A10526 Summary:

BILL NO    A10526A

SAME AS    Same as S 8169-A

SPONSOR    Parment

COSPNSR    Sweeney, Magee

MLTSPNSR   Crouch, Farrell

Amd SS23-0501 & 23-0503, En Con L

Makes amendments to the calculations of statewide spacing requirements for oiland gas wells.

A10526 Actions:

BILL NO    A10526A

04/08/2008 referred to environmental conservation06/10/2008 reported referred to codes06/12/2008 amend and recommit to codes06/12/2008 print number 10526a06/17/2008 reported referred to rules06/23/2008 reported06/23/2008 rules report cal.62406/23/2008 substituted by s8169a           S08169A AMEND=  YOUNG           05/07/2008 REFERRED TO ENVIRONMENTAL CONSERVATION           06/03/2008 REPORTED AND COMMITTED TO RULES           06/11/2008 AMEND AND RECOMMIT TO RULES           06/11/2008 PRINT NUMBER 8169A           06/16/2008 ORDERED TO THIRD READING CAL.1887           06/17/2008 PASSED SENATE           06/17/2008 DELIVERED TO ASSEMBLY           06/17/2008 referred to codes           06/23/2008 substituted for a10526a           06/23/2008 ordered to third reading rules cal.624           06/23/2008 passed assembly           06/23/2008 returned to senate

A10526 Votes:

A10526 Memo:

BILL NUMBER:A10526A

TITLE OF BILL:An actto amend the environmental conservation law, in relation to statewidespacing for oil and gas wells

PURPOSE OF THE BILL:

The purpose of this bill is to amend Article 23 of the EnvironmentalConservation Law (ECL), the State`s Oil, Gas and Solution Mining Law("Oil and Gas Law") to provide statewide spacing for oil wells andhorizontal wells, and to make other technical corrections to thestatewide spacing provisions.

SUMMARY OF PROVISIONS:

Section 1 of this bill amends ECL S23-0501(1)(b)(1) to apply itsprovisions to oil as well as gas wells, and to make other amendmentsincluding:

* providing statewide spacing for horizontal gas wells and shale gaswells, and reducing the required setback from 660 feet to 460 feetfor certain spacing units.

* providing statewide spacing for oil wells, including horizontalwells, in the Bass Island, Trenton and Black River oil pools and theOnondaga reef and other oil-bearing reefs.

* providing statewide spacing for all other oil pools.

* requiring that a spacing unit established for an oil pool bemodified prior to production if the well in the unit produces naturalgas but not oil.

Section 2 of this bill amends ECL S23-0503(4) to provide that infillwells are necessary in certain spacing units and must be drilledwithin three years.

Section 3 of this bill amends ECL S23-0503(6) to clarify that spacingunits established pursuant to statewide spacing provisions arebinding upon all per sons and their successors and assigns, and maybe modified by the Department of Environmental Conservation (DEC)upon good cause shown, and to state that failure to drill infillwells in certain spacing units constitutes good cause for DEC toinitiate a modification of the spacing unit

Section 4 of this bill contains an enactment clause.

EXISTING LAW:

ECL S23-0501(1)(b)(1) currently establishes statewide spacing for gaspools but not oil pools, and there are no provisions which directlyaddress horizontal drilling. ECL S23-0503 provides that the DEC mayapprove infill wells and that spacing orders are binding upon allpersons and may be modified by the DEC upon good cause shown.

ECL S23-0503(2) provides that DEC shall issue a permit if the proposedspacing unit conforms to statewide spacing and is of approximatelyuniform shape with other spacing units within the same field or pool,and abuts other spacing units in the same pool, unless sufficientdistance 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 gaswells and similar wells in New York State. One provision of the lawdealt with how wells are spaced from each other, to ensure efficientand economic recovery of oil and gas resources while protecting thecorrelative rights of mineral resource owners (i.e., ownershiprights, usually of the surface owners). The law establishesstandard, statewide spacing for wells, which varies according to thetarget geologic formation and depth, and provides flexibility forspacing units of plus or minus ten percent to account forsite-specific circumstances that may require movement of surfacelocation. Setback distances are also established for spacing units tohelp ensure that wells do not drain oil and gas from under adjacentspacing units.

