2014 Oklahoma Statutes
Title 52. Oil and Gas
§52-87.9. Horizontal well unitization for shale reservoirs – Prerequisites – Size - Ownership – Development – Order of the Commission – Consent – Notice – Pooling – Effect – Payment – Commissioners of the Land Office – Retained jurisdiction.

A. Horizontal Well Unitization for Shale Reservoirs.

Under limited circumstances and conditions contained in this section, the Corporation Commission is authorized to unitize a shale reservoir for the drilling of horizontal wells to the end that a greater ultimate recovery of oil and gas may be had therefrom, waste is prevented, and the correlative rights of the owners are protected. Unless and until a unit created pursuant to this section is effective, nothing in this section shall prohibit the drilling of a horizontal well within a drilling and spacing unit created pursuant to Section 87.1 of Title 52 of the Oklahoma Statutes.

B. Prerequisites for Unitization.

Upon the filing of an appropriate application, and after notice and hearing, the Commission shall determine if:

1. The proposed unitization of the shale reservoir is reasonably calculated to increase the ultimate recovery of oil and gas from the shale reservoir through the use of horizontal well technology to drill one or more horizontal wells in the unit;

2. The use of horizontal well technology to drill the horizontal well or wells in the shale reservoir is feasible, will prevent waste, will protect correlative rights and will with reasonable probability result in the increased recovery of substantially more oil and gas from the shale reservoir within the unit than would otherwise be recovered;

3. The estimated additional cost, if any, of conducting the horizontal well operations is not anticipated to exceed the value of the additional oil and gas to be recovered; and

4. The unitization and the use of horizontal well technology to drill one or more horizontal wells is for the common good and will result in the general advantage of the owners of the oil and gas rights within the unit.

Upon making these findings, the Commission may enter an order creating the unit and providing for the unitized operation of the shale reservoir described in the order, all upon terms and conditions as may be shown by the evidence to be fair, reasonable, equitable and which are necessary or proper to protect and safeguard the respective rights and obligations of the several persons affected, including royalty owners, owners of overriding royalties and others, as well as the lessees. The application shall set forth a description of the proposed unit with a map or plat thereof attached, shall allege the existence of the facts required to be found by the Commission as provided in this subsection and shall have attached thereto a recommended plan of development which is applicable to the proposed unit and which is fair, reasonable and equitable.

C. Size of the Unit.

Each unit shall be two governmental sections. However, the Commission may expand the size of the unit by including additional governmental sections up to a maximum unit size of four governmental sections, if for good cause shown the Commission finds the expansion of the unit size beyond two governmental sections is necessary to prevent waste, to protect correlative rights and will result in the increased recovery of substantially more oil and gas from the shale reservoir than would otherwise be recovered based upon, but not necessarily limited to:

1. Geological features existing within the proposed unit;

2. The proposed location or orientation of the horizontal wells;

3. The length of the laterals of the proposed horizontal wells;

4. The proposed use of multilateral wells; or

5. Any combination thereof.

D. Ownership of Oil and Gas Rights within the Unit.

Where there are, or may thereafter be, two or more separately owned tracts within the unit, each owner of oil and gas rights within the unit shall own an interest in the unit of the same character as the ownership of the owner in the separately owned tract. From and after the effective date of the order of the Commission creating the unit and subject to the provisions of any pooling order covering the unit, the interest of each owner in the unit shall be defined as the percentage of interest owned in each separate tract by the owner, multiplied by the proportion that the acreage in each separately owned tract bears to the entire acreage of the unit. The costs incurred in connection with and the production and proceeds from the wells in the unit shall be allocated to each separate tract in the unit and shall be borne or shared by the owners in each separate tract based upon and determined by the interest of each owner in the tract. However, if a well or wells already exist within the area of the proposed unit which are producing or have produced or appear to be productive from the shale reservoir being unitized, the Commission may adjust the sharing of future costs incurred in connection with and future production and proceeds from any existing well or any subsequent well in the proposed unit in any manner deemed necessary by the Commission in order to protect the correlative rights of the owners within the proposed unit, including providing for the sharing of future costs incurred in connection with and future production and proceeds from any existing well or any subsequent well in a manner different from any other well in the unit so long as the various methods of sharing future costs, production and proceeds from the existing and subsequent wells in the proposed unit prevents waste and protects the correlative rights of all the affected owners. For the purpose of this section, any owner or owners of oil and gas rights in and under an unleased tract of land within the unit, unless the owner has relinquished the drilling rights or working interest of the owner in the applicable shale reservoir in the tract of land under a pooling order entered by the Commission which order remains in effect, 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 one-eighth (1/8) interest therein.

E. The Plan of Development.

The application shall include a proposed plan of development. Based upon the facts and conditions found to exist with respect to a proposed unit, the Commission shall determine the necessary terms, provisions, conditions and requirements to be included in the plan of development for the unit. If a well or wells already exist within the area of the proposed unit which are producing or have produced or appear to be productive from the shale reservoir being unitized, the plan of development shall also include:

1. Any adjustments to the sharing of future costs incurred in connection with future development and production, and the sharing of proceeds, from any existing well or any subsequent well which the Commission determines to be necessary in order to be fair, reasonable and equitable, and to protect the correlative rights of the owners, considering the existing development in and the prior and anticipated future production from the shale reservoir within the proposed unit; and

2. The procedure and basis upon which existing wells, equipment and other properties of the several lessees within the unit area are to be taken over and used for unit operations, including the method of arriving at the compensation therefor, or of otherwise proportionately equalizing or adjusting the investment of the several lessees in the project as of the effective date of unit operation.

