Current through Register Vol. 49, No. 2, February 2024
GENERAL RULE B-44 ESTABLISHMENT OF DRILLING
UNITS FOR GAS PRODUCTION FROM ALL SOURCES OF SUPPLY OCCURING IN CERTAIN
PRODUCING AREAS IN FRANKLIN, LOGAN, SCOTT, SEBASTIAN AND YELL
COUNTIES
(a)
Definitions:
(1) "Unconventional Sources of
Supply" shall mean those common sources of supply that are identified as the
Fayetteville Shale, the Moorefield Shale, and the Chattanooga Shale Formations,
or their stratigraphic shale equivalents, as described in published
stratigraphic nomenclature recognized by the Arkansas Geological Survey or the
United States Geological Survey.
(2) "Conventional Sources of Supply" shall
mean all common sources of supply that are not defined as unconventional
sources of supply in section (a)(1) above or the Middle Atoka as defined in
section (a)(4) below, or a tight gas formation as defined in section (a) (3)
below.
(3) "Tight Gas Formation"
shall mean tight gas formation as defined in Ark. Code Ann. (1987) §
26-58-101.
(4) "Middle Atoka" shall
mean the tight gas formation that is the stratigraphic equivalent, from the top
of the Basham Formation to the base of Borum Formation, which includes the
Hartford Series, within the covered lands specified in section (b)
below.
(b) This rule is
applicable to all sources of supply occurring in the "covered lands". The
development of these sources of supply within the covered lands shall be
subject to the provisions of this rule. The covered lands are specified as
follows:
(1) Sections 19-36, T7N R28W;
Sections 1-3 and 11, T6N, R29W all in Franklin County;
(2) Sections 19-36 T7N R27W; Sections 19-36
T7N R26W; Sections 13-36 T7N R25W; Sections 13-36 T7N R24W; Sections 13-36 T7N
R23W; all of T6N R28W; all of T6N R27W; all of T6N R26W; all of T5N R29W; all
of T5N R28W; all of T5N R27W; all of T5N R26W; Sections 1, 2, 3, 10, 11, 12 T4N
R29W; Sections 1-12 T4N R28W; Sections 1-12 T4N R27W; Sections 1-12 T4N R26W
all in Logan County and those portions of T6N R25W, T6N R24W and T6N R23W
located in Logan County;
(3) That
portion of T5N R30W, T4N R29W, T4N R28W, T4N R27W, and T4N R26W located in
Scott County; and all of T4N R30W in Scott County;
(4) Sections 31-36 T7N R31W; Sections 31 and
32 T7N R30W; all of T6N R32W; all of T6N R31W; all of T6N R30W; all of T5N
R32W; all of T5N R31W; all of T4N R32W and all of T4N R31W in Sebastian County
and that portion of T6N R29W and T5N R30W located in Sebastian
County;
(5) All of T5N R25W; all of
T5N R24W; all of T5N R23W; all of T4N R25W; all of T4N R24W; all of T4N R23W;
All of T6N R22W; all of T5N R22W; all of T4N R22W all in Yell County and those
portions of T6N R25W, T6N R24W, T6N R23W located in Yell County;
(6) After notice and hearing, the Commission
shall retain jurisdiction to expand the covered lands above, to include other
lands proven to possess production characteristics similar to the lands
initially contained within the covered lands.
(c) The Commission shall retain jurisdiction,
after notice and hearing, to determine which other formations, in addition to
the Middle Atoka, qualify as tight gas formations within the covered
lands.
(d) All Commission approved
fields that are situated within the covered lands and that are in existence on
the date this rule is adopted (collectively, the "existing fields"), are
abolished and the lands heretofore included within the existing fields are
included within the covered lands governed by this rule. However, all existing
portions of the abolished fields which are not included in the covered lands,
those portions of the fields shall remain intact and operate under the existing
field rules for that field or upon order of the Commission may be joined to
other existing adjacent fields. All existing individual drilling units however,
contained within the abolished fields shall remain intact.
(e) All drilling units established for
sources of supply within the covered lands shall be comprised of regular
governmental sections with an area of approximately 640 acres in size, unless a
different size and/or configuration is approved for any unit or units by Order
of the Commission. Each drilling unit shall be characterized as either an
"exploratory drilling unit" or an "established drilling unit". An "exploratory
drilling unit" shall be defined as any drilling unit that is not an established
drilling unit. An "established drilling unit" shall be defined as any drilling
unit that contains a well that has been drilled and completed in any source of
supply (a "subject well"), and for which the operator or other person
responsible for the conduct of the drilling operation has filed, with the
Commission, all appropriate documents in accordance with General Rule B-5, and
has been issued a certificate of compliance. Upon the filing of the required
well and completion reports for a subject well and the issuance of a
certificate of compliance with respect there, the exploratory drilling unit
upon which the subject well is located and all contiguous governmental sections
shall be automatically reclassified as established drilling units. All existing
"exploratory drilling units" contiguously located to drilling units with
established production at the time this rule is adopted, shall be automatically
reclassified as established drilling units.
