State Issues

RE: Proposed Amendments to 16 TAC §3.40, relating to Assignment of Acreage to Pooled Development and Proratioin Units.

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December 9, 2019

Rules Coordinator
Office of General Counsel
Railroad Commission of Texas
PO Box 12967
Austin, TX 78711

RE: Proposed Amendments to 16 TAC §3.40, relating to Assignment of Acreage to
Pooled Development and Proration Units.

Dear Rules Coordinator,

The Texas Alliance of Energy Producers (the Alliance) appreciates the opportunity to
submit comments regarding the Railroad Commission of Texas (RRC) amendments to RRC
Statewide Rule 40.

The Alliance strongly supports the RRC’s attempt to encourage responsible development of
oil and gas reserves that cannot currently be produced due to acreage assignment issues
currently prohibited by Statewide 40. We believe this is a serious issue and applaud the
RRC for making an effort to fix it. Safe and responsible development of the vast Texas
natural resources is a primary commitment of the Alliance and the roughly 2,500 members
we represent.

While we do applaud the effort, the Alliance does have several concerns with the current
draft, found below. We appreciate your serious consideration of these issues.


First, we believe by only allowing operators in UFT Fields to avail themselves of the
benefits of this rule change, the RRC is inadvertently creating waste and creating a situation
whereby a statewide rule potentially has precedence over a field rule.

In the preamble of the rule change, there is a discussion of reservoir rock parameters that
says the severance contemplated is only to apply to “UFT” Fields. It is the opinion of The
Alliance that reservoir rock parameters should not have any bearing on a lease severance.
We feel that the lease severance provision pertains only to a “title issue” and not to a
reservoir parameter production issue.

Currently, if an operator permits a well in the Spraberry (Trend Area) R40 EXC Field they
must show the Commission that a depth severance has been established within the
designated correlative interval for separation to the Upper Spraberry formation. We are
not aware of any language in the proposed language that pertains to a vertical production
interval separation requirement to this established severance depth datum. A well in the
Spraberry (Trend Area) Field as well as the Spraberry (Trend Area) R40 EXC Field can each
drill a horizontal lateral completion 1 foot above or below this vertical depth severance as
long as they stay within their Oil & Gas Mineral Lease stipulated depth leased interval.
Therefore, there is no difference regarding the vertical separation in a “UFT” Field versus a
“Non-UFT” Field. Therefore, we believe only allowing this proposed rule change to benefit
UFT fields is unnecessary and arbitrarily prevents valuable oil and gas reserves from being

Oil & gas leased intervals have been around for a long time and have applied to all types of
well completions such as vertical, horizontal and both conventional and unconventional
reservoirs. There are both vertical conventional and unconventional fields that have had
large consolidated intervals established due to the reservoirs being in the later stage of
depletion. Operators can choose to produce these intervals separately or under a
commingled basis to maximize production. If a well is producing only from the upper
portion of the consolidated interval and the lease has expired, for example as to 100 feet
below the lowest producing depth, an operator who leases the bottom portion of the
designated consolidated interval has a problem with a double assignment of acreage under
Statewide Rule 40. This is due to the acreage already being assigned to the upper interval
within the same field.

Statewide Rule 40 is in fact a “Statewide Rule” so we see no reason why it should not apply
to all types of fields due to it only being a “severance issue” and not a reservoir parameter
production issue.

Statewide Rule vs. Special Field Rule – 3.40(e)(2)(F)

The way the current rule proposal is written, we are concerned that this statewide rule will
be given precedence over field rules, which may provide for special exceptions, such as the
current Spraberry (Trend Area) Field rules. 3.40(e)(2)(F) specifically provides for this
statewide rule to supersede all previously adopted special field rules. To our knowledge,
this is the first time a statewide rule would be allowed to supersede field rules and we have
some concerns about setting this precedent.

Clarification on “all available resources”

The notice requirement stipulates that all identified affected parties will need to be notified
within 15 days of filing the Statewide Rule 40 Exception Permit. The Rule states that “all
available resources” should be utilized in securing this affected party list and not just the
GIS Map System on the Railroad Commission of Texas website. With all the drilling permits
being required to be filed with the Railroad Commission of Texas, we are not sure what
other websites would be more accurate or updated than the Commission’s website. The
website can currently also be used to identify existing wells within the required ½ mile
radius or 2,640′ notification area and addresses can also be obtained from the Form P-5
Organization Report Query. If there are other sources that should be utilized, other than the
Railroad Commission of Texas Website, we would request that these sources be made
available for these identified operators with existing wells and also operators having filed
active Form W-l’s.

