Arkansas Administrative Code › Agency 178 - Arkansas Oil and Gas Commission › Rule 178.00.15-002 - B-43: Establishment of Drilling Units for Gas Production from Conventional Sources of Supply Occurring in Certain Prospective Areas not Covered by Field Rules

Current through Register Vol. 49, No. 6, June, 2024
RULE B-43:
ESTABLISHMENT OF DRILLING UNITS FOR
			 GAS PRODUCTION FROM CONVENTIONAL AND UNCONVENTIONAL SOURCES OF SUPPLY OCCURRING
			 IN CERTAIN PROSPECTIVE AREAS NOT COVERED BY FIELD
			 RULES
(a) For
		  purposes of this rule, unconventional sources of supply shall mean those common
		  sources of supply that are identified as the Fayetteville Shale, the Moorefield
		  Shale, and the Chattanooga Shale Formations, or their stratigraphic shale
		  equivalents, as described in published stratigraphic nomenclature recognized by
		  the Arkansas Geological Survey or the United States Geological
		  Survey.
(b) For purposes of this
		  rule, conventional sources of supply shall mean all common sources of supply
		  that are not defined as unconventional sources of supply in section (a)
		  above.
(c) This rule is applicable
		  to all occurrences of conventional and unconventional sources of supply in
		  Arkansas, Cleburne, Conway, Cross, Faulkner, Independence, Jackson, Lee,
		  Lonoke, Monroe, Phillips, Prairie, St. Francis, Stone, Van Buren, White and
		  Woodruff Counties, Arkansas and shall be called the "section (c) lands". The
		  development of the conventional and unconventional sources of supply within the
		  section (c) lands shall be subject to the provisions of this rule.
(d) This rule is further applicable to all
		  occurrences of unconventional sources of supply in Crawford, Franklin, Johnson,
		  and Pope Counties, Arkansas and shall be called the "section (d) lands". The
		  development of the unconventional sources of supply within the section (d)
		  lands shall be subject to the provisions of this rule. For purposes of this
		  rule, the section (d) lands and the section (c) lands may collectively be
		  referred to as the "covered lands".
(e) All Commission approved Fayetteville
		  Shale and non-Fayetteville Shale fields that are situated within the section
		  (c) lands and that are in existence on the date this rule is adopted
		  (collectively, the "existing fields"), are abolished and the lands heretofore
		  included within the existing fields are included within the section (c) lands
		  governed by this rule. Further, all amendments that added the Fayetteville
		  Shale Formation to previously established fields for conventional sources of
		  supply occurring in the section (d) lands are abolished and continuing
		  development of the Fayetteville Shale and other unconventional sources of
		  supply in these lands shall be governed by the provisions of this rule. All
		  existing individual drilling units however, contained within the abolished
		  fields shall remain intact.
(f) All
		  drilling units established for conventional and unconventional sources of
		  supply within the section (c) lands and all drilling units established for
		  unconventional sources of supply within the section (d) lands shall be
		  comprised of single governmental sections, typically containing an area of
		  approximately 640 acres in size. Each drilling unit shall be characterized as
		  either an "exploratory drilling unit" or an "established drilling unit". An
		  "exploratory drilling unit" shall be defined as any drilling unit that is not
		  an established drilling unit. An "established drilling unit" shall be defined
		  as any drilling unit that contains a well that has been drilled and completed
		  in a conventional or unconventional source of supply (a "subject well"), and
		  for which the operator or other person responsible for the conduct of the
		  drilling operation has filed, with the Commission, all appropriate documents in
		  accordance with General Rule B-5, and been issued a certificate of compliance.
		  Upon the filing of the required well and completion reports for a subject well
		  and the issuance of a certificate of compliance with respect thereto, the
		  exploratory drilling unit upon which the subject well is located and all
		  contiguous governmental sections shall be automatically reclassified as
		  established drilling units.
(g) The
		  filing of an application to integrate separately owned tracts within an
		  exploratory drilling unit, as defined in Section (f) above and as contemplated
		  by A.C.A. § 15-72-302(e), is permissible, provided that one or more
		  persons who collectively own at least an undivided fifty percent (50%) interest
		  in the right to drill and produce oil or gas, or both, from the total acreage
		  assigned to such exploratory drilling unit support the filing of the
		  application. In determining who shall be designated as the operator of the
		  exploratory drilling unit that is being integrated, the Commission shall apply
		  the following criteria:
1) Each integration
		  application shall contain a statement that the applicant has sent written
		  notice of its application to integrate the drilling unit to all working
		  interest owners of record within such drilling unit. This notice shall contain
		  a well proposal and AFE for the initial well and may be sent at the same time
		  the integration application is filed.
2) If any non-applicant working interest
		  owner in the drilling unit owns, or has the written support of one or more
		  working interest owners that own, separately or together, at least a fifty
		  percent (50%) working interest in the drilling unit, such non-applicant working
		  interest owner may (i) object to the applicant being named operator (a "section
		  (g) operator challenge") or (ii) file a competing integration application (a
		  "section (g) competing application") that challenges any aspect of the original
		  integration application for such drilling unit. Any contested matter that is
		  limited to a section (g) operator challenge shall be heard at the Commission
		  hearing that was originally scheduled for such integration application. Any
		  contested matter that involves the filing of a section (g) competing
		  application shall be postponed until the next month's regularly scheduled
		  Commission hearing if postponement is requested by either competing
		  applicant.
3) If a party desiring
		  to be named operator of a drilling unit is supported by a majority-in-interest
		  of the total working interest ownership in the drilling unit (the "majority
		  owner"), the majority owner shall be designated unit operator.
4) In the event two parties desiring to be
		  named operator own, or have the written support of one or more working interest
		  owners that own, exactly, an undivided 50% share of the drilling unit and
		  either a section (g) operator challenge is submitted or a section (g) competing
		  application is filed, operatorship shall be determined by the Commission, based
		  on the factors it deems relevant and the evidence submitted by the parties or
		  as otherwise provided by subsequent rule.
5) If the person designated as operator by
		  the Commission in the adjudication of a section (g) operator challenge or a
		  section (g) competing application does not commence actual drilling operations
		  on the drilling unit within the twelve (12) month period set out in the
		  integration order, such operator shall not be entitled to be designated as
		  operator under the subsequent integration of such drilling unit unless (i) the
		  operator's failure to commence such drilling operations was due to force
		  majeure, or (ii) a majority-in-interest of the total working interest ownership
		  in the drilling unit (excluding such designated operator) support such
		  operator.