(f) The filing of an application to integrate
separately owned tracts within an exploratory drilling unit, as defined in
Section (e) above and as contemplated by A.C.A. § 15-72-302(e), is
permissible, provided that one or more persons who own at least an undivided
fifty percent (50%) interest in the right to drill and produce oil or gas, or
both, from the total acreage assigned to such exploratory drilling unit agree.
In determining who shall be designated as the operator of the exploratory
drilling unit that is being integrated, the Commission shall apply the
following criteria:
1) Each integration
application shall contain a statement that the applicant has sent written
notice of its application to integrate the drilling unit to all working
interest owners of record within such drilling unit. This notice shall contain
a well proposal and AFE for the initial well and may be sent at the same time
the integration application is filed.
2) If any non-applicant working interest
owner in the drilling unit owns, or has the written support of one or more
working interest owners that own, separately or together, at least a fifty
percent (50%) working interest in the drilling unit, such non-applicant working
interest owner may (i) object to the applicant being named operator (a "section
(f) operator challenge") or (ii) file a competing integration application (a
"section (f) competing application") that challenges any aspect of the original
integration application for such drilling unit. Any contested matter that is
limited to a section (f) operator challenge shall be heard at the Commission
hearing that was originally scheduled for such integration application. Any
contested matter that involves the filing of a section (f) competing
application shall be postponed until the next month's regularly scheduled
Commission hearing if postponement is requested by either competing
applicant.
3) If a party desiring
to be named operator of a drilling unit is supported by a majority-in-interest
of the total working interest ownership in the drilling unit (the "majority
owner"), the majority owner shall be designated unit operator.
4) In the event two parties desiring to be
named operator own, or have the written support of one or more working interest
owners that own, exactly, an undivided 50% share of the drilling unit and
either a section (f) operator challenge is submitted or a section (f) competing
application is filed, operatorship shall be determined by the Commission, based
on the factors it deems relevant and the evidence submitted by the parties or
as otherwise provided by subsequent rule.
5) If the person designated as operator by
the Commission in the adjudication of a section (f) operator challenge or a
section (f) competing application does not commence actual drilling operations
on the drilling unit within the twelve (12) month period set out in the
integration order, such operator shall not be entitled to be designated as
operator under the subsequent integration of such drilling unit unless (i) the
operator's failure to commence such drilling operations was due to force
majeure, or (ii) a majority-in-interest of the total working interest ownership
in the drilling unit (excluding such designated operator) support such
operator.
(g) The filing
of an application to integrate separately owned tracts within an established
drilling unit, as defined in Section (e) above and as contemplated by A.C.A.
§ 15-72-303 is permissible, without a minimum acreage requirement,
provided that one or more persons owning an interest in the right to drill and
produce oil or gas, or both, from the total acreage assigned to such
established drilling unit requests such integration. In determining who shall
be designated as the operator of the established drilling unit that is being
integrated, the Commission shall apply the following criteria:
1) Each integration application shall contain
a statement that the applicant has sent written notice of its application to
integrate the drilling unit to all working interest owners of record within
such drilling unit. This notice shall contain a well proposal and AFE for the
initial well and may be sent at the same time the integration application is
filed.
2) Any non-applicant working
interest owner in the drilling unit may object to the applicant being named
operator (a "section (g) operator challenge"). In addition, if an objecting
party owns, or has the written support of one or more working interest owners
that own, separately or together, a larger percentage working interest in the
drilling unit than the applicant, such objecting party may file a competing
integration application (a "section (g) competing application") that challenges
any aspect of the original integration application for such drilling unit. Any
contested matter that is limited to a section (g) operator challenge shall be
heard at the Commission hearing that was originally scheduled for such
integration application. Any contested matter that involves the filing of a
section (g) competing application shall be postponed until the next month's
regularly scheduled Commission hearing if postponement is requested by either
competing applicant.
3) If a party
desiring to be named operator of a drilling unit is a majority owner (as
defined in subsection (f) (3) above), the majority owner shall be designated
unit operator.
