Vertical Spacing:
1. *Notice:
a. Publication notice:
i. One time at least 15 days prior to the hearing
ii. In a newspaper of general circulation
iii. Published in Oklahoma County and in the county where the land is located
iv. *File an affidavit of publication
v. Carlile Trust v. Cotton Petroleum Corp. (1986) –publication notice is not reasonably calculated notice – and thus defective – to apprise interested parties of proceedings where they could have been contacted through more diligent efforts.
b. Content of Notice: See 165: 5-7-5(l):
i. Time, date, and place of hearing
ii. General nature of the order, rule, regulation, or relief sough
iii. The names or description of all common sources of supply affected by the order sought
iv. Who to contact for additional information
c. *Must be served upon each person having the right to participate in production from the proposed drilling and spacing unit
i. *If existing units are being effected, notice must be served 15 days prior to the date of the haring upon each person having the right to participate in production from the unit being affected
ii. *File an affidavit of mailing
d. *You must file a certificate of service with every document that is filed with the OCC
e. Union Texas Petroleum v. Corporation Commission (1981) – Mailing notice to an incorrect address may be sufficient notice, but failing to notify a party at all renders the order ineffective against the party that did not properly receive notice.
2. Pre-Hearing Conference Agreement
3. Requirements of Proof in Application:
a. Lands embraced in the actual or prospective common source of supply
b. *Size, form, and shape of the proposed drilling and spacing unit
c. Formations you are requesting to be spaced
i. Describe the nature and character
d. Allege that the applicant owns the minerals
e. State that the Commission has Jurisdiction
i. 17 OS § 52
f. *Establish that proper notice was given:
i. Notice was served upon all parties having the right to participate in production form the proposed drilling and spacing unit 15 days in advance
ii. Notice was served upon the proper parties 15 days in advance
iii. *The proposed spacing is for _____:(oil or gas)
iv. The proposed size of the unit is ____:
v. The legal location of the land to be spaced
vi. *The location of a proposed well _____ ft (set back)
vii. Proposed well pattern
viii. Date of the hearing
ix. Location of the hearing
g. Whether the application is protested or not
i. If not protested, the parties can request consideration on the merits without a full evidentiary hearing
h. *The depths/top of the common sources of supply proposed to be spaced
i. Request spacing of ____: (acre units) for each formation
ii. Proposed classification of each formation ____: (oil or gas)
iii. The plan of well spacing then being employed or contemplated – stand up or lay down
iv. Order number by reference to be extended if any
i. *That one well will adequately, economically, and efficiently drain ____ acres
i. That there is no existing well
j. *That the application should be granted in order to prevent waste and protect correlative rights
k. *Plats should be attached
i. Should show the spacing unit requested along with any overlaps, and surrounding spacing
1. All nearby order should be incorporated by reference
ii. Request spacing to either be extended or to be combined with another nearby section
1. If doing this – an engineer may not need to testify that ___ is the proper size unit
l. Any other available geological or scientific data that may be helpful to the commission
m. Every spacing order must be supported by substantial evidence
4. *Effects of the Spacing Order:
a. Order will establish the outside boundaries of the surface area
b. Order will establish the size, form, and shape of the drilling or spacing unit
c. Drilling pattern (typically uniform)
d. Pools all royalty interests
e. Unit is ready for a pooling hearing
f. *The location of the well that is established will become the unit well
i. Trick to not having to file a location exceptions.
1. If the application covers an existing well off-pattern for the proposed spacing, the application should request the Commission to “deem” the well to be at a permitted location, otherwise you will need a location exception.
5. Modification of a Spacing Order:
a. Must show substantial change in conditions
b. Winter v. Corporation Commission (1983) – OCC has authority to determine that increased density may better protect correlative rights than de-spacing.
