805 KAR 1:100. Commission's rules of procedure; spacing of deep well drilling; wildcat wells and pooling of interests.

 

      RELATES TO: KRS 353.651, 353.652

      STATUTORY AUTHORITY: KRS 13A.100, 353.565

      NECESSITY, FUNCTION, AND CONFORMITY: KRS 353.565 requires the Kentucky Oil and Gas Conservation Commission to administer and enforce the provisions of KRS 353.651 and 353.652 by regulating the spacing of deep well drilling, drilling units and pooling of interests.

 

      Section 1. Definitions and Construction. Unless the context otherwise requires, the following words and terms shall have the following meanings when used in these administrative regulations:

      (1) "Department" means the Department of Mines and Minerals as defined in KRS 353.010;

      (2) "Commissioner" means the Commissioner of the Department of Mines and Minerals as defined in KRS 351.010;

      (3) "Director" means the Director of Oil and Gas Conservation as provided in KRS 353.530;

      (4) "Commission" means the Kentucky Oil and Gas Conservation Commission as provided in KRS 353.565;

      (5) "Person" means any natural person, corporation, association, partnership, receiver, governmental agency subject to KRS 353.500 to 353.720, trustee, so-called common-law or statutory trust, guardian, executor, administrator or fiduciary of any kind;

      (6) "Correlative rights" means the reasonable opportunity of each person entitled thereto to recover and receive without waste the oil and gas in and under his tract or tracts, or the equivalent thereof;

      (7) "Oil" means natural crude oil or petroleum and other hydrocarbons, regardless of gravity, which are produced at the well in liquid form by ordinary production methods and which are not the result of condensation of gas after it leaves the underground reservoir;

      (8) "Gas" means all natural gas, including casinghead gas, and all other hydrocarbons not defined above as oil;

      (9) "Pool" means an underground reservoir containing a common accumulation of oil or gas or both. Each productive zone of a general structure which is completely separated from any other zone in the structure, or which for the purpose of KRS 353.500 to 353.720 may be so declared by the department, is covered by the word "pool" as used herein;

      (10) "Field" means the general area which is underlaid or appears to be underlaid by at least one (1) pool; and "field" includes the underground reservoir containing oil or gas or both. The words "field" and "pool" mean the same thing when only one (1) underground reservoir is involved; however, "field" unlike "pool" may relate to two (2) or more pools;

      (11) "Just and equitable share of production" means, as to each person, an amount of oil or gas or both substantially equal to the amount of recoverable oil or gas in that part of a pool underlying his tract or tracts;

      (12) "Well" means a borehole drilled, or proposed to be drilled, for the purpose of producing natural gas or petroleum, or one through which natural gas or petroleum is being produced, or a borehole drilled or proposed to be drilled for the purpose of injecting any water, gas or other fluid therein or one into which any water, gas or other fluid is being injected;

      (13) "Deep well" means any well drilled and completed below the depth of 4,000 feet or, in the case of a well located east of longitude line eighty-four (84) degrees thirty (30) minutes, a well drilled and completed at a depth below 4,000 feet or below the base of the lowest member of the Devonian Brown Shale, whichever is deeper;

      (14) "Operator" means any owner of the right to develop, operate and produce oil and gas from a pool and to appropriate the oil and gas produced therefrom, either for himself or for himself and others; in the event that there is no oil and gas lease in existence with respect to the tract in question, the owner of the oil and gas rights therein shall be considered as "operator" to the extent of seven-eighths (7/8) of the oil and gas in that portion of the pool underlying the tract owned by such owner, and as "royalty owner" as to one-eighth (1/8) interest in such oil and gas; and in the event the oil is owned separately from the gas, the owner of the right to develop, operate and produce the substance being produced or sought to be produced from the pool shall be considered as "operator" as to such pool;

      (15) "Royalty owner" means any owner of oil and gas in place, or oil and gas rights, to the extent that such owner is not an operator as defined in subsection (14) of this section;

      (16) "Drilling unit" generally means the maximum area in a pool which may be drained efficiently by one (1) well so as to produce the reasonable maximum recoverable oil or gas in such area. Where the regulatory authority has provided rules for the establishment of a drilling unit and an operator, proceeding within the framework of the rules so prescribed, has taken the action necessary to have a specified area established for production from a well, such area shall be a drilling unit.

      (17) The singular shall include the plural, and the masculine gender shall include the feminine and neuter.

 

      Section 2. Rules of Procedure. (1) Rules, administrative regulations, and orders of the commission of general, or statewide, effect shall be submitted, published, and reviewed in accordance with KRS Chapter 13A. Hearings on such rules, administrative regulations, or orders shall be held, in accordance with KRS Chapter 13A.