4) If a party
desiring to be named operator of a drilling unit is not a majority owner, but
is supported by the largest percentage interest of the total working interest
ownership in the drilling unit (the "plurality owner"), there shall be a
rebuttable presumption that the plurality owner shall be designated unit
operator. If a section (g) operator challenge to a plurality owner being
designated unit operator is submitted by a party that owns, or has the written
support of one or more owners that own, separately or together, the next
largest percentage share of the working interest ownership in the drilling unit
(the "minority owner"), the Commission may designate the minority owner
operator if the minority owner is able to show that, based on the factors the
Commission deems relevant and the evidence submitted by the parties, the
Commission should designate the minority owner as unit operator.
5) If two or more parties that desire to be
named operator own, or have the support of one or more working interest owners
that own, separately or together, the same working interest ownership in the
drilling unit, operatorship shall be determined by the Commission, based on the
factors it deems relevant and the evidence submitted by the parties or as
otherwise provided by subsequent rule.
6) If the person designated as operator by
the Commission in the adjudication of a section (g) operator challenge or a
section (g) competing application does not commence actual drilling operations
on the drilling unit within the twelve (12) month period set out in the
integration order, such operator shall not be entitled to be designated
operator under the subsequent integration of such drilling unit unless (i) the
original operator's failure to commence drilling operations on the initial well
was due to force majeure, or (ii) a majority-in-interest of the total working
interest ownership in the drilling unit (excluding the original operator)
support the original operator.
(h) The well spacing for wells drilled in
exploratory and established drilling units for all unconventional sources of
supply within the covered lands are as follows:
1) Each well location, as defined in General
Rule B-3 (a)(2), shall be at least 560 feet from any drilling unit boundary
line, unless an exception is approved in accordance with subparagraph (p) below
or in accordance with General Rule B-40;
2) Each well location, as defined in General
Rule B-3 (a)(2), shall be at least 560 feet from other well locations within an
established drilling unit, within common sources of supply, unless an exception
to this rule is approved by the Commission, following notice and
hearing.
(i) The well
spacing for wells drilled in exploratory and established drilling units for the
Middle Atoka, and any other tight gas formation source of supply within the
covered lands are as follows:
1) Each well
location, as defined in General Rule B-3 (a)(2), shall be at least 560 feet
from any drilling unit boundary line, unless an exception is approved in
accordance with subparagraph (p) below or in accordance with General Rule
B-40;
2) Each well location, as
defined in General Rule B-3 (a)(2) shall be at least 560 feet from other well
locations within an established drilling unit, unless an exception to this rule
is approved by the Commission, following notice and hearing.
(j) The well spacing for wells
drilled in exploratory and established drilling units for the Upper Atoka and
the Freiburg conventional sources of supply within the covered lands are as
follows:
1) Each well location, as defined in
General Rule B-3 (a)(2), shall be at least 560 feet from any drilling unit
boundary line, unless an exception is approved in accordance with subparagraph
(p) below or in accordance with General Rule B-40;
2) Each well location, as defined in General
Rule B-3 (a)(2) shall be at least 560 feet from other well locations within an
established drilling unit, unless an exception to this rule is approved by the
Commission, following notice and hearing.
(k) The well spacing for wells drilled in
exploratory and established drilling units for all other conventional sources
of supply within the covered lands are as follows:
1) Only a single well completion will be
permitted to produce from each separate conventional source of supply within
each exploratory or established drilling unit, unless additional completions
are approved in accordance with General Rule D-19;
2) Each well location, as defined in General
Rule B-3 (a)(2), shall be at least 1120 feet from any drilling unit boundary
line, unless an exception is approved in accordance with subparagraph (p) below
or General Rule B-40;
(l) The casing programs for all wells drilled
in exploratory and established drilling units established by this rule, and
occurring in the covered lands specified by this rule, shall be in accordance
with General Rule B- 15 or other applicable General Rules.
(m) Wells completed in and producing from all
sources of supply, within the covered lands, shall be subject to the testing
and production allowable provisions of General Rule D-16 except that
unconventional sources of supply shall not be subject to an
allowable.
(n) The commingling of
completions in all sources of supply, within each well, shall be subject to the
provisions in General Rule D-18.
(o) The reporting requirements of General
Rule B-5 shall apply to all wells subject to the provisions of this rule. In
addition, the operator of each such well shall be required to file monthly gas
production reports, on a Form approved by the Director, no later than 45 days
after the last day of each month.
(p) The Commission specifically retains
jurisdiction to consider applications brought before the Commission from a
majority in interest of working interest owners in two or more adjoining
exploratory or established drilling units seeking the authority to drill,
produce and share the costs of and the proceeds of production from a separately
metered well that extends across or encroaches upon drilling unit boundaries
and that are drilled and completed in one or more sources of supply within the
covered lands. All such applications shall contain a proposed agreement on the
formula for the sharing of costs, production and royalty from the affected
drilling units.
