitized management. Upon and subject to such terms and conditions as to time and rate of interest as is fair to all concerned. all in the same manner.084. including the method of arriving at the compensation therefor. including the area of an existing unit. boards and officers. (4) The procedure and basis upon which wells. the requirement that it be approved by royalty owners therein does not apply. upon the same conditions and subject to the same limitations applicable to the creation of a unit in the first instance. and prescribing their tenure and time and method for their selection.made chargeable therewith. proper or convenient in the efficient management of the unit. (6) The time when the plan of unitization becomes effective. § 522. (5) The creation of an operating committee to have general overall management and control of the unit and the conduct of its business and affairs and the operations carried on by it. Id. However. together with the creation or designation of such other subcommittees. 2331 [c] Allocation of Production and Costs. equipment and other properties of the several lessees within the unit area are to be taken over and used for unit operations. defining the powers and duties of all those committees. 2330 2331 Id. reasonable provisions must be made in the plan of unitization for carrying or otherwise financing lessees who are unable promptly to meet their financial obligations in connection with the unit.0838. or of otherwise proportionately equalizing or adjusting the investment of the several lessees in the project as of the effective date of unit operation. 2330 The unit area of a unit may be enlarged to include adjoining portions of the same pool. where the amendment to the plan affects only the rights and obligations as between lessees. (7) The time when and the conditions under which and the method by which the unit may be dissolved and its affairs wound up. boards or officers to function under the authority of the operating committee as may be necessary. 442 . including a detailed accounting procedure governing all charges and credits incident to the operations. and further development of the enlarged unit area or the plan of unitization may be amended. § 522.

2334 Id. 2337 Id. including a reasonable charge for supervision. 443 . § 522. the Act also provides a risk penalty for lessees who refuse to share in the upfront costs and risks of drilling operations. 2335 Id. 2332 The portion of the production allocated to the lessee of each tract therein. 2333 The cost of development and operation of a pooled unit chargeable by the operator to the other interested lessees is limited to the actual and reasonable expenditures required for that purpose. 2336 Id. and the Division is without authority to require pooling as provided in the Act. the lessee or lessees have a lien on the share of production from the unit accruing 2332 2333 Id. which is further discussed below. when produced. the well for the benefit of others. in addition to any other right conferred by the pooling order. 2337 If one or more of the lessees drill and operate. § 522.Operations incident to the drilling of a well upon any portion of a pooled drilling unit covered by an order shall be deemed to be the conduct of the operation upon each separately owned tract in the unit by the several lessees thereof.060(3). or pay the expense of drilling and operating. 2335 Appeals may be taken from this determination as from any other order of the Division. but the allowable production from each well will be proportionate to the allowable production for the entire drilling unit as the area of such tract bears to the acreage of the whole unit. is considered as if it had been produced from the tract by a well drilled thereon. the lessee of each tract may drill upon his acreage.060(4). the Division shall determine the proper amount. 2336 However. 2334 In the event of a dispute over those costs. If the persons owning the production rights in separate tracts embraced within a drilling unit fail to agree upon pooling. Id.

2338 All the oil and gas subject to the lien. 444 . must be marketed and sold by the creditor and the proceeds applied in payment of the expenses secured by the lien. 2340 Only the amount of the unit production allocated to each separately owned tract within the unit is considered as production from the separately owned tract. § 522. 2339 In all instances where a unit has been formed out of lands or areas of more than one ownership. or so much thereof as is necessary. § 522. Id. 2341 Except as may be otherwise authorized by the Act or approved unitization plan. 2342 The obligation or liability of the lessees or other owners of the oil and gas in the separately owned tracts for the payment of unit expense is several. with any remaining balance payable to the debtor. to deliver to the lessee or the lessee’s assigns his or her proportionate share of the production from the well common to the drilling unit.060(6). but subject to the right of the operator to market production and collect the proceeds with respect to a lessee in default. 2341 Id. The lessee receiving his or her share shall provide at the lessee’s own expense proper receptacles for the receipt and storage thereof.to the interest of each non-contributing lessee for the payment of a proportionate share of the expenses. 2340 Id. § 522. that amount of unit production or proceeds thereof must be distributed among the persons entitled to share in the production in the same proportion as would be required absent the unitization order.085(1). and in no event is a lessee or other owner liable for more than the amount apportioned to his or her interest in the separately owned tract pursuant to the plan of unitization. 2342 Id. the Division shall require the operator. upon request of a lessee.060 (2009). 2343 2338 2339 Id.0854. 2343 Id § 522.

to secure the payment of the amount of the unit expense charged to the separately owned tract. Id. contract or otherwise are responsible for the cost and expense of developing and operating a separately owned tract for oil and gas in the absence of unitization. the unit has a first and prior lien upon the leasehold estate and all other oil and gas rights (exclusive of a one-eighth landowners’ royalty interest) in each separately owned tract. is primarily responsible for any assessment for unit expense made against the tract and resort may be had to overriding royalties. only if the owner of interest primarily responsible fails to pay the assessment of the production to the credit thereof. or the amount of the assessment in whole or in part is deducted from the unit production to the credit of that interest. § 522. oil or gas payment. the interest of the owners thereof in the unit production and all equipment in the possession of the unit. 2346 Id. 2344 The interest of the lessee or other persons who by lease. or other interests not otherwise chargeable with that cost.0858(1). oil and gas payments. 445 . or production is insufficient for that purpose. § 522. royalty interests in excess of one-eighth of the production. 2346 2344 2345 Id.0858(3).0858(2). 2345 If the owner of any royalty interest. overriding royalty. § 522. the owner thereof is to the extent of the payment or deduction subrogated to all the rights of the unit with respect to the interest or interests primarily responsible for the assessment.Subject to such reasonable limitations as may be set out in the plan of unitization. or any other interest which under the plan of unitization is not primarily responsible therefor pays in whole or in part the amount of an assessment for unit expense for the purpose of protecting that interest.

lease or property as expressed by a decimal number. and any other nonworking interest in the money earned from any oil and gas lease or other agreement concerning the sale of the production from an oil or gas well located in Nevada: (a) The lessee is liable for all of the costs of production. (6) An itemized list of any other deductions or adjustments that reduce the amount paid to the owner of an interest. (9) The share of the total value attributed to the owner of an interest in the sales of the production from the oil or gas well. 446 . the royalty owners free and clear of all unit expense and free of any lien therefor. overriding royalty interest. (3) The total number of barrels of oil or thousands of cubic feet of gas sold. or the proceeds thereof paid to. which must be deducted from the working interest. (5) The total amount of state taxes on the net proceeds of minerals. 2347 [d] Royalty Distribution For purposes of determining the respective rights of the lessor and lessee and the owners of a royalty interest. if the payment of those taxes reduces the amount paid to the owner of an interest. 2347 Id. property or well. (8) The percentage share of the owner of an interest in the sales of the production from the oil or gas well. (b) The lessor’s interest. (2) The month and year during which any sale occurred for which payment is being made.A one-eighth part of the unit production allocated to each separately owned tract must in all events be regarded as royalty to be distributed to and among. (c) The following information must be reported with each remittance. (4) The price per barrel of oil or the price per thousand cubic feet of gas. to the owner of an interest: (1) The name or number used to identify the lease. unless otherwise reported each month. taxes ad valorem and other taxes on the production from an oil or gas well. the mineral owner’s royalty interest and the overriding royalty interest must not be decreased by the costs of production. (7) The net value of total sales after deductions or adjustments that reduce the amount paid to the owner of an interest.

118.lease or property before any deductions or adjustments and after any deductions or adjustments. gathering. recycling.02 Types of Nevada Pooling Statutes. a Division order may not alter or amend the terms of a previously-executed oil or gas lease or other written agreement. § 522.0868. separating and storing of oil or gas. violates any [Nevada] statutes .115. compressing. and transporting of oil to storage tanks. . 2348 2349 Id. including costs associated with the acquisition of an oil and gas lease. The Act specifies that “[n]o agreement or plan for the development and operation of a field or pool of oil or gas as a unit. If information is requested by certified mail. dehydrating. 2350 [e] Restraint of Trade. prohibiting monopolies or acts . drilling and completion of the well. in restraint of trade or commerce. Such costs do not include the reasonable and actual direct costs associated with transporting oil from storage tanks to the market. . pressurizing. Id. § 522. pumping or lifting. . an oil or gas well. an answer must be mailed by certified mail within 30 days after receipt of the request.” 2351 § 29. 2351 Id. and (10) A name and an address where the owner of an interest may receive clarification of the information reported pursuant to this paragraph and additional information concerning the owner’s interest. § 522. or gas into the pipeline for delivery. gas from the point of entry into the pipeline to the market or the processing of gas in a processing plant. 2350 Id. if approved by the Division for the purpose of conserving oil or gas. heater treating. primary or enhanced recovery of oil or gas from. . [1] – Mineral Distinctions. 2348 The term “costs of production” means all costs incurred for the exploration and development of. and operations associated with the abandonment of. 2349 However. 447 .

in his discretion. 448 . [2] – Split by Depth. tract or 2352 2353 Id. Code § 522. other than gas produced in association with oil and commonly known as casinghead gas. the following requirements apply: (1) Each well drilled for oil with a projected depth of 5. or of a lot.Nevada defines “gas” to include “all natural gas and all hydrocarbons produced at the wellhead except oil. § 522. (2) Each well drilled for oil with a projected depth of greater than 5. [3] – Size & Spacing Rules. Id.029.235 (2011). As noted below. and the liquid hydrocarbon known as distillate or condensate recovered or extracted from gas.027. 2353 As discussed below. 2354 In the absence of a special order of the Division establishing drilling units or authorizing different densities of wells or patterns of location for particular pools or parts of pools. tract or combination of lots or tracts substantially equivalent to a quarter-quarter section as shown by the most recent government survey. only one well may be issued a permit to produce oil from the same reservoir within the same quarter-quarter section. or of a lot. Unless the administrator.000 feet must be located not less than 330 feet from the outside boundary of a government quarter section.000 feet or less must be located not less than 330 feet from the outside boundary of a government quarter-quarter section. the Division regulations provide default spacing rules which vary based upon the depth of a given well. In a proven oil and gas field. the general statewide spacing rules are different for oil and gas wells. Admin. to be adopted by the Division after notice and hearing. § 522. the spacing of wells is governed by special rules for each particular field.” 2352 “Oil” is defined to include the crude petroleum oil and other hydrocarbons regardless of gravity which are produced at the wellhead in liquid form. there is little language in the Act or Division rules to distinguish between the two. determines otherwise. Other than the spacing rules stated below. 2354 Nev.

(3) Each well drilled for gas with a projected depth of 5.combination of lots or tracts substantially equivalent to a quarter section as shown by the most recent government survey. 449 . where there is sufficient evidence to indicate that the pool or reservoir for which the spacing of wells is or will be prescribed by the Division may extend beyond the boundary of the spacing order or application. or of a lot. determines otherwise.000 feet must be located not less than 990 feet from the outside boundary of a government section. (6) The administrator will determine the pattern for the location of wells adjacent to an area in which the spacing of wells is prescribed by the Division or under application for spacing. 2355 Upon proper application. determines otherwise. and the uniformity of the pattern of spacing is necessary to ensure an orderly development of the pool. the administrator may approve an exception to general spacing laws or to any order of the Division dictating the spacing of wells for a pool. Unless the administrator. in his discretion. only one well may be issued a permit to produce gas from the same reservoir within the same section. tract or combination of lots or tracts substantially equivalent to a section as shown by the most recent government survey. § 522.000 feet or less must be located not less than 660 feet from the outside boundary of a government quarter section. Unless the administrator. only one well may be issued a permit to produce oil from the same reservoir within the same quarter section. 2355 2356 Id. (5) These requirements for the location of a well do not apply to federal units. in his discretion. only one well may be issued a permit to produce gas from the same reservoir within the same quarter section. and areas subject to existing orders for drilling and spacing. Unless the administrator.240. or of a lot. 2356 An application for an exception must state the reasons the exception is sought and be accompanied by a plat showing the following: (a) The locations at which an oil or gas well could be drilled in compliance with law or an applicable order. wells drilled pursuant to a working interest agreement. Id. in his discretion. (4) Each well drilled for gas with a projected depth of greater than 5. determines otherwise. tract or combination of lots or tracts substantially equivalent to a quarter section as shown by the most recent government survey.

2360 Id. prudent. directly or diagonally adjoining the quarter section or section for which the proposed exception is sought. before drilling a well.(b) The location at which the applicant requests permission to drill. Id.5 percent (exclusive of royalty interests owned by lessees or subsidiaries of any lessee) of the normal one-eighth landowners’ royalty interest in and to the unit area. regardless of depth. § 522. and may hold supplemental hearings as necessary to obtain the requisite percentage. all wells must be drilled as nearly vertically as possible by normal. or (2) In a section. for any gas well greater than 5. 450 . 2360 If sufficient approval has not be established within six months of the order’s issuance.” 2359 The Division must make a formal finding that such consent has been granted.000 feet.000 feet or less. Except for wells that are intentionally deviated.245. or any gas well of 5. he must submit a letter so stating and another application showing the new location.0834(2). 2361 [5] – Directional Drilling. the person to whom the permit was originally issued desires to change the location. for any oil well. An exception approved by the administrator does not affect the rights of owners of directly or diagonally adjoining tracts to drill for oil or gas. the Division will revoke the order. 2358 [4] – Minimum Operator Control.0834(1)(a).] and by the owners of record of not less than 62. 2357 If. Rev. Stat. The Act states that a Division order for unitization will not become effective without the written approval “by the lessees of record of not less than 62. § 522. 2361 Id. No interval in an oil 2357 2358 Id. § 522.5 percent of the unit area affected thereby[. and (c) The locations at which oil or gas wells have been or could be drilled in accordance with law or an applicable order: (1) In a quarter section. and practical drilling operations. 2359 Nev.

the order must provide for reimbursement for 300 percent of the costs chargeable to each lessee out of. 451 . 2362 [6] – Election. production from the unit belonging to the lessee. § 522. Id. 2363 2362 2363 Id.well may be opened to the wellbore closer than 330 feet from the outer boundary of the lease on which the well is located. including a plat obtained by methods used for surveying wells must be filed with the Division. and no interval in a gas well may be opened to the well bore closer than 660 feet from the outer boundary of the lease on which the well is located. Plans for directional drilling must be approved by the Division before the drilling is begun. sidetrack junk.060(4). a complete directional survey of the well. Deviation from the plan is permitted without the approval for short distances to straighten the hole. or correct other mechanical difficulties. § 522. and only out of. Upon completion of the well. As to lessees who refuse to agree upon pooling.275.

