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STATE OF OKLAHOMA
2nd Session of the 58th Legislature (2022)
HOUSE BILL 3039 By: Boles
AS INTRODUCED
An Act relating to oil and gas; amending 52 O.S.
2021, Section 87.1, which relates to common source of
supply and well spacing and drillin g units; allowing
drilling of wells prior to Oklahoma Corporation
Commission granting order; and providing an e ffective
date.
BE IT ENACTED BY THE PEOPLE OF THE STATE OF OKLAHOMA:
SECTION 1. AMENDATORY 52 O.S. 2021, Secti on 87.1, is
amended to read as follows:
Section 87.1 Whenever the production from any common source of
supply of oil or natural gas in this state can be obtained only
under conditions constituting waste or drainage not compensated by
counterdrainage, then any person having the right to drill into and
produce from such common source of supply may, except as otherwi se
authorized or in this section provided, take therefrom only such
proportion of the oil or natural gas that may be produced therefrom
without waste or without such drainage as the productive capacity of
the well or wells of any such person considered wit h the acreage
properly assignable to each such well bears to the total productive
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capacities of the wells in such common source of supply conside red
with the acreage properly assignable to each well therein.
(a) To prevent or to assist in preventing the v arious types of
waste of oil or gas prohibited by statute, or any wastes, or to
protect or assist in protecting the correlative rights of interes ted
parties, the Corporation Commission, upon a proper application and
notice given as hereinafter provided, an d after a hearing as
provided in the notice, shall have the power to establish well
spacing and drilling units of specified and approximately uni form
size and shape covering any common source of supply, or prospective
common source of supply, of oil or gas within the State of Oklahoma;
provided, that the Commission may authorize the drilling of an
additional well or wells on any spacing and drillin g unit or units
or any portion or portions thereof or may establish, reestablish, or
reform well spacing and dr illing units of different sizes and shapes
when the Commission determines that a common source of supply
contains predominantly oil underlying an area or areas and contains
predominantly gas underlying a different area or areas; provided
further that the units in the predominantly oil area or areas shall
be of approximately uniform size and shape, and the units in the
predominantly gas area or area s shall be of approximately uniform
size and shape, except that the units in the gas area or areas may
be of nonuniform size and shape when they adjoin the units in the
oil area or areas; provided further that the drilling pattern for
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such nonuniform units need not be uniform, and provided further that
the Commission shall adjust the allowable production within the
common source of supply, or any part thereof, and take such other
action as may be necessary to protect the rights of interested
parties. Any order issued pursuant to the provisions hereof may be
entered after a hearing upon the petition of any person ow ning an
interest in the minerals in lands embraced within such common source
of supply, or the right to drill a well for oil or gas on the lands
embraced within such common source of supply, or on the petition of
the Conservation Officer of the State of Ok lahoma. When such a
petition is filed with the Commission, the Commission shall give at
least fifteen (15) days ' notice of the hearing to be hel d upon such
petition by one publication, at least fifteen (15) days prior to the
hearing, in some newspaper of general circulation published in
Oklahoma County, and by one publication, at least fifteen (15) days
prior to the date of the hearing, in some ne wspaper published in the
county, or in each county, if there be more than one, in which the
lands embraced within the application are situated. Except as to
the notice of hearing on such a petition, the procedural
requirements of Section 86.1 et seq. of t his title shall govern all
proceedings and hearings provided for by this section.
(b) In case of a spacing uni t of one hundred sixty (160) acres
or more, no oil and/or gas leasehold interest outside the spacing
unit involved may be held by production from the spacing unit more
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than ninety (90) days beyond expiration of the primary term of the
lease.
