NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A10526A
SPONSOR: Parment (MS) TITLE OF BILL: An act to amend the environmental conservation law, in
relation to statewide spacing for oil and gas wells
PURPOSE OF THE BILL:
The purpose of this bill is to amend Article 23 of the Environmental
Conservation Law (ECL), the State's Oil, Gas and Solution Mining Law
("Oil and Gas Law") to provide statewide spacing for oil wells and hori-
zontal wells, and to make other technical corrections to the statewide
spacing provisions.
SUMMARY OF PROVISIONS:
Section 1 of this bill amends ECL §23-0501(1)(b)(1) to apply its
provisions to oil as well as gas wells, and to make other amendments
including:
* providing statewide spacing for horizontal gas wells and shale gas
wells, and reducing the required setback from 660 feet to 460 feet for
certain spacing units.
* providing statewide spacing for oil wells, including horizontal wells,
in the Bass Island, Trenton and Black River oil pools and the Onondaga
reef and other oil-bearing reefs.
* providing statewide spacing for all other oil pools.
* requiring that a spacing unit established for an oil pool be modified
prior to production if the well in the unit produces natural gas but not
oil.
Section 2 of this bill amends ECL §23-0503(4) to provide that infill
wells are necessary in certain spacing units and must be drilled within
three years.
Section 3 of this bill amends ECL §23-0503(6) to clarify that spacing
units established pursuant to statewide spacing provisions are binding
upon all per sons and their successors and assigns, and may be modified
by the Department of Environmental Conservation (DEC) upon good cause
shown, and to state that failure to drill infill wells in certain spac-
ing units constitutes good cause for DEC to initiate a modification of
the spacing unit
Section 4 of this bill contains an enactment clause.
EXISTING LAW:
ECL §23-0501(1)(b)(1) currently establishes statewide spacing for gas
pools but not oil pools, and there are no provisions which directly
address horizontal drilling. ECL §23-0503 provides that the DEC may
approve infill wells and that spacing orders are binding upon all
persons and may be modified by the DEC upon good cause shown.
ECL §23-0503(2) provides that DEC shall issue a permit if the proposed
spacing unit conforms to statewide spacing and is of approximately
uniform shape with other spacing units within the same field or pool,
and abuts other spacing units in the same pool, unless sufficient
distance remains between units for another unit to be developed.
PRIOR LEGISLATIVE HISTORY:
This is a new proposal.
STATEMENT IN SUPPORT:
The existing Oil and Gas Law provides for regulation of oil and gas
wells and similar wells in New York State. One provision of the law
dealt with how wells are spaced from each other, to ensure efficient and
economic recovery of oil and gas resources while protecting the correla-
tive rights of mineral resource owners (i.e., ownership rights, usually
of the surface owners). The law establishes standard, statewide spacing
for wells, which varies according to the target geologic formation and
depth, and provides flexibility for spacing units of plus or minus ten
percent to account for site-specific circumstances that may require
movement of surface location. Setback distances are also established for
spacing units to help ensure that wells do not drain oil and gas from
under adjacent spacing units.
Chapter 386 of the Laws of 2005 amended the Oil and Gas Law., That Chap-
ter established the current statewide spacing provisions for gas but did
not address oil wells or horizontal wells or make provision for adjust-
ing the required 660-foot setback when a spacing unit is smaller than 40
acres by the authorized 10-percent tolerance. Horizontal wells are
being used increasingly in New York; these are wells that are drilled
vertically to a point above the target formation, then drilled at an
angle to reach the target formation and subsequently drilled horizontal-
ly across the formation to provide more efficient recovery of the
resource., Horizontal drilling requires that unit sizes be expanded to
accommodate the length of the wellbore.
This bill, therefore, amends Title 5 of the Oil and Gas Law to expand
the definition of statewide spacing to: (1) address oil wells and hori-
zontal wells; (2) provide a 330-foot setback for horizontal shale wells;
(3) decrease the setback from 660 feet to 460 feet for vertical shale
wells and smaller units in other pools; and (4) make other technical
corrections. Absent this legislation, oil wells in new fields must be
drilled on 40 acres, which would not always foster efficient resource
recovery, The DEC projects a significant increase in the number of hori-
zontal wells to be proposed, especially to target shale formations,
which is not contemplated by the existing statute.