452 . The state of New Hampshire has not enacted any statute addressing oil and gas conservation.§ 30.01 Analysis of New Hampshire Regulatory Framework.

and eight Assistant Commissioners. 453 . 2366 Within the Department. as the head of the Department. §13:1M-2 (West 2011).J. 2365 The Act provides that no person may begin operations incident to the exploration and drilling of oil or natural gas wells without having received a permit from the Department of Environmental Protection (“Department”). and duties of the Department through such divisions as may be established by this act or otherwise by law. and discharge the functions. powers.§ 31.2 (a) (2011). New Jersey law does not provide an express statutory provision relating to pooling or unitization and only includes a discussion of oil and gas production. 2367 N. and other applicable statutes. (3) perform. 2367 The Commissioner.01 Analysis of New Jersey Regulatory Framework. Ann. has the authority to do the following: (1) administer the work of the Department. there is the Commissioner of the Department (“Commissioner”). the Chief of Staff. Code §7:1-1. two Counselors to the Commissioner. not inconsistent with the provisions of this act and in such bureaus and other organizational units as he may determine to be necessary for efficient and effective operation. exercise. Title 13 of the New Jersey statute (“Act”) discusses the drilling requirements for an oil and natural gas well.2364 Natural gas does not include methane or other hydrocarbon gases resulting from the decomposition of organic matter in solid waste at any landfill facility. Id. The Commissioner has the Deputy Commissioner. subject to the provisions of Title 11 of the Revised Statutes.J. report directly him or her. [1] – Name of Governing Body. Stat. Chapter 1M. (2) appoint and remove officers and other personnel employed within the Department. 2364 2365 N. Admin. (4) organize the work of the Department in such divisions. Civil Service. who is the Department administrator and head. 2366 Id. except as herein otherwise specifically provided.

§ 7:1-1. and (11) perform such other functions as may be prescribed in this act or by any other law. He or she is also responsible for the day-to-day administration of Department activities.2 (b). § 13:1B-3. 2369 The Chief of Staff coordinates staff functions in the Commissioner's office. 2370 Two Counselors to the Commissioner serve as the Commissioner's legal liaisons with the Department of Law and Public Safety and advise the Commissioner regarding policy implications of legal issues that arise in connection with the Department's work. Code §7:1-1. and promulgate. issue. (10) integrate within the Department. Ann. Stat." The lead Counselor 2368 2369 N. its officers and employees. Admin. (8) make an annual report to the Governor and to the Legislature of the Department's operations. so far as practicable. (6) formulate and adopt rules and regulations for the efficient conduct of the work and general administration of the Department. and the several divisions and other agencies therein. 2368 The Deputy Commissioner provides policy recommendations to the Commissioner and serves as Acting Commissioner in the Commissioner's absence or disability. in a manner designed to eliminate overlapping and duplicating functions. 454 . N. the lead Counselor to the Commissioner serves as the Department's Ethics Liaison Officer and the Department's liaison to all of the agencies allocated to the Department in accordance with the New Jersey Constitution and commonly known as "in but not of agencies.J. (7) institute or cause to be instituted such legal proceedings or processes as may be necessary properly to enforce and give effect to any of his powers or duties. and render such other reports as the Governor shall from time to time request or as may be required by law. In addition. in the name of the Department. such rules and regulations as may be authorized by law.2 (c).J. 2370 Id.(5) adopt. all staff services of the Department and of the several divisions and other agencies therein. (9) co-ordinate the activities of the Department.

(2) significant degradation of landscape. Ann. (5) designation of the well by name and number. Ann. § 7:1 (2010). upon forms proscribed and supplied by the Department. as identified by municipal tax map by lot and block. 2373 N. The Act only grants general authority to the Department to oversee and regulate drilling for oil and gas. 2373 2372 The permit or application to drill an oil and gas well needs to include the following information: (1) the name and address of the owner. (7) the type of drilling equipment to be used.2 (d). § 13:1M-3. and (4) substantial air and noise pollution.J. When an authorized agent signs an application it shall be accompanied by a certified copy of his appointment as such agent. A permit will be issued only upon a written finding by the Department that the authorized actions will not result in any (1) adverse consequences to groundwater and surface water. and if a corporation. a person needs to file with the Department. for a permit to drill. However. 455 . the name and address of the statutory agent. (4) the location of the tract or drilling unit on which the well is located or is to be drilled.to the Commissioner oversees the Office of Legal Affairs and the Office of Dispute Resolution. N. Stat. (3) threat to public health and safety. (8) the name of the New Jersey-licensed well driller or driller who supervises the drilling operations. In order to drill for oil and gas.J. (6) the geological formation to be tested or used and the proposed total depth of the well. each of the eight Assistant Commissioners oversees a number of programs and organizational units. [2] – Procedure. See generally id. § 13:1M-2 (West 2011). (2) the signature of the owner or his authorized agent. none of these programs or organizational units is granted specific authority over the drilling of oil and natural gas wells. 2371 2372 Id. Stat. § 7:1-1. 2371 Additionally. (3) the names and addresses of all persons holding the royalty interest in the tract upon which the well is located or is to be drilled or within a proposed drilling unit.

00 for property damage.000. 5. (17) a sworn statement that all requirements of any municipality having jurisdiction over any activity related to the exploration. 2374 The permit must be accompanied by a permit fee and a surety bond. and plugging and abandonment of any oil or gas well that have been filed with the Department and are in effect at the time the application is filed. 456 . drilling.000. obtained. (16) a sworn statement that the owner has in force and will maintain until abandonment of any oil or gas well in this State liability insurance coverage in an amount not less than $10. and plugging and abandonment of wells for oil or natural gas. and municipal roads.(9) the name and address of the corporate surety and the identifying number of the bond required. will be complied with. including but not limited to zoning ordinances and resolutions. §§13:1M-4. § 13:1M-2. (12) a plan for handling muds. which shall include a method for disposal of water and other waste substances—including brine—resulting. to pay claims arising out of the drilling. of the county. the Department must provide timely and informative notice of permit application to the public of the affected area. prepared by a surveyor licensed in New Jersey. identity of the geological formation to be used as the injection medium and the composition of the liquid to be injected. The public will then be afforded an opportunity to review and comment on the permit application. (10) a plan for ground and surface water protection. and highways that the applicant anticipates will be used for access to and egress from the well site. or produced in connection with the exploration and drilling for oil or natural gas. 2375 Prior to the approval of a permit or an amended permit. and (19) a map. (13) a plan for safety. (18) a description. showing the location of the well and containing such other data as may be required by the Department. on a scale not smaller than four hundred feet to the inch. by name or number.000. (15) if the well is for the injection of a liquid.000. drilling. (14) a plan for restoration of the land surface disturbed by operations incident to the exploration. (11) a plan for casing. Any 2374 2375 Id. Id. State. streets. operation. or plugging and abandonment of the wells.00 for bodily injury and $10.

2378 An oil and gas well must be plugged if it is incapable of producing oil or gas in commercial quantities. Additionally. 2377 Once the well is drilled and it is determined that it will produce marketable quantities of oil or natural gas. for extraction of the oil or natural gas. § 13:1M-9. (3) the plans.public comment that is made and submitted to the Department will be made part of the record. 457 . (2) the estimated quantity of oil or natural gas producible from the well. unless the Department grants written permission to do otherwise. compliance. the permit holder must file a written report within seven days of the determination of marketable quantities to the Department that provides (1) the location and depth of the well. The Act prohibits the commencement of drilling on the new drilling site until the new location has been approved by the Department. § 13:1M-4. if any. The Department will consider these comments when deciding whether to approve the permit. 2376 The permit holder may change the well site with the approval of the Department. Id. § 13:1M-13. 2379 The order will contain a reasonable time for 2376 2377 Id. 2379 Id. the Department will hold a public hearing if any person requests that such be done. The Department will show its approval by posting the amended permit at the well site. 2378 Id. Requests for change must be accompanied by an amended application. and (4) any additional information that may be required by the Department. § 13:1M-9. then it will notify and order in writing the permittee to plug the well. If the Department finds that the well needs to be plugged and abandoned.

[1] – Governing Body. Minerals. and Natural Resources and must (1) be a resident of the state and (2) be registered by the state board 2380 2381 See Patrick Martin & Bruce Kramer. -7-1 to -7-21 (2011). The New Mexico Oil Conservation Commission (“Commission”) is the policymaker for the Division. The Commission is composed of a designee of the Commissioner of Public Lands. 2382 Id. §§ 70-2-17. 2384 Id. New Mexico (along with Oklahoma) enacted the first compulsory pooling statute in the United States.M. this presumably means that their tenure is based on the tenure of the official that designated them. Minerals. 2384 The Oil and Gas Act states that the term of office of each member of the Commission is concurrent with the other office held by him (in the case of a designee.2381 The Oil Conservation Division of the Energy. -2-1 to -2-38.01 Analysis of New Mexico Regulatory Framework. 2383 Id. 2385 Id. a designee of the Secretary of Energy.§ 32. 2380 New Mexico currently has both compulsory pooling and unitization. Minerals. Minerals. Minerals. whether the Commissioner of Public Lands or the Secretary of Energy. § 70-2-17. and the director of the Oil Conservation Division.02 (MB 2010). 458 . and Natural Resources Department (“Division”) carries out compulsory pooling under the Oil and Gas Act and unitization under the Statutory Unitization Act in New Mexico. 2383 The designees of the Commissioner of Public Lands and the Secretary of Energy. Stat. Ann. although the statute is not clear. § 70-2-4. 2382 [2] – Membership on the Governing Body. The Law of Pooling and Unitization § 3. and Natural Resources). 2385 The director of the Division is appointed by the Secretary of Energy. and Natural Resources. and Natural Resources must be persons who have expertise in the regulation of petroleum production by virtue of education or training. N.

2386 His official title is the “State Petroleum Engineer.M.” 2387 [3] – Scope of Authority. 835 P. 2395 N. but only when the owners have not agreed to pool their interest voluntarily. 114 N.15.M. 103. § 70-2-5.M. Stat. § 70-2-11 (2011).of registration for professional engineers and land surveyors as a petroleum engineer or (3) by virtue of education and experience have expertise in the field of petroleum engineering. § 70-2-17 (2011). 459 . but the Commission has concurrent jurisdiction and authority with the Division. § 70-2-12. 2393 N. Ann. at 114. 2389 Id. 2395 2386 2387 Id. Oil Conservation Comm'n of N. 2394 N. 2392 See.M. id. Code R. Ann. Stat.g. The Division may vary the standard spacing rules if the deviation is necessitated by a variation in public land surveys upon application. v. 2389 The Division has the authority to determine and change the limits of pools and units. 830 (1992). 2393 The Division has the power to prescribe “proration units” in a pool (these appear to be similar to the “drilling units” in other states). § 70-2-6.M.2d at 819. § 19. 114. the Division has the power to pool two or more separately owned tracts of land within a spacing or proration unit to avoid waste and protect correlative rights..15. 2390 Regulatory decisions must be based on substantial evidence. The Commission and the Division have jurisdiction over all matters relating to oil and gas conservation. 835 P. 2394 In regards to compulsory pooling. 2392 The Division has the power and duty under the Oil and Gas Act to prevent waste and protect correlative rights.11 (2011).2d 819. Id. being the area that can be efficiently drained by one well in the pool.. 2388 Id. 2390 Id. e. 2388 The statutory sections generally refer to the authority of the Division rather than the Commission. 2391 See Santa Fe Exploration Co. 2391 Courts generally defer to administrative technical authority.

” 2397 The Act applies to “any type of operation that will substantially increase the recovery of oil above the amount that would be recovered by primary recovery alone and not to what the industry understands as exploratory units. §70-7-1. and oil treatment plants. and require certificates of clearance or tenders in connection with the transportation of oil or gas or any products of either. leases. blow-ups. operation and further development of the oil and gas properties to which the Statutory Unitization Act is applicable. secondary recovery activities. books. water use and disposal. well spacing. 2400 [4] – Process for Pooling. 2398 Id. 2396 2397 Id. 2399 Id. and all means and modes of transportation and equipment. including natural gas injection. to the end that greater ultimate recovery may be had therefrom. check. and correlative rights protected of all owners of mineral interests in each unitized area.The Division also has the express authority to carry out the purposes of the Statutory Unitization Act. provide for the keeping of records and the making of reports and for the checking of the accuracy of the records and reports. plants. 460 . 2396 The Act seeks to “authorize and provide for the unitized management. refineries. make investigations and inspections. §70-7-3. § 70-2-12. Id. oil or gas storage (including subsurface storage). well production records. examine. papers. 2399 It also has the authority to regulate well plugging. examine properties. and records. hold hearings. limit and prorate production of crude petroleum oil or natural gas. waste prevented. the prevention of fires. 2400 Id. classification of wells and pools as gas or oil pools or wells. test. the encroachment of water in productive strata. and caving. and gauge oil and gas wells. tanks.” 2398 The Division has the expressly enumerated power to collect data.

Code R. permit an unorthodox location. (7) if the application seeks to adopt. by first class mail to any persons requesting notice. including an e-mail address and fax number if available.4.M. or the address of the applicant's attorney. stating (1) the hearing's time and place.” signed by the director and bearing the Commission's seal. § 19. (3) the applicant's name and address. including an e-mail address and fax number if available.An application for a pooling order or unitization order must include (1) the applicant's name. the notice must specify each pool or common source of supply that the Division or Commission's granting the application may affect. the Division must publish notice of an adjudicatory hearing in the name of the “State of New Mexico. (2) the applicant's address. the notice must contain a legal description of the spacing unit or geographical area the applicant seeks to pool or unitize.8 (2011) Id. and if the hearing is before the 2401 2402 N.2402 The notice must be given at least 30 days before the hearing by posting on the Division’s website.9. and (6) any other matter specifically required under the law regulating the type of order sought. (6) a reasonable identification of the adjudication's subject matter that alerts persons who may be affected if the division grants the application. 461 . 2401 After an application has been submitted. (2) whether the case is set for hearing before the Commission or a Division examiner.5. revoke. establish or alter a non-standard unit. or amend special pool orders. § 19. (5) a brief description of the hearing's purpose. (4) a case name and number. or address of the applicant's attorney.15. or establish or affect a well's or proration unit's allowable. (4) the general nature of the order sought. and (8) if the application seeks compulsory pooling or statutory unitization.4. (5) a proposed legal notice for publication. (3) the name or general description of the common source or sources of supply or the area the order sought affects.