1) However, if the majority
in interest of working interest owners agree to share a proposed well between
two or more adjoining drilling units, which have been previously integrated,
utilizing the below methodology for sharing of costs, production and royalty
among the affected drilling units, or if the well encroaches upon the drilling
unit boundaries specified by this rule, the Director or his designee is
authorized to approve the application administratively utilizing the following
methodology:
A) The sharing of well costs and
the proceeds of production from one or more separately metered wells, between
the affected drilling units, shall be based on an allocation based on an area
(acreage) calculation as specified below.
B) For horizontal wells, an area (equal to
the setback footage for that source of supply as specified in section (h), (i),
(j) or (k) above) along and on both sides of the entire length of the
horizontal perforated section of the well, and including an area formed by a
radius (equal to the setback footage for that source of supply as specified in
section (h), (i), (j) or (k) above) from the beginning point of the perforated
interval and from the ending point of the perforated interval. The area formed
shall be calculated for each such separately metered well and referred to as
the "calculated area".
C) For
vertical wells, an area (equal to the setback footage for that source of supply
as specified in section (h), (i), (j) or (k) above) extending around the
perforated interval as defined in General Rule B-3, shall be calculated for
each such separately metered well and referred to as the "calculated
area".
D) Each calculated area
shall be allocated and assigned to each drilling unit according to that portion
of the calculated area occurring within each drilling unit.
2) Each such application for
utilizing the above methodology shall be submitted on a form prescribed by the
Director of Production and Conservation, accompanied by an application fee of
$500.00 and include the name and address of each owner, as defined in A.C.A.
§ 15-72-102(9), within each of the drilling units in which the proposed
well is to be drilled and/or completed.
3) Concurrently with the filing of an
application utilizing the above methodology, the applicant shall send to each
owner specified in subsection (p)(2) above a notice of the application filing
and verify such mailing by affidavit, setting out the names and addresses of
all owners and the date(s) of mailing.
4) Any owner noticed in accordance with
subsection (p)(3) above shall have the right to object to the granting of such
application within fifteen (15) days after the receipt of the application by
the Commission. Each objection must be made in writing and filed with the
Director. If a timely written objection is filed as herein provided, then the
applicant shall be promptly furnished a copy and the application shall be
denied. If the application is denied under this section, the applicant may
request to have the application referred to the Commission for determination,
in accordance with applicable state laws and General Rules A-2 and A-3, except
that no additional filing fee is required.
5) An application may be referred to the
Commission for determination when the Director deems it necessary that the
Commission make such determination for the purpose of protecting correlative
rights of all parties. Promptly upon such determination, and not later than
fifteen (15) days after receipt of the application, the Director shall give the
applicant written notice, citing the reason(s) for denial of the application
under this rule and the referral to the full Commission for determination, in
accordance with applicable state laws and General Rules A-2 and A-3.
6) If the Director has not notified the
applicant of the determination to refer the application to the Commission
within the fifteen (15) day period in accordance with the foregoing provisions,
and if no objection is received at the office of the Commission within the
fifteen (15) days as provided for in subsection (p)(4), the application shall
be approved and a drilling permit issued.
7) Upon receipt of the drilling permit, the
applicant shall give the other working interest parties written notice that the
drilling permit has been issued. The working interest parties, who have not
previously made an election, shall have 15 days after receipt of said notice
within which to make an election to participate in the well or be deemed as
electing non-consent and subject to the non-consent penalty set out in the
existing Joint Operating Agreement(s) covering their respective drilling unit
or units.
8) Following completion
of the well and prior to the issuance by the Commission of the Certificate of
Compliance to commence production, the final location of the perforated
interval shall be submitted to the Commission to verify the proposed portion of
the calculated area occurring within each drilling unit as specified in
subsection (p)(1) above.
(q) The Commission shall retain jurisdiction
to consider applications, brought before the Commission, from a majority in
interest of working interest owners in two or more adjoining governmental
sections seeking the authority to combine such adjoining governmental sections
into one drilling unit for the purpose of developing one or more unconventional
sources of supply. In any such multi-section drilling unit, production shall be
allocated to each tract therein in the same proportion that each tract bears to
the total acreage within such drilling unit.
(r) The Commission shall retain jurisdiction
to consider applications, brought before the Commission, from a majority in
interest of working interest owners in a drilling unit seeking the authority to
omit any lands from such drilling unit that are owned by a governmental entity
and for which it can be demonstrated that such governmental entity has failed
or refused to make such lands available for leasing.
(Source: new rule June 15, 2008)
