Current through Register Vol. 49, No. 2, February 2024
RULE B-43: ESTABLISHMENT OF DRILLING UNITS FOR
GAS PRODUCTION FROM CONVENTIONAL AND UNCONVENTIONAL SOURCES OF SUPPLY OCCURRING
IN CERTAIN PROSPECTIVE AREAS NOT COVERED BY FIELD
RULES
(a) For
purposes of this rule, 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.
(b) For purposes of this
rule, conventional sources of supply shall mean all common sources of supply
that are not defined as unconventional sources of supply in section (a)
above.
(c) This rule is applicable
to all occurrences of conventional and unconventional sources of supply in
Arkansas, Cleburne, Conway, Cross, Faulkner, Independence, Jackson, Lee,
Lonoke, Monroe, Phillips, Prairie, St. Francis, Stone, Van Buren, White and
Woodruff Counties, Arkansas and shall be called the "section (c) lands". The
development of the conventional and unconventional sources of supply within the
section (c) lands shall be subject to the provisions of this rule.
(d) This rule is further applicable to all
occurrences of unconventional sources of supply in Crawford, Franklin, Johnson,
and Pope Counties, Arkansas and shall be called the "section (d) lands". The
development of the unconventional sources of supply within the section (d)
lands shall be subject to the provisions of this rule. For purposes of this
rule, the section (d) lands and the section (c) lands may collectively be
referred to as the "covered lands".
(e) All Commission approved Fayetteville
Shale and non-Fayetteville Shale fields that are situated within the section
(c) 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 section (c) lands
governed by this rule. Further, all amendments that added the Fayetteville
Shale Formation to previously established fields for conventional sources of
supply occurring in the section (d) lands are abolished and continuing
development of the Fayetteville Shale and other unconventional sources of
supply in these lands shall be governed by the provisions of this rule. All
existing individual drilling units however, contained within the abolished
fields shall remain intact.
(f) All
drilling units established for conventional and unconventional sources of
supply within the section (c) lands and all drilling units established for
unconventional sources of supply within the section (d) lands shall be
comprised of single governmental sections, typically containing an area of
approximately 640 acres in size. 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 a conventional or unconventional 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 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 thereto, the
exploratory drilling unit upon which the subject well is located and all
contiguous governmental sections shall be automatically reclassified as
established drilling units.
(g) The
filing of an application to integrate separately owned tracts within an
exploratory drilling unit, as defined in Section (f) above and as contemplated
by A.C.A. § 15-72-302(e), is permissible, provided that one or more
persons who collectively 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 support the filing of the
application. 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
(g) operator challenge") or (ii) 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 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 (g) operator challenge is submitted or a section (g) 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 (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 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.
(h) The filing
of an application to integrate separately owned tracts within an established
drilling unit, as defined in Section (f) 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 (h) 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 (h) competing application") that challenges
any aspect of the original integration application for such drilling unit. Any
contested matter that is limited to a section (h) 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 (h) 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 (g)(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 (h) 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 (h) operator challenge or a
section (h) 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.
(i) The well setback from drilling unit
boundary lines and spacing between wells, for wells drilled in drilling units
for unconventional sources of supply within the covered lands are as follows:
1) Each well location (as defined in Section
(a)(2) of General Rule B-3) shall be at least 560 feet from any drilling unit
boundary line, unless an exception is granted by the Commission after notice
and hearing in accordance with General Rules A-2 and A-3, and other applicable
hearing requirements, or in accordance with paragraph (o) below;
2) The perforated interval of the wellbore
shall be at least 560 feet in any direction from any other wellbore perforated
interval in the same common source of supply that extends across or encroaches
upon drilling unit boundaries an exception is granted in accordance with
subparagraph (i)5) below);
3) The
perforated interval of the wellbore shall be at least 448 feet in any
direction, an allowed 20% variance, from all other wellbore perforated
intervals in the same common source of supply within an established drilling
unit, unless an exception is granted in accordance with subparagraph (i)5)
below);
4) No more than 16 wells
may be drilled per unit for each separate unconventional source of supply
within an established drilling unit unless an exception is granted by the
Commission after notice and hearing in accordance with General Rules A-2 and
A-3, and other applicable hearing requirements. For purposes of this subsection
only, a well is any vertical well, directional well, horizontal well with at a
minimum 560 feet of perforated interval in the drilling unit, or if a
horizontal does not contain a minimum of 560 feet of perforated lateral in any
one drilling unit, then the horizontal well shall be counted in the drilling
unit in which the majority of the perforated lateral occurs); and
5) The Director or his designee is authorized
to approve an application requesting an exception to subsection (i)2) and/or
(i)3) administratively, if the following conditions are met:
A. Each such application shall be submitted
on a form prescribed by the Director of Production and Conservation, and
include the name and address of each owner, as defined in Ark. Code Ann. (1987)
§ 15-72-102(9), within each of the drilling units in which the proposed
well is to be drilled and/or completed.