§ 19. by notice by publication. 2407 Id. (2) a map outlining the spacing unit to be pooled.4. 2403 A person with standing may intervene in proceedings by giving notice at least one business day before the due date of filing for a pre-hearing statement. 2404 Applicants requesting an order for compulsory pooling and statutory unitization must also give notice to any owner of an interest in the mineral estate of any portion of the lands the applicant proposes to be pooled or unitized whose interest is evidenced by a written conveyance either of record or known to the applicant at the time the applicant filed the application and whose interest has not been voluntarily committed to the area proposed to be pooled or unitized (other than a royalty interest subject to a pooling or unitization clause). (3) the names and last known addresses of the interest owners to be pooled and the nature and percent of their interests and an attestation that the applicant has conducted a diligent search of all public records in the county where the well is located and of phone directories. 2407 When notice has been given according to the general rules. including computer 2403 2404 Id. Id.15. 2405 Id. applicants may file an alternative application containing (1) a statement that the applicant expects no opposition including the reasons why. showing the ownership of each separate tract in the proposed unit and the proposed well's location. 462 . 2405 Applicants for nonstandard proration units must give notice to the owners of interest who would be included in a standard unit and will be excluded under the applicant’s proposed unit.12. 2406 Id. if the requested pool complies with spacing rules and all owners that could be located do not oppose the petition.Commission. surface owners within one half mile of the proposed disposal site must be given notice. 2406 Under all applications for surface disposal of proposed water or fluids.

The statements must include (1) the names of the party and the party's attorney. the Division may set a pooling application for full hearing with oral testimony by the applicant. Parties before Division adjudications who intend to present evidence must also submit a prehearing statement at least four business days before the hearing. 2410 Id. § 19. (4) the names of the formations and pools to be pooled. § 19. 2410 If the Division finds the application complete. and in the case of expert witnesses. 2412 Applicants must file two sets of pleadings and correspondence in cases pending before a division examiner with the division clerk. (3) the names of witnesses the party will call to testify at the hearing. 2411 At an interested person's request or upon the Division's own initiative. 463 .m. the information submitted with the application constitutes the record in the case.2.15. but in no event later than 5 p.searches. and (9) a copy of the AFE 2408 the applicant.15. their fields of expertise. (4) the approximate time the party will need to present its case. (6) written evidence of attempts the applicant made to gain voluntary agreement including but not limited to copies of relevant correspondence. 2409 The Division must set unopposed pooling applications for hearing. and the Division issues an order based on the record. (2) a concise statement of the case. and (5) identification of any procedural matters that are to be resolved prior to the hearing. MST on the Thursday before the hearing. A party other than the applicant must include in its pre-hearing statement.7(7). if appointed operator. will submit to the well's interest owners. (5) a statement as to whether the pooled unit is for gas or oil production or both.4. (8) the location and proposed depth of the well to be drilled on the pooled units. 2412 Id.12. 2411 Id. Id. (7) proposed overhead charges (combined fixed rates) to be applied during drilling and production operations along with the basis for such charges. a 2408 2409 Id.

M. which the Director may have modified from the Division examiner's proposed order. 2416 Id. Ann. Id. Parties may appear pro se or through an attorney. § 19.17. hearings may consider pre-hearing motions. or member.15. geology.16. . Stat.15. Division staff who are licensed attorneys. 2414 The rules of evidence do not apply to hearings. or who have experience in hydrogeology.18.4. or a related field and a college degree in geology. 2418 N. 2417 Id.13 (2011). but collective entities may only appear through an attorney. hydrology. The Division examiner drafts a proposed order and submits it to the Director with the certified record of the hearing.22. and the reasons for such support or opposition. 2415 Id. § 19.5. environmental engineering. 2416 After receipt of the Division examiner's report. §§ 19.15. 464 . Parties may request that the director of the Division issue a subpoena for attendance or for the production of materials prior to the hearing. 2415 Upon conclusion of a hearing the Division examiner must prepare a written report with recommendations for the matter or proceeding.4.5. . § 70-2-17 (2011). or a related field.14. an authorized officer. . engineering. § 19.21. identify the pool or pools to which it applies. Compulsory pooling orders must describe the lands included in the proration unit. hydrology. 2413 Hearings are conducted informally. petroleum engineering. § 19. Testimony is given under oath and transcripts are taken.statement of the extent to which the party supports or opposes the issuance of the order the applicant seeks.4.14. and designate an operator for the unit. disposing of the matter.4. the Director enters the Division's order. The Division examiners adjudicating The director of the Division must appoint as Division examiners.4. 2418 Allocation of proceeds of production is based on surface acreage within the unit (rather than on 2413 2414 Id. 2417 [a] Statutory Requirements for Pooling Orders.

2421 [b] Statutory Requirements for Unitization Orders.the area of drainage. potentially diminished by the risk penalty if they do not pay for their share of drilling costs). Ann. although it may be altered upon application. and (6) an allegation of the facts required to be found by the Division under section 70-7-6 of the New Mexico statutes.M. and equitable. 2422 Any working interest owner may file an application with the Division requesting an order for the unit operation of a pool or any part thereof. 2421 N. 465 . 2422 N. although of course proration unit boundaries are supposed to be defined by the area that can be drained efficiently). Stat.15. (5) a copy of a proposed operating plan covering the manner in which the unit will be supervised and managed and costs allocated and paid. An application must contain (1) a description of the proposed unit area and the vertical limits to be included therein with a map or plat thereof attached.8 (2011). (2) a statement that the reservoir or portion thereof involved in the application has been reasonably defined by development. Code R. (3) a statement of the type of operations contemplated for the unit area. § 70-7-6 (2011). § 70-7-5.M. 2423 Section 70-7-6 requires the following facts be found for the issuance of a unitization order: (1) that the unitized management. § 19. and further development of the oil or gas pool or a portion thereof is reasonably necessary in order to effectively carry on pressure 2419 2420 Id. Unitization orders are entered after notice and hearing. Id. 2419 Unleased landowners must be treated as one-eighth royalty owners and seven-eighths working interest owners (thus entitling them to a share of net profits.3. 2420 The default risk penalty is 200 percent. reasonable. operation. (4) a copy of a proposed plan of unitization which the applicant considers fair. 2423 Id.

2426 Id. As mentioned above.15 and are more fully described in Section 31. of conducting such operations will not exceed the estimated value of the additional oil and gas so recovered plus a reasonable profit. 466 . infra. there must nonetheless be at least one other owner who consents to the order.02. the Division also regulates well plugging. to substantially increase the ultimate recovery of oil and gas from the pool or the unitized portion thereof. the encroachment of water in productive strata. (3) that the estimated additional costs. (5) that the operator has made a good faith effort to secure voluntary unitization within the pool or portion thereof directly affected. reasonable. § 70-7-18. and equitable basis. if any. the prevention of fires. well production records. and (6) that the participation formula contained in the unitization agreement allocates the produced and saved unitized hydrocarbons to the separately owned tracts in the unit area on a fair. in addition to regulating pooling and unitization. will prevent waste and will result with reasonable probability in the increased recovery of substantially more oil and gas from the pool or unitized portion thereof than would otherwise be recovered. (2) that one or more of the said unitized methods of operations as applied to such pool or portion thereof is feasible. oil or gas storage (including 2424 2425 Id.maintenance or secondary or tertiary recovery operations. § 70-7-8. Spacing rules fall under New Mexico Administrative Code section 19. Id. and caving. (4) that such unitization and adoption of one or more of such unitized methods of operation will benefit the working interest owners and royalty owners of the oil and gas rights within the pool or portion thereof directly affected. 2426 [5] – Matters Covered. Unleased landowners owners receive a one-eighth royalty. 2424 Unitization orders must be ratified by 75 percent of the production owners and the cost providers. 2425 If one owner controls more than 75 percent of the minerals. blow-ups. classification of wells and pools as gas or oil pools or wells.15. § 70-7-6.

condensate or any combination thereof. The pooling statute is not expressly limited to any strata or depth. In New Mexico pooling applies to oil and gas pools. § 70-2-17. a wildcat well is a well to be drilled the spacing unit of which is a distance of two miles or more from: (a) the outer boundary of a defined pool that has produced oil or gas from the formation to which the well is projected to be drilled.subsurface storage).M. § 70-7-4.15. 2432 Id. § 70-7-1. Rio Arriba. Wells are treated differently by strata. water use and disposal. casinghead gas. § 19. 2427 § 32. [2] – Spacing and Size Rules. the county in which the well is located. 2431 The spacing rules first distinguish between wildcat wells and development wells. Code R. natural gas. 2431 N. and McKinley counties. Sandoval. New Mexico oil and gas regulations. [1] – Mineral and Depth Distinctions. the Unitization Act does not expressly include or exclude coalbed methane. infra.02 Types of New Mexico Pooling Statutes.3.” 2430 Thus. Unitization expressly applies to oil and gas. and 2427 2428 Id. secondary recovery activities including natural gas injection. 2429 “Oil and gas” are defined under the Act as “crude oil.8 (2011). 2430 Id. to the extent that spacing is different based on the strata that a well drains. § 70-2-12. 467 . 2432 A wildcat is defined as follows: (1) In San Juan. The Act also does not expressly limit its application to any depth or strata. The spacing rules in New Mexico are different according to the type of well. and the pool from which it produces. and oil treating plants. 2428 Coalbed methane is not expressly included or excluded from the definition of oil and gas under the Oil and Gas Act. as described in more detail. or state case law. 2429 Id. Id.

drill.15. Sandoval.15. 468 . (2) In all counties except San Juan.15. the operator must seek Division approval for the nonstandard location of the well before it may produce.15. a wildcat well is a well to be drilled the spacing unit of which is a distance of one mile or more from: (a) the outer boundary of a defined pool that has produced oil or gas from the formation to which the well is projected to be drilled. and shall be located no closer than 330 feet to a boundary of the unit. and McKinley. must be located on a spacing unit consisting of approximately 40 contiguous surface acres. 2436 If a proposed oil well is completed as a gas well. The operator must space. 2436 Id. § 19. A well that is not a wildcat well is classified as a development well for the nearest pool that has produced oil or gas from the formation to which the well is projected to be drilled. 2434 A wildcat well that the operator projects to drill as an oil well to a formation and in an area that in the Division's opinion may reasonably be presumed to produce oil rather than gas. operate. and each development well for a defined oil pool unless otherwise provided in special pool orders.8.(b) a well that has produced oil or gas from the formation to which the proposed well is projected to be drilled. substantially in the form of a square that is a legal subdivision of the United States public land surveys and is a governmental quarter-quarter section or lot. 2435 Only 40-acre spacing units committed to active secondary recovery projects may be permitted more than four wells. 2437 Id.9. § 19. and produce a development well in accordance with the rule or order in effect for that pool. provided the well is completed in that pool. and (b) a well that has produced oil or gas from the formation to which the proposed well is projected. Rio Arriba. Id. 2435 Id. 2437 2433 2434 Id. 2433 [3] – Spacing for Oil Wells.

Eddy.2. San Juan. 469 .” See id. or is within a defined gas pool. more or less. substantially in the form of a square that is a section and legal subdivision of the United States public land surveys and must be located no closer than (1) 1. and (3) 10 feet to a quarter-quarter section line or subdivision inner boundary. (2) 130 feet to a quarter section line. shall be spaced and located as follows: (1) 640-acre spacing applies to a deep gas well 2438 in Rio Arriba.200 feet to an outer boundary of the spacing unit.e. more or less. or McKinley Counties that is projected to be drilled to a gas producing formation older than the Dakota formation or is a development well within a gas pool created and defined by the Division after June 1. unless otherwise provided in special pool orders.15.[4] – Spacing for Gas Wells. (2) 320-acre spacing applies to a deep gas well in Lea. Sandoval.7(D)(1). presumably a “deep well” is one that produces from a “deep pool. the San Juan basin). more or less. comprising any two contiguous quarter sections of a single section that is a legal subdivision of the United States public land surveys provided that (1) the initial well on a 320-acre unit is located no closer than 660 feet to the outer boundary of the quarter section on which the well is located and no closer than 10 feet to a quarter-quarter section line or subdivision inner boundary and (2) only one infill well on a 320-acre unit shall be allowed provided that the well is located in the quarter section of the 320-acre unit not containing the initial well and is no closer than 660 feet to the outer boundary of the quarter section and no closer than 10 feet to a quarter-quarter section line or subdivision inner boundary. however “deep pool” is defined as “a common source of supply that is situated 5. § 19. A wildcat well that the operator projects to drill as a gas well to a formation and in an area that in the Division's opinion may reasonably be presumed to produce gas rather than oil and each development well for a defined gas pool. The well must be located on a spacing unit consisting of 640 contiguous surface acres. The well must be located in a spacing unit consisting of 160 surface contiguous acres. The well must be located on a spacing unit consisting of 320 surface contiguous acres. Chaves.. (3) 160-acre spacing applies to a gas well not covered above. which formation or pool is located within the surface outcrop of the pictured cliffs formation (i. substantially in the form of a square 2438 “Deep gas well” is not defined in the regulations. or Roosevelt Counties that is projected to be drilled to a gasproducing formation. that is in the Wolfcamp or an older formation. 1997 in a formation older than the Dakota formation.000 feet or more below the surface”.

or a single section if the well is completed in a pool or formation for which 640 acres is the standard spacing unit size. 80. § 19. 2439 2440 Id.15. a single half section if the well is completed in a pool or formation for which 320 acres is the standard spacing unit size.11(b)(1). 2441 Id. 2440 The director may approve administratively an application for non-standard spacing units after notice and opportunity for hearing when the unorthodox size or shape is necessitated by a variation in the legal subdivision of the United States public land surveys or the following facts exist: (a) the non-standard spacing unit consists of a single quarter-quarter section or lot or quarter-quarter sections or lots joined by a common side and (b) the non-standard spacing unit lies wholly within a single quarter section if the well is completed in a pool or formation for which 40.15. Division district offices may approve non-standard spacing units without notice when the unorthodox size or shape is necessitated by a variation in the legal subdivision of the United States public land surveys or consists of an entire governmental section. or 160 acres is the standard spacing unit size.2441 [6] – Directional Drilling.11(b)(2). [7] – Minimum Operator Control.15. No New Mexico oil and gas statutes or regulations contain any provisions specifically applicable to horizontal wells. Id. 2439 [5] – Non-Standard Spacing Units. and the non-standard spacing unit is not less than 70 percent or more than 130 pecent of a standard spacing unit.that is a quarter section and a legal subdivision of the United States public land surveys and must be located no closer than 660 feet to an outer boundary of the unit and no closer than 10 feet to a quarter-quarter section or subdivision inner boundary.15. § 19.15. 19. 470 .10 .15.

