CHAPTER 21

Legal and Developmental Issues Involving Horizontal Drilling in The Appalachian Basin

Rex Burford West Virginia Oil and Natural Gas Association

with assistance from John H. Johnston Robinson & McElwee

Charleston, West Virginia

Synopsis

§ 21.01. Introduction and Overview.

[1]--History.

[2]--Current Interest.

[3]--Interstate Oil Compact Commission Resolution.

[4]--Current Regulatory Status in Appalachia.

[5]--New Regulatory Considerations.

[6]--Additional Technological Advancements.

[7]--Result of Technical Advancements.

§ 21.02. Definitions.

§ 21.03. Physical Factors Affecting Development.

§ 21.04. Legal Issues Involving Private Rights in Appalachia.

[1]--Implied Covenants.

[a]--Covenant of Reasonable Development.

[b]--Covenant to Protect Against Drainage.

[c]--Covenant of Reasonable Care and Due Diligence.

[d]--Summary.

[2]--Surface Trespass.

[3]--Subsurface Trespass.

§ 21.05. Recommendations for Modifications of State Oil and Gas Conservation Statutes and Regulations.

§ 21.06. Existing State Regulations.

§ 21.07. Appalachian Considerations.

[1]--Horizontal Drilling Activity to Date.

[2]--Status of Oil and Gas Conservation Statutes in the Appalachian

Basin States.

[3]--Maximum Drainage of Horizontal Wells.

§ 21.08. Application of Horizontal Drilling to Coal Bed Methane Development.

§ 21.09. Conclusion.

§21A. Appendix -- Summary of State Spacing Regulations for Kentucky, New York, Ohio, Pennsylvania, Tennessee,Virginia, and West Virginia.

§ 21.01. Introduction and Overview.

"The law is dragged kicking and screaming into the future." This well worn statement is appropriate in thecontext of the relationship of the current state of the law in Appalachia to the emerging practice ofhorizontal drilling. This Chapter serves two purposes. First, it is a survey of existing eastern state oil and gasconservation laws pertaining to horizontal drilling. Second, it is meant to be a useful tool to encouragediscussion about horizontal drilling and the developing body of law emerging from this rapidly advancingtechnology. Changes in existing state statutes and regulations will be necessary to accommodate theefficient and rapid assimilation of the new technological advances which are making horizontal drilling apractical means of producing oil and gas.

Horizontal drilling will require a reorientation of both legal and technical thinking about the process of oiland gas drilling. Mr. Joe Goetz, Manager of Technical Marketing for Halliburton Services, Inc., in preparedremarks at a March 1991 Symposium in Houston, Texas, on the subject sponsored by Gas Daily, noted thatthe concepts involve "Paradigm Shifts." That is, the "accepted" set of rules by which we operate are notalways correct. A small chart will illustrate the concept under conventional drilling vs. horizontal drilling.(1)

CONVENTIONAL (Vertical) HORIZONTAL

Top Beginning

Bottom End

Up Topside

Down Bottomside

Spacing Orientation

Target Zone Invaded Zone

Attorney Richard A. Counts of Kingsport, Tennessee, at the June 1990 meeting of the Interstate OilCompact Commission (IOCC) in Bismarck, North Dakota, aptly stated: "The most exciting technologies inthe world are of no use unless the regulatory framework is in place to allow the development of theseresources."(2) Estimates are that the number of wells drilled horizontally will continue to increase, asindicated in Illustration 1.(3)

[1]--History.

The idea of horizontal drilling is not new. One hundred years ago a patent was issued on a machine toaccomplish what is essentially horizontal drilling.(4) The first successful horizontal well was drilled in Texasin 1929.(5) Technological innovations in the

Illustration 1.

areas of formation evaluation, well performance, completion, testing, and stimulation have aided thepractical application of horizontal drilling.(6) About 1,200 horizontal wells were drilled in 1990, 900 in theUnited States.(7) This was a four-fold increase over 1989 and a huge increase over the fifty or so wells thatwere drilled in 1986.(8)

[2]--Current Interest.