The vast majority of proposals that are expected for oil wells and hori-
zontal wells would not conform to current statewide spacing sizes, and
would therefore require notice, public comment and possibly a hearing on
an individual well basis. With hundreds of such wells likely to be
proposed in the near future, the potential burden on the DEC and the
industry would be substantial, with no commensurate benefit in ensuring
that the policy objectives of ECL §23-0301 are met.
In addition, this bill creates three categories of shale unit develop-
ment: (1) vertical wells (40 acres with 460-foot setbacks); (2) single-
well horizontal units (40 acres plus acreage necessary to maintain a
330foot setback); and (3) multi-well horizontal units (up to 640 acres
with 330-foot setbacks, allowing operators with smaller acreage posi-
tions to develop smaller units). The provision for multi-well shale
units allows operators to drill several wells from a centralized
location, reducing the extent of surface environmental disturbance.
Infill drilling necessary to fully develop the acreage is required in
multi-well units, and failure to drill infill wells would be good cause
for DEC to initiate a unit modification.
The geological characteristics of shale are such that distinct lateral
pools and spacing units separated by excluded acreage are not likely.
Nevertheless, DEC staff will continue to review every unit proposed to
conform to statewide spacing to ensure that it is uniformly shaped with
other units in the pool or field and abuts other: units in the same pool
unless sufficient distance remains for another: uniformly shaped unit to
be formed This prevents well operators from leaving "stranded" undrilla-
ble acreage between units in a common pool or from configuring units
based on lease position.
Proposals which do not meet this criteria but which DEC staff determine
may meet the policy objectives of the statute are subject to the public
review process set forth in ECL §23-0503(3). This ensures that affected
owners are aware that a non-abutting or non-uniformly shaped unit has
been proposed and have the opportunity to be heard. The stated unit
sizes will only be expanded if the length of the proposed horizontal
wellbore is such that the minimum required setback cannot be met within
the specified number of acres.
At the time of permitting when the spacing unit is set, only the acreage
necessary and sufficient to maintain minimum setbacks for the entire
length of the wellbore in the target formation and at both ends of the
wellbore in the target formation will be allowed Thus, the bill provides
protection to ensure that both the single-well and multi-well horizontal
units are regularly shaped and will not create "islands" of undrillable
acreage.
By accommodating smaller oil field spacing and the length of horizontal
wellbores but requiring protective setbacks, and when appropriate, the
drilling of infill wells, this bill furthers the policy objectives of
preventing waste of the State's oil and gas resources and development of
oil and gas properties in a manner that results in a greater ultimate
recovery, while protecting the rights of mineral rights owners and the
general public.
BUDGET IMPLICATIONS:
None.