(c) In establishing a well spacing or drilling unit for a
common source of supply thereunder, the acreage to be embraced
within each unit may include acreage from more than one governmental
section, but shall not exceed six hundred forty (640) acres for a
gas well plus ten percent (10%) tolerance, unless the unit is a
governmental section and the governmental section contains more than
six hundred forty (640) a cres in which case the unit may comprise
the entire section. Provided, however, fractional sections along
the state boundary line and within the townships along the boundary
where the survey west of the Indian Meridian meets the survey east
of the Cimarron Meridian may be spaced with adjoining section unit,
and the shape thereof shall be determined by the Commissi on from the
evidence introduced at the hearing, and the following facts, among
other things, shall be material: (1) the lands embraced in the
actual or prospective common source of supply; (2) the plan of well
spacing then being employed or contemplated i n the source of supply;
(3) the depth at which production from the common source of supply
has been or is expected to be found; (4) the nature an d character of
the producing or prospective producing formation or formations; and
(5) any other available geol ogical or scientific data pertaining to
the actual or prospective source of supply which may be of probative
value to the Commission in determini ng the proper spacing and well
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drilling unit therefor, with due and relative allowance for the
correlative rights and obligations of the producers and royalty
owners interested therein.
The order establishing such spacing or drilling units shall set
forth: (1) the outside boundaries of the surface area included in
such order; (2) the size, form, and shape of the s pacing or drilling
units so established; (3) the drilling pattern for the area, which
shall be uniform except as hereinbefore provided; and (4) t he
location of the permitted well on each such spacing or drilling
unit. To such order shall be attached a pla t upon which shall be
indicated the foregoing information. Subject to other provisions of
Section 86.1 et seq. of this title, the order establis hing such
spacing or drilling units shall direct that no more than one well
shall thereafter be produced from t he common source of supply on any
unit so established, and that the well permitted on that unit shall
be drilled at the location thereon as presc ribed by the Commission,
with such exception as may be reasonably necessary where it is
shown, upon application , notice and hearing in conformity with the
procedural requirements of Section 86.1 et seq. of this title, and
the Commission finds that any such spacing unit is located on the
edge of a pool and adjacent to a producing unit, or for some other
reason that to require the drilling of a well at the prescribed
location on such spacing unit would be inequitable or unreasonable.
Whenever such an excepti on is granted, the Commission shall adjust
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the allowable production for the spacing unit and take such other
action as may be necessary to protect the rights of interested
parties.
Except for horizontal spacing units allowed by subsection (f) of
this section, any well spacing or drilling unit for a common source
of supply thereunder which exceeds six hundred forty (640) acres for
a gas well plus ten percent (10%) tolerance or exceeds the total
amount of acreage contained in a governmental section, and is no t in
production or in the process of drilling development on the
effective date of this act shall be de -spaced. However, fractional
sections along the state boundary line and within the townships
along the boundary where the survey west of the Indian Meri dian
meets the survey east of the Cimarron Meridian may be spaced with
adjoining section unit, and the shape t hereof shall be determined by
the Commission.
(d) The Commission shall have jurisdiction upon the filing of a
proper application therefor, and up on notice given as provided in
subsection (a) of this section, to decrease the size of the well
spacing units or to permit additional wells to be drilled within the
established units, or to increase the size or modify the shape of
the well spacing units, u pon proper proof at such hearing that such
modification or extension of the order establishing drilling or
spacing units will prevent or assist in preventing the various types
of wastes prohibited by statute, or any of the wastes, or will
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protect or assist in protecting the correlative rights of persons
interested in the common source of supply, or upon the filing of a
proper application therefor to enlarge the area covered by the
spacing order, if such proof discloses that the development or the
trend of development indicates that such common source of supply
underlies an area not covered by the spacing order and such proof
discloses that the applicant is an owner within the area or within a
drilling and spacing unit contiguous to the area covered by the
application. Except in the instance of reservoir dewatering as
described herein, the Commission shall not estab lish well spacing
units of more than forty (40) acres in size covering common sources
of supply of oil, the top of which lies less than four thous and
(4,000) feet below the surface as determined by the original or
discovery well in the common source of sup ply, and the Commission
shall not establish well spacing units of more than eighty (80)
acres in size covering common sources of supply of oil, th e top of
which lies less than nine thousand nine hundred ninety (9,990) feet
and more than four thousand (4,00 0) feet below the surface as
determined by the original or discovery well in the common source of
supply. In the instance of reservoir dewatering to extract oil from
reservoirs having initial water saturations at or above fifty
percent (50%), the Commissi on may establish drilling and spacing
units not to exceed six hundred forty (640) acres in size.
