Texas Administrative Code
Title 31 - NATURAL RESOURCES AND CONSERVATION
Part 1 - GENERAL LAND OFFICE
Chapter 9 - EXPLORATION AND LEASING OF STATE OIL AND GAS
Subchapter C - MAINTAINING A STATE OIL AND GAS LEASE
Section 9.31 - General Provisions

(1) Section 9.32 of this title, (relating to General Responsibilities of State Lessees) applies to all state leases covering lands described in § 9.21(1)-(5) of this title, (relating to Leasing Guide).

(2) Those rule provisions in this subchapter that create procedures for coordinating with the GLO staff for a specific purpose would also generally apply to any state lease that authorizes such purpose. Some examples include the rules relating to tendering delay rentals and shut-in royalties to the state, to pooling state property and to suspending state leases.

(1) Dry Hole. A dry hole is a completed well not capable of producing in paying quantities.

(2) Drilling Operation. One drilling operation consists of all the activities designed and conducted in an effort to obtain initial production from a well. As long as the actual spud date of the well occurs within a reasonable time, a drilling operation begins when a RRC drilling permit has been obtained and preliminary work, such as grading roads, moving equipment, digging pits or staking locations, has started. A drilling operation continues as long as operations progress in a diligent manner toward the completion of that well. One drilling operation ends when lessee obtains production in paying quantities or when lessee abandons efforts to obtain such production. Notwithstanding the foregoing, drilling operations cease the day the well is completed or the date the completion rig is released.

(3) Effective Shut-In Date. If lessee has completed a shut-in well during the primary term of a lease and holds the lease in the secondary term by paying a shut-in royalty, the effective shut-in date is the expiration of the primary term. If lessee completes a shut-in well after the primary term expires, the effective shut-in date is the first day of the month following the month when the well was shut in.

(4) Encroaching well. This term has been created under these rules to characterize any well which triggers the offset well obligation under state leases or statutes. An encroaching well is one which: produces in paying quantities; has been completed on either private acreage or on state land leased at a lesser royalty; and is within 1,000 feet of state land or is actually draining such state land. For a multiple-completion well, each separate formation or productive zone will be treated as a separate encroaching well. (See definition of "well.") For purposes of construing lease provisions relating only to shut-in wells, an encroaching well must meet all criteria set above, but it must also be completed in the same producing reservoir as the shut-in well.

(5) Producing (or production). When used in this subchapter, the term "producing" shall mean "producing in paying quantities" (defined as follows).

(6) Producing (or production) in paying quantities. When a lease specifically defines this term, that definition applies. If a lease contains no such definition, the following definition shall apply: a lease or a well produces in paying quantities when receipts from the sale of oil and/or gas produced from the lease or well exceeds the lease's or well's total operating expenses (including all overhead, general and administration costs traceable to the expense of operating and marketing production from said lease or well) and a reasonably prudent operator would continue to operate the well or the lease in the same manner for the purpose of making a profit and not merely for speculation. Minimum royalty payments are not revenue from actual production and will not be treated as revenue when calculating whether a lease or a well is capable of producing in paying quantities.

(7) Retained Acreage Clause. Any lease provision, regardless of its title, generally designed to limit the acreage and/or depths held by lease operations in the secondary term of a lease. The specific language in these kinds of clauses determines what acreage and/or depths remain held by lease production or operations, what acreage and/or depths terminate under the lease, and exactly when in the secondary term of the lease the clauses become effective.

(8) Reworking Operation. One reworking operation consists of all the activities designed and conducted on a well in an effort to restore or to enhance production in paying quantities from an existing well. One reworking operation continues as long as lessee diligently pursues the production or enhanced production. One reworking operation ends when lessee restores or enhances production within a reasonable time or when lessee abandons efforts to restore or to enhance such production. The production or enhanced production must be in paying quantities.

(9) Shut-In Well. A well capable of producing oil or gas in paying quantities but which is not being produced for reasons set forth in the shut-in provision of a lease. Such reasons may include lack of suitable production facilities or lack of a suitable market. For a multiple-completion well, each separate formation or productive zone will be treated as a separate shut-in well. See definition of "well."

(10) Well Completion Date. The well completion date is the completion date reflected on the completion report filed with RRC unless this report is inaccurate.

(11) Well. For a multiple completion well, "well" shall refer to each separate formation or productive zone which is capable of producing hydrocarbons and which has been given a unique RRC identification number.