In response to the National Energy Strategy (NES),(9) both the U.S. Department of Energy and the IOCChave expressed concern with the regulatory aspects of horizontal drilling, as indicated by the followingexchange of correspondence between the Chairman of the IOCC and the Secretary of the U.S. Departmentof Energy (DOE):

Dear Mr. Secretary:

The Interstate Oil Compact Commission (IOCC) was gratified that it was able to participate in the evolutionof your recent publication, National Energy Strategy. As you may recall, representatives of the IOCCtestified at several of the hearings and the staff provided additional input from time to time.

The document which was recently published is certainly comprehensive in addressing all of the areas ofpotential for achieving greater energy security for the American people. The oil and gas producing stateswould have preferred more aggressive initiatives in the area of expanding the resource base in order toreduce imports. If, however, those recommendations contained in the report are adopted by the Congress itwould represent a valuable first step towards a better policy.

At a recent meeting of the Governors and Official Representatives of the IOCC, we had an extended staffbriefing and discussion of those elements in the National Energy Strategy that were of particular concern. Iwould like to share with you the outcome of that discussion.

. . . .

[T]here are two references in National Energy Strategy which I wish to take up with you at this time inorder that we can receive clarification on them or perhaps be of assistance to DOE in the follow-up work tothe document.

Our first area of concern is found on page 82 in a discussion on horizontal drilling, which the statesrecognize as the brightest technological evolution occurring in the domestic oil and gas industry today. Thequotation that concerns us is:

However, in some cases State regulations impose barriers that inhibit horizontal drilling. Producers oftencannot undertake otherwise economical projects in States where oil and gas regulations do not take accountof horizontal drilling technology. Accordingly, the National Energy Strategy recommends that those Statesmodify their regulations, particularly the traditional rules governing minimum well spacing, drilling unitsize, and allowable production.

In accordance with the Strategy, the Department of Energy is evaluating industry and State actions relatingto horizontal drilling. The Department intends to work with industry and producing States to help removeregulatory barriers. The Department also will promote the transfer of horizontal drilling technology andinformation among producers.

The producing states are at somewhat of a loss as to the genesis of this categorical statement that "stateregulations impose barriers that inhibit horizontal drilling." First, all regulations inhibit something; that is thepurpose of regulations. Secondly, if the Department has evidence that undue regulations exist in the states,as is stated in the report, we would like some citations of specific examples. I am sure you are aware that itis as much to the states' interest to remove barriers and encourage production within their borders as it is tothe Department of Energy.

. . . .

Should anyone in the Department wish further information or seek greater cooperation with the oil and gasproducing states, ask them to please contact W. Timothy Dowd, the Executive Director, or any member ofthe headquarters staff.

You will recall that my predecessor as Chairman, Governor Sullivan of Wyoming, met with you lastSeptember in order that the states could work with the Department of Energy in making certain that as muchproduction as possible was generated by the states during the Persian Gulf crisis. DOE and the IOCC have along history of cooperation, one that we look forward to continuing as the future of the National EnergyStrategy evolves.

Sincerely,

/S/ Norman H. Bangerter,

GOVERNOR(10)

Dear Governor Bangerter:

I am pleased to respond to your letter of April 5, 1991, regarding two issues raised in the National EnergyStrategy (NES). Specifically, you questioned the basis for the NES initiatives relating to State regulation ofhorizontal drilling and natural gas production.

As your letter points out, the NES states that in some cases, State regulations impose barriers that inhibithorizontal drilling. The NES notes that the Department of Energy (DOE) intends to work with industry andproducing States to help remove those barriers. In addition, the NES refers to State regulation of wellheadactivities pertaining to gas production. The report states that the Department will study the impact of Stateregulation on natural gas production.

At the outset, I would like to emphasize that by including these initiatives in the NES, we did not intend toimply that States are deliberately creating barriers to horizontal drilling and natural gas production. Oil andgas producers have reported to DOE that they are generally pleased with the cooperation they are receivingfrom State regulatory bodies.

In the public hearings held as part of the NES process, producers informed the Department that widespread,increased use of horizontal drilling technology will require even more cooperation by State regulatorybodies. The need is for revised drilling rules that more effectively accommodate this particular technology.Producers claim that State regulations have not evolved parallel with either horizontal drilling technology or

the pace of drilling. To generate the investment needed to drill the greatest number of horizontal wells,producers contend that they need faster revision of field rules for spacing and production rates so that theeconomic opportunities can be maximized. For example, I am advised that the State regulatory bodies inMontana, Louisiana, and Colorado grant hearings on proposed horizontal well locations on a case-by-casebasis. Thus, if a company plans a drilling program of 10 wells in a particular reservoir, it must request aseparate hearing for each horizontal well. The reluctance of some States to issue temporary or permanentstate-wide rules, which would eliminate the need for individual hearings, occasionally results in drillingstart-up delays of 3 to 12 months. These delays add substantially to the cost of drilling programs.