      (2) Rules, administrative regulations, or orders other than those of general, or statewide, effect, including but not limited to orders establishing drilling units, pool or field-wide units, or special field rules, shall be adopted only after notice and hearing in accordance with these rules and consistently with provisions of KRS 353.500 to 353.720.

      (3) All hearings before the commission shall be open to the public. Hearings shall be called by the commission for the purpose of taking an action in respect to any matter within its jurisdiction upon its own motion or upon the request or application of any interested party. Applications or requests for hearing (except as otherwise provided herein) shall be written and may be in the form of a letter, shall be brief and concise, shall state in general terms the matter upon which action of the commission is desired, the interest of the applicant, or person making the request, the action sought, and the reasons therefor.

      (4) The director shall maintain a docket book, and all applications or requests for hearings and all hearings called on motion of the commission shall be docketed and given a docket number, and a file carrying such number shall be opened by the director. All applications for hearing, a copy of the notice of hearing, together with proof of its publication, the originals of all instruments, documents, plats, and other data filed in connection with the hearing or the subject matter thereof, a transcript of all evidence taken at the hearing, the originals or copies of all correspondence with the commission concerning such hearing or the subject matter thereof shall be stamped with the docket number of the hearing and placed and kept in the file carrying such number. The docket book and all files pertaining to hearings shall be open to the public at all reasonable times but shall not be removed from the custody of the commission or its employees. Copies of all such instruments, documents, plats, other data, and correspondence shall be furnished to any interested party upon payment of the cost of making such copies. All notices of hearing shall refer to the docket number thereof. Copies of applications for hearing shall be furnished by the director to any person upon request.

      (5) All hearings shall be held in Lexington, Kentucky, unless otherwise ordered.

      (6) Upon receipt of a proper request or application for hearing, the commission shall call a hearing within thirty (30) days, and after such hearing and with all convenient speed, and in any event within thirty (30) days after the conclusion of the hearing, shall take action with regard to the subject matter thereof.

      (7) Notice of all hearings shall be given by publication, as authorized by KRS 353.680, in accordance with KRS Chapter 424. When required by KRS 353.651 or 353.652 to give personal notice to all persons reasonably known to own an interest in the oil and gas in an area to be unitized or for which special field rules are proposed, the commission shall give such notice by registered mail unless a person has given a mailing address as provided in subsection (8) of this section.

      (8) The director shall maintain a general mailing list and shall place thereon the names and addresses of all persons, firms, or corporations who make request in writing to be included on such list. Each person, firm, and corporation on such mailing list shall be mailed by first class mail at the address listed a copy of all notices and orders issued by the commission. The director shall maintain a mailing list for each field in the state containing deep wells and shall place on each such list the names and addresses of all persons, firms, or corporations who make request in writing to be included thereon. Each person included on the mailing list of any field shall be mailed by first class mail at the address listed a copy of all notices and orders issued by the commission as to such field. The failure to mail a copy of a notice to any such person, firm, or corporation shall not affect the validity of any hearing held pursuant to the notice published in accordance with subsection (7) of this section or any rule, administrative regulation, or order issued pursuant to such hearing, unless such person is one reasonably known to own an interest in the oil and gas in an area to be unitized and for which special field rules are proposed and is thus entitled to personal notice by KRS 353.651 or 353.652. When a person entitled to personal notice of a hearing has requested to be placed on either the general or a field mailing list, a notice mailed by first class mail to the address given shall constitute compliance with KRS 353.651 or 353.652, as the case may be.

      (9) Notices of all hearings shall state the time and place of the hearing, the name of the party requesting the hearing, the nature thereof, the action sought, and the docket number.

      (10) No notice by personal service shall be necessary except as required by KRS 353.651 or 353.652 or by special order of the commission entered on its minutes.

      (11) After notice of a hearing is once given, the hearing may be continued to another day and from day to day by order of the commission entered on the day fixed for the hearing.

      (12) The commission may adopt an emergency rule, administrative regulation, or order of general, or statewide, effect without notice and hearing upon a finding of necessity to prevent waste, prevent irreparable injury, or other cause and issuance by the Governor of an executive order providing that it shall become effective upon submission to the Legislative Research Commission in accordance with KRS Chapter 13A. Such a rule, administrative regulation, or order shall provide that it will remain in force no longer than 120 days from the date of filing. If the commission desires to make such a rule, administrative regulation, or order permanent, it shall proceed as required by KRS Chapter 13A.

