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Thu February 20, 2014
Small And Large Drillers Square-Off Over Well-Spacing Rules
Horizontal drilling has revolutionized the energy industry, and helped unlock oil and gas trapped in tight shale formations that had, for decades, eluded petroleum producers.
But Oklahoma’s oil and gas rules were established when traditional, vertical drilling was the norm. Balancing the regulatory needs of horizontal drillers and vertical drillers — especially those producing in the same formation — can be tricky.
Horizontal drilling is expensive, so larger energy companies comprise the bulk of horizontal drillers. And because small oil and gas companies still do a lot of vertical drilling, disagreements over proposed rules changes often come down to big vs. small.
Well-spacing rules, which were recently changed to accommodate horizontal drilling, have proved controversial with smaller producers. The Journal Record‘s Sarah Terry-Cobo covered the well-attended Corporation Commission meeting. Here’s her breakdown:
Operators can drill horizontal wells in vertical spacing units. However, drillers can’t put vertical wells in horizontal spacing units.
Rule changes established to facilitate horizontal drilling, as part of the Shale Reservoir Development Act, have created some unintended consequences for smaller producers that drill vertical wells. The act allowed drillers to increase the size of a spacing unit, or an area of land and underground rock formation, to allow for drilling lateral wells.
More details from The Oklahoman‘s Adam Wilmoth:
Traditional vertical wells typically use 40-acre spacing, meaning that the well is assumed to affect the minerals under the 40 acres surrounding a well. When a well is drilled, the owners or leaseholders of the 40 acres pay for the well and receive the profits or royalties.
But horizontal wells typically span an entire 640-acre section, which involves a lot more mineral owners. David Baston of Blackrock Holdings tells Wilmoth he’s worried if the rules aren’t changed, he’ll “lose control” of undeveloped oil and gas reserves below his vertical well.
“Those become commandeered with these big horizontal units,” he said. “These are reserves I thought I owned. I’m put in a position of having to defend at my expense over and over production I thought I already owned.”
In many cases, such defense requires operators to hire a lawyer, an engineer and a geologist.
One possible solution has been proposed, Terry-Cobo reports:
A horizontal spacing unit would become void after three years if an operator does not have a producing well there. This would allow a small operator to drill vertically in that unit.
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