B. Concurrently with the filing of the
application for an exceptional location in accordance with subsection (i)2) and
or (i)3) above, the applicant shall send to all owners, as defined in Ark. Code
Ann. (1987) § 15-72-102(9), whose mailing addresses may reasonably be
ascertained, in all affected units, a notice of the application's filing and
verify such mailing by affidavit, setting out the names and addresses of all
owners and the date(s) of mailing. Additionally, if there are any owners, as
defined in Ark. Code Ann. (1987) § 15-72-102(9), whose addresses were not
reasonably ascertained and notice was not mailed, then the applicant shall also
submit proof of publication of such notice in a newspaper of general
circulation within the county or counties within which all the units are
located that appeared at least one time no earlier than three (3) days prior to
filing the application, and no later than five (5) days after filing the
application, prior to the Director approving the application
administratively.
C. Any owner, as
defined in Ark. Code Ann. (1987) § 15-72-102(9), so noticed 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, then the applicant shall be promptly furnished a copy and such
application shall be denied, unless the objection is withdrawn within the
original fifteen day time period after receipt of the application. 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
General Rules A-2 and A-3, and other applicable hearing requirements.
D. If no timely objection is received, or if
one is received and withdrawn within the original fifteen day time period after
receipt of the application, the Director is authorized to approve the
application administratively.
E. 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, in order to prevent
waste, or for any other reason. 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 referral to the
full Commission for determination. If the application is referred under this
section, the applicant shall file a request for a hearing, in accordance with
General Rules A-2 and A-3, and other applicable hearing requirements, except
that no additional filing fee is required.
F. If the Applicant has satisfied all
applicable provisions, 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 (i)5)C. above, the application shall be
approved and a permit issued.
G.
Any such application requesting administrative approval may be granted,
provided the above criteria is satisfied, prior to the drilling of a well,
while a well is being drilled, or after a well has been drilled and completed,
but prior to commencement of production.
6) Applications for exceptions to these well
location provisions, relative to a drilling unit boundary or other locations in
a common source of supply, may be brought before the Commission.
(j) The well spacing for wells
drilled in drilling units for conventional sources of supply within the section
(c) lands are as follows:
1) Only a single
well completion will be permitted to produce from each separate conventional
source of supply within each established drilling unit, unless additional
completions are approved in accordance with General Rule D-19;
2) Each well location (as defined in Section
(a) 2) of General Rule B-3) shall be at least 1120 feet from any drilling unit
boundary line;
3) Well completions
located closer than 1120 feet from all established drilling unit boundaries,
shall be subject to approval in accordance with General Rule B-40;
and
4) Applications for exceptions
to these well location provisions, relative to a drilling unit boundary or
other location in a common source of supply, may be brought before the
Commission.
(k) 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.
(l) Wells completed in and producing from
only conventional sources of supply, as defined in Section (b), shall be
subject to the testing provisions of General Rule D-16 and production allowable
provisions of General Rule D-21. Wells completed in and producing from only
unconventional sources of supply, as defined in Section (a), shall not be
subject to the testing provisions of General Rule D-16 and allowable provisions
of General Rule D-21 There shall be no production allowable established for
wells producing from unconventional sources of supply located within the
covered lands. Wells completed in and producing from only unconventional
sources of supply, within the covered lands, shall report on a form prescribed
by the Director, the highest twenty-four (24) hour production rate during the
first forty (40) days of production, which form shall be filed within sixty
(60) days of the date of first production from the well.
(m) The commingling of completions for
unconventional and/or conventional sources of supply within each well situated
on an established drilling unit, shall be subject to the provisions and
approval process outlined in General Rule D-18. If an unconventional source of
supply is approved to be commingled with a conventional source of supply within
a well situated on an established drilling unit, the well shall be subject to
the production allowable provisions of General Rule D-21.
(n) 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 in accordance with General Rule D-8.
(o) The Commission specifically retains
jurisdiction to consider applications brought before the Commission from a
majority in interest of all owners, as defined by Ark. Code Ann. (1987) §
15-72-102(9), in two or more adjoining drilling units seeking the authority to
drill, produce and/or share the costs of and the proceeds of production from
one or more separately metered wells that extend across or encroach upon
drilling unit boundaries and that are drilled and completed in one or more
unconventional 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) Encroaching Wells. If a well encroaches
upon but does not cross the drilling unit boundary of an adjoining drilling
unit (an "encroaching well"), the Commission shall not consider the encroached
upon drilling unit to be held by production from the encroaching
well.