Chapter 386 of the Laws of 2005 amended the Oil and Gas Law., ThatChapter established the current statewide spacing provisions for gasbut did not address oil wells or horizontal wells or make provisionfor adjusting the required 660-foot setback when a spacing unit issmaller than 40 acres by the authorized 10-percent tolerance.Horizontal wells are being used increasingly in New York; these arewells that are drilled vertically to a point above the targetformation, then drilled at an angle to reach the target formation andsubsequently drilled horizontally across the formation to providemore efficient recovery of the resource., Horizontal drillingrequires that unit sizes be expanded to accommodate the length of thewellbore.

This bill, therefore, amends Title 5 of the Oil and Gas Law to expandthe definition of statewide spacing to: (1) address oil wells andhorizontal wells; (2) provide a 330-foot setback for horizontal shalewells; (3) decrease the setback from 660 feet to 460 feet forvertical shale wells and smaller units in other pools; and (4) makeother technical corrections. Absent this legislation, oil wells in newfields must be drilled on 40 acres, which would not always foster

efficient resource recovery, The DEC projects a significant increasein the number of horizontal wells to be proposed, especially totarget shale formations, which is not contemplated by the existingstatute.

The vast majority of proposals that are expected for oil wells andhorizontal wells would not conform to current statewide spacingsizes, and would therefore require notice, public comment andpossibly a hearing on an individual well basis. With hundreds of suchwells likely to be proposed in the near future, the potential burdenon the DEC and the industry would be substantial, with nocommensurate benefit in ensuring that the policy objectives of ECLS23-0301 are met.

In addition, this bill creates three categories of shale unitdevelopment: (1) vertical wells (40 acres with 460-foot setbacks);(2) single-well horizontal units (40 acres plus acreage necessary tomaintain a 330foot setback); and (3) multi-well horizontal units (upto 640 acres with 330-foot setbacks, allowing operators with smalleracreage positions to develop smaller units). The provision formulti-well shale units allows operators to drill several wells from acentralized location, reducing the extent of surface environmentaldisturbance. Infill drilling necessary to fully develop the acreageis required in multi-well units, and failure to drill infill wellswould be good cause for DEC to initiate a unit modification.

The geological characteristics of shale are such that distinct lateralpools and spacing units separated by excluded acreage are not likely.Nevertheless, DEC staff will continue to review every unit proposedto conform to statewide spacing to ensure that it is uniformly shapedwith other units in the pool or field and abuts other: units in thesame pool unless sufficient distance remains for another: uniformlyshaped unit to be formed This prevents well operators from leaving"stranded" undrillable acreage between units in a common pool or fromconfiguring units based on lease position.

Proposals which do not meet this criteria but which DEC staffdetermine may meet the policy objectives of the statute are subjectto the public review process set forth in ECL S23-0503(3). Thisensures that affected owners are aware that a non-abutting ornon-uniformly shaped unit has been proposed and have the opportunityto be heard. The stated unit sizes will only be expanded if thelength of the proposed horizontal wellbore is such that the minimumrequired setback cannot be met within the specified number of acres.

At the time of permitting when the spacing unit is set, only theacreage necessary and sufficient to maintain minimum setbacks for theentire length of the wellbore in the target formation and at bothends of the wellbore in the target formation will be allowed Thus,the bill provides protection to ensure that both the single-well andmulti-well horizontal units are regularly shaped and will not create"islands" of undrillable acreage.

By accommodating smaller oil field spacing and the length ofhorizontal wellbores but requiring protective setbacks, and whenappropriate, the drilling of infill wells, this bill furthers thepolicy objectives of preventing waste of the State`s oil and gasresources and development of oil and gas properties in a manner thatresults in a greater ultimate recovery, while protecting the rightsof mineral rights owners and the general public.

BUDGET IMPLICATIONS:

None.

EFFECTIVE DATE:

This bill takes effect upon enactment