Oil and gas regulations change often at the federal and state level. The purpose of these regulations is to manage how the industry handles certain issues like exploration, spills, permitting, and other processes. The oil and gas regulations in Texas are put forth by the Railroad Commission of Texas (RRC).
Landmen are expected to have extensive knowledge of the laws that govern the oil and gas industry. Essentially, when it comes to oil and gas regulations, they know what works and what doesn’t. However, they often have to find ways to work around or within existing regulations in a way that doesn’t negatively impact industry businesses. Some of the more common problems they face with regulations include the following:
Spacing Regulations
The RRC regulates the way oil companies space their wells to prevent wasting natural resources. They also regulate spacing to protect owners’ rights. The regulations are as follows:
- The minimum “lease line” between wells is 1,200 feet. This means a new well cannot be placed within 1,200 feet of a previously placed well on the same tract of land. However, this rule does not apply to wells that are not on the same lease or are producing from different oil fields.
- The minimum lease line between wells and property lines must be 467 feet or more. This prevents multiple oil and gas companies from placing wells on each other’s property and from overdrawing from the same oil field.
- The regulations also require that wells be drilled as vertically as possible. This requirement can create a problem because it’s not always feasible to drill a truly vertical well. When drilling is not monitored carefully, it can lead to side tracking or other deviations from the path. The regulations now require any new well to report drilling paths throughout the drilling process. This “inclination” survey shows any deviations in the wellbore. Additional permits may be required for intentional deviations if vertical drilling is not possible.
Density and Proration Rules
The RRC also controls the placement of wells with density and proration regulations. Like spacing regulations, the density regulations are also meant to prevent wells from being clustered and drawing too much oil from a common reservoir. To obtain a drilling permit, wells must be placed on a required minimum amount of acreage. Once the well is placed, proration regulations kick in to limit the amount of oil that can be produced from the well.
For this reason, it’s important for landmen to be familiar with density and proration regulations so they acquire the correct amount of acreage for a well. The RRC uses a complex formula to calculate the “allowable” amount of acreage and product. Generally speaking, the formula is based on a combination of distance, marker demand and stability, drilling efficiency, and direction of the well.
Permitting and Completion
Finally, the RRC regulates plugging procedures and the process through which companies obtain drilling permits. The RRC monitors compliance with spacing, density, and proration units. A drilling permit will not be issued to a company until the RRC is sure all regulations are met. Luckily, the RRC provides guidance to landmen with step-by-step instructions on obtaining permits. The walkthrough provides ample information on various policies and permitting procedures. It’s also helpful for Landmen in that it outlines distance and acreage surveys and identifies situations where there may be an exception to the rule.
Once the well is permitted, and subsequently completed, the RRC requires additional reports. Landmen are asked to fill out completion report forms which include well depths, test results, and production potential. The RRC uses this information to assess safety and environmental factors that may lead to further regulations in the future.
The RRC also handles any cases of protested permits or other complaints. There are a variety of situations where landmen may be able to obtain exceptions to the rules. Sometimes geology or surface conditions may limit the distance between wells. Other times, spacing violations occur unintentionally. The margin of error when drilling is small, and it doesn’t take much to go off course. If the RRC finds a spacing violation is unavoidable, it may provide landmen with an exception permit.
Penalties for non-compliance can result in major fines or even an order from the Commission to plug the well.
Knowing the changing rules enacted by the RRC each year and how to stay within regulations is critical for the successful landman.