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(e) The drilling of any well or wells into any c ommon source of
supply for the purpose of producing oil or gas therefrom, after a
spacing order has been enter ed by the Commission covering such
common source of supply, at a location other than that fixed by the
order is hereby prohibited. The drilling o f any well or wells into
a common source of supply, covered by a pending spacing application ,
at a location other than that approved by a special order of for
which notice and hearing have occurred, may be granted by the
Commission authorizing the drilling of such well is hereby
prohibited at its discretion prior to the issuance of an order . The
operation of any well drilled in violation of any spacing so entered
is also hereby prohibited. When two or more separately owned tracts
of land are embraced with in an established spacing unit, or where
there are undivided interests separately owned, or both such
separately owned tracts and undivided interests embraced within such
established spacing unit, the owners thereof may validly pool their
interests and develop their lands as a unit. Where, however, such
owners have not agreed to pool their interests and where one such
separate owner has drilled or proposes to drill a well on the unit
to the common source of supply, the Commission, to avoid the
drilling of unnecessary wells, or to protect correlative rights,
shall, upon a proper application therefor and a hearing th ereon,
require such owners to pool and develop their lands in the spacing
unit as a unit. The applicant shall give all the owners whose
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addresses are known or could be known through the exercise of due
diligence at least fifteen (15) days ' notice by mail, return receipt
requested. The applicant shall also give notice by one publication,
at least fifteen (15) days prior to the hearing, in some new spaper
of general circulation published in Oklahoma County, and by one
publication, at least fifteen (15) days prior to the date of the
hearing, in some newspaper published in the county, or in each
county, if there be more than one, in which the lands emb raced
within the spacing unit are situated. The applicant shall file
proof of publication and an affidavit of mailing with the Commission
prior to the hearing. All orders requiring such pooling shall be
made after notice and hearing, and shall be upon su ch terms and
conditions as are just and reasonable and will afford to the owner
of such tract in the unit the o pportunity to recover or receive
without unnecessary expense the owner 's just and fair share of the
oil and gas. The portion of the production a llocated to the owner
of each tract or interests included in a well spacing unit formed by
a pooling order shal l, when produced, be considered as if produced
by such owner from the separately owned tract or interest by a well
drilled thereon. Such pooling order of the Commission shall make
definite provisions for the payment of cost of the development and
operation, which shall be limited to the actual expenditures
required for such purpose not in excess of what are reasonable,
including a reasonable charg e for supervision. In the event of any
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dispute relative to such costs, the Commission shall determine the
proper costs after due notice to interested parties and a hearing
thereon. The operator of such unit, in addition to any other right
provided by the pooling order or orders of the Commission, shall
have a lien on the mineral leasehold estate or rights owned b y the
other owners therein and upon their shares of the production from
such unit to the extent that costs incurred in the development and
operation upon the unit are a charge against such interest by order
of the Commission or by operation of law. Such l iens shall be
separable as to each separate owner within such unit, and shall
remain liens until the owner or owners drilling or operating the
well have been paid the amount due under the terms of the pooling
order. The Commission is specifically authoriz ed to provide that
the owner or owners drilling, or paying for the drilling, or for the
operation of a well for the benefit of all shall be entit led to
production from such well which would be received by the owner or
owners for whose benefit the well was drilled or operated, after
payment of royalty, until the owner or owners drilling or operating
the well have been paid the amount due under the t erms of the
pooling order or order settling such dispute. No part of the
production or proceeds accruing to an y owner of a separate interest
in such unit shall be applied toward payment of any cost properly
chargeable to any other interest in the unit.
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For the purpose of this section, the owner or owners of oil and
gas rights in and under an unleased tract of land shall be regarded
as a lessee to the extent of a seven -eighths (7/8) interest in and
to the rights and a lessor to the extent of the remaining o ne-eighth
(1/8) interest therein, unless and until the owner or owners make an
election or are deemed to make a n election not to participate under
a pooling order issued by the Commission, at which time each such
owner shall be considered a lessor, subject to the judicially
recognized implied covenant to market found to exist by the courts
of this state in oil and gas leases covering lands located in this
state, to the extent of the full royalty percentage elected under
the pooling order. Should the owners of separate tracts or
interests embraced within a spacing unit fail to agree upon a
pooling of their interests and the drilling of a well on the unit,
and should it be established by final, unappealable judgment of a
court of competent jurisdiction that t he Commission is without
authority to require pooling as provided for herein, then, subject
to all other applicable provisions of this act, the owner of each
tract or interest embraced within a spacing unit may drill on his or
her separately owned tract, a nd the allowable production therefrom
shall be that portion of the allowable for the full spacing unit as
the area of such separately owned tract bears to the full spacing
unit.