M. § 70-7-8 (2011). 2442 If 75 percent or more of the unit area is owned. Ann. under the Division's order. of the production or proceeds thereof that will be credited to interests which are free of costs. such owner must be joined by at least one other owner of the same type of interest in disapproving.No unitization order of the Division providing for unit operations shall become effective unless and until the plan for unit operations prescribed by the Division has been approved in writing by those persons who. Stat. if a single owner is one who. and production payments. the plan of unit operations to defeat the plan. The risk penalty for nonparticipating owners is 200 percent by default. 2446 N. 2444 If one owner is the owner of at least 25 percent. the working interest owner must be joined by at least one other working interest owner in ratifying and approving the plan of unit operations. 2446 Unleased landowners owners are treated as one-eighth royalty 2442 2443 N. but not more than 50 percent. 2445 Id. or failure to approve.8 (2011). but not more than 50 percent. under the Division's order will be required initially to pay at least 25 percent. 2445 [8] – Review of Election Rights/Options.15. unless such working interest owner is the owner of 100 percent of the working interest in said unit area. Id. as to working interest. of the costs of unit operation. 2443 However. 2444 Id. 471 . although it may be changed upon application. § 19. by one working interest owner. such owner must be joined by at least one other owner of the same type of interest in disapproving. or failure to approve.M. Code R.13. overriding royalties. will be required initially to pay at least 75 percent of the costs of the unit operations. and also by the owners of at least 75 percent of the production or proceeds thereof that will be credited to interests which are free of cost such as royalties. the plan of unit operations to defeat the plan.

2447 2447 N.M. Stat.owners and seven-eighths working interest owners under the pooling statute and similarly receive a one-eighth royalty under the Statutory Unitization Act. 472 . 70-7-18 9 (2011). Ann §§ 70-2-17.

Y. and Solution Mining Advisory Board (hereinafter the “Board”) to assist the Commissioner in the regulation of the mining industry. tit.Y. Conserv. 473 . 2452 Id.§ 33.01 Analysis of New York Regulatory Framework. § 550. orders. Gas. Comp. Envtl. the state geologist. 2453 The members of the Board are appointed by the governor.2(b). § 23-0301. including a majority representative of the respective industries. Envtl. 2448 was developed around the goal of preventing the waste of natural resources. 2450 Id. Gas. 6. 2453 N. the president of the New York State Energy Research and Development Authority.Y. The members serve in threeyear terms and continue in office until their successors are appointed and qualified. entitled the Oil. 2451 N. 2449 The statute grants the Department of Environmental Conservation (hereinafter the “Department”) the authority to carry out the provisions of the Act. [1] – Governing Body. Codes R. and three must be made at the recommendation of the Speaker of the Assembly.2(a) (2011). § 550. regulations. There is also a 13-person Oil. Three of the appointments must be made at the recommendation of the Senate majority leader. 2454 Id. 2454 Additionally. Law § 23-0311(1) (McKinney 2011). and amendments of the Department relating to oil and gas. and Solution Mining Law (“the Act”). Law § 23-0102 (McKinney 2011). 2452 [2] – Membership on the Board. the chair of the public service commission. Article 23 of the New York Environmental Conservation Law. 2450 The Department created the Bureau of Mineral Resources (hereinafter the “Bureau”) 2451 to administer and enforce all rules. The Department of Environmental Conservation is led by a Commissioner. Id. and the Commissioner serve 2448 2449 N. § 23-0303(1). & Regs. Conserv. who holds powers and duties under section 23-0305 of the New York statute.

2(d).2(c) (2011). & Regs. Envtl. time. number. § 550. tit. § 23-0311(2). 2456 aided by and assistant chief. 2458 Id. and conduct site inspections. not less than 60 Id.4(c). Codes R. investigate as necessary to determine if waste exists or is imminent. tit. although the director is an undefined term. Codes R. § 550. either by personal service. each with a regional supervisor acting as the chief’s deputy. 2461 Id. 2462 Hearings must be conducted by the director 2463 or his staff as designated. or integration order of the Department. Codes R. 2465 Id. 2461 [4] – Process for Pooling. 6. 2456 2455 474 . & Regs. 2464 N. 6.Y. 2459 as amended by Chapter 386 of the Laws of 2005. The Department may.4(a) (2011).4(b) (2011). investigate the environmental impact of drilling. and place of the hearing. conduct hearings. Comp. The Department is granted its authority and given the framework for regulating the oil and gas industry by the Act. Law § 23-0303(1) (McKinney 2011). The Department may not promulgate any orders without first holding a public hearing upon at least 10 days’ notice. 2457 The Bureau is organized into regions. § 550. § 550. 2455 The Bureau of Mineral Resources is directed by a chief.2(e). or by mail and must address the purpose. 2462 N. & Regs. § 23-0305. § 23-0305(7)(a). as well as to review drilling proposals. who acts in the chief’s absence. 2463 The regulations state that the “director” conducts hearings. 6. voluntary agreement.on the Board in an ex-officio capacity. 2464 Notice of Department hearings must be given. either through fee ownership.Y. Conserv. § 550. 2460 Id. § 550. 2457 Id. 2458 [3] – Scope of Authority. Comp. style. N. 2460 The Department has the authority to regulate pooling and spacing.Y. 2459 N. Comp. 2465 Any party who applies for a permit to drill an oil or gas well must control.Y. newspaper publication. likely. with regard to oil and gas pools and fields. tit. either the commissioner of the Department or the chief of the Bureau were intended. among other things.

Conserv. § 23-0503(2). and the name. 2472 Id. 2470 Id. and to protect correlative rights. the Department may still issue a permit if the unit meets the state’s policy objectives 2470—i. § 23-0503(3)(c). 2471 Id. § 23-0301. 2469 If the proposed unit does not fit the statewide spacing provisions. Id. 475 . the Department must make adjustments to production allowables so that each owner in the unit receives his or her equitable share of production from the underlying pool. 2473 Id. and if it either adjoins other units or leaves enough space for additional units to be developed. the Department will issue the permit and final 2466 2467 N. to increase ultimate recovery. or if no challenge is submitted. 2471 If approved.e.. 2468 However. which challenges must include a description and map of a proposed alternative spacing unit. Envtl. discussed in detail below. 2466 Those parties must also submit to the Department a map of the proposed spacing unit in conformity with statewide spacing rules. 2467 If the proposed spacing unit conforms to said spacing rules and is approximately the same shape as other units in the same pool or field. 2472 The Department must receive all comments and challenges regarding the notice of intent to issue a permit within 30 days of sending the notice. 2469 Id.percent of the acreage in the proposed spacing unit for that well. § 23-0503(3)(b). then the Department will issue the permit. before it may issue such permits. § 23-0503(3)(a). and a showing that the applicant controls the appropriate percentage of oil or gas rights. Law § 23-0501(2) (McKinney 2011). 2473 If the Department determines that the challenge raises no substantive issues. and experience of any expert witnesses supporting the alternative unit.Y. 2468 Id. § 23-0501(2)(a)–(b). address. to prevent waste. the Department must publish notice of intent to do so in the Environmental Notice Bulletin. technical justification for such alternative spacing unit.

2482 Once the fee owners of the leased oil and gas interests in the spacing unit are given 21 days’ notice. whereby two or more parties mutually consent to pool their interests and tracts within a spacing unit for the purpose of drilling. § 23-0701(1). and assigns. their heirs. 2480 While Department approval is not a prerequisite for drilling. the Department will schedule an adjudicatory hearing. 2477 The Department may also integrate or unitize interests within a spacing unit. once such approval is granted. §23-0503(6). 2477 Id. if significant issues have been raised. 2478 New York law allows voluntary integration or unitization. 2480 Id. 2482 Id. failure to submit the plan for approval will not constitute evidence or an implication that the agreement is in violation of trust or monopoly laws. 476 . successors. the operator can record a declaration of voluntary integration for each tract in 2474 2475 Id. 2474 However. or the wells in a unit are plugged and abandoned. § 23-0701. 2479 An agreement evidencing that decision can then be submitted to the Department for approval as being in the public interest or as being reasonably necessary to prevent waste. §23-0503(7).spacing order. the spacing unit is extinguished and all of the land in the unit is eligible to be included in future spacing units. 2481 Id. 2481 However. 2476 Once the well permit expires. a spacing unit is binding on all persons. it provides a blanket defense to any lawsuit alleging violation of any trust or monopoly laws in the operation of the unit. 2479 Id. § 23-0503(3)(d). 2476 Id. Id. A decision may be modified without a hearing if it is determined that no facts are in dispute after all affected parties have been given a reasonable opportunity to comment. 2475 With some specific exceptions. 2478 Id.

§ 23-0301. § 23-0901(3).receipt of notice. and assigns and all parties who take title by operation of the law. 2485 No order requiring integration of interests in a spacing unit may be issued unless the Department finds. it “shall make an order integrating all tracts and interests in the spacing unit for development and operation. after notice and hearing. This declaration is final and binding on all persons. § 23-0901. that such integration is necessary to carry out the following policies: 2486 “[to] prevent waste. excessive or improper use of. § 23-0901(3)(b). 2488 Id. the Department will schedule an integration hearing to determine whether integration is in the public interest and necessary to prevent waste. 2489 The statute defines “waste” as follows: (a) Physical waste. and that the correlative rights of all owners and the rights of all persons including landowners and the general public may be fully protected . . as well as their heirs. .” 2488 If a well permit is issued by the Department and the operator does not control all of the owners within the unit by lease or agreement. 477 . 2489 Id. or the unnecessary dissipation of reservoir energy. 2485 Id. § 23-0701(2). 2486 Id. § 23-0901(2). . (b) The inefficient. to authorize and to provide for the operation and development of oil and gas properties in such a manner that a greater ultimate recovery of oil and gas may be had. 2483 2484 Id. 2484 If the parties cannot or will not arrive at a voluntary integration agreement. successors. Id. 2483 This declaration must include the acreage of each tract and the portion of the entire spacing unit that that acreage constitutes.” 2487 If the Department makes the above findings. as that term is generally understood in the oil and gas industry. 2487 Id. the Department has the authority to force such an agreement.

2492 Id. or which causes or tends to cause unnecessary or excessive surface loss or destruction of oil or gas. 2495 discussed further below. 2490 Where an integration hearing is scheduled. or will be economically feasible within a reasonable time. operating. 2492 The operator must indicate if the identities of the uncontrolled owners are unknown. and a list of the names and addresses of the uncontrolled owners. on terms that are just and reasonable. 2491 The operator must also provide an estimate of well costs to be paid by the participating owners based on their proportionate interests. a list of the controlled tracts. 2490 2491 Id. and (e) The flaring of gas produced from an oil or condensate well after the department has found that the use of the gas. 2494 It must contain an election form allowing uncontrolled owners to elect to be integrated into the spacing unit as an integrated participating owner. 478 .(c) The locating. drilling. is. or an integrated royalty owner. (d) The inefficient storing of oil or gas. or producing of any oil or gas well or wells in a manner which causes or tends to cause reduction in the quantity of oil or gas ultimately recoverable from a pool under prudent and proper operations. if uncontrolled owners do not make a timely election. 2495 Id. § 23-0901(3)(c). equipping. 2493 The notice of the hearing for uncontrolled owners must be in a form prescribed by the Department and include several provisions. § 23-0901(3)(c)(1)(i). 2493 Id. the operator must hold the royalties payable to the unknown owner in an interest-bearing account until the owner is located or the property is deemed abandoned. Id. the operator must give at least 30 days’ notice to the uncontrolled owners. along with estimated costs of participation. § 23-0901(3)(c)(1). Where the owners are unknown and a spacing unit is ordered. § 23-0101(19). an integrated non-participating owner. the default election status is that of an integrated royalty owner. 2494 Id. spacing.

479 . The owner’s election to take in kind must be communicated to the operator not later than 14 days before first production or upon 75 days’ notice to the operator at any time thereafter subject to the expiration of an existing contract. (G) If the owner is not subject to a risk penalty and does not take its production share in kind. royalties. (H) The operator is entitled to propose and conduct subsequent operations on a well. and other required payments and from and against all claims associated with the loss or failure of title to the mineral rights. If the owner does not elect to participate and pay its proportionate share within 30 days. (E) The well operator must submit to all owners written authority for expenditures of the costs associated with construction of the facilities that are not included in well costs beyond surface equipment at the wellhead to the first point of interconnection with other facilities that commingle production from a group of wells that include the well. Owners in a risk penalty phase may not participate in such subsequent operations but will be charged the owner’s 2496 Id. (F) If the owner is not subject to a risk penalty.Notice must also include the proposed integration order. the owner has the right to take its share of production and be responsible for marketing and transportation. (C) The owner is liable for and shall indemnify all other participants in the development of the well from and against all claims arising from the owner’s non-payment of rentals. owners will be provided with written authorization for expenditure of the estimated costs of subsequent operations. and the operator is entitled to retain all of the owner’s share of production until he has recouped from the net proceeds the actual costs plus a risk penalty of 100 percent of the costs. the operator will market such share with its own share for the owner’s account and pay the owner based on the price received in the general area minus (I) the owner’s proportionate share of costs and (II) a marketing fee not to exceed five percent of the sales price. 2496 The proposed order has several required terms. the owner is deemed not to have elected. including the following: (A) The owner is liable for its proportionate share of all costs and expenses and third-party claims related to the well. (D) The well operator has a lien on the production of owners to pay outstanding costs and may retain revenue or production to pay such costs owed under the integration order. § 23-0901(3)(c)(1)(ii). (B) The well operator should hold risk penalty funds in an interestbearing account until those funds are used for plugging and abandonment.

the owner will be integrated as an integrated royalty owner. exclusive of weekends and holidays. § 23-0901(3)(f). § 23-0901(3)(e). 2499 Id. (I) The operator. 2497 Within 21 days of receipt of the notice. in which case telephone notification is allowed. 2502 2497 2498 Id. on behalf of the owner. however. 2501 All operations on a spacing unit that is covered by an integration order are deemed to be conducted upon each separately owned tract in the spacing unit by the owner or owners thereof. 2499 If substantive and significant issues are raised during the initial hearing. successors. the operator may retain the owner’s proportionate share plus 200 percent of actual costs. 2502 Id. to accept. Id. If no election is made. and production allocated to each tract under an integration order is deemed to have been produced by a well drilled thereon.proportionate share of actual costs plus 200 percent risk penalty. and the owner has 48 hours. Owners not in a risk penalty phase have 30 days to elect to participate unless the rig is already on location. The order will be recorded in the office of the county clerk in the county or counties where the property is located. and (J) Other terms are allowed to be included in the order if the Department determines those terms are reasonably required to further the section 23-0301 policy objectives. § 23-0901(3)(d). § 23-0901(3)(c)(2). the Division will issue a final order of integration confirming the status of all uncontrolled owners. and assigns. the uncontrolled owners must indicate to the Department and the operator the type of ownership status (discussed in detail in below) that they elect. and the order will be final and binding on the well operator as well as the owners and their heirs. 480 . 2500 If there are no such issues. 2501 Id. is entitled to conduct all acts relating to the well. 2498 If the owner fails to make an election. 2500 Id. then the Division will schedule an adjudicatory hearing regarding the issues.

