While much of the focus of the oil-and-natural-gas related legislation has been on the state’s gross production tax rate, Continental Resources Inc. CEO Harold Hamm is asking legislators for a change he says could both increase production and reduce costs.
A 40-year-old state law restricts most oil and natural gas wells in Oklahoma to a single 640-acre section. Companies can seek exceptions at the Oklahoma Corporation Commission, but Hamm is asking the Legislature to eliminate the restriction altogether.
“We are putting two 640-acre units together, but that is cumbersome, slow and eats up a lot of manpower, time and expense,” Hamm said. “There are not any short laterals to speak of being drilled in the Bakken (in North Dakota). We’re able to do it here physically, but it’s a regulatory hurdle.”
Most of the expense of drilling a well is from the vertical and early horizontal portion of the process. Extending a horizontal section across a second 640-acre section more than doubles the production while requiring only 30 percent of the cost, Hamm said.
Current rules also require a buffer around the edge of a 640-acre section. If a company were to drill two one-mile horizontal wells across two sections, it would have to avoid the buffer zone, which is generally about 250 feet on either side of the section line.
One two-mile lateral, however, would drill through the buffer zone, adding at least 500 feet to the well that would not otherwise be produced.
“It would be better for the landowner. Their bonus would be greater,” Hamm said. “It would be great for everybody if we did it.”
Some smaller oil and natural gas operators, however, have objected to similar proposals, saying the longer horizontal segments could dilute their holdings. The Corporation Commission last month tabled a proposal that would have changed spacing requirements for vertical and horizontal wells in the same area.
David Baston, of Blackrock Holdings, has a working interest in many vertical wells throughout the state. Baston, in March, spoke at a Corporation Commission hearing, where he said he fears he could lose control of undeveloped resources under his existing vertical well.
“Those become commandeered with these big horizontal units,” he said. “These are reserves I thought I owned. I’m put in a position of having to defend at my expense over and over production I thought I already owned.”
A 40-year-old state law limits most horizontal well lengths to one 640-acre section. Continental Resources CEO Harold Hamm has asked legislators to allow oil and natural gas producers to more easily drill wells across two sections. Most of the expense of drilling a well is from the vertical and early horizontal portion of the process. Extending a horizontal section across a second 640-acre section more than doubles the production while requiring only 30 percent of the cost, Hamm said. A single, two-mile lateral also would allow the company to produce from the area surrounding the section line, which is usually off limits to oil and natural gas companies.