Another regulatory problem faced by producers relates to the process used to determine well spacing. For avertical well, the operator calculates a drainage area within a few months after commencement ofproduction. Based on that information and the applicable drilling rules, the State then issues a well spacingdetermination. However, this procedure is not suitable for horizontal wells. They physical length ofhorizontal well bores, and the greater volumes of oil drained, create the need for larger well spacing.Producers usually need at least 12 to 18 months of production to be able to provide the State withcalculations showing the full extent of the larger drainage area. I am advised that some States do not providethis additional time to operators before issuing decisions on well spacing. In addition, producers claim thatsome States are hesitant to grant a larger drilling unit for only one horizontal well because those Statestraditionally would have required the operator to drill additional wells on that unit. Producers contend thatthey should not be required to drill additional wells prematurely in order to hold the acreage, particularlywhen the additional wells may not be economical. Producers are requesting that the States initially grantlarger drilling units containing one horizontal well. If a second well is warranted, it can be drilled later.

. . . .

I appreciate the participation of the IOCC in the development of the National Energy Strategy, and I lookforward to your continued involvement in the implementation of the NES. Sincerely,

/S/ James D. Watkins, Admiral,

U.S. Navy (Retired).(11)

In this correspondence between the IOCC and the Department of Energy, reference is made to the fact theNational Energy Strategy contains statements that some existing state regulatory structures enacted prior tothe introduction of this technology inhibit the development of horizontal drilling.

[3]--Interstate Oil Compact Commission Resolution.

At the mid-year meeting of the Interstate Oil Compact Commission held in Bismarck, North Dakota, onJune 17-20, 1990, the following resolution was adopted:

WHEREAS, the Interstate Oil Compact Commission has previously supported of [sic] the utilization ofhorizontal drilling methods to enhance production of this country's oil and gas reserves; and

WHEREAS, the Interstate Oil Compact Commission has urged the states to review their statutes andconservation regulations to make certain they do not impede the utilization of horizontal drilling; and

WHEREAS, many of the states have been or are in the process of reviewing their existing conservationcodes and regulatory provisions so as to encourage and accommodate horizontal drilling while continuing toprevent waste and protect correlative rights;

NOW, THEREFORE, BE IT RESOLVED that the Interstate Oil Compact Commission hereby:

1. Encourages its member States to adopt changes to present statutory and regulatory provisions, asnecessary, to provide the oil and gas industry with the opportunities to further develop the rapidly advancingtechnology of horizontal drilling; and

2. That the IOCC, working in conjunction with the state regulatory agencies, document the knowledgegained through experience by operating and service companies in their horizontal drilling operations andestablish a common data base that can be utilized by producing states.

The Resolution was adopted after a lively discussion concerning the advances in the Bakken Shale in NorthDakota and the Austin Chalk in Texas. Enthusiasm was prevalent throughout the meeting. Since that time,development of regulatory modifications which will accommodate horizontal drilling has been minimal inthe twenty-nine member states and six associate states of the IOCC. Exceptions have been Texas,Oklahoma, North Dakota, Wyoming, and Michigan.

[4]--Current Regulatory Status in Appalachia.

Of the states in Appalachia, only Tennessee has any laws specifically addressing horizontal drilling. SeveralAppalachian states do have statutes and rules regulating well spacing and oil and gas conservation, but thesewere designed for more traditional drilling techniques.(12)

[5]--New Regulatory Considerations.

New regulations for horizontal drilling require careful evaluation of the potential technical aspects of thetechnology to prevent the waste of oil and gas, to protect correlative rights, and to protect environmentalconcerns.(13)

As a cogent body of statutes, rules, and regulations are developed for this rapidly expanding technology, thelaw and technology should advance together.(14) Often in the past, the law has taken too long to catch upwith technological change. As a matter of national energy policy and overall efficiency, the potential returnsfrom horizontal drilling technology are so much greater than from conventional vertical drilling that allreason dictates an expedited approach to its implementation. Cooperation in the field between the technicaldisciplines involved ­ geologists, engineers, and drilling contractors ­ has provided a more united effort. Onthe regulatory side, mechanisms must be established rapidly to accommodate new technologies developedfor horizontal drilling.