2) Administrative Approval of
Wells that Extend Across or Encroach Upon Drilling Unit Boundaries. If the
majority in interest of all owners, as defined by Ark. Code Ann. (1987) §
15-72-102(9), within each drilling unit agree to share a proposed well, a well
that is being drilled, or a well which has been drilled, but prior to
commencement of production, between two or more adjoining drilling units which
are all integrated or are 100% leased utilizing the below methodology for
sharing of costs, production and royalty among the affected drilling units, the
Director or his designee is authorized to approve the application
administratively, if the following conditions are met:
A. The application provides proof that:
i) There is at least one well located, as
defined in subsection (a)(2) of General Rule B-3, at a non-exceptional well
location and located entirely within each included drilling unit that is
producing or capable of producing gas; or
ii) Within twelve (12) months following the
date the well for which administrative approval is granted is spud, there will
be at least one well located, as defined in subsection (a)(2) of General Rule
B-3, at a non-exceptional well location and located entirely within each
included drilling unit that is either a well that is producing gas, or a well
that is capable of producing gas and awaiting connection to a pipeline;
or
iii) There is at least one well
or a combination of multiple wells, including cross unit wells and/or
encroaching wells located, as defined in subsection (a)(2) of General Rule B-3,
within each included drilling unit that have a total combined perforated
lateral length within the drilling unit of not less than 4160 feet, and are
producing or are capable of producing gas; or
iv) Within twelve (12) months following the
date the well for which administrative approval is granted is spud, there will
be at least one well or a combination of multiple wells, including cross unit
wells and or encroaching wells located, as defined in subsection (a)(2) of
General Rule B-3, within each included drilling unit that have a total combined
perforated lateral length within the drilling unit of not less than 4160 feet,
and are producing or are capable of producing gas and awaiting connection to a
pipeline; or
v) At least seventy
five percent (75%) of the fee mineral ownership within each included drilling
unit that does not contain one or more wells satisfying the requirements of
subpart 2)A.i) or subpart 2)A. iii) above agree in writing to the well;
and
B. Notice has been
given to all owners, as defined by Ark. Code Ann. (1987) § 15-72-102(9)
and no objections were received by the Director in accordance with subsection
2) 1) below; and
C. The application
includes detailed plat maps indicating current well locations and potential
future well development plans in all included drilling units.
D. If administrative approval is granted,
based upon either or both of subsection 2)A.ii) or iv) above, and the applicant
fails to satisfy one of the conditions specified in subsection 2)A.ii) or iv)
above, the drilling permit and all other authorities for the well shall be
automatically revoked, and the well shall be shut in, unless the applicant has
filed a request in accordance with General Rule A-2, A-3, and other applicable
hearing procedures prior to the expiration of the time period specified in such
subsections, or the Commission otherwise approves the application.
E. The method for sharing the costs of and
the proceeds of production from one or more separately metered wells shall be
based on acreage allocation as follows:
i) An
area measured 560 feet along and on both sides of the entire length of the
horizontal perforated section of the well, and including an area formed by a
560 feet radius from the beginning point of the perforated interval, and a 560
feet radius from the ending point of the perforated interval shall be
calculated for each such separately metered well (the "calculated
area").
ii) 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.
F. 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 Ark. Code Ann. (1987)
§ 15-72-102(9), within each of the drilling units in which the proposed
well is to be drilled and/or completed.
G. Concurrently with the filing of an
application utilizing the above methodology, the applicant shall send to each
owner specified in subsection 2)F. above a notice of the application filing and
verify such mailing by affidavit, setting out the names and addresses of all
owners, as defined by Ark. Code Ann. (1987) § 15-72-102(9), and the
date(s) of mailing.
H. Any owner,
as defined by Ark. Code Ann. (1987) § 15-72-102(9), noticed in accordance
with subsection 2) G) 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 such 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 General Rules A-2 and A-3, and other applicable hearing
requirements, except that no additional filing fee is required.
I. 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, in order to prevent waste, or for any other reason.
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 referral to the full Commission for
determination. If the application is referred under this section, the applicant
shall file a request for a hearing, in accordance with General Rules A-2 and
A-3, and other applicable hearing requirements, except that no additional
filing fee is required.
J. 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 2)I,
the application shall be approved and a drilling permit issued.
K. Upon receipt of the drilling permit, the
applicant shall give the other owners, as defined by Ark. Code Ann. (1987)
§ 15-72-102(9), written notice that the drilling permit has been issued.
The owners, as defined by Ark. Code Ann. (1987) § 15-72-102(9), 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 or units.
L. Following
completion of the well and prior to the issuance of the Certificate of
Compliance to commence production, the final location of the perforated
interval shall be submitted to the Director to verify the proposed portion of
the calculated area occurring within each drilling unit as specified in
subsection 2) E) above.
3) Filing of Affidavit. The Applicant shall
also file an affidavit or other document showing the calculated area allocated
and assigned to each drilling unit, according to the final calculation of the
area, occurring within each drilling unit with the Director and in the real
estate property records in all counties where any portion of the drilling units
are located.
(p) 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.
(q) 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.