      (13) The commission may adopt emergency rules, administrative regulations, or orders other than those of general, or statewide, effect without notice and hearing upon a finding of necessity to prevent waste, irreparable injury, or other cause. Any such rule, administrative regulation, or order shall provide that it will remain in force no longer than forty-five (45) days from its effective date. Immediately upon entering such a rule, administrative regulation, or order, the commission shall call a hearing on the subject matter thereof, and such hearing shall be held prior to the expiration of the rule, administrative regulation, or order.

      (14) All interested parties shall have the right to be heard at all hearings and to present witnesses and other evidence whether or not represented by legal counsel or technical assistance. The commission may require any protest made to be reduced to writing and filed.

      (15) In any proceeding before the commission subpoenas may be issued requiring the attendance of witnesses and the production of books, records, maps, charts, diagrams, and other pertinent documents material to the matters lawfully before the commission at the designated place of hearing.

      (16) Hearings shall be opened with the reading of the notice or notices. The request for hearing, the notice or notices thereof, and proof of the due publication of the notice or notices of the hearing shall be made a part of the record of the hearing.

      (17) All witnesses shall be required to testify under oath, administered by a member of the commission, to tell the truth, the whole truth, and nothing but the truth, and all witnesses shall be subject, to direct and cross-examination by any member of the commission or by any interested party or by his representative.

      (18) In all noncontested matters or in contested matters where those parties who appear in person at the hearing agree thereto, sworn affidavits may be received in evidence. The commission reserves the right to reject any and all such affidavits and to require the affiant to appear in person.

      (19) The materiality, relevancy, and competency of any testimony or other evidence shall be subject to challenge by any party to the hearing or by any member of the commission. When so interposed, such objections shall be acted upon by the chairman or by the acting chairman, his ruling thereon being subject to change by a majority vote of the commission members then sitting.

      (20) All persons presenting exhibits shall file a total of eight (8) copies with the reporter. All suggested forms of orders shall be presented in quintuplicate. These requirements may be waived by the commission.

      (21) The commission shall from time to time by order entered on its minutes appoint a competent shorthand reporter. All hearings shall be recorded by a reporter appointed by the commission and sworn faithfully to discharge his duties in accordance with law and the direction of the commission. The reporter shall transcribe hearings only upon order of the commission. When such an order has been entered, transcripts shall be available for inspection at the office of the commission in Lexington, Kentucky and transcripts shall be available for purchase by interested parties from the reporter at rates prescribed for transcripts of evidence in circuit court proceedings in Kentucky, whether ordered transcribed by the commission or not.

      (22) Regular monthly meetings shall be held by the commission on the first Friday of each month. Where circumstances permit, the commission, after sounding the docket, shall first call up and dispose of all noncontested matters and motions for continuance.

 

      Section 3. Permitting and Spacing of Wildcat Wells. (1) "Wildcat well" means either a deep well drilled with the intent of discovering and producing hydrocarbons from a formation or formations not previously productive of oil or gas from a well within 25,000 feet of its location, or a well drilled under such proven geological conditions that, even though located less than 25,000 feet from the nearest deep well previously productive of oil or gas, will not, if completed successfully, produce from a previously productive pool. Proof supporting permitting of a well located less than 25,000 feet from the nearest deep well previously productive of oil or gas should be submitted to the director with the permit application; the director may, however, require additional proof. If a deep well encounters a formation or pool as to which it is not a wildcat well, it may not be produced unless it is otherwise in compliance with the permit requirements and spacing regulations for other wells in that formation or pool. The director may, in his discretion, grant permission to test previously producing formations encountered in the drilling of a wildcat well and may fix such conditions as, in his judgment, will protect the formation or formations tested and the rights of the operator of any well or wells producing therefrom. If the director grants permission for such testing, he shall inform the other members of the commission in writing of his action.

      (2) Within ninety (90) days following the completion of testing by surface production test of a well shown to be capable of production of oil or gas, or within ninety (90) days of completion as a producible well, whichever occurs first, the operator thereof shall file with the commission a plat showing a proposed unit for the well conforming to the rules provided in Section 4(1) of this administrative regulation.

      (3) No additional permits will be issued for the pool until a proposed unit plat is filed, and when the plat is filed for a wildcat well or any subsequent wells, no permits shall be issued which will violate the integrity of the proposed unit or the spacing regulations established by Section 4(2) to (4) of this administrative regulation.