the Department will issue an order providing for unit operations. 2509 Id. 2507 Once a permit is issued. 2505 In making its determinations. a hearing should be held without “undue delay. 2508 Id. § 23-0901(5). the Department has broad powers of investigation and may subpoena parties to testify. if needed. (b) A statement of the nature of the operations contemplated.The Department’s authority to order compulsory integration also pertains to integration resulting in the unit operation of an entire pool. which must be the proportion that the value of each tract bears to the value of all tracts in the unit area. 2503 The Department may elect to hold a hearing to consider the need for unit operation upon its own motion and it must hold such a hearing when an application is filed by an interested person. 481 . (d) A provisions for charges to be made in adjusting among owners for their investments in operations. for carrying or 2503 2504 Id. § 23-0901. 2506 Prior to issuing an order. Id. 2504 Once an application is filed. the same policies regarding waste prevention and correlative right protection must be considered. (e) A provision providing how expenses. 2508 If the Department decides that unit operations are reasonably necessary to increase substantially the ultimate recovery of oil and gas and that the estimated additional recovery value is greater than the estimated additional cost of running such operations. (c) An allocation of production that is not used in conducting operations and that is not unavoidably lost. will be charged and paid. the Department will determine the production allocation. 2506 Id. If the parties have not agreed as to the allocation. § 23-0901(2). the operator must notify by certified mail any local government affected by the location of the drilling site prior to commencing operations. § 23-0305(13). § 23-0305(6). 2509 The order must be fair and reasonable and must include the following: (a) A description of the unit area. 2507 Id. § 23-0305(7). § 23-0901(4). including capital investment.” and the Department must issue an order within 60 days of the conclusion of the hearing. (f) A provision. 2505 Id.

2514 Id. § 23-0101(7). 2515 Id. 2514 Amendments may not change the percentage allocation provided for in the original order without the consent of all persons owning interest in the tract at issue. New York law provides the following definitions. mixed. 2510 2511 Id. royalty owners need not give their approval. § 23-0901(8). 2515 Also. § 23-0901(6). 2512 Orders may be amended in the same way and subject to the same conditions as the original order. 2511 The Department must make a finding that the plan has been adequately approved. § 23-0901(7)(a). the Department may provide for unit operation in an area that is covered by a previous order so long as allocation is had for the new portion of the tract.financing those unable to pay for their portion of unit operations. manufactured. (i) Additional provisions as appropriate. and all other hydrocarbons not defined as oil in this section. § 23-0901(7)(b). “Gas” is defined as “all natural. (h) The time when operations begin and the manner in which they end. 2512 Id.02 Types of New York Pooling Statutes. 2513 However. 2513 Id.” 2517 “Oil” means “crude petroleum oil and all other hydrocarbons. regardless of gravity. [1] – Mineral Distinctions. if the amendment only affects rights of owners. Id. 482 . § 23-0901(7). and such approval must be had within six months from the order date or it will become ineffective. and byproduct gas. 2516 Id. (g) A provision for the supervision and conduct of the operations. 2516 § 33. 2510 Unitization orders are not effective until the plan issued by the Department is approved in writing by the owners of 60 percent or more in interest as the costs are shared under the order and by owners of a like percentage of a one-eighth royalty interest in the unit area. 2517 Id.

483 . with the proposed productive section of the wellbore within the target formation no less than one mile from any other well in another unit in the same pool and no less than 1. Spacing orders are not required for wells that were drilled. plugged.000 feet in the fault-bounded Trenton and/or Black River formation. For hydrothermal dolomite gas pools drilled from 4.000 feet from any unit boundary that is not defined by a field-bounding fault.500 feet from any unit boundary that is not defined by a field-bounding fault. 1981. but in no event less than 660 feet from any unit boundary. plus. with the wellbore within the target formation no less than 660 feet from any unit boundary. § 23-0101(10). operated. or converted prior to January 1. § 23-0503(1). 2519 The following spacing requirements are listed in subsection (b)(1) of section 23-0501(1) for wells drilled after that date unless another percentage is specifically stated: For gas pools drilled to any depth in the Medina Formation. 2518 2519 Id. the number of additional acres necessary and sufficient to ensure that any horizontal wellbore within the target formation is not less than 660 feet from any unit boundary.” 2518 [2] – Spacing Rules. the number of additional acres necessary and sufficient to ensure that any horizontal wellbore within the target formation is not less than 460 feet from any unit boundary. the spacing unit must be within 10 percent of 320 acres. For hydrothermal dolomite gas pools drilled below 8. For gas pools drilled to any depth in the Onondaga reef or Oriskany formation. if applicable. with the wellbore within the target formation no less than 460 feet from any unit boundary. the spacing unit must be within five percent of 640 acres.000 feet in the fault-bounded Trenton and/or Black River formation. plus. if applicable. but in no event less than 660 feet from any unit boundary.that are produced at the wellhead in liquid form by ordinary production methods and that are not the result of condensation of gas. with the proposed productive section of the wellbore within the target formation no less than one-half mile from any other well in another unit in the same pool and no less than 1. the spacing unit must be within 10 percent of 160 acres. the spacing unit must be within 10 percent of 40 acres. Id.000 to 8.

For shale gas pools at any depth. with the wellbore within the target formation no less than 460 feet from any unit boundary. for a vertical well outside any existing spacing unit for the same formation. for a horizontal well outside any existing spacing unit for the same formation and with a written commitment from the well operator to drill infill wells pursuant to subdivision 4 of section 23-0503 of this title. the number of additional acres necessary and sufficient to ensure that any horizontal wellbore within the target formation is not less than 460 feet from any unit boundary. notwithstanding the 10 percent tolerance specified in this subparagraph. the number of additional acres necessary and sufficient to ensure that any horizontal wellbore within the target formation is not less than 1. 484 . if applicable. with the wellbore within the target formation no less than 330 feet from any unit boundary plus the number of additional acres necessary and sufficient to ensure that the wellbore within the target formation is not less than 330 feet from any unit boundary. the spacing unit may be up to 640 acres. with the initial horizontal wellbore or wellbores within the target formation approximately centered in the spacing unit. plus. with the wellbore within the target formation no less than 460 feet from any unit boundary.000 to 6.000 feet from any unit boundary.000 feet deep. the number of additional acres necessary and sufficient to ensure that any horizontal wellbore within the target formation is not less than 660 feet from any unit boundary. For all other gas pools where the majority of the pool is 6. the spacing unit must be within 10 percent of 320 acres. For shale gas pools at any depth.000 feet. For all other gas pools where the majority of the pool is 4. if applicable. the spacing unit must be within 10 percent of 80 acres.000 feet from any unit boundary. For shale gas pools at any depth. plus. with all horizontal infill wells in the unit to be drilled from a common well pad within three years of the date the first well in the unit commences drilling. for a horizontal well outside any existing spacing unit from the same formation and in the absence of a written commitment from the well operator to drill infill wells pursuant to subdivision 4 of section 23-0503. For all other gas pools where the majority of the pool is above 4. the spacing unit must be within 10 percent of 40 acres. the spacing unit must be within 10 percent of 40 acres.000 feet deep.000 to 8. with the wellbore within the target formation no less than 1. with the wellbore within the target formation no less than 660 feet from any unit boundary. and no wellbore in the target formation less than 330 feet from any unit boundary. plus. the spacing unit must be within 10 percent of 160 acres. if applicable.

the order will then be revoked by the Department. the number of additional acres necessary and sufficient to ensure that any horizontal wellbore within the target formation is not less than 460 feet from any unit boundary. and the Department has found that the plan has been approved by the requisite number of owners.000 feet. 2523 The election form they will receive as part of their notice2524 must 2520 2521 Id. plus. the number of additional acres necessary and sufficient to ensure that any horizontal wellbore within the target formation is not less than 1. with the wellbore within the target formation no less than 460 feet from any unit boundary.For all other gas pools where the majority of the pool is below 8. the spacing unit must be within five percent of 640 acres. plus. § 23-5301(1)(b)(1).500 feet from any unit boundary. § 23-0901(3)(c)(1)(i). and by a like percentage of the owners of one-eighth royalty interests. the spacing unit must be within 10 percent of 40 acres.500 feet from any unit boundary. § 23-0901(6) 2523 Id. Onondaga reef or other oil-bearing reefs at any depth. with the wellbore within the target formation no less than 1. If the plan has not been approved by the requisite percentage within six months of the order. 2522 [4] – Review of Election Rights/Options. For oil pools in the Bass Island. 485 . 2520 Wells drilled as oil wells may not produce natural gas before the spacing unit is modified pursuant to gas spacing provisions. the wellbore within the target formation must be at least 165 feet from any lease boundary. Non-participating owners have 30 days after receipt of the proposed order for integration to elect to participate. if applicable. Id. 2524 Id. and For all other oil pools at any depth. § 23-0901(3)(c)(1)(ii)(E). Black River. 2522 Id. 2521 [3] – Minimum Operator Control. Trenton. An order issued by the Department compelling operations will not be effective unless and until the unit operations plan is approved in writing by owners of 60 percent or more of the interests. if applicable.

Uncontrolled owners who do not make a timely election to participate or who do not make the requisite payments will be integrated as an integrated royalty owner. Id. 2527 the owner is then entitled to his or her full share of the production attributable to his or her proportionate interest. § 23-0901(3)(a)(1). Id. 2526 Once the operator has recouped the portion of the owner’s costs for the well plus a risk penalty. (iii) During the recovery of the second 100% of the risk penalty. § 23-0901(3)(a)(4). 2527 Id.25%. An “integrated non-participating owner” or “non-participating owner” is an owner who chooses to reimburse the operator from production proceeds for the owner’s proportionate share of the costs of the well. 2525 [a] Non-Participating Owners. Id. without being subject to charges and costs. 2528 Id. The risk penalty is equal to two hundred percent of the share of the actual well costs allocated to the owner. (ii) During the recovery of the first 100% of the risk penalty. 2531 [b] Integrated Participating Owner. 1/16 or 6.5%.include the operator’s good faith estimate of costs. 2530 Id. 2531 Id. 2530 The lessee is not relieved of any obligations to pay any remaining royalty and/or overriding royalty owed under the terms of its lease. described further below. 2528 Where the tract is under lease. 3/32 or 9. 2526 2525 486 . the lowest royalty fraction set forth in an existing lease in the unit. “Risk penalty” is defined as the percentage applied to well costs to reimburse the operator for the risk associated with exploration and development. 2529 The royalty is calculated separately and paid to the non-participating owner on the royalty owner’s behalf under the following allocations: (i) During the recovery of the actual well costs. § 23-0901(3)(a)(1). Id. 2529 Id.38%. a royalty is deducted from the non-participating owner’s share of production. but no less than 1/8 or 12. § 23-0901(3)(a)(1).

or fees associated with operating the well and is also insulated from claims for personal injury or property damage related to the drilling and operation of the well. but not to an amount less than one-eighth. An integrated royalty owner is an owner who chooses to be an integrated royalty owner or who does not choose to operate as either of the previously-discussed options (the statemandated default participation interest). 2534 Id. and comply with any and all requirements for participation. 2532 [c] Integrated Royalty Owner. pay the costs associated with participating up front.An “integrated participating owner” or “participating owner” is a party who chooses to participate in the initial well. § 23-0901(3)(a)(3). 2535 2532 2533 Id. Id. § 23-0901(3)(a)(2). 2535 Id. taxes. 2534 An integrated royalty owner has no obligation to the well operator or other owners for charges. 487 . 2533 This type of owner receives a royalty equaling the lowest royalty of the existing leases in the unit.

] and authorizing regulations for the protection of the environment. The North Carolina Department of Environment and Natural Resources (“the Department”) has the authority to regulate oil and gas production under the state’s Oil and Gas Conservation Act (“the Act”). [1] – Name of Governing Body. 2538 The Secretary is appointed by the Governor and has the power to appoint Deputy Secretaries.html (last visited June 10.C. § 143B-279. 2541 N. Gen. divisions. Gen. 2539 The Department is organized as the “Secretary's office and staff. which is expressly prohibited. 2543 is defined as “‘physical waste. Stat. 2538 Id.” 2544 In addition.§ 34. There is little detail available about the membership of the Department relevant to oil and gas regulation. 2544 Id. 2542 Id. Id. administration. 2540 Id. 2011) (discussing the appointment of the current Secretary of the Department). programs. § 113-391 (2011).state. Stat.enr. North Carolina Department of Environment and Natural Resources. 2536 [2] – Membership on the Governing Body.” 2540 [3] – Scope of Authority. the Secretary leads the Department. councils and commissions. regional offices. 2543 Id. § 113-378 (2011).nc. § 113-389(14). 2537 In general.’ as that term is generally understood in the oil and gas industry. waste includes the following: 2536 2537 N. http://www.us/html/Sec_Freeman. 2539 See NCDENR. The Act grants the Department jurisdiction and authority “over all persons and property necessary to administer and enforce” its provisions.01 Analysis of North Carolina Regulatory Framework. 2542 Waste. § 113-382. boards. 2541 The Act specifies its public policy goals of “prohibiting waste and compelling ratable production[.C. § 113-390.4. 488 .