½ mile radius too large

Under the current RRC rules, notification is required for Rule 37 and Rule 38 exceptions
due to wells being too close to the lease lines or too close to existing wells on the “same
lease and same reservoir.” The notice requirements for these wells only apply to the
applicable spacing rules governing the field in which the well is being permitted. For wells
too close to lease lines, the notice requirement is the greater of the two: the minimum
distance to the lease line or½ the distance between the well spacing rule requirement. For
wells too close to another producing well on the “same lease and same reservoir” notice is
required to all adjacent parties to the permitted lease tract.

Under a lease severance provision, we believe that this is only a lessor lease issue and do
not see how this effects any offset operators and/or permits within a ½ mile radius or
2,640′. Wells are drilled all of the time under existing Oil and Gas Mineral Lease severance
provisions and again, as long as an exception to Statewide Rule 37 and/or 38 is not
required, no notice is required.

The notice requirement in this rule proposal is ½ mile or 2,640′ perpendicular to the
horizontal lateral between the first and last take point (FTP /LTP). Notice is also required
½ mile or 2,640′ off of the end points (FTP / L TP). Under the current rules, many fields
have end point provisions off of the first and last take points (FTP / L TP). Common end
point provisions are 100′, 200′ or can also be the prescribed distance to the closest lease
line. We believe that these end points that are less than the distance to the closest lease line
have been adopted by the RRC due to the assumption that drainage is perpendicular and
not parallel to the producing horizontal lateral. This end point ½ mile or 2,640′ proposed
notice requirement seems unnecessary due to those required notified parties not being
affected by the producing well bore lateral.

With this large notice area requirement of½ mile or 2,640′, we see possible problems for
wells being drilled under the exception to Statewide Rule 40. It is a common occurrence
that when operators are drilling wells, sub-surface formation data is secured that requires
a change in the next permitted well location. Currently, all that is required in the Spraberry
(Trend Area) R40 EXC Field is to file an amended location-drilling permit with no
notification required on a regular location. Under the proposed Statewide Rule 40, a new
15-day notification period will come into effect, which is going to delay securing an
amended permit location. With the same rigs sometimes being used to drill multiple
horizontal wells off of the same surface pad, we believe it is easy to see how delays in
permitting amended wells is going to be very expensive with the daily rig charges under a
delayed spud date drilling operation.

Administrative approval needed

Additionally, we do not believe the proposed Statewide Rule 40 provides administrative
approval for an exception to Statewide Rule 40 if all required affected waivers have been
secured. We suggest that this provision be added to the language in the rule.

Clarification needed on type of notice

During the stakeholder discussions regarding this rule change, the Alliance and its
members were under the impression that the notice provided for under this rule change
would be a “good neighbor notice.” In other words, it would only be a courtesy notice, and
not one which if received, could then lead to a protest by someone who had received it. We
believe this is an important distinction given that the most likely grounds for a protest
would be the right to produce that interval, which is a title question reserved for the
courthouse in Texas and not the RRC. We believe this provision of the rule should be
clarified to ensure frivolous protests made due to a notice, which was only intended to be a
courtesy notice in the first place. It may also be helpful for further clarification if the RRC
were to provide a proposed notification form.

15 days prior?

Under (e)(2)(B) of the rule proposal, the notice provision begins with “Within 15 days
prior to filing its drilling application, the applicant shall … (provide notice)”. We believe this
phrasing is confusing and needs clarification. We believe “within 15 days prior to” means
that the notice could go out the day before the drilling application is filed. However, to
ensure all parties understand this phrasing, it should be clarified in the rule proposal.

Amended well locations

If an operator is required to amend a well location and affected parties under the rule
proposal have already received notice, can notice for the amended well location be waived?
We suggest that this provision be added to the language in the rule.
The Texas Alliance of Energy Producers would like to thank the Railroad Commission for
all of its hard work on this rule proposal. We greatly appreciate the opportunity to
comment on this important issue for our industry and thank you for your serious
consideration of our comments.

Best Regards,

Karr Ingham
Executive Vice President