F. Order of the Commission.

The order of the Commission creating the unit shall:

1. Designate the size and shape of the unit;

2. Set forth the drilling pattern and setbacks for the unit, including the permitted well location tolerances for the permitted wells within the unit;

3. Approve and adopt the plan of development for the unit, with a copy thereof attached to the order;

4. Designate the unit operator; and

5. Provide for the conditions upon which the unit, and the order creating the unit, shall terminate.

G. Consent by Owners.

No order of the Commission creating a unit pursuant to this section shall become effective unless and until the proposed unitization has been consented to in writing, and the written consent submitted to the Commission, by lessees of record of not less than sixty-three percent (63%) of the working interest in the shale reservoir in the area to be included in the unit and by owners of record of not less than sixty-three percent (63%), exclusive of any royalty interest owned by any lessee or by any subsidiary of any lessee, of the one-eighth (1/8) royalty interest in the shale reservoir in the area to be included in the unit in an express writing separate from the oil and gas lease. The Commission shall make a finding in the order creating the unit as to whether the requisite consent has been obtained. Where the requisite consent has not been obtained at the time the order creating the unit is entered, the Commission shall, upon application and notice, hold any additional and supplemental hearings as may be requested or required to determine if and when the requisite consent has been obtained and the date the unitization will become effective. In the event lessees and royalty owners, or either, owning the required percentage interest in and to the unit area have not so consented to the unitization within a period of six (6) months from and after the date on which the order creating the unit is entered, the order creating the unit shall cease to be of further force and effect and shall be revoked by the Commission.

H. Notice.

The application for the creation of a horizontal well unitization for a shale reservoir under this section, and the notice of hearing on the application, shall be served no less than fifteen (15) days prior to the date of the hearing, by regular mail, upon each person or governmental entity having the right to share in production from the proposed unit covered by the application, as well as other persons or governmental entities required by Commission rules. Any person aggrieved by any order of the Commission made pursuant to this section may appeal therefrom to the Supreme Court of the State of Oklahoma upon the same conditions, within the same time and in the same manner as is provided for in Title 52 of the Oklahoma Statutes, for the taking of appeals from the orders of the Commission made thereunder.

I. Pooling of the Unit.

From and after the effective date of an order creating a unit pursuant to this section and subject to the provisions of the order in regard to the matters to be found by the Commission in the creation of the unit and the provisions of the applicable plan of development, an owner of the right to drill for and produce oil or gas from the unit may request the Commission to pool the oil and gas interests of the owners in the unit on a unitwide basis pursuant to the provisions of subsection (e) of Section 87.1 of Title 52 of the Oklahoma Statutes in regard to the development of the unit involving a horizontal well or wells.

J. Effect on Existing Spacing Units and Pooling Orders.

From and after the effective date of an order creating a unit pursuant to this section, the operation of any well producing from the shale reservoir within the unit defined in the order by persons other than the unit operator, or except in the manner and to the extent provided in the order shall be unlawful and is hereby prohibited. Once the order of the Commission creating a unit pursuant to this section becomes effective, the unit so created shall supersede any drilling and spacing unit previously formed by the Commission pursuant to Section 87.1 of Title 52 of the Oklahoma Statutes for the same shale reservoir within the area of the new unit. Any pooling order which was entered by the Commission pursuant to subsection (e) of Section 87.1 of Title 52 of the Oklahoma Statutes covering any drilling and spacing unit superseded by a unit created pursuant to this section and which was in effect at the time of the creation of the unit shall remain in full force and effect as to any oil and gas interests in the shale reservoir which were relinquished and transferred by operation of law under the pooling order. However, further development of the shale reservoir in the area of the unit created pursuant to this section shall not be subject to any of the other provisions of any prior pooling order, but shall be governed by and pursuant to the order creating the unit, including the applicable plan of development, and any subsequent pooling order covering the unit.

K. Payment of Proceeds.

Units created pursuant to this section shall be subject to the terms and provision of the PRSA.

L. The Commissioners of the Land Office.

The Commissioners of the Land Office, or other proper board or officer of the state having the control and management of state land, and the proper board or officer of any political, municipal, or other subdivision or agency of the state, are hereby authorized and shall have the power on behalf of the state or of any political, municipal, or other subdivision or agency thereof, with respect to land or oil and gas rights subject to the control and management of the respective body, board, or officer, to consent to or participate in any unitization adopted pursuant to the 2011 Shale Reservoir Development Act.

M. Retained Jurisdiction.

Upon the creation of a unit pursuant to this section, and approval of the plan of development in connection therewith, the Commission shall retain jurisdiction over the unit and the plan of development. The retained jurisdiction of the Commission set forth herein shall neither preclude nor impair the right of any affected party to obtain through the district courts of this state any remedy or relief available at law or in equity for injuries caused by any action or inaction of the applicant, operator or any other affected party.

Added by Laws 2011, c. 54, § 5, emerg. eff. April 13, 2011.