[6]--Additional Technological Advancements.

The following areas of potential technical advances will require consideration in any new regulatoryscheme:

Enhanced Reservoir Understanding. Enhanced reservoir understanding will bring concomitant legalcomplexities in determining units and spacing parameters.(15)

Long Term Hole Sealing Technologies. Long term sealing technologies are relatively crude by verticaldrilling standards. As completion techniques become more sophisticated, producing areas will increase.(16)

Horizontal Extensions Over 5,000 Feet. Horizontal extensions over 5,000 feet have been made in the AustinChalk formation in Texas.(17) Any regulatory scheme needs to contemplate the possibility of increasedlateral extension.(18)

Steerable Drilling Systems. Steerable drilling systems will increase in capacity and capability and allowunique drilling possibilities.(19)

Multiple Laterals. Multiple laterals that fork from a common center or on legs from the primary verticalborehole offer new opportunities for both new wells and recompletions.(20) Any regulatory approach shouldcontemplate the various geometric configurations possible with horizontal drilling.

Illustration 2.

Air Drilling. The application of air drilling (pneumatic) for horizontal wells in Appalachia will be ofincreasing importance as it historically has been for vertical wells. The EMWD (electronic measurementwhile drilling) technology for air drilling is still being perfected.(21) Because development to date in theAustin Chalk formation in Texas has emphasized mud drilling systems rather than air systems, the MWDinstruments primarily in use are for mud drilling systems. These mud measuring systems presently do notwork very well in air drilling applications.(22) Development of air drilling technologies for use in horizontaldrilling applications will help spread the use of this type of drilling throughout Appalachia and necessitatenew laws to accommodate its use.(23)

SRMs (Short Radius Motors). SRMs enable the drilling process to turn to horizontal in increasingly shorterdistances, currently within 200 feet.(24) The distance dedicated to the radius has an effect on any regulatoryscheme. Regulatory solutions which contemplate only longer radii will place inalterable conditions onspacing patterns and result in condemned acreage and wasted resources.(25)

Hydraulic Fracturing Systems. Hydraulic fracturing systems will be developed to accommodate the adventof long drain holes.(26) Enhancement of the areas to be drained by fracturing improvements will alsomandate contemplation of increased drainage possibilities.

[7]--Result of Technical Advancements.

Technical advancements in horizontal drilling will reorient thinking concerning oil and gas wells. This willaffect the existing common law interpretations of what has heretofore been settled "mining law" andnecessitate changes to accommodate the new advances.(27)

For example, horizontal drilling may be applicable to removing coal bed methane gas. The Honorable NickJoe Rahall II (W. Va.) has recently introduced House Resolution 1078 which would divide the ownership ofthis resource equally (1/3 share each) among the oil and gas estate, the coal estate, and the surface estate,absent some form of state action determining ownership disputes.

Aliquot Apportioning of Royalty Payments. The aliquot apportioning of royalty payments will no doubtbecome much more vexatious because of disputes involving the physical location of the source ofproduction and the increasingly reliable ability to define physical reservoir boundaries. A participationformula allocating production on a basis other than surface acreage could occur. A formula based, forexample, upon the actual physical parameters of the producing formation would result in increasingcomplexity. One commentator cautions that good sense here dictates avoiding trouble by leaving wellenough alone.(28)

Surface Owner Damage Statutes. The surface owner damage statutes enacted in several jurisdictions provide

tacit approval of the surface owner's rights in modern drilling ventures and, in part, serve as a device toblunt direct attacks on the lessee's authority.(29) Whether the scope of these statutes will cover this newtechnology remains to be seen.

Virginia Oil and Gas Law. Virginia oil and gas law, as recently reenacted,(30) and pertaining to coal bedmethane development in particular,(31) gives further credence to the changing emphasis on the privilegesstill inherent in the coal estate.(32) Coal development may be enhanced. Horizontal drilling removes theneed to maintain as many coal pillars as is required with conventional vertical well development. This canreduce the potential number of vertical penetrations of the coal seam. Realization of this potential by coaloperators means demands on oil and gas operators for fewer wells and further restrictions on the exercise ofgeneral common law rights for drilling in and through coal seams.