Horizontal Spacing:
(Same as above – except Caveats)
1. Every horizontal spacing unit will be an interim order
a. You never get a final order until the well is drilled
b. The order shall become final 21 days after filing of the directional surveys, plat and completion report
c. The interim order is only good for 12 months if operations are not commenced
i. Notice to extend requires 5 days notice to parties
2. Legal Locations: (not different if a stand-up or lay-down, bud different if standard form unit)
a. 40 acre unit – 165’ set back
b. 160 acre unit – 330’ set back
c. 640 acre unit – 660’ set back
3. If drilling unspaced: (does not apply to enhanced recovery operations)
a. 300’ from any other well if <2500’
b. 600’ from any other well if >2500’
4. Size of the unit:
a. Determined by the sum of the longest lateral and any lateral extending 180 degrees therefrom
5. Concurrent Orders:
a. A horizontal unit may be created for a common source of supply for which there are already established non-horizontal spacing units
i. A horizontal well unit shall supersede existing non-developed non-horizontal drilling and spacing units for the duration of the horizontal well unit
b. Moreover if there is a producing vertical well and a horizontal well both order can exist concurrently
6. Establishing Allowables:
a. Submit a Directional Survey
b. A plat showing point of entry, TVD, actual length, and direction of the lateral
c. An approved from 1002(A)
d. Total amount of oil or gas that has been produced from the well prior to the date of completion
7. Limited Duration:
a. 12 months
b. 90 days after the abandonment of the last producing well in the unit
8. General Notes:
a. Reasons to horizontally drill:
i. Production allowable bonus for the length of the lateral
1. .2-.4 bons allowable per foot; also dependent upon depth
ii. Closer surface/entry point locations
iii. More efficiently drains a reservoir
b. Cons:
i. More expensive
ii. Bottom Hole survey required
iii. Spac
er, within 3 days of the order, to all parties of record and to all known respondents
b. Affidavit of Mailing (that the order was mailed in 3 days) must be filed within 10 days of the Order
i. Generally filed contemporaneously with the application – to avoid “vultures”
c. Elections must be made within 15 days of the date of the order (15 days also on subsequent elections)
i. Bonus and royalty is the default (unless over-burdened)
ii. Participating parties can be required to pay in full, but letter of credit or escrow deposit is usually enough
1. You have 20 days to make payments if you elect to participate
iii. If you participate you are on the hook for all costs that are not unreasonable
1. To challenge costs à Penneco v. Sanuguine – unless you can show gross negligence on the part of the operator, you are probably going to lose a cost determinations case
2. Commission retains jurisdiction to determine the reasonableness of costs
d. 30 days after the date of the order for the Operator to pay the bonus
e. Payments into escrow for unknown parties within 90 days from the date of the Order
7. Change in Operator under a forced pooling:
a. Notice – 15 days in advance to hearing to respondents to the pooling order
b. Optional 1073(a) application:
i. Includes order number and type of order
ii. Name and legal description of applicable well or spacing unit
iii. OTC operator number of current and proposed operator
iv. OTC lease number and API number
v. Classification of the well
8. Effect
a. Rights of the parties under a pooling order will be superseded by a JOA
b. Pooling order vests property rights
c. Sets duration of the order – 180 days; motion to extend within 5 days of expiration (cert. mail req)
d. Sets costs
i. Dry hole and Completed
e. Designates the Operator – and in some cases an alternate Operator
i. Usually largest WI owner
f. Determines Bonus and Royalty to force pooled interest owners:
i. Inquiry into the highest price actually paid or an oil and gas lease – 9 section are
1. Current fair market value = price paid for a lease between a willing buyer and willing seller – no compulsion
a. Excluded Transactions
i. Isolated Transactions
ii. Indian leases
iii. Multi-section deals
iv. Leases sold at auction
v. CLO leases
b. Operator should be aware that if they pay too much they may have to pay to all force pooled parties
c. Landowners should get all offers in writing to establish FMV if they are later force pooled
g. Formations will be held for duration of the order
i. Assume that if you drill the formation you have earned it, though you probably get it anyways