2545 The Department has the authority and the duty to determine whether or not waste exists or is imminent within its jurisdiction. spacing. test oil and gas wells. 2547 In particular. inspect. disproportionate. establishment of drilling units. operating or producing of any oil or gas well or wells in a manner causing. or tending to cause. in reducing inefficiently the quantity of oil or gas ultimately to be recovered from any pool in this State. (g) Underground waste however caused and whether or not defined. require the maintenance of records and reports. or (j) Permitting gas produced from a gas well to escape into the air. (d) Producing oil or gas in such manner as to cause unnecessary water channeling or coning. and examine properties and records. Id. investigate. (c) Abuse of the correlative rights and opportunities of each owner of oil and gas in a common reservoir due to non-uniform. limitation and proration of oil and gas production. 2547 Id. equipping. hold hearings. and the locating. 489 . (f) The drowning with water of any stratum or part thereof capable of producing oil or gas.(a) The inefficient. equipping. (i) The escape into the open air. unnecessary or excessive surface loss or destruction of oil or gas. excessive or improper use or dissipation of reservoir energy. drilling. and unratable withdrawals causing undue drainage between tracts of land. of gas in excess of the amount which is necessary in the efficient drilling or operation of the well. and the locating. operating or producing of any oil or gas well or wells in a manner which results. (h) The creation of unnecessary fire hazards. the Department may enact and enforce regulations to govern proper drilling and operating methods. 2546 Pursuant to waste prevention. or tends to result. and the pooling and unitization 2545 2546 Id. the Department may collect data. from a well producing both oil and gas. spacing of wells. §§ 113-391(b). and any take other action as may be reasonably necessary to enforce Act. (b) The inefficient storing of oil. spacing. (e) The operation of any oil well or wells with an inefficient gas-oil ratio. drilling.

of oil and gas interests.C. .0104-05 (2011). bears to the recoverable oil and gas in the total developed area in the pool. 2548 Although the Act does not specify detailed requirements to obtain a drilling permit. Gen. . . which is substantially in the proportion that the quantity of recoverable oil and gas in the developed area of his tract .0103(2) (2011). § 113-392(d). “the owners thereof may agree validly to integrate their interests and to develop their lands as a drilling unit. establish a drilling unit or units for each pool. In order to prevent waste and avoid the drilling of excessive wells.” 2553 [b] – Authority to Integrate Production. 2553 Id. [a] – Drilling Units. § 113-392(c) (2011). the Department may “require such owners to do so and to develop their lands as a drilling unit” in order to prevent waste or avoid 2548 2549 Id.C. Code 05D. 2550 A “drilling unit” is that “area which can be efficiently and economically drained by one well. When multiple. after notice and a hearing. § 113-392(c) (2011). no well may be drilled for oil or gas without providing notice to the Department by formal registration in a manner required by the Department. 2550 N. 2554 Id. Code 05D. § 113-395. Admin. 490 .” 2552 The Act defines a producer’s “just and equitable share” as “that part of authorized production from the pool .C.” 2554 In the absence of such agreement. See id. 2551 15A N. see also 15A N. separately-owned tracts are embraced within an existing drilling unit. the Department may. Stat. Stat.” 2551 The Department has discretion as to the size and shape of each drilling unit and may set such dimensions as necessary to prevent any producer within the pool from procuring “more than his just and equitable share of oil and gas. § 113-393(a). 2549 [4] – Process for Pooling & Matters Covered. § 113-391(c). 2552 N. . Gen. Admin.C.

” 2556 Upon the Department’s findings at the public hearing. Under a pooling agreement or order. 2558 N. Code 05D. an order to integrate interests within a drilling unit or pool must provide the following information: (1) the equitable share of oil or gas in the pool to be allocated to each owner. § 113-393(a) (2011). Id. 2557 [c] – Allocation of Production and Costs. Stat. the portion of production allocated to each owner within the unit area is considered as if it had been produced from such tract by a well drilled thereon. . 2560 N.C. Gen. § 113-393(a) (2011). Code 05D. 2558 As noted above. . including a reasonable charge for supervision. (3) any drilling and operating costs and how such expenses will be equitably distributed among the owners. Gen. 491 . .0106(e) (2011). 2559 The operator designated by the Department “shall have the right to charge to each other interested owner the actual expenditures required for [drilling and operation] not in excess of what is reasonable. an order to pool interests within a drilling unit will establish how production and costs are to be allocated among the various owners within the covered area. 2555 A pooling order may only be issued after notice and a hearing and must provide just and reasonable terms to “afford .unnecessary drilling. .C. he must pay each owner within the pool his ratable share of the production 2555 2556 Id. [and] prevent or minimize reasonably avoidable drainage. Stat. Admin. .0106(e) (2011).” 2560 After the operator has recovered such costs. 2557 15A N. (2) the designated operator of the pooled area.C.C. Admin. the owner of each tract the opportunity to recover or receive his just and equitable share of the oil and gas in the pool without unnecessary expense. and (4) any production penalty the Department chooses to impose upon an owner who refuses to pay his share of such costs. 2559 15A N.

” that reasonably meets but does not exceed market demand for each product.“calculated at the market price in the field at the time of such production. § 113-394(a). § 113-394(e). 2563 Id. This proration must be made on a reasonable basis so that each “will have the opportunity to produce his just and equitable share. less the reasonable expense for operating the well. Neither the Act nor Department regulations discuss the rights of royalty owners or the impact of statutory pooling upon their interests. 2565 Once allowable production is determined. it is unlawful for any person to produce more oil or gas than he is allocated by the Department. § 113-394(c)-(d). 2564 Id.” subject to any conditions to prevent waste. it must then prorate such among the various producers or drilling units within each pool.” 2561 [d] – Limitation of Allowable Production. This absence suggests that any royalty owner with an interest in a tract subject to a pooling order may continue to receive monetary payment 2561 2562 Id. referred to as an “allowable. 2564 Once the Department has allocated allowable production among pools. The Department has a statutory duty to limit production of oil and gas within the state to that amount. 492 . 2566 [e] – Royalty Distribution. 2566 Id. 2563 The Department is not required to consider market demand or purchase offers for any particular pool but may look to any circumstances in determining the statewide allowable. 2562 Upon establishing a statewide allowable. Id. so long as production is fairly allocated among the various pools. 2565 Id. § 113-394(b). the Department will fix an allowable for each pool in the state in a manner that will prevent waste and avoid undue discrimination among pools.

an established drilling unit will 2567 2568 Id. monopolies. 2570 [2] – Split by Depth.” 2568 “Gas” is defined as “all natural gas. § 113-394. except that the practice of setting allowable production is particular to each as based on current market demand for the product. North Carolina law makes no statutory or regulatory distinction based upon the depth of a given well. and other hydrocarbons. 493 . § 113-389(3). or contracts…in restraint of trade. [3] – Size & Spacing Rules. it is unclear how the Department treats unleased owners subject to compulsory pooling. § 113-393(c). The Act defines “oil” to include “crude petroleum oil. The Department is granted broad discretion to determine unit size and spacing requirements for any drilling unit or pool in the state. including casing-head gas.02 Types of North Carolina Pooling Statutes. [f] – Restraint of Trade. any voluntary agreement for pooling that is approved by the Department “shall not be held or construed to violate any of the statutes of [North Carolina] relating to trusts. In general. and all other hydrocarbons not [otherwise] defined as oil. 2570 Id. § 113-389(7). which are produced at the well in liquid form by ordinary production methods and which are not the result of condensation of gas after it leaves the reservoir. [1] – Mineral Distinctions.” 2567 § 34. Under the Act. 2569 Id. Id. regardless of gravity.under the terms of the applicable lease or similar agreement creating such interest.” 2569 There are no significant distinctions made between oil and gas in the Act. However.

2572 In general. (2) method of determining a total allowable for the pool. 2575 Id. 15A N. there is no specified acreage for the size of drilling units. [5] – Directional Drilling. and (4) minimum distance required from separate leaseholds or pooled units and between wells producing from the same reservoir. pool. these special rules will establish the (1) minimum size unit upon which one well may be drilled. The Act does not specify any percentage of relevant owners required to effectuate an order for pooling.0106(b). at 05D.C. (3) method of allocation and distributing total allowable among various separate leaseholds on pooled units so that correlative rights are protected. § 113-392(c). however. 2574 An exception may also be provided if recovery would be otherwise limited by topographical or geological conditions or any other factors the Department deems pertinent to the application. Admin. 2574 Id. Code 05D. 494 . 2573 Id.0106(c). or field. nor for the establishment of a drilling unit. which must be located reasonably close to the center of the unit.hold a single well thereon. The Department may fix the surface location of any well upon which the penetration of such well “shall not unreasonably vary from the vertical drawn from the center of the hold at the 2571 2572 Id. 2575 [4] – Minimum Operator Control.0106(a) (2011). 2571 The Department will not issue a drilling permit for a proposed well that violates the special rules applicable to that particular unit. 2573 The Department may grant exceptions to applicable spacing rules upon application and a public hearing if the applicant shows that an exception will result in increased recovery of oil or gas. at 05D.

2576 2577 N. 2577 [6] – Election. The Act does not discuss election rights or other requirements for the treatment of nonconsenting working interest owners subject to a pooling order. Id.” 2576 However. § 113-393(d) (2011).surface.C. the Department may prescribe rules or issue an order governing the reasonableness of horizontal variation as it sees fit. Stat. 495 . Gen.

2581 The Industrial Commission has the authority to appoint a Director of Mineral Resources who serves at the pleasure of the Commission. 2585 Id. 2583 Amerada Hess Corp.nd. Code § 38-08-4. to encourage. [1] – Name of Governing Body..D. “The Industrial Commission has very broad. 2585 The Act states that its public policy is as follows: [It is] in the public interest to foster.01 Analysis of North Dakota Regulatory Framework. Code § 38-08-01 (2010). and a quorum for the transaction of business consists of the Governor and one additional member. The members of the Commission are the Governor. production. to authorize and to provide for the operation and development of oil and gas properties in such a manner that a greater ultimate recovery of oil and gas be had and that the correlative rights of all owners be fully protected. Cent. the greatest possible economic recovery of oil and gas be obtained within the 2578 2579 N.” 2583 The Act for the Control of Gas and Oil Resources (hereinafter the “Act”) 2584 vests the Commission with its various duties and powers. v. general jurisdiction and authority to regulate production of oil and gas and oil and gas industry in North Dakota. . Cent. Code § 38-08-01 to -23 (2010). . 496 . The Industrial Commission (hereinafter the “Commission”) is vested with jurisdiction over oil and gas resources in North Dakota. Indus.gov/oilgas/ (last visited May 28. 2578 [2] – Membership on the Governing Body. See N. 2011).W. 2580 The Attorney General serves as general counsel.dmr. 2579 The Governor is the Chairman. and the Agriculture Commissioner of the State. 2582 [3] – Scope of Authority. 2581 Id. 2582 N.D. and utilization of natural resources of oil and gas in the state in such a manner as will prevent waste. 348 N.2 (2010). 2584 N. 2580 Id. § 38-08-04. Cent.2d 913 (1984).D. Department of Mineral Resources Oil & Gas Division Home Page. Comm’n.D.§ 35. and to promote the development. https://www. Furlong Oil & Minerals Co. the Attorney General. and to encourage .

2593 Id. § 38-08-04(2). the Commission has the authority to determine market demand and regulate the amount of allowable 2586 2587 Id. 2590 Id. among other things. Id. the producers. (d) The inefficient storing of oil. § 38-08-04(1). operating or producing of any oil or gas well or wells in a manner which causes.”2587 Specifically. § 38-08-01. 2591 to limit and allocate production from any pool or field. 2592 and to adopt and enforce rules and orders to effectuate the purposes and intent of this Act. 2589 The Commission has authority. 2589 Id. § 38-08-04(3). 2586 North Dakota law also states that the Commission has jurisdiction over “all persons and property. equipping. it must investigate appropriately to determine whether waste exists or is imminent or if other facts exist that justify Commission action. or tends to cause. § 38-08-02(16). and the general public realize and enjoy the greatest possible good from these vital natural resources. § 38-08-04. necessary to enforce effectively the provisions of [the Act]. reduction in the quantity of oil or gas ultimately recoverable from a pool under prudent and proper operations. 2588 Id. and spacing of wells. § 38-08-04(5). the royalty owners. public and private. or improper use of or the unnecessary dissipation of reservoir energy. spacing. drilling. (c) The locating. to require payment of bonds and fees conditioned upon compliance with this Act. production.state to the end that the landowners. (b) The inefficient. or which causes or tends to cause unnecessary or excessive surface loss or destruction of oil or gas. 2591 Id. 2588 “Waste” is defined by statute as follows: (a) Physical waste. 2592 Id. 2590 to regulate drilling. 497 . excessive. 2593 Finally. as that term is generally understood in the oil and gas industry. (e) The production of oil or gas in excess of transportation or marketing facilities or in excess of reasonable market demand. plugging.

§ 38-08-08. § 38-15-04. 2602 Id. Drilling operations may only commence after operators obtain a drilling permit from the Commission. 2600 The procedure the Commission must employ when resolving such conflicts is one in accordance with the provisions of chapter 38-08 governing the administration of the Oil and Gas Conservation Act. 2597 Id. in the same manner as it regulates oil or gas. § 38-15-03. to avoid drilling unnecessary wells.17. the Industrial Commission controls all aspects of oil and gas production.production. 2596 Id. and from unit sources of supply. 498 . Finally. as far as is practicable. 2600 Id. § 38-08-21. 2603 Id. § 38-08-09. § 38-08-09. § 38-15-02(5). 2599 which term is defined to include coal. coalbed methane gas. 2601 [4] – Process for Pooling. § 38-08-07(1). [a] Creation of Spacing Units. 2602 The Commission establishes spacing units for pools when necessary to prevent waste. which such units may vary in size and shape from one zone to the 2594 2595 Id. 2601 Id. 2596 that is. among other gases. 2603 Spacing units should be of uniform shape and size. define coalbed methane gas. a pool. oil. however. 2598 Id. In North Dakota. and gas. 2597 North Dakota law gives the Commission the authority to regulate. § 38-08-06. § 38-08-05. Id. the Commission is charged with resolving any issues between various producers of natural resources. but if necessary a pool may be split into zones with multiple spacing units. 2598 The statute does not. 2595 and to order unitized management and development of common sources of supply. 2594 to order the pooling or integration of interests within a spacing unit for development. or to protect correlative rights.3. 2599 Id. which are two or more pools separated vertically in one field.