 

      Section 4. Spacing of Deep Oil and Gas Wells. (1) If a permit is requested for a deep gas well other than a wildcat well or a well drilled on a unit previously formed by the commission, the application shall include a plat showing a proposed unit comprising a square with sides of 3,500 feet if the well is to be drilled to a depth less than 7,000 feet and with sides of 5,000 feet if the well is to be drilled to a depth of 7,000 feet or more. If the permit is for a deep oil well, the proposed unit plat shall comprise a square with sides of 1,750 feet if the well is to be drilled to a depth of less than 7,000 feet and 2,500 feet if the well is to be drilled to a depth of 7,000 feet or more. The first proposed unit for a pool shall be delineated so that the line forming one (1) side of the square is a base line running from south to north parallel to the Kentucky Coordinate System. All other north-south lines for that proposed unit and any additional units for the same pool shall be drawn parallel to the base line.

      (2) Except as provided in subsections (4) and (5) of this section no deep gas well drilled to a depth less than 7,000 feet shall be located within 1,072 feet of the boundary of the proposed unit, and no deep gas well drilled to a depth of 7,000 feet or more shall be drilled within 1,532 feet of the boundary of the proposed unit.

      (3) Except as provided in subsections (4) and (5) of this section no deep oil well drilled to a depth less than 7,000 feet shall be located within 536 feet of the boundary of the proposed unit, and no deep oil well drilled to a depth of 7,000 feet or more shall be drilled within 766 feet of the boundary of the proposed unit.

      (4)(a) Upon receiving evidence showing a necessity therefor, the director may in his discretion grant permits with the following limitation on well location:

      1. A deep oil well at a depth less than 7,000 feet may be located no closer than 438 feet to the boundary of the proposed unit.

      2. A deep oil well at a depth of 7,000 feet or more may be located no closer than 625 feet to the boundary of the proposed unit.

      3. A deep gas well at a depth of less than 7,000 feet may be located no closer than 875 feet to the boundary of the proposed unit.

      4. A deep gas well at a depth of 7,000 feet or more may be located no closer than 1,250 feet to the boundary of the proposed unit.

      (b) The director shall not grant a permit under the provisions of subsection (4)(a) of this section except in the presence of evidence which reasonably substantiates that the proposed location is justified by either topographical or geological conditions. Upon granting such a permit, the director shall inform the other members of the commission of his action in writing.

      (c) Prior to the time a certificate of compliance is granted and a well is produced other than for the purpose of testing, the director shall determine whether a hearing is necessary for the purpose of taking any special action that may be required to offset any advantage resulting from the location of the well according to the permit and thus protecting correlative rights of others with interests in the pool. If it is determined that special action is necessary, the director shall call a hearing.

      (5)(a) Exception locations varying from the limitations provided in subsections (2) to (4) of this section may be granted if the commission determines, after notice and hearing, and the facts clearly support the determination, that a proposed unit or a previously formed unit is partly outside the pool, or, for some other reason, a well located in accordance with the statewide rules could not reasonably be expected to be productive or topographical conditions are such as to make the drilling at such a location unduly burdensome. An application for an exception location shall be accompanied by a plat drawn to the scale of not smaller than 1:12,000 accurately showing to scale the proposed location of the well according to the Carter Coordinate System and all other deep wells within two (2) locations of the proposed location. The application shall be verified by some person acquainted with the facts.

      (b) When an exception location is sought on the ground of topographical conditions, it must be shown that the commission can effectively offset any advantage to the applicant accruing from such variation.

      (c) Whenever an exception is granted, the commission shall take such concurrent action as may be required to offset any advantage to the applicant and thus to protect the correlative rights of others with interests in the pool. If the proposed unit or already formed unit is of less acreage than that prescribed by the applicable spacing rule for a regular unit, whether proposed or formed according to special field orders for the pool in question, such special unit shall be allowed to produce only in the proportion that the acreage content of such special unit bears to the acreage content of a regular unit.

      (6) No portion of a proposed unit, or unit formed by order of the commission upon which a well is located shall be attributed, in whole or in part, to any other drilling or producible well in the same pool.

      (7)(a) Unless authorization to intentionally deviate and directionally drill is granted by the commission, every well shall be drilled in such a manner that at any measured depth the actual or apparent location of the well bore shall be within a circle whose center is the surface location and whose radius is equal to the measured depth multiplied by a factor 0.087156. The actual or apparent resultant deviation of the well bore from the vertical shall not be in excess of five (5) degrees at any measured depth. In the event a survey indicates that the well bore is outside the above circle at any measured depth, the deviation must be corrected so that drilling will be restored to the specified limit. Upon completion of a survey showing or in the presence of knowledge giving rise to a reasonable belief that a well may be deviated beyond the above prescribed tolerance, the operator shall inform the director. After an operator has commenced drilling a well and desires to change the bottom hole location by directionally controlling and intentionally deflecting the well from the vertical, whether more or less than five (5) degrees, unless done to straighten the hole or to sidetrack junk in the hole or because of other mechanical difficulties, he shall first make application for an amended location showing by attached plat the amended projected bottom hole objective and secure an amended permit to drill before commencing such operations. The amended bottom hole location or objective shall comply with all minimum distances from unit lines as prescribed by all statewide orders or applicable field orders.

