News York State Gas Drilling Bill A10526, 2008: Bill Summary

Wednesday, July 2, 2008
Bill Summary   -   A10526
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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 oil
and gas wells.

A10526 Actions:

BILL NO    A10526A

04/08/2008 referred to environmental conservation
06/10/2008 reported referred to codes
06/12/2008 amend and recommit to codes
06/12/2008 print number 10526a
06/17/2008 reported referred to rules
06/23/2008 reported
06/23/2008 rules report cal.624
06/23/2008 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 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
horizontal wells, and to make other technical corrections to the
statewide spacing provisions.

SUMMARY OF PROVISIONS:

Section 1 of this bill amends ECL S23-0501(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 S23-0503(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 S23-0503(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 spacing 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 S23-0501(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 S23-0503 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 S23-0503(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
correlative 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
Chapter established the current statewide spacing provisions for gas
but did not address oil wells or horizontal wells or make provision
for adjusting 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 horizontally 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
horizontal 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 horizontal 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
horizontal 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
S23-0301 are met.

In addition, this bill creates three categories of shale unit
development: (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 positions 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" undrillable 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 S23-0503(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