2607 If the Commission finds it necessary to vary the well location. 499 . 2609 as well as exceptions to those rules. the owners and royalty owners thereof may decide to integrate. 2613 Id. 2606 The orders establishing units must cover all land underlain by the pool and should be increased or decreased if the Commission later finds that the pool is larger or smaller than originally believed.D. 2607 Id. § 38-08-07(2).2604 The primary requirement for units’ shape and size is that they result in the efficient and economical development of the whole pool. 2613 The Supreme Court of North Dakota has upheld the authority 2604 2605 Id. 2609 N. 2605 Orders that establish spacing units must state the size and shape of all units. 2612 Id. Cent. Id. 2608 In the absence of an order creating spacing units. [b] – Pooling of Interests within Spacing Units. 2610 Id. 43-02-03-18.next. or pool. 2606 Id.2612 Orders must be made after notice and hearing and must be on fair and reasonable terms. it may do so. Code 43-02-03-18 (2010). their interests in order to better develop and operate said unit. 2608 Id.1 2611 N. but must also act to prevent production from each unit in excess of a just and equitable amount. as well as the location of the wells thereon.D. § 38-08-07(3). § 38-08-07(3). 2610 discussed below. § 38-08-07(4). the Commission has promulgated regulations setting forth the default unit size and well location rules. 2611 Under the Act. pooling of a spacing unit can occur two ways: either by parties voluntarily pooling their separately owned tracts or interests or by an order entered by the Commission. When a given spacing unit contains more than one separately owned tract or multiple interests. giving each owner the opportunity to receive his just and equitable share of production. Code § 38-08-08(1) (2010). Admin.

Id. 2618 For lands pooled after July 31. 2616 Id. 559 N. 1997 ND 31. the mineral interest is entitled to a weighted average royalty interest of all leased tracts in the unit or.2d 772 (1983)). 2621 If an owner elects not to participate in a pooled spacing unit. at the operator’s election. 2009.of the Industrial Commission to compulsorily pool unwilling mineral owners’ interests. or pay expenses of drilling and operating for others.. 2618 Id. 2616 Operations on a spacing unit that is subject to a pooling order are considered to be conducted on each separately owned tract by the several owners thereof. Farrar Oil Co. 2009. 2617 N. Cent. (citing Slawson v. the Court rejected a challenge to one such compulsory pool where the unwilling mineral owner argued that the Industrial Commission’s Order was an improper subsurface trespass. N.2d 841 (1997). 2619 The rest of the interest will be treated as cost-bearing interest. pooled unleased mineral interests are entitled to cost-free royalty interests equal to the “acreage weighted average royalty interest of the leased tracts within the spacing unit. a cost-free 16 percent royalty interest. 2614 2615 See Cont’l Res.. v. Owners who drill and operate. and production allocated to each tract is considered to have been produced from that tract by a well drilled thereon.D. 2617 Additionally.W.” but the royalty may not be less than a one-eighth interest for lands pooled prior to August 1. § 38-08-08(2). Indus. 2621 Id. 2620 Pooling orders must include provisions for operations on the well and for payment of actual costs by interest-holders.W.D. 2615 The Court relied on a previous case and held that the police powers of the state are properly exercised when the Industrial Commission orders spacing or compels pooling. Inc. are entitled to a production lien for the payment of other owners’ proportionate share of costs. 2620 Id. 2619 Id. 339 N. Code § 38-08-08(1) (2010). 2614 Specifically. Comm’n. 500 ..

and equitable and which are necessary or proper to protect. 2622 The risk penalty is as follows: (a) If the nonparticipating interest is derived from a lease or other development contract. and adjust the respective rights and obligations of the several persons affected. exclusive of any royalty. (b) If the nonparticipating interest is not subject to a lease or other development contract. 2623 A person to whom such drilling expenses are owed may obtain a lien on the debtor’s interest in the production by filing with the register of deeds in the county in which the property is located an affidavit denoting the amount due and the debtor’s interest in production. 2624 [c] – Unitization of Interests within a Pool or Pools.2.10.” 2625 A unitization plan containing operating charges which include “any part of district or central office expense other than reasonable overhead charges” will not be considered fair and reasonable. reasonable. exclusive of any royalty or overriding royalty. safeguard. 2624 Id. 501 .then the owners who pay for that nonparticipating owner’s share of drilling may recover the nonparticipating owner’s costs plus a risk penalty. 2626 Id. 2625 Id. (c) The owner paying for the nonparticipating owner’s share of costs may recover from that nonparticipating owner a risk penalty only if the owner has made an unsuccessful. § 38-08-08(3). § 38-08-08(3). the risk penalty is 50 percent of the nonparticipating owner’s share of reasonable actual drilling and completion costs and may be recovered out of production. good-faith attempt to have said nonparticipating owner execute a lease or to have that owner participate in the risk. 2626 The Commission must also make and enforce the orders that are necessary and 2622 2623 Id. Id. The Commission is vested with the jurisdiction and authority to order plans of unitization. § 38-08-09. § 38-08-10. the penalty is 200 percent of the nonparticipating owner’s share of reasonable actual costs of drilling and completing the well and may be recovered out of production. “which are fair. § 38-08-09.

” 2628 A party must file a petition to request unitized management. and must attach a proposed plan of unitization applicable to the unit area that the petitioner thinks is fair. reasonable. to the end that a greater ultimate recovery of oil and gas may be had therefrom. § 38-08-09. . 2631 N.1. § 38-08-09. At least 45 days prior to the scheduled hearing.proper for carrying out the section of the code related to unit operations. Id. § 38-08-09. the petitioner must give notice of the hearing and mail a copy of the application and proposed plan to all affected persons holding an interest in the unit outline at that person’s last known mailing address. 2630 Id. operation.3(4). that the added costs of unitized operation will not be greater than the added value. must allege the existence of the facts that the Commission is required to find before issuing an order. and that unitization is 2627 2628 Id. the pool 2631). the Commission must schedule a hearing. and equitable. and the correlative rights of the owners in a fuller and more beneficial enjoyment of the oil and gas rights protected. 2629 Id. and will likely result in increased recovery of more oil and gas from the common source of supply than would otherwise be recovered. 502 . 2629 Upon receiving a petition. waste prevented.D. 2627 That section contains legislative findings that declare “it is desirable and necessary . and further development of the oil and gas properties to which [this section] is applicable. to authorize and provide for unitized management. the drilling of unnecessary wells eliminated. will prevent waste. That petition must include a description of the proposed unit area with a map or plat attached. 2630 The findings that the Commission must make regarding the petition are as follows: that unitized management is reasonably necessary to substantially increase the ultimate recovery of oil and gas from the common source of supply (that is. . Admin Code 43-02-03-01(12) (2010).5. that one or more methods of unitized operation are feasible.

for the common good, resulting in the general advantage of owners within the common source of supply or portion thereof. 2632 If the Commission makes the required findings, it will issue an order that must be equitable and reasonable and that is “necessary or proper to protect, safeguard, and adjust the respective rights and obligations of the several persons affected, including royalty owners, owners of overriding royalties, oil and gas payments, carried interests, mortgagees, lien claimants, and others, as well as the lessees.” 2633 The order must define the area of the pool or portion of the pool and must prescribe a detailed unitization plan.2634 The unitization plan should be suited to the needs of the particular unit based on the facts, but must include the following: (1) A provision providing for the efficient unitized management of the unit area for the recovery of oil and gas from the common source of supply, including a provision allowing the working interest owners to vote to determine the unit operator. (2) A provision determining production allocation among the several tracts so to allow all to receive each party’s fair and equitable share of unit production or proceeds therefrom. The fair portion is the value of each tract for oil and gas purposes and its contributing value to the unit in relation to like values of other tracts in the unit, taking into account acreage, oil and gas quantity recoverable therefrom, probable productivity in the absence of unit operations, and other relevant factors. (3) The manner in which operations will be financed and the basis, terms, and conditions on which the costs will be apportioned among tracts and interests, including a reasonable provision for carrying or financing owners who are unable to meet the upfront financial obligations of unit operations and a risk penalty. The risk penalty is the same as that for pooled spacing units, supra. (4) The basis upon which wells and properties of the lessees in the unit area are to be used for unit operations, including the method of determining compensation or equalizing the investment of the lessees. (5) The creation of an operating committee to have overall management and control of the unit and its business and such other

2632 2633

N.D. Cent. Code § 38-08-09.3 (2010). Id. § 38-08-09.3(4). 2634 Id. § 38-08-09.4.

503

subcommittees, boards, or officers as may be necessary to manage the unit. (6) The time when the unitization becomes effective. (7) The time when the unit must be or may be dissolved and its affairs wound up. 2635 Units created under section 38-08-09.1 through 38-08-09.16 of the Act must be limited to a single pool. 2636 Section 38-08-09.17 also gives the Commission the authority to promulgate orders unitizing two or more pools or parts thereof that are separated vertically in one field, termed a “unit source of supply.” 2637 The process for unitizing a unit source of supply is to be the same as the process to unitize a common source of supply. 2638 Orders of the Commission do not become effective until the unitization plan has been signed or ratified in writing by the persons who will be responsible for at least 60 percent of the costs of unit operations and by the owners of at least 60 percent of the royalty interests, not including overriding royalties, production payments, and other interests taken from the working interest. 2639 In addition, if more than one person is obligated to pay unit costs, at least two unaffiliated such persons and at least two royalty holders are required to be voluntary parties. The Commission must then make a finding either in the unit order or in a later order that the required approval has been given. 2640 If the required approval has not been given within six months from the date the order, it becomes void. 2641 Operations conducted on and production obtained from a unit is deemed to be conducted on and produced from each separately owned tract. Such operations are considered fulfillment of all oil and gas mining leases on lands included in the unit area. However, if the lease also

2635 2636

Id. Id. 2637 Id. § 38-08-09.17. 2638 Id. § 38-08-09.17. 2639 Id. § 38-08-09.5. 2640 Id. 2641 Id.

504

covers land partly outside of the unit area, the unit operations are not considered operations allocated to the lease as to the lands outside the unit area after two years from the effective date of the unitization order or the expiration of the primary lease term, whichever is later. 2642 The Commission may modify the unit area at any time to include adjoining portions of the same pool or to otherwise amend the original order if done in the same manner and upon the same conditions and limitations as provided for the creation of the original order. 2643 However, if the amendment only relates to the rights and obligations as between lessees or the amendment is necessary to prevent waste and to protect correlative rights, only those persons and owners in the proposed added unit need to approve the amended order. 2644 Those royalty owners affected by the original unitization order, however, are entitled to written notice by mail not more than 50 days nor less than 30 days before the Commission hearing. [d] – Hearing Procedure. Notice required prior to hearings may be given in accordance with chapter 28-32 of the North Dakota code or by a publication in both a general circulation state capital newspaper and a general circulation newspaper in the county in which the land is located. 2645 Chapter 28-32 of the code, the Administrative Agencies Practice Act, states that service for adjudicative proceedings should be given as provided in the North Dakota Rules of Civil Procedure (N.D.R.C.P.) at least 20 days before the hearing. 2646 Notice must, among other requirements, contain the time and place of the hearing and a brief statement of the hearing’s purpose. 2647

2642 2643

Id. § 38-08-09.8. Id. § 38-08-09.9. 2644 Id. 2645 Id. § 38-08-11(3). 2646 Id. § 28-32-21(3)(b). 2647 Id. § 38-08-11(3).

505

The N.D.R.C.P. asserts that service may be given by hand delivering notice to the person in need of notification or by leaving it conspicuously at that person’s office or with a person of suitable age at that person’s home. 2648 Additionally, service is complete upon mailing to the person’s last known address or by sending it via a third-party commercial carrier to the last known address. 2649 For parties with no known addresses, the court may allow the sender to leave the notice with the clerk of court. 2650 Parties may also agree to other forms of notice, e.g., electronic notice, if consented to in writing. 2651 If the Commission decides to give notice by personal service, it should be in the manner provided for in the law for service of summons in the civil action in state court. If the proceeding does not involve a complaint and a specific

respondent, the notice must be given at least 15 days before the hearing. 2652 Any party adversely affected by a Commission order may file a written petition for reconsideration 2653 or may appeal to district court for the county in which the well or the property or any portion thereof is located. 2654 Additionally, a right of appeal was established by the Legislature providing that any person adversely affected by a unitization order of the Commission may appeal from such order to the district court of the county in which the land or a part thereof involved in the unit lies. 2655 At the time of filing of the notice of appeal, if an application for the suspension of the order is filed, the Commission may enter an order suspending the order complained of and fixing the amount of a supersedeas bond. 2656 Within 10

N.D. R. Civ. P. § II, Rule 5(b)(2)(A)–(B). Id. at § II, Rule 5(b)(2)(C)–(D). 2650 Id. at § II, Rule 5(b)(2)(E). 2651 Id. at § II, Rule 5(b)(2)(F)–(G). 2652 N.D. Cent Code § 38-08-11(3) (2010). 2653 Id. § 38-08-13. 2654 Id. § 38-08-14(1). 2655 Id. § 38-08-09.16. 2656 Id. § 38-08-14(2). Such a bond must run in favor of the Commission for the use and benefit of any person who may suffer damage by reason of the suspension of the order in the event the same is affirmed by the district court. Id.
2649

2648

506

days after the entry of an order by the Commission which suspends the order complained of and fixes the amount of the bond, the appellant shall file with the Commission a supersedeas bond in the required amount and with property surety. 2657 Upon approval of the bond, the order of the Commission suspending the order complained of is effective until its final disposition upon appeal. 2658 If the order of the Commission is not superseded, it must continue in force as if no appeal was pending, unless a stay is ordered by the district court to which the appeal is taken. 2659 [5] – Matters Covered. [a] Number of Wells. The North Dakota rules and regulations state that no more than one well will be drilled to the same pool on any drilling unit, except by order of the Commission.2660 [b] Spacing of Wells/Depth. As previously mentioned, the Industrial Commission has authority to regulate well spacing. 2661 Spacing units’ size and shape should result in efficient and economical pool development. 2662 The Commission may establish spacing units for a pool, which must be of uniform size and shape for the entire pool. 2663 In the absence of a Commission order

determining the unit spacing for pools, the N.D. regulations contain default spacing provisions, 2664 discussed in detail below. [c] Allocation of Production and Costs.

2657 2658

Id. Id. § 38-08-14(2). 2659 Id. 2660 N.D. Admin. Code 43-02-03-18 (2010). 2661 N.D. Cent. Code § 38-08-04(2)(c)(2010). 2662 Id. § 38-08-07(2). 2663 Id. § 38-08-07(1). 2664 N.D. Admin. Code 43-02-03-18 (2010).