Existing Oil and Gas Lease Applicability. Perhaps most important is whether or not existing oil and gasleases even permit the use of horizontal drilling technology. Could an adventurous lessee with fresh leaseswho is prepared to cope with the new technical and environmental burdens placed on the mineral estate byhorizontal drilling effect an ouster of the present lessee?

At least one recent case indicates old leases in mature areas are a vanishing breed. A $29 million dollarjudgment was rendered against Columbia Gas Transmission Corporation in the Circuit Court of KanawhaCounty, West Virginia, where production in paying quantities under a drill or pay lease was found to haveceased before the expiration of the primary term.(33) A cancellation this dramatic, even if under almostcertain appeal, and even if not directly applicable, will open the gates for more litigation and will providenew opportunities for those adventurous enough to seize them.

§ 21.02. Definitions.

The definitional aspects of this technology are of particular importance. Many new and challengingdefinitions, mostly derived from the technological changes, are necessary to describe horizontal drilling.These terms will eventually become legal "words of art."

Horizontal drilling is almost a self-descriptive term. A well is drilled vertically then turned and drilledhorizontally through the producing interval. Horizontal drilling should not be confused with "slant" or"deviated hole" drilling. Horizontal drilling essentially turns the wellbore to an approximate 90 degree angleto vertical and drills along the path of the producing formation. Slant drilling is more conventional; theexisting wellbore deviates from a true vertical path. A horizontal well bore can deviate as the producingformation deviates and, in effect, "porpoise" to follow the desired formation. Another term, "high angle," isused for wells drilled close to a 90 degree angle. Other terms are described in Illustrations 3 and 4.

The following definitions should facilitate an understanding of the process of horizontal drilling:

Horizontal Well (horizontal drainhole well). A horizontal well or "horizontal drainhole well" is notconceptually difficult to imagine. Horizontal wells are typically classified by the radius of turn of thewellbore. Generally, three variations are recognized: "Short radius" wells have build rates (the angle of turnper length of arc) of 1.5 to 3 degrees per foot and horizontal extensions of

Illustration 3.

Illustration 4.

short distances due to torque and drag limitations on the equipment; "medium radius" wells have build ratesgenerally of 8 to 20 degrees per 100 feet; and "long radius" wells have build rates of 2 to 6 degrees per 100per feet.(34)

A "horizontal well" as defined in Wyoming's rules and regulations is "a wellbore drilled laterally at an angleof at least eighty (80) degrees to the vertical with a horizontal projection exceeding one hundred feetmeasured from the initial point of penetration into the productive formation through the terminus of thelateral in the same common source of hydrocarbon supply."(35)

In Rule 86 of the Texas Railroad Commission, a "horizontal drainhole" is defined as "[t]hat portion of thewellbore drilled in the correlative interval, between the penetration point and the terminus."(36)

The Oklahoma Corporation Commission's proposed definition of a "horizontal well" is "a well drilled,completed or recompleted, in a manner in which the horizontal component of the completion interval in thegeological formation exceeds the vertical component thereof and which horizontal component extends aminimum of one hundred fifty feet in the formation."(37)

The following definitions, unless otherwise noted, are those used in the Texas Railroad Commission's Rule86.

Correlative Interval. "[T]he depth interval designated by the field rules, by new field designation, or, wherea correlative interval has not been designated by the commission, by other evidence submitted by theoperator showing the producing interval for the field in which the horizontal drainhole is completed."

Horizontal Drainhole Displacement. "[T]he calculated horizontal displacement of the horizontal drainholefrom the penetration point to the terminus."

Penetration Point. "[T]he point where the drainhole penetrates the top of the correlative interval."

Terminus. "[T]he farthest point required to be surveyed along the horizontal drainhole from the penetrationpoint and within the correlative interval."