      (b) In the event a well is to be drilled at a distance from a unit line where such distance is less than the apparent resultant lateral deviation, as determined by multiplying the proposed total depth of the well by the factor 0.087156, a permit to drill will be issued with the understanding that the operator will be required to furnish the commission with inclination or directional survey data as proof that the well will be completed in compliance with the provisions of this order before a certificate of compliance is issued. An inclination survey shall be made on all wells drilled with the first shot point at a depth not greater than that of the surface casing seat and succeeding shot points not more than 1,000 feet apart. Inclination surveys conforming to these requirements may be made either during the normal course of drilling or after the well has reached total depth. Such survey data shall be certified by the operator's representative or drilling contractor and shall indicate the resultant lateral deviation as the sum of the calculated lateral displacement determined between each inclination survey point, assuming that all such displacement occurs in the direction of the nearest unit line. If a directional survey determining the bottom of the hole is filed with the commission upon completion of the well, it shall not be necessary to furnish the inclination survey data.

      (c) The commission may, at its discretion, require an operator to conduct inclination or directional surveys under conditions other than those above specified.

 

      Section 5. Certificate of Compliance. (1) Prior to production from a deep well, other than test production for a period not in excess of fifteen (15) days, the operator thereof shall apply for and obtain a certificate of compliance from the director. The application, which must be verified, shall disclose information adequate to satisfy the director that:

      (a) All working interests in the drilling unit or proposed unit are identically owned, or have been pooled by voluntary agreement or order of the commission, or that the well may be produced without violating the correlative rights of any owner in the unit; and

      (b) The operator in the location, drilling, and completion of the well has complied with the conservation laws of the Commonwealth and the rules and administrative regulations established by the Director of the Division of Oil and Gas and the commission applicable thereto.

      (2) A certificate of compliance for a well for which a unit has not been established may be conditioned by the director by limiting its duration to a period of not more than 180 days unless a unit has been established and separately owned tracts have been pooled voluntarily or by order of the commission.

 

      Section 6. Application for Special Field Orders. (1) When a new pool is penetrated and a well is proven by surface production test to be capable of producing oil or gas in paying quantities, the operator thereof shall, within 120 days after the test is completed or after the well is completed as a producible well, whichever occurs first, or within sixty (60) days of the completion of a confirmation well in the pool, whether drilled by him or another operator, apply for a hearing to issue special field orders governing the spacing of wells and establishment of units in the pool.

      (2) An application for special field orders shall contain a plat showing all wells in the pool affected and the unit or units proposed for the pool.

      (3) If upon testing a discovery well an operator believes that the confirmation well should not or cannot reasonably be located in accordance with the statewide spacing rules, he shall proceed by applying for a hearing to obtain an exception location.

 

      Section 7. Pooling of Interests in Units Established by Order of the Commission. (1) An applicant for a hearing to issue special field orders for a new pool or otherwise to establish a drilling unit, or any interested party, may request that the commission pool the interests of the owners and the royalty owners in any unit or units established as a result of the hearing. A request to pool separately owned tracts concurrently with the establishment of a unit or units must be submitted with the application for the hearing, or sufficiently in advance to include notice of the request in the notices of hearing. When in its judgment it is necessary, the commission may on its own motion include the pooling of separately owned tracts in the notice of a hearing to establish a unit or units.

      (2) If separately owned tracts are not pooled as a result of the hearing to establish a unit or units, any interested party may request pooling at any subsequent time; provided, however, that if the owners and royalty owners have not agreed to pool their interests within 120 days of the issuance of a certificate of compliance, the operator of the well shall apply for a hearing to issue a pooling order.

 

      Section 8. Reformation of Drilling Units. (1) Drilling units formed by the commission may be reformed upon notice and hearing as required by KRS 353.651, to exclude previously included acreage or to include new acreage, or both.

      (2) A request for a hearing to reform drilling units must specify that there is new geological or geophysical data which will form a basis for the requested reformation and generally describe the source and nature of the data. Units will not be reformed in the absence of such data. Generally, "new data" must be data not in existence at the time of the hearing resulting in the formation of the units proposed for reformation. Reinterpretation of data existing at the time of the prior hearing will not serve as a basis for reformation. (1 Ky.R. 1403; Am. 2 Ky.R. 155; eff. 8-13-75.)