507

Pooling orders must provide for the payment of reasonable actual costs of drilling and operating on a spacing unit, plus a reasonable charge for supervision. 2665 If the parties are unable to settle the amount of costs, the Commission will make that determination. 2666 Owners who drill or operate, or who pay such expenses on behalf of another, have a lien on those others’ share of production for the payment of those costs. All of the oil and gas produced and subject to such a lien must be marketed and sold, with the proceeds applying toward payment of those expenses. 2667 Additionally, owners electing not to participate in risk and costs of drilling must pay their share of operation plus a risk penalty, discussed below. 2668 Compulsory unitization orders also must provide for the payment of costs and expenses of unit operations. 2669 A tract’s fair and reasonable allocation of production must be based upon the tract’s value for oil and gas purposes, as well as its contributing value to the unit in relation to like values of other tracts in the unit. The tract’s acreage, quantity of recoverable oil and gas, location, probable oil and gas productivity without unit operations, burden caused by operations, and other factors must also be taken into account. 2670 Orders must also give provisions providing for unit financing and how costs will be spread among the tracts and interests. 2671 Additionally, reasonable provisions must be included to carry owners unable to pay unit costs upfront, which include both reasonable costs and a risk penalty, discussed below. 2672 The unit has a first lien on leasehold production of each tract to secure the payment of unit expenses charged to each tract. 2673

2665 2666

N.D. Cent. Code § 38-08-08(2). Id. 2667 Id. 2668 Id. § 38-08-08(3). 2669 Id. § 38-08-09.4(2)–(3). 2670 Id. § 38-08-09.4(2). 2671 Id. § 38-08-09.4(3). 2672 Id. 2673 Id. § 38-08-09.7.

508

[d] Royalty Distribution. Pooling orders require that unleased mineral interests covered by a pooling order prior to August 1, 2009 are entitled to cost-free royalty interest that equals “the acreage weighted average royalty interest of the leased tracts within the spacing unit,” but in no event less than a one-eighth interest. 2674 For unleased mineral interests pooled after July 31, 2009, the royalty entitlement is, at the operator’s election, either “the acreage weighted average royalty interest of the leased tracts within the spacing unit” or a cost-free royalty interest of 16 percent. The rest of the unleased interest is to be treated as a lessee or cost-bearing interest. 2675 [e] Formation of Units Not Restraint of Trade. Agreements for unit operation of a field or pool are authorized and may be performed. They may not be held to violate any state statutes that relate to trusts, monopolies, or contracts and combinations in restraint of trade if approved by the Commission as being “in the public interest, protective of correlative rights, and reasonably necessary to increase ultimate recovery or to prevent waste of oil or gas.” 2676 Neither will agreements among lessees or other oil and gas rights owners, entered with an eye toward unit development and operation, be held to violate such state statutes prohibiting monopolies or acts, arrangements, agreements, contracts, combinations, or conspiracies in restraint of trade or commerce. 2677 [f] Limits on Production. The Commission has the authority to limit and to allocate production from fields, pools, or areas and to establish and define marketing areas in the state. 2678 The Commission will determine market demand for each such district and then regulate the production within each
2674 2675

Id. § 38-08-08(1). Id. 2676 Id. § 38-08-09. 2677 Id. § 38-08-09.15. 2678 Id. § 38-08-04(3).

509

district to the amount able to be produced without waste and without exceeding reasonable market demand. 2679 If the Commission limits the amount produced in a state or marketing district, the allowable production should be allocated among pools therein on a reasonable basis. 2680 If the production in a pool is limited to less than the amount capable of being produced from that pool, the Commission should reasonably allocate production allowables among the wells and properties in that pool so that each property may realize its just and equitable share of production, subject to the prevention of waste. 2681 § 35.02 Types of North Dakota Pooling Statutes. [1] – Mineral Distinctions. The Commission has been vested with the authority to regulate the “exploration, development, and production” of carbon dioxide, coalbed methane gas, helium gas, and nitrogen gas in the same manner as it regulates oil or gas. 2682 “Gas” is defined in the code as including “all natural gas and all other fluid hydrocarbons” not included in the definition of oil.2683 “Oil” is defined in the code as including “crude petroleum oil and other hydrocarbons regardless of gravity which are produced at the wellhead in liquid form and the liquid hydrocarbons known as distillate or condensate recovered or extracted from gas, other than gas produced in association with oil and commonly known as casinghead gas.” 2684 The regulations further state that casinghead gas to mean “any gas or vapor, or both gas and vapor, indigenous to and produced from a pool classified as an oil pool by the commission.” 2685 [2] – Spacing Rules and Size/Split by Depth.
2679 2680

Id. § 38-08-06(1). Id. § 38-08-06(2). 2681 Id. § 38-08-06(3). 2682 Id. § 38-08-21. 2683 Id. § 38-08-02(4). 2684 Id. § 38-08-02(8). 2685 N.D. Admin. Code 43-02-03-01(8) (2010).

510

In determining the size and shape of spacing units, the Commission is guided by the principle that spacing units should be “such as will result in the efficient and economical development of the pool as a whole.” 2686 The order establishing the spacing unit for a pool must, however, specify the size and shape of each unit and the location of the permitted well thereon in accordance with a reasonably uniform spacing plan. 2687 An order establishing units for a pool must cover all lands determined or believed to be underlaid by the pool at issue and may be modified by the Commission from time to time to include additional areas determined to be underlaid by the pool. 2688 In the absence of an order by the Commission setting unit spacing, the North Dakota regulations provide default spacing requirements, which vary depending on depth by formation, on whether the well will be horizontal, directional, or vertical, and on whether the well is drilled for oil or for gas. 2689 No more than one well may be drilled on the applicable lot size, nor may the lot size vary more than ten percent, except by order of the Commission. 2690 For vertical or directional oil wells drilled to a depth not below the Mission Canyon formation, the drilling unit must be a governmental quarter-quarter section or its equivalent and not be closer than 500 feet from the boundary of the lot. 2691 For vertical or directional oil wells of a depth deeper than the Mission Canyon formation, the drilling unit must be a governmental quarter section or its equivalent, located not less than 660 feet to the boundary of such lot. 2692 Gas wells of a depth not deeper than the Mission Canyon formation must be upon a drilling unit consisting of a governmental quarter section or its equivalent, located not less than
2686 2687

N.D. Cent. Code § 38-08-07(2) (2010). Id. § 38-08-07(3). 2688 Id. § 38-08-07(4). 2689 N.D. Admin. Code 43-02-03-18 (2010). 2690 Id. 2691 Id. 43-02-03-18(1)(a). 2692 Id. 43-02-03-18(1)(b).

511

500 feet to the boundary of that lot. 2693 For gas wells drilled deeper than the Mission Canyon formation must be on a drilling unit of a governmental quarter section or its equivalent and must not be within 660 feet of the unit boundary. 2694 Horizontal wells with a horizontal displacement of the well bore drilled at least at an 85 degree angle within the productive formation of at least 500 feet, projected to a depth of not more than the Mission Canyon formation, must be on a governmental section drilling unit or two adjacent governmental quarter sections within the same section or an equivalent lot. It must not be less than 500 feet to the outside boundary of the tract. 2695 For such wells drilled deeper than the Mission Canyon formation, the drilling units must be a governmental section, located not less than 500 feet to the unit’s outside boundary. 2696 Wells drilled within one mile of an established field must conform to that field’s spacing requirements unless found that such well will not produce from the same source of supply. 2697 If the Commission finds that a well drilled at the prescribed location, whether the location is set by rule or order, would not produce in paying quantities, is prohibited due to surface constraints, or is otherwise likely to cause waste or to reduce the ultimate recovery of oil and gas, the Commission may hold a hearing and thereafter issue an order to grant an exception to the location. Said order must include provisions to prevent that well from producing more than its just and equitable share of minerals from the pool. 2698 [3] – Minimum Operator Control.

2693 2694

Id. 43-02-03-18(3)(a). Id. 43-02-03-18(3)(b). 2695 Id. 43-02-03-18(2)(a). 2696 Id. 43-02-03-18(2)(b). 2697 Id. 43-02-03-18(4). 2698 Id. 43-02-03-18.1.

512

No unitization order of the Commission will be effective until the unitization plan has been signed, or ratified or approved in writing by those persons who will be required to pay at least 60 percent of the costs of unit operations, as well as by the owners of at least 60 percent of the royalty interests, excluding overriding royalties, production payments, and other interests carved out of the working interest. Additionally, if there is more than one person obligated to pay unit operation costs, at least two nonaffiliated such persons and at least two royalty owners must be voluntary parties. The Commission must make a finding, either in the original order or in a supplemental order, that the necessary approval has been given. 2699 If the unit is modified by the addition of new entries, the same percentage of interests in the new unit must also ratify the agreement. 2700 If the amendment only affects rights between lessees or is reasonably necessary to prevent waste and to protect correlative rights, among other things, and if the interest holders of the portion to be added have given approval, then the royalty owners in the existing unit area are entitled to written notice of the amendment mailed not more than 40 days nor less than 30 days before the hearing, but they need not ratify the agreement. 2701 If the required approval is not had at the time the order is made, the Commission must, upon petition and notice, hold additional hearings to find if and when the plan has been approved by the requisite percentage of interest-holders. If the approval is not had within six months of the date of the order, said order will cease to be valid and will be revoked. 2702 [4] – Directional Drilling. When any well is drilled, tests to determine any deviation from the vertical must be taken every 1000 feet at the least. The Director of Oil and Gas in the Industrial Commission may

2699 2700

N.D. Cent. Code § 38-08-09.5 (2010). Id. § 38-08-09.9. 2701 Id. 2702 Id. § 38-08-09.6.

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waive the deviation test for shallow gas wells if the Director is satisfied that waiver is necessary. Otherwise, if the deviation from the vertical is greater than five degrees, the Director may require the hole be straightened. 2703 Waiver may also be given by the Director when deviation is needed in order “to sidetrack junk in the hole, straighten a crooked hole, control a blowout, or if the necessity therefor can be demonstrated to the director’s satisfaction.” 2704 The Director may also grant permits to allow for directional drilling. If the Director denies the permit request for deviation from the vertical, he must give reasons therefor, which decision may be appealed to the Commission. 2705 [5] – Options. North Dakota law provides that operators may not receive a risk penalty from nonparticipating owners unless they first provide such owners the opportunity to participate in the risk and costs. 2706 [a] Pooled Interests. Owners of interest may not recover the risk penalty allowed under section 38-08-08 of the code unless the owners give a written invitation to participate in the risk and costs of drilling to the owners from whom the penalty is sought. 2707 The invitation must include the following information: (1) The location of the proposed or existing well and its proposed depth and objective zone; (2) An itemization of the estimated costs of drilling and completion; (3) The approximate date upon which the well was or will be spudded or reentered; (4) A statement indicating the invitation must be accepted within thirty days of receiving it; (5) Notice that the participating owners plan to impose a risk penalty and that the nonparticipating owner may object to
2703 2704

N.D. Admin. Code 43-02-03-25 (2010). Id. 2705 Id. 2706 N.D. Cent. Code §§ 38-08-08(3)(c), -09.4(3)(c) (2010). 2707 N.D. Admin. Code 43-02-03-16.3(1) (2010).

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the risk penalty by either responding in opposition to the petition for a risk penalty, or if no such petition has been filed, by filing an application or request for hearing with the commission. 2708 Also, if the nonparticipating owner’s interest is not covered by a lease or other development contract, the owner seeking a risk penalty must make a good-faith attempt to have the unleased owner execute a lease. 2709 Both the invitation to participate and the election must be served personally, by mail requiring signed receipt or by overnight service requiring signed receipt. Failure to accept such mail constitutes service. 2710 Elections must be in writing and received by the offering owner within 30 days of the participating party’s receipt of the invitation. 2711 Elections are only binding upon the electing party if the well is spudded or reentry operations are commenced on or prior to 90 days after the date the inviting owner set as the date upon which a response must be received or prior to the drilling permit expires. If the election lapses, the risk penalty may only be obtained if the owner again complies with these requirements. 2712 [b] Unit Operations. Owners of interest may not recover the risk penalty allowed under section 38-08-09.4 of the code unless the owners give a written invitation to participate in the unit expense to the owners from whom the penalty is sought. 2713 The invitation must include the following information: (1) A description of the proposed unit expense, including the location, objectives, and plan of operation; (2) An itemization of the estimated costs; (3) The approximate date upon which the proposal was or will be commenced; (4) A statement indicating the invitation must be accepted within thirty days of receiving it; (5)
2708 2709

Id. 43-02-03-16.3(1) (a). Id. 43-02-03-16.3(1). 2710 Id. 43-02-03-16.3(1)(c). 2711 Id. 43-02-03-16.3(1)(b). 2712 Id. 43-02-03-16.3(1)(d). 2713 Id. 43-02-03-16.3(2).

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Notice that the participating owners plan to impose a risk penalty and that the nonparticipating owner may object to the risk penalty by either responding in opposition to the petition for a risk penalty, or if no such petition has been filed, by filing an application or request for hearing with the commission. 2714 Both the invitation to participate and the election must be served personally, by mail requiring signed receipt or by overnight service requiring signed receipt. Failure to accept such mail constitutes service. 2715 Elections must be in writing and received by the offering owner within 30 days of the participating party’s receipt of the invitation. 2716 Elections are only binding upon the electing party if the unit expense is commenced within 90 days after the date the inviting owner set as the date upon which a response must be received or prior to the drilling permit expires. If the election lapses, the risk penalty may only be obtained if the owner again complies with these requirements. 2717 An invitation to participate in unit expenses that cover monthly operating expenses will be effective for all of those monthly operating expenses for five years if the expense identified in the invitation is commenced within 90 days after the date set as the date upon which a response must be received. 2718 Finally, the Commission may include in its pooling order requirements that relate to the invitation and the election to participate. If the Commission does so, the pooling order controls to the extent it is inconsistent with the rules in Administrative Code section 43-02-03-16.3. 2719

2714 2715

Id. 43-02-03-16.3(2)(a). Id. 43-02-03-16.3(2)(c). 2716 Id. 43-02-03-16.3(2)(b). 2717 Id. 43-02-03-16.3(2)(d). 2718 Id. 43-02-03-16.3(2)(e). 2719 Id. 43-02-03-16.3(3).

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§ 36.01

Analysis of Ohio Regulatory Framework. [1] – Name of Governing Body. In the Department of Natural Resources, the Division of Mineral Resources management

was created by statute. 2720 This Division has the sole authority to regulate the permitting, locating, and spacing of oil and gas wells and production operations within the state. These rules shall be administered by the Chief to the Division of Resources Management. The Oil and Gas Commission was created by statute to allow those adversely affected by an order issued by the Chief to appeal to the Oil and Gas Commission to have that order vacated. 2721 The statute also provides for a Technical Advisory Council which consists of eight members to be appointed by the governor, with the advice and consent of the Senate. 2722 [2] – Membership. The Chief is not permitted to hold any other public office, nor shall the Chief be engaged in any business that might interfere or otherwise be inconsistent with the duties of his office. 2723 The Oil and Gas Commission consists of five members appointed by the governor for a five year term. 2724 Three members constitute a quorum, and no action is valid unless it has the concurrence of at least a majority of the members voting o