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In the event a producing well or wells are completed upon a unit
where there are, or may thereafter be, two or more separately owned
tracts, each royalty interest owner shall share in all p roduction
from the well or wells drilled within the unit, or in the gas well
rental provided for in the lease covering such separately owned
tract or interest in lieu of the customary fixed royalty, to the
extent of such royalty interest owner 's interest in the unit. Each
royalty interest owner 's interest in the unit shall be defined as
the percentage of royalty owned in each separate tract by the
royalty owner, multiplied by the proportion that the acreage in each
separately owned tract or interest bears to the entire acreage of
the unit.
(f) Notwithstanding any provision of this title to the
contrary, the Corporation Commission shall have jurisd iction upon
the filing of a proper application therefor, and upon notice given
as provided in subsection (a) of this section, to establish spacing
rules for horizontally drilled oil or gas wells whereby horizontally
drilled oil or gas wells may have well s pacing units established of
up to one thousand two hundred eighty (1,280) acres plus tole rances
and variances as allowed pursuant to subsection (c) of this section.
For purposes of this subsection a "horizontally drilled oil or gas
well" shall mean an oil or gas well drilled, completed or
recompleted in a manner in which the horizontal component of the
completion interval in the geological formation exceeds the vertical
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component thereof and which horizontal component extends a minimum
of one hundred fifty (150) feet in the formation. The Corporation
Commission shall promulgate rules necessary for the proper
administration of this subsection. For the creation and
continuation of any horizontal spacing unit pursuant to this
subsection that exceeds six hund red forty (640) acres plus
tolerances and variances as allowed pursuant to subsection (c) of
this section:
(1) absent a showing of reasonable cause, the unit shall
include all lands within each governmental section to be included in
the horizontal spacing unit;
(2) the applicant or applicants requesting the Commission to
form the horizontal spacing unit must be t he owner of an interest in
the oil, gas and other minerals in each of the governmental sections
to be included in the horizontal spacing unit;
(3) the applicant or applicants requesting the Commission to
form a horizontal spacing unit must include in the application the
basis for requesting a spacing unit size greater than six hundred
forty (640) acres plus tolerances and variances as allowed purs uant
to subsection (c) of this section. Absent a showing of reasonable
cause, the contemplated horizontal late ral length for the initial
unit well in the horizontal spacing unit shall be at least seven
thousand five hundred (7,500) feet. If the lateral l ength of the
initial horizontal well does not actually measure a minimum of seven
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thousand five hundred (7,500) feet, the Commission shall require the
applicant to show cause as to why such spacing order should not be
modified, superseded or vacated under the circumstances; and
(4) absent a showing of reasonable cause, the drilling of a
multiunit horizontal well p ursuant to Section 87.8 of this title
shall not be available as the initial unit well for a horizontal
spacing unit unless the contemplated compl eted portion of the
lateral for said well is to exceed ten thousand five hundred sixty
(10,560) feet.
(g) A horizontal spacing unit may be established for a common
source of supply for which there are already established non -
horizontal drilling and spacin g units. A horizontal spacing unit
formed under subsection (f) of this section may exist concurrently
with any previously formed nonhorizontal drilling and spacing unit,
or any portion thereof, such that each concurrently existing unit
may be separately developed with a well drilled into, completed in
and hydrocarbons produced from the same common source of supply in
each such concurrently existing unit, with production from each such
well to be governed by and allocated pursuant to the applicable
unit. Subject to all of the provisions of this section, a pooling
order for a horizontal spacing unit which overlies a n existing,
producing nonhorizontal drilling and spacing unit, shall provide
that, if a working interest owner in such producing nonhorizontal
drilling and spacing unit does not agree to develop the horizontal
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spacing unit, the owner shall relinquish its n onparticipating
working interest in the horizontal spacing unit while retaining all
other rights, including the right to concurrently develop the
producing nonhorizontal unit.
