SUMMARY Why d y does NM h have an n Oil & & Gas - PowerPoint PPT Presentation

SUMMARY Why d y does NM h have an n Oil & & Gas Commission a and nd R Rul ules? • Cle leanup a and stre reamli line exist sting ru rule les. s. (Desi signer D r Dri riven) • Facil ilit itat ate d diagonal nal horizont ntal al p projects ( (Trans nsverse). • Red educe h e heel eel a and toe s e setbacks. • Elimi minate allo llowable les. • Incre rease se f fle lexi xibi bili lity. • 2

INTRODUCTION TO NM REGULATORY FRAMEWORK Why do we have Oil and Gas Commissions? ~ Initially to address the “Rule of Capture” 3

RULE OF CAPTURE 4

INTERSTATE OIL COMPACT COMMISSION - Forme med in 1935 to em empo power mem member s states c collectively t to s set pr production quotas us using ng sup upply & & demand d data ta f fur urni nished by f y federal g government - Okla lahoma, Texas, s, New Mexico, I , Illi llinois, C s, Colo lora rado, K , Kansas i s initial membe bers a s and 24 ad addit itional states h have s sin ince jo join ined - Purpos ose of com of compact to con o conserve oi oil and g gas by t the he p prevention of of physical w waste th thereof from a any y caus use 5

NMAC STATUTORY AUTHORITY 19 19.15 15.2.3 St Stat atutory Authori hority: 19.15 19 15.2 NMAC AC is is ado adopt pted pursuant to to the he Oi Oil and nd Ga Gas Ac Act, which ch grant nts th the oil il conse servat atio ion di divisio ision jurisdic isdictio ion and nd au authorit ity ove over all ll mat matters re rela lating to to the he conse servat atio ion of oil il and nd gas, as, the he pr preventio ion of wast aste of oil il an and ga gas and nd of po potash ash beca cause of oil il and nd ga gas operat atio ions, s, the he protectio pr ion of corre orrela lative ri right hts and nd the he dispo posit sitio ion of waste tes re resulting fro rom oil il and nd ga gas operat atio ions 6

CORRELATIVE RIGHTS & WASTE Cor orrelative rights: the op opportunity affor orded, as f s far a as i s it i is p s practicable to o do so, o so, to t o the • own wner of of each p prop operty i in a poo ool t to o prod oduce wi without w wast ste t the own wner’s j just st a and eq equitabl able e shar are e of t the e oil or g gas as in t the p e pool, bei being an an am amount, so f far ar as as can an be be prac actical ally deter ermined ed, an and so far ar as as can an be be prac acticabl bly o obt btai ained w without w was aste, e, substa tanti tially i in th the proporti tion th that t th the quantity ty o of f recoverable o oil o or gas under th the property b bears t s to t o the t total recoverable oi oil or or g gas s in t the p poo ool, a and f for or t the p purpose to u o use se the o own wner’s just st and equitable sh share of of t the r rese servoir e energy. Wast ste: 1 1) underground ( (rese servoir) wast ste: t the inefficient, excess ssive or or improper u use se or or • dissi ssipation of of the r rese servoir energy i including gas s energy and w water d drive, of of a a poo ool, a and the lo locating, s spa pacing, d drilli lling, e equi uipping, o ope perating o or pr producing o of a well ll or wells lls in n a manner to o reduce or or tend t to o reduce t the total q quantity of of oi oil or or gas s ultimately recovered from a a pool, a and d the inefficient u unde dergr ground s d storage ge of ga gas. 2) su surface wast ste: the unnecessary or or excessi ssive su surface loss oss or or dest struction wi without beneficial u use se. 7

DEFINITIONS Pool: a an n und underground nd reservoir c cont ntaini ning a a common a accumulation o of o oil o or gas. • Spacing uni unit: th the a area a allocated to a a well und under a a well s spacing o order o or rul ule. • Prorati tion n uni unit: th the area i in n a pool th that can b n be e effectively a and nd e efficiently y draine ned by y • one w e wel ell as deter ermined ed by t the d e division o or comm mmission; t the e area ea a assigned t to a an indivi vidual well f ll for r the purpose ses o s of allo llocating allo llowable le p production p pursuant t to proratio ioni ning ng or order f for or t the he p pool ool. Allo llowabl ble production: n : numbe ber r of barre rrels o ls of oil l or r cubi bic f feet o of gas t the divisi sion • author orizes t to b o be p prod oduced fr from om an alloc ocated pool ool. Gas-oil r ratio: the r e ratio o of t the c e casinghead g gas pr produced i in standard c cubic f fee eet t to t the e • num number o of barrels of oil conc ncurrently p y produc uced d dur uring ng any y sta tated p period. 8

���������������������������� �������� �������������������� � ��� � � �� ����� ���������������������������� ���������������������������� ������� ������������� � ���� ��� � �� Scharb Bone Springs Pool ���������� ������ ������������� ��������� ������� ����� ������� ��� ����� ������������ ������ ������ �� ���������� ������ ����� 1 mile Pool Buffer ��������������������������������������������������������� ���������� ��� ���������� Discovery Well: State NPA #1 ��������������������� ������������ ������������������������������������ ���������������������������������������������������������������������������������������������������������������� Scharb Bone Springs Oil Pool Rules - Order R-2589 (10.30.1963): - 80 acre spacing units - Secretary Director may grant an exception to 80 acre spacing requirement without notice or hearing when an application for a non-standard unit comprising 40 acres, more or less, has been filed if no objections from offset affected parties occur within 30 days of receipt of said application - The first well drilled on every standard or non-standard unit in the Scharb Bone Springs Oil Pool shall be located in the NE/4 or SW/4 of a governmental quarter section, and all wells shall be located within 200 feet of the center of a governmental quarter-quarter section - A standard proration unit (79-81 acres) shall be assigned an 80 acre proportional factor of 5.67 for allowable purposes - 80 acres x 5.67 = 453.6 bbl of oil daily allowable per 80 acre standard proration unit Order - R-2589-C (04.13.1983): - Amended Rule 4 of Order R-2589 so that wells may be located in either quarter-quarter section in the proration unit provided any well complies with 200 foot setback Original Scharb Bone Springs Oil Pool

ASSUMED DRAINAGE PATTERN FOR 80 ACRE SPACING 10