Royalty owners and small, family-owned oil and gas company representatives on Wednesday expressed concerns about a proposed Oklahoma Corporation Commission rule that they say could reduce their interest and future earnings in areas they have operated in for decades.
Representatives from 10 smaller companies spoke at the rulemaking technical conference either in person or by videophone from Tulsa.
“I think it was terrific to hear from such a diversity of opinion,” Corporation Commissioner Dana Murphy said. “It’s a lot to balance.”
Most of the discussion centered on a proposed rule that would clarify that vertical wells cannot be drilled in spacing units designated for horizontal wells, unless the commission approves an exception.
Representatives of several smaller oil companies and royalty owners attended the meeting to share their concerns that the rule could hurt their existing vertical wells or limit their ability to drill new vertical wells in the future.
Traditional vertical wells typically use 40-acre spacing, meaning that the well is assumed to affect the minerals under the 40 acres surrounding a well. When a well is drilled, the owners or leaseholders of the 40 acres pay for the well and receive the profits or royalties.
Horizontal wells, however, typically stretch across an entire 640-acre section, often involving many more mineral owners.
Operators raised questions about how a 640-acre horizontal well would affect vertical wells in the area.
Nick Anderson of Big Fork Petroleum operates vertical wells in northeastern Oklahoma.
In some areas, he has drilled through the oil-rich Mississippian formation that has become a favorite for horizontal well operators in the area.
“We knew we had Mississippian behind the pipe and had the intention of developing it later on,” Anderson said. “Now I’m being force-pooled for a horizontal unit. I don’t necessarily agree that this is an economic venture. I’m faced with the situation where I lose the rights because I don’t want to participate in that well.”
David Baston of Blackrock Holdings has a working interest in many vertical wells throughout the state.
Baston fears he could lose control of undeveloped resources under his own 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.”
In many cases, such defense requires operators to hire a lawyer, an engineer and a geologist.
Hearing is planned
Tuesday’s meeting was expected to be the final technical conference before the hearing on the merits, which is scheduled for March 13.
Because of the extended discussion, however, Murphy asked the commission staff to schedule another conference before a final vote is cast.
The issue in many cases pits the state’s smaller operators against the some of the largest oil and natural gas companies in the state and country.
Chad Warmington, president of the Oklahoma Oil and Gas Association, represents many of those larger operators.
Warmington said he was pleased the commission decided to hold further talks on the proposed rules.
He said he was impressed with Tuesday’s discussion.
“They raised good issues,” Warmington said of the speakers. “We’re going to have to continue to work with them to make sure the rules work well for both large and small companies. Commissioner Murphy understands the industry is diverse and these rules have to be well thought out to make sure they apply fairly.”
In other business
Also discussed Wednesday was a proposal to require the state’s water disposal well operators to provide more timely information when needed. Operators already are required to collect volume, capacity and pressure data monthly and report the information annually. Under the proposed change, operators would collect the information daily and provide the information to the Corporation Commission when asked. There was some discussion about the specific language as to how quickly an operator must have the data, but no opposition was stated.