EFFECTIVE DATE:
This bill takes effect upon enactment
STATE OF NEW YORK
________________________________________________________________________
10526--A
IN ASSEMBLY
April 8, 2008
___________
Introduced by M. of A. PARMENT, SWEENEY, MAGEE -- Multi-Sponsored by --
M. of A. CROUCH -- (at request of the Department of Environmental
Conservation) -- read once and referred to the Committee on Environ-
mental Conservation -- reported and referred to the Committee on Codes
-- committee discharged, bill amended, ordered reprinted as amended
and recommitted to said committee
AN ACT to amend the environmental conservation law, in relation to
statewide spacing for oil and gas wells
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Subparagraph 1 of paragraph b of subdivision 1 of section
2 23-0501 of the environmental conservation law, as added by chapter 386
3 of the laws of 2005, is amended to read as follows:
4 (1) "Statewide spacing" means spacing units for gas or oil wells that
5 are within ten percent of the following sizes, as applicable, unless
6 another percentage is specifically stated:
7 (i) For Medina [polls and shale] gas pools at any depth, 40 acres with
8 the wellbore within the target formation no less than [660] 460 feet
9 from any unit boundary, plus, if applicable, the number of additional
10 acres necessary and sufficient to ensure that any horizontal wellbore
11 within the target formation is not less than 460 feet from any unit
12 boundary;
13 (ii) For Onondaga reef or Oriskany gas pools at any depth, 160 acres
14 with the wellbore within the target formation no less than 660 feet from
15 any unit boundary, plus, if applicable, the number of additional acres
16 necessary and sufficient to ensure that any horizontal wellbore within
17 the target formation is not less than 660 feet from any unit boundary;
18 (iii) For fault-bounded Trenton and/or Black River hydrothermal dolom-
19 ite gas pools where the majority of the pool is between 4,000 and 8,000
20 feet deep, 320 acres with the proposed productive section of the well-
21 bore within the target formation no less than one-half mile from any
22 other well in another unit in the same pool and no less than [1000]
23 1,000 feet from any unit boundary that is not defined by a field-bound-
24 ing fault but in no event less than 660 feet from any unit boundary;
25 (iv) For fault-bounded Trenton and/or Black River hydrothermal dolom-
26 ite gas pools where the majority of the pool is below [8000] 8,000 feet,
27 within five percent of 640 acres with the proposed productive section of
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD15187-04-8
A. 10526--A 2
1 the wellbore within the target formation no less than one mile from any
2 other well in another unit in the same pool and no less than [1500]
3 1,500 feet from any unit boundary that is not defined by a field-bound-
4 ing fault but in no event less than 660 feet from any unit boundary;
5 (v) For shale gas pools at any depth, for a vertical well outside any
6 existing spacing unit for the same formation, 40 acres with the wellbore
7 within the target formation no less than 460 feet from any unit bounda-
8 ry;
9 (vi) For shale gas pools at any depth, for a horizontal well outside
10 any existing spacing unit for the same formation and with a written
11 commitment from the well operator to drill infill wells pursuant to
12 subdivision 4 of section 23-0503 of this title, with all horizontal
13 infill wells in the unit to be drilled from a common well pad within
14 three years of the date the first well in the unit commences drilling,
15 notwithstanding the ten percent tolerance specified in this subpara-
16 graph, up to 640 acres with the initial horizontal wellbore or wellbores
17 within the target formation approximately centered in the spacing unit
18 and no wellbore in the target formation less than 330 feet from any unit
19 boundary;
20 (vii) For shale gas pools at any depth, for a horizontal well outside
21 any existing spacing unit for the same formation and in the absence of a
22 written commitment from the well operator to drill infill wells pursuant
23 to subdivision 4 of section 23-0503 of this title, 40 acres with the
24 wellbore within the target formation no less than 330 feet from any unit
25 boundary plus the number of additional acres necessary and sufficient to
26 ensure that the wellbore within the target formation is not less than
27 330 feet from any unit boundary;
28 (viii) For all other gas pools where the majority of the pool is above
29 the depth of 4,000 feet, 80 acres with the wellbore within the target
30 formation no less than [660] 460 feet from any unit boundary, plus, if
31 applicable, the number of additional acres necessary and sufficient to
32 ensure that any horizontal wellbore within the target formation is not
33 less than 460 feet from any unit boundary;
34 [(vi)] (ix) For all other gas pools where the majority of the pool is
35 4,000 to 6,000 feet deep, 160 acres with the wellbore within the target
36 formation no less than 660 feet from any unit boundary, plus, if appli-
37 cable, the number of additional acres necessary and sufficient to ensure
38 that any horizontal wellbore within the target formation is not less
39 than 660 feet from any unit boundary;
40 [(vii)] (x) For all other gas pools where the majority of the pool is
41 6,000 to 8,000 feet deep, 320 acres with the wellbore within the target
42 formation no less than [1000] 1,000 feet from any unit boundary, plus,
43 if applicable, the number of additional acres necessary and sufficient
44 to ensure that any horizontal wellbore within the target formation is
45 not less than 1,000 feet from any unit boundary; [and
46 (viii)] (xi) For all other gas pools where the majority of the pool is
47 below 8,000 feet, within five percent of 640 acres with the wellbore
48 within the target formation no less than [1500] 1,500 feet from any unit
49 boundary, plus, if applicable, the number of additional acres necessary
50 and sufficient to ensure that any horizontal wellbore within the target
51 formation is not less than 1,500 feet from any unit boundary;
52 (xii) For oil pools in the Bass Island, Trenton, Black River, Onondaga
53 reef or other oil-bearing reefs at any depth, 40 acres with the wellbore
54 within the target formation no less than 460 feet from any unit
55 boundary, plus, if applicable, the number of additional acres necessary
A. 10526--A 3
1 and sufficient to ensure that any horizontal wellbore within the target
2 formation is not less than 460 feet from any unit boundary; and
3 (xiii) For all other oil pools at any depth, the wellbore within the
4 target formation shall be no less than 165 feet from any lease boundary.