(h) Notwithstanding anything in this title or a pooling order
to the contrary, each party owning a right to participate in
development of a horizontal well described in this subsection with a
vested interest as to which ther e is production in the geographical
area of the spacing unit or spacing units for a proposed horizontal
well which is drilled after the effective date of this act pursuant
to a pooling order, whether the pooling order was issued before or
after the effective date of this act, shall be afforded separate
elections as set forth below, subject to the following, provide d;
however, a geographic area in which there is no existing producing
unit as of the date of the filing of the application for the
governing pooling order and which is initially developed pursuant to
a multiunit horizontal well authorized under Section 87. 8 of this
title, or a horizontal spacing unit which contains more than six
hundred forty (640) acres plus tolerances and variances as allowed
for pursuant to subsection (c) of this section shall not be
considered to contain existing production for purposes of this
subsection, unless the geographical area of any spacing unit covered
by the governing pooling order: is overlain by a horizontal spacing
unit greater than six hundred forty (640) acres plus tolerances and
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variances as allowed for pursuant to subse ction (c) of this section
which is not subject to said pooling order; has a multiunit well
drilled pursuant to Section 87.8 of this title which i ncludes a
horizontal spacing unit which contains more than six hundred forty
(640) acres plus tolerances and va riances as allowed for pursuant to
subsection (c) of this section which is subject to said pooling
order; or has a multiunit well drilled pursuan t to Section 87.8 of
this title for a combination of units different than drilled by the
initial multiunit well pursuant to said pooling order:
(1) as to a multiunit horizontal well authorized under Section
87.8 of this title, each party owning a right to participate in
development of the proposed multiunit horizontal well with a vested
interest as to which there is existing production in the
geographical area of the spacing unit for the proposed multiunit
well shall be allowed, and as to the extent of the ir development
rights as to which there is existing production, an election as to
the targeted reservoir or tar geted reservoirs covered by each
pooling order for such proposed multiunit horizontal well described
above, unless otherwise agreed to or waived in writing after the
effective date of this act . If said multiunit well is drilled in
accordance with the pool ing order, the relinquished rights of an
owner who elects or is deemed to have elected not to participate
with all or any part of that owner 's interest in the multiunit
horizontal well shall be limited to only the owner 's
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nonparticipating working interest in the common source or common
sources of supply within the targeted reservoir or targeted
reservoirs covered by said election which are actually horizontally
drilled and completed by said well. The owner shall retain all
other rights, including all right s in any existing wellbores in
which the owner has participated ;
(2) as to a horizontal well authorized by the Commission for a
horizontal spacing unit created under subsection (f) of this
section, if the horizontal spacing unit contains more than six
hundred forty (640) acres plus tolerances and variances as allowed
for pursuant to subsection (c) of this section, or is comprised of
more than one governmental section, each party owning a right to
participate in development of the proposed horizontal well w ith a
vested interest as to which there is existing production in the
geographical area of the spacing unit for the proposed horizontal
well shall be allowed, and as to the extent of their development
rights as to which there is existing production, a sepa rate election
as to each common source of supply or common sources of supply
covered by the pooling order for a proposed horizontal well
described above, unless otherwise agreed to or waived in writing
after the effective date of this act. If said horizon tal well is
drilled in accordance with the pooling order, the relinquished
rights of an owner who elects or is deemed to have elected not to
participate with all or any part of that owner 's interest in the
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horizontal well shall be limited to only the owner 's
nonparticipating working interest in the common source or common
sources of supply covered by said election which are actually
horizontally drilled and completed by said well. The owner shall
retain all other rights, including any rights in all existin g
wellbores in which the owner has participated;
(3) as to any well which is subject to a pooling order which
was entered prior to the effective date of this act, in order to be
entitled to the rights and benefits of this subsection, the owner
must have been vested with the right to participate in the subject
well as of the effective date of this act;
(4) any relinquishment of rights under this s ubsection shall be
pursuant to the governing pooling order and at such fair value as
determined by the Commissi on; and
(5) the provisions of subsections (g) and (h) of this section
shall supplement each affected pooling order as to development of
the affected spacing unit by use of horizontal wells from and after
the effective date of this act.
SECTION 2. This act shall become effective November 1, 2022.
58-2-9289 JL 01/03/22