Current through Register Vol. 49, No. 2, February 2024
RULE B-40 AUTHORIZATION FOR DIRECTOR OF
PRODUCTION AND CONSERVATION TO ADMINISTRATIVELY APPROVE APPLICATIONS FOR
EXCEPTIONAL WELL LOCATIONS
a) The Director of Production and
Conservation or his designee is authorized to issue a Drilling Permit for a
well proposed to be drilled, is being drilled, or has been drilled, but prior
to commencement of production, at a location within an established drilling
unit, which fails to conform to the drilling unit setback distance requirements
as measured from the approximate center of the wellbore to unit boundary lines
under applicable field rules or Commission general rules. This rule is only
applicable:
(1) To dry gas wells drilled
vertically or directionally and does not apply to any type of dry gas well
drilled as a wildcat well, as defined in General Rule B-3, or for dry gas wells
drilled in Exploratory Units established by Commission order; or
(2) To oil or gas condensate wells drilled in
standard drilling units from which the well setbacks are defined by distance
from a drilling unit boundary defined by a legal land description and does not
apply to drilling units where well setbacks are established by other methods,
or for wildcat wells or for wells in Exploratory Units established by the
Commission; or
(3) To oil wells
located in uncontrolled fields where the standard well setback as specified in
General Rule B-3, apply to lease lines rather than drilling unit
lines.
b) In each such
instance in which a permit is issued, except in uncontrolled fields which are
not subject to an allowable, a reduction (penalty) in the allowable to which
such well would otherwise be entitled, under the provisions of the applicable
field rules or other general well spacing rules, shall be assessed by
multiplying a fraction, the numerator of which shall be the distance expressed
in feet between the location of such proposed well and the boundary of the
drilling unit in which the well is to be drilled and the denominator of which
shall be the distance expressed in feet at which wells within such field and/or
drilling unit are otherwise required to be located. If the proposed location
encroaches upon more than one boundary of said unit, then the penalty to be
imposed upon the production allowable shall be cumulative of the penalties from
both boundaries as described in sub section 1) below.
1) If the proposed location encroaches upon
more than one boundary as specified in section (b) above, the reduction in the
allowable shall be calculated as follows:
First boundary encroachment expressed as:
setback footage specified by rule (minus)(-) actual
footage of proposed well from unit boundary (divided by)(÷) setback
footage specified by rule, plus (+)
Second boundary encroachment expressed as:
setback footage specified by rule (minus)(-) actual
footage of proposed well from unit boundary (divided by)(÷) setback
footage specified by rule = penalty factor
Then:
penalty factor (x) full calculated allowable (MCF or
bbl) = amount allowable reduced (MCF or bbl)
Then:
full calculated allowable (MCF or bbl) (minus)(-)
amount allowable reduced (MCF or bbl) = production allowable (MCF or
bbl)
2) Each
such application for an exceptional location 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 the drilling unit in which the
proposed well is to be drilled and within the drilling units offsetting the
boundary line or lines, or in the case of wells in uncontrolled fields within
the boundaries of mineral lease lines and the offsetting lease(s), which shall
be encroached upon by the proposed exceptional well location.
3) Concurrently with the filing of an
application in accordance with this rule, the applicant shall send to each
owner specified in sub-section 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
sub-section 2) 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 of such application and the
objection shall be denied. If the application is denied under this subsection,
the applicant may request to have the application placed, in accordance with
General Rule A-2, A-3, and other applicable hearing procedures, on the docket
of a regularly scheduled Commission hearing for a Commission determination,
except that no additional application fee is required.
5) An application may be referred to the
Commission for determination when the Director:
(1) deems the penalty to be imposed upon the
allowable for such well, calculated as herein provided, to be inadequate to
offset any advantage which the applicant may have over any other producer, as
defined in A.C.A. § 15-72-102(8), by reason of the drilling of the well at
such exceptional location, or
(2)
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.
6) Applications for exceptional locations
resulting from directional drilling shall be considered for administrative
approval in accordance with this rule, provided, that no allowable shall be
authorized until the Commission has been furnished a bottom hole directional
survey for each common source of supply for which an allowable is requested. In
all such cases where directional surveys are made available, the distance of
the mid-point perforations, for each common source of supply in a directional
well, from the drilling unit boundary shall be used in calculating the
allowable.
7) 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 sub-section 4), the application
shall be approved and a Drilling Permit issued.
c) For dry gas wells, as specified in
sub-section a) 1) above, an alternative to a reduction in the allowable
(penalty) method, as outlines in Section b) above, may be requested if each
affected drilling unit has been previously integrated, by Commission Order or
is 100% leased, and is currently held by production, and if all the working
interest owners in each affected drilling unit agree, in writing, to share the
proceeds from a well which encroaches upon the drilling unit boundary. The
below methodology for determining percentages for the sharing of costs,
production and royalty among the affected drilling units, may be
administratively authorized by the Director or his designee. The method for
determining the percentages for sharing the costs of and the proceeds of
production from one or more separately metered wells shall be as follows:
1) For vertical or directionally drilled
wells, the acreage within an agreed upon area extending out from the perforated
internal, as defined in General Rule B-3, shall be calculated for each such
separately metered well (the "calculated area"). The calculated area shall be
based upon the estimated drainage area of the perforated interval.
2) 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.
3) 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 and which contains a portion of the calculated
area as defined in sub-section c) 1) above.
4) Concurrently with the filing of an
application utilizing the above methodology, the applicant shall send in
written authorization from each owner specified in sub-section c) 3)
above.
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.
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
(c)(5), 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 fifteen (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.
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 (c)(1) above.