Directional Survey. "[T]hat survey or report showing the location of any point of the wellbore as it relates tothe surveyed surface location from the surface to the terminus of each lateral."(38)

Date of First Production. "[T]he date hydrocarbons are first produced from the horizontal well, whether ornot production occurs during drilling, completion or through permanent surface equipment."(39)

Gas-Oil Ratio. The number of cubic feet of gas produced per barrel of oil produced.(40)

§ 21.03. Physical Factors Affecting Development.

Various physical factors affect the development and productive capability of horizontal drainholes. Amongthose considerations are:

(1) Length of lateral,

(2) Radial vs elliptical reservoir patterns,

(3) Irregular reservoirs (thickness),

(4) Orientation of well bore (direction),

(5) Vertical radius of well bore, and

(6) Developing dimensions, including

(a) Multi-drainholes (multi-branched or legs),

(b) Dual Leg or Layered Drainholes (See Illustration 5),

(c) Dogleg drainhole, and

(d) Communicating drainholes (two-surface locations connected by two horizontal drainholes).

§ 21.04. Legal Issues Involving Private Rights in Appalachia.

As an obvious caveat, the language of any lease should be examined in light of horizontal drillingtechnology.

[1]--Implied Covenants.

Oil and gas leases are interpreted to contain implied covenants. The covenants typically include (1) thecovenant to drill an initial exploratory well, the covenant to protect the leasehold from drainage, thecovenant to reasonably develop the premise, the covenant to further explore the premises, the covenant tomarket the product, and the covenant to conduct all operations on the leasehold that affect the lessor'sroyalty interest with reasonable care and due diligence.(41) Several of the implied covenants ­ especially thecovenants of reasonable development, protection against drainage, and diligent and proper operation of thelease ­ can be operate in the application of horizontal drilling technology to existing leases in Appalachia.

[a]--Covenant of Reasonable Development.

The covenant of reasonable development is premised upon an economically motivated operator fullydeveloping the lease within

Illustration 5

a reasonable time. Developing the lease provides the lessor with royalties. The lessee is under no duty todevelop, however, unless a reasonable expectation of profit exists.(42) The covenant is concerned withfurther drilling in known producing formations(43) and applies only after production has been obtained.(44)

Even though horizontal wells cost more than twice as much as a traditional well, one horizontal well can"tap five times the amount of reserves" of a conventional vertical well.(45) The ability of horizontal wells toincrease production and reserves holds the potential to set a new standard for the covenant of reasonabledevelopment. Many areas of Appalachia contain known areas of production and dwindling reserves. Thepotential for a horizontal well to make these older areas economically feasible once again is not difficult toimagine.

[b]--Covenant to Protect Against Drainage.

Similarly, the covenant to protect against drainage can be applicable. It has been held that the covenant toprotect from drainage extends to "field-wide drainage."(46) In West Virginia, the Rule of Capture isapplicable to shallow wells. An operator in West Virginia, at least, might be faced with the prospect ofbeing forced to develop a lease by horizontal drilling to protect the lease from drainage by an adjacenthorizontal well.

[c]--Covenant of Reasonable Care and Due Diligence.

The implied covenant to conduct operations on and manage the leasehold estate with reasonable care anddue diligence is a catchall obligation.(47) One of the four categories of disputes that can fall within thiscatchall is the lessee's failure to maximize recovery from the leasehold by not using advanced productiontechniques.

This covenant could include an obligation to develop a lease with a horizontal well. Waseco Chemical &Supply Co. v. Bayou State Oil Corp.(48) held that a lease could be canceled because of an operator's failureto employ new recovery techniques. This case is somewhat unusual in that the only method for producingthe field in question was the particular type of secondary recovery method employed.(49) In Wadkins v.Wilson Oil Corp.,(50) the same court held "that the lessee would develop the leased premises according tothe recognized customs and progressive practices among operators in the field." In Wadkins, the courtcanceled the lease for breach of the implied covenant to develop when the lessee failed to drill wells into achalk formation from which oil could be produced after acidizing the wells. It was immaterial that acidizingwas an unknown process when the lease was executed so long as the evidence showed that the drilling andacidizing operations would result in paying production at the time of trial. Assuming the economics arefavorable, horizontal drilling may offer a new standard for measuring whether an operator is operating alease diligently and properly.

[d]--Summary.