5 Wells completed under a well permit issued pursuant to clause (xii) or
6 (xiii) of this subparagraph that do not produce oil may not commence
7 production of natural gas prior to modification of the spacing unit
8 pursuant to applicable provisions of this title.
9 § 2. Subdivision 4 of section 23-0503 of the environmental conserva-
10 tion law, as added by chapter 386 of the laws of 2005, is amended to
11 read as follows:
12 4. The department may issue permits to drill infill wells on a reason-
13 ably uniform pattern within the spacing unit after an integration order
14 has been issued, if required, and only if it determines that drilling
15 infill wells is necessary to satisfy the policy objectives of section
16 23-0301 of this article. The distances from the unit boundaries set
17 forth in paragraph b of subdivision 1 of section 23-0501 of this title
18 shall apply to any infill wells. For purposes of this section, new
19 lateral wellbores drilled from the original wellbore in the unit are not
20 considered infill wells if they are drilled prior to the first product
21 sales from the original surface location. In a spacing unit established
22 pursuant to clause (vi) of subparagraph 1 of paragraph b of subdivision
23 1 of section 23-0501 of this title, infill wells shall be deemed neces-
24 sary, and the number of infill wells required to satisfy the policy
25 objectives of section 23-0301 of this article must be drilled within
26 three years of the date the first well in the unit commences drilling.
27 § 3. Subdivision 6 of section 23-0503 of the environmental conserva-
28 tion law, as added by chapter 386 of the laws of 2005, is amended to
29 read as follows:
30 6. [An order establishing] Unless it is extinguished pursuant to
31 subdivision seven of this section, a spacing unit established by the
32 department shall be binding upon all persons and their heirs, successors
33 and assigns. Upon good cause shown, an order establishing a spacing unit
34 or a spacing unit which conforms to statewide spacing may be modified by
35 the department without conducting a hearing if a finding has been made
36 that no facts are in dispute after all affected persons have been
37 provided a reasonable opportunity to comment. In a spacing unit estab-
38 lished pursuant to clause (vi) of subparagraph 1 of paragraph b of
39 subdivision 1 of section 23-0501 of this title, failure to drill infill
40 wells pursuant to subdivision 4 of this section shall constitute good
41 cause for the department to initiate a modification of the spacing unit.
42 If necessary, upon issuance of [a modified] an order which changes unit
43 boundaries, the well operator shall adjust the accounts for owners with-
44 in the original and modified units to reflect the modified boundary. Any
45 participation by new owners and any adjustment of revenue or royalties
46 [based thereon] resulting from participation by new owners shall be on a
47 prospective basis only. If the initial risk penalty phase pursuant to
48 title 9 of this article is in effect, any new owner added to the unit
49 may elect to be integrated as a participating owner, a non-participating
50 owner or an integrated royalty owner as defined by title 9 of this arti-
51 cle. Full well costs shall be assessed against new participating owners
52 and non-participating owners and included in the risk penalty calcu-
53 lation. If the initial risk penalty phase has concluded, any new owner
54 added to the spacing unit may elect to be integrated as a participating
55 owner or an integrated royalty owner on a prospective basis only.
56 § 4. This act shall take effect immediately.
