RAILROAD COMMISSION OF TEXAS Drilling Permits Statewide Rule

RAILROAD COMMISSION OF TEXAS Drilling Permits Statewide Rule 37 & 38 Exceptions Lorenzo Garza

Drilling Permits and Online Filing Advanced 2

Drilling Permits and Online Filing Advanced SWR 37 & 38 terminology you should know. § OFFSET- Refers to the operator, lessee, or unleased mineral owner of a tract that is adjacent to your lease/pooled unit. The type of exception being applied for will dictate which offsets you will be required to notify or supply waivers for. 3

Drilling Permits and Online Filing Advanced SWR 37 & 38 terminology you should know. § WAIVER- A letter signed by an identified offset. In that letter the offset is requested to waive their right to protest the granting of the needed exception. 1. Basic information required 2. Information on waiver must match permit application 3. We will not accept waivers older than 6 months 4

Drilling Permits and Online Filing Advanced Example of generic waiver 5

Drilling Permits and Online Filing Advanced SWR 37 & 38 terminology you should know. § SERVICE LIST- List of identified affected offsets that need to be notified concerning the applicant needing to gain an exception to a SWR. The list should include the name and addresses of the affected parties. 6

Drilling Permits and Online Filing Advanced SWR 37 & 38 terminology you should know. § UNAFFECTED 1. For lease spacing exceptions can be used when offset is located in another state or country. 2. For between well exceptions can be used if supporting information is approved by RRC Technical Examiner. Information needed will be explained later. 7

Drilling Permits and Online Filing Advanced SWR 37 LEASE LINE AND WELL SPACING EXCEPTIONS What triggers a SWR 37 lease line exception? • Vertical well- distance from this location to the nearest lease line. • Directional well- distance from the Bottom Hole Location (BHL) to the nearest lease line. • Horizontal well- distance from the closest point of the well that is within the correlative interval of the field you are applying for to the nearest lease line 8

Drilling Permits and Online Filing Advanced SWR 37 LEASE LINE AND WELL SPACING EXCEPTIONS What triggers a SWR 37 lease line exception? SWR 86 Field –Horizontal well • distance from the closest point of the well that is within the correlative interval of the field you are applying for to the nearest lease line typically represented by that portion of well from Penetration Point to Terminus location. Special Field Rules-Horizontal well • Distance from the closest point of the well that is within the correlative interval of the field you are applying for to the nearest lease line from the first take point through the wellbore path to the last take point. 9

Drilling Permits and Online Filing Advanced Plat requirements For Lease Line SWR 37 exception • The plat must clearly show all offset interests within whichever is greatest between the lease line spacing or half of the between well spacing for the field in question. Example: LL = 467’ BW= 1200’ so half of BW = 600’ this value is greater than 467’ so offsets within 600’ of well location must be shown on plat. • • • Vertical well – from location of the well Directional well – from the BHL of the well Horizontal well- portion of well within the correlative interval All plats used for SWR exceptions must be certified with a surveyors stamp or signature from operator representative. 10

Drilling Permits and Online Filing Advanced Plat requirements For Lease Line SWR 37 exception Special horizontal field rules- dual lease line provisions The plat must clearly show all offset interests within the prescribed heel and toe distances and within the minimum lease line distance along the well bore path Example: Heel and Toe = 100’ BW= 0’ Standard distance is 330’ then when SWR 37 is triggered offsets within 100’ of heel and toe must be identified as well as offsets within the standard distance along the wellbore path. In this case 330’ of the well. All plats used for SWR exceptions must be certified with a surveyors stamp or signature from operator representative. 11

Drilling Permits and Online Filing Advanced HORIZONTAL WELL PLAT 12

Drilling Permits and Online Filing Advanced HORIZONTAL OFFSET PLAT 13

Drilling Permits and Online Filing Advanced Plat requirements For Between Well SWR 37 exception • For Between Well SWR 37 exceptions all offset interests must be clearly labeled on plat around the entire lease or pooled unit. • All adjacent offset operators, lessee or un-leased mineral owners are required to be notified unless un -affected status is being sought. 14

Drilling Permits and Online Filing Advanced BETWEEN WELL AND DENSITY OFFSET PLAT 15

Drilling Permits and Online Filing Advanced Plat requirements For Between Well SWR 38 exception • For Between Well SWR 38 exceptions all offset interests must be clearly labeled on plat around the entire lease or pooled unit. • All adjacent offset operators, lessee or un-leased mineral owners are required to be notified unless un -affected status is being sought or there are special notification provisions for the field you are applying for. 16

