2016 Kentucky Revised Statutes CHAPTER 353 - MINERAL CONSERVATION AND DEVELOPMENT .651 Vertical and horizontal deep wells -- Establishment and regulation of drilling units -- Pooling of interests -- Exceptions.
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353.651 Vertical and horizontal deep wells -- Establishment and regulation of
drilling units -- Pooling of interests -- Exceptions.
The following provisions of this section and the administrative regulations promulgated
pursuant thereto shall apply to any vertical deep well and any horizontal deep well as
indicated:
(1) Drilling units for vertical deep wells:
(a) The commission shall, after notice and a hearing, to be conducted in
accordance with KRS Chapter 13B, regulate the drilling and location of
vertical deep wells in a pool and the production therefrom so as to prevent
reasonably avoidable net drainage from each developed unit (that is, drainage
which is not equalized by counterdrainage) so that each owner in a pool shall
have the right and opportunity to recover his or her fair and equitable share of
the recoverable oil and gas in the pool;
(b) For the prevention of waste, to protect and enforce the correlative rights of the
owners in a pool, and to avoid the augmenting and accumulation of risks
arising from the drilling of an excessive number of wells, the commission
shall, after notice and a hearing, to be conducted in accordance with KRS
Chapter 13B, establish drilling units for vertical deep wells in each pool. The
spacing of vertical deep wells in proved oil and gas fields shall be governed by
administrative regulations promulgated for that particular field or other
administrative regulation promulgated by the commission. Vertical deep wells
drilled in areas not covered by special field administrative regulations shall be
governed by statewide administrative regulations promulgated by the
commission or orders of the commission issued after a hearing;
(c) Each vertical deep well permitted to be drilled in any drilling unit shall be
drilled in accordance with:
1.
The administrative regulations promulgated by the commission; and
2.
A spacing pattern fixed by the commission for the well or the pool in
which the vertical deep well is located, as applicable, with any
exceptions that may be reasonably necessary where it is shown, in
accordance with administrative regulations promulgated by the
commission, that the unit is partly outside the pool or for some other
reason a well otherwise located on the unit would not be likely to
produce in paying quantities, or topographical conditions are such as to
make the drilling at the location unduly burdensome, or other similar
cause. Whenever an exception is granted, the commission shall take
action as will offset any advantage which the person securing the
exception may have over other owners by reason of the drilling of the
well as an exception;
(d) No drilling unit established by the commission shall be smaller than the
maximum area which can be drained efficiently by one (1) vertical deep well
so as to produce the reasonable maximum recoverable oil or gas in the area,
unless an exception is granted in accordance with administrative regulations
(2)
(3)
promulgated by the commission; and
(e) An order establishing a drilling unit for a vertical deep well may be modified,
altered, extended, amended, or vacated by the commission after notice and
hearing as prescribed above.
Drilling units for horizontal deep wells:
(a) For the prevention of waste and for the protection and enforcement of the
correlative rights of the owners in a pool, the commission shall, after notice
and hearing conducted in accordance with KRS Chapter 13B and with the
administrative regulations of the commission, establish drilling units for
horizontal deep wells. Drilling units shall be based on the information
provided to or requested by the commission;
(b) Each horizontal deep well permitted to be drilled on a drilling unit established
by the commission shall be drilled in accordance with the administrative
regulations promulgated by the commission and any orders of the
commission; and
(c) The establishment of any horizontal deep well unit shall be on terms that are
fair, reasonable, equitable, and which are necessary or proper to protect and
safeguard the respective rights and obligations of the working interest owners
and the royalty owners based on the evidence before the commission.
Pooling of interests in drilling units:
(a) When two (2) or more separately owned tracts are embraced within a drilling
unit, or when there are separately owned interests in all or a part of a drilling
unit, the interested persons may pool their tracts or interests for the
development and operation of the drilling unit. In the absence of voluntary
pooling and upon application of any operator having an interest in the drilling
unit, and after the commission has given notice to all persons reasonably
known to own an interest in the oil or gas in the drilling unit, and after a
hearing conducted in accordance with KRS Chapter 13B, the commission
shall enter an order pooling all tracts or interests in the drilling unit for the
development and operation thereof and for the sharing of production
therefrom. Each pooling order shall be upon terms and conditions which are
just and reasonable;
(b) All operations, including, but not limited to, the commencement, drilling, or
operation of a deep well, upon any portion of a drilling unit for which a
pooling order has been entered, shall be deemed for all purposes the conduct
of those operations upon each separately owned tract in the drilling unit by the
several owners thereof. That portion of the production allocated to a
separately owned tract included in a drilling unit shall, when produced, be
deemed for all purposes to have been actually produced from the tract by a
deep well drilled thereon;
(c) Any pooling order under the provisions of subsection (3) of this section shall
authorize the drilling and operation of a deep well for the production of oil or
gas from the pooled acreage; shall designate the operator to drill and operate
(4)
the deep well; shall prescribe the time and manner in which all owners of
operating interests in the pooled tracts or portions of tracts may elect to
participate therein; shall provide that all reasonable costs and expenses of
drilling, completing, equipping, operating, plugging, and abandoning the deep
well shall be borne, and all production therefrom shared, by all owners of
operating interests in proportion to the acreage in the pooled tracts owned or
under lease to each owner; and shall make provision for payment of all
reasonable costs thereof, including reasonable charge for supervision and for
interest on past due accounts, by all those who elect to participate therein.
Upon the application of any operator having an interest in the drilling unit, the
person or persons selected to drill and operate the deep well shall be
determined by competitive bids;
(d) Upon request, any pooling order shall provide just and equitable alternatives
whereby an owner of an operating interest who does not elect to participate in
the risk and cost of the drilling of a deep well may elect to surrender his
interest or a portion thereof to the participating owners on a reasonable basis
and for a reasonable consideration, which, if not agreed upon, shall be
determined by the commission; or to participate in the drilling of the deep
well on a limited or carried basis on terms and conditions which, if not agreed
upon, shall be determined by the commission to be just and reasonable;
(e) If an operator owning an interest in a pooled drilling unit elects not to
participate in the risk and cost of drilling of a deep well thereon, and another
operator owning an interest therein, shall drill and operate, or pay the costs of
drilling and operating a deep well as provided in the commission's order, then
the operating owner shall be entitled to the share of production from the tracts
or portions thereof accruing to the interest of the nonparticipating owner,
exclusive of any royalty or overriding royalty reserved in any leases,
assignments thereof or agreements relating thereto, of the tracts or portions
thereof, or exclusive of the prevailing royalty of the production attributable to
all unleased tracts or portions thereof, until the market value of the
nonparticipating owner's share of the production, exclusive of any royalty,
overriding royalty or the prevailing royalty of production, equals three (3)
times the share of the costs payable by or charged to the interest of the
nonparticipating owner; and
(f) If a dispute shall arise as to the costs of drilling and operating a deep well, the
commission shall determine and apportion the costs, within ninety (90) days
from the date of written notification to the commission of the existence of
such dispute.
This section shall not apply to wells drilled, deepened, or reopened for the injection
of water, gas, or other fluids into any subsurface formation.
Effective: June 24, 2015
History: Amended 2015 Ky. Acts ch. 21, sec. 16, effective June 24, 2015. -- Amended
2006 Ky. Acts ch. 158, sec. 1, effective July 12, 2006. -- Amended 2000 Ky. Acts ch.
139, sec. 4, effective July 14, 2000. -- Amended 1996 Ky. Acts ch. 318, sec. 343,
effective July 15, 1996. -- Created 1974 Ky. Acts ch. 45, sec. 5.
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