Drilling Permits and Online Filing Advanced Plat requirements For Between Well SWR 38 exception Be aware that certain fields have special SWR 38 notification provisions as well as exemptions from providing the supporting SWR 38 data. Make sure you know what is required to be provided for the fields you are applying for. 17

Drilling Permits and Online Filing Advanced BETWEEN WELL AND DENSITY OFFSET PLAT 18

Drilling Permits and Online Filing Advanced VERTICAL WELL OFFSET PLAT- SWR 38 WITH SPECIAL NOTIFICATION REQUIREMENTS 19

Drilling Permits and Online Filing Advanced SWR 37 SPACING EXCEPTIONS What triggers a SWR 37 lease or between well exception? 20

Drilling Permits and Online Filing Advanced RESOLUTIONS TO SWR 37 EXCEPTIONS LEASE LINE: • You are your own offset. • You have waivers from affected offsets. • Provide service list for 21 -day notification of affected offsets. • If unable to locate affected parties request to set up for publication of notice for 4 consecutive weeks. A signed statement must be provided by applicant stating that all possible means have been used to locate affected parties. 21

Drilling Permits and Online Filing Advanced RESOLUTIONS TO SWR 37 EXCEPTIONS BETWEEN WELL: • You are your own offset. • You have waivers from affected offsets. • Provide service list for 21 -day notification of affected offsets. • If unable to locate affected parties request to set up for publication of notice for 4 consecutive weeks. A signed statement must be provided by applicant stating that all possible means have been used to locate affected parties. 22

Drilling Permits and Online Filing Advanced RESOLUTIONS TO SWR 37 EXCEPTIONS BETWEEN WELL: CONTINUED • Unaffected status 1. Offset resides in another state or country 2. For larger leases/pooled units that affected offsets are more than 1 mile away from well location Ø Provide offset plat Ø Show 1 mile radius around well Ø Letter requesting Unaffected status for those offsets more than 1 mile away including drainage calculations for wells on the lease that will allow technical staff to determine if claim of unaffected status is valid. 23

Drilling Permits and Online Filing Advanced SWR 38 WELL DENSITY EXCEPTIONS What triggers a SWR 38 density exception? Number of wells X the minimum acreage needed should be less than or equal to the lease/pooled unit acreage. 24

Drilling Permits and Online Filing Advanced RESOLUTIONS TO SWR 38 EXCEPTIONS • You are your own offset. • You have waivers from affected offsets. • Provide service list for 21 -day notification of affected offsets. • If unable to locate affected parties request to set up for publication of notice for 4 consecutive weeks. A signed statement must be provided by applicant stating that all possible means have been used to locate affected parties. 25

Drilling Permits and Online Filing Advanced RESOLUTIONS TO SWR 38 EXCEPTIONS: Continued • Unaffected status 1. Offset resides in another state or country 2. For larger leases/pooled units that affected offsets are more than 1 mile away from well location Ø Provide offset plat Ø Show 1 mile radius around well Ø Letter requesting Unaffected status for those offsets more than 1 mile away including drainage calculations for wells on the lease that will allow technical staff to determine if claim of unaffected 26 status is valid.

Drilling Permits and Online Filing Advanced RESOLUTIONS TO SWR 38 EXCEPTIONS: Continued Once notification has occurred with no protests then processing of application continues. 1. If no data is required then permit is administratively approved. 2. If data is required then RRC technical examiner will review the information you have provided. 27

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Drilling Permits and Online Filing Advanced EXAMPLE OF RESERVE CALCULATIONS 29

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Drilling Permits and Online Filing Advanced W-1 A CAN BE USED TO GET THE FIRST WELL ON A LEASE OR THE LAST WELL. 31

Drilling Permits and Online Filing Advanced HOW DOES THE W-1 A WORK • If the date that the tract took its size and shape is prior to the field rules going into effect a permit can be granted on sub-standard acreage. • If this is the last well on the lease and you have the specified tolerance acreage available and the tract took its size and shape prior to the field rules going into effect then a permit can be granted on substandard acreage. 32

Drilling Permits and Online Filing Advanced Important things to remember: Lease line spacing and between well determination based on BHL 33

Drilling Permits and Online Filing Advanced Important things to remember: Distance to the lease line and Lease linenearest spacing and between well spacing between well based on wellbore in thedetermination productive zonebased on BHL 34

Drilling Permits and Online Filing Advanced Important things to remember: • To ensure un-interrupted processing 1. Make sure you file a certified plat that clearly shows the affected offsets. 2. If filing in fields with special horizontal rules make sure that if you know an exception is needed that you manually flag your application. 3. Lastly call us if you have any questions before you file the application. 35

Contact Information 36