In summary, the interface between horizontal drilling capability and the implied covenants may have seriousimplications for lessees. A horizontal well has the potential to be profitable even though a vertical well onthe same lease might not be. In addition, absent some type of compulsory spacing and pooling requirements,a horizontal well could be required to protect against field drainage. These types of regulations are notcurrently in place or practiced throughout most of Appalachia.

[2]--Surface Trespass.

The very nature of horizontal drilling presents several issues involving surface trespass. If, for example, awell is located on the surface of a tract under which no mineral production will occur, is the permission ofthe surface owner of that non-producing tract required in order to locate the surface operation upon thetract? Case law holds generally that the surface of one tract may not be used for mineral production from anadjacent tract without the permission of the surface tract owner.(51)

[3]--Subsurface Trespass.

The general rule is that an underground trespass by a slanted hole is subject to injunction; damages may berecovered for the products converted.(52) Similarly, horizontal wells can consitute subsurface trespass andthe usual legal remedies should be available as a means of redress. Locating horizontal wells as finallycompleted by appropriate logs and surveys could stem subsurface trespass issues.

§ 21.05. Recommendations for Modifications of State Oil and

Gas Conservation Statutes and Regulations.

In the exchange of letters between the USDOE and the Chairman of the IOCC, and in the National EnergyStrategy itself,(53) several points of concern can be gleaned regarding possible infirmities in current statutesregulating drilling activities:

(1) Problems with pooling before drilling;

(2) Problems with pooling after drilling;

(3) Slowness associated with case-by-case determinations; and

(4) Requirements for premature drilling of horizontal wells to hold acreage.

The resolution at the 1990 mid-year meeting of the IOCC(54) also recognized that much needs to be done inthis regard.

Other ideas for enhancement of this technology include:

(1) The Arkansas experience of one free exploratory well unencumbered by hearing delays;(55)

(2) Retaining the right in the regulatory agency to run gas-oil ratio (GOR) tests to determine relative levelof reservoir energy;(56) and

(3) Allowing for error in the tools as a way to accommodate minor errors in the actual operation of theequipment.(57)

A noted writer on the subject has recommended regulations that the following be considered in developinghorizontal well legislation and regulations:

(1) Use of the optimum horizontal well lengths;

(2) Selection of the optimum direction;

(3) Spacing units based on true drainage area for the wells;

(4) The optimum producing rates;

(5) Flexibilities that allow for changes in optimum well length as drilling technology advances; and

(6) Secondary and tertiary recovery operations.(58)

§ 21.06. Existing State Regulations.

Texas. The Texas Railroad Commission (Commission) adopted its Rule 86 on April 30, 1990.(59) Rule 86 isa statewide rule intended to diminish the need for special field rules and to provide a regulatory frameworkfor the issues presented by horizontal drilling.(60) Rule 86 is premised on production from a homogenousreservoir with a radial drainage pattern.(61) The assumed final drainage pattern appears in the shape of a

cigar, as is shown in Illustration 6.

The Commission calculated the sum of the area of the two semi-circular ends and the middle rectangle toarrive at an acreage assignment.(62) The minimum lateral wellbore for a well to be classified as a horizontalwell is 100 feet.(63) The Rule is intended for oil production. While applicable to gas production, the Ruledoes not accommodate the larger areas drained by gas wells.(64)

Eliminating the need for a hearing and presentation of evidence for each drill site was part of the rationalebehind the adoption of Rule 86.(65) The Rule is not inflexible. The acreage assignment can be adjustedwhere evidence indicates that adjustment is warranted.(66)

Illustration 6

For example, an acreage multiplier is being allowed on a temporary trial basis in the Pearsall (Austin Chalk)field.(67)

Rule 86 addresses the acreage assignment and spacing requirements necessary for the completion of ahorizontal well. The Rule also allows for multiple drainholes.(68) The Rule does not attempt to answer thepermutations of parallel drainholes and multi-layer drainholes.(69)

Michigan. Michigan has implemented a special hearing procedure for horizontal drilling.(70)

Illinois. Illinois has not yet undertaken any specific provisions to accommodate horizontal drilling.(71)

Oklahoma. Oklahoma has proposed rules for spacing, pooling, drilling, and producing horizontal wells. Theproposals will be submitted to the Governor and the legislature for approval, and if approved will becomeeffective July 1, 1991.(72)

North Dakota. North Dakota has retained the basic concept of rectangular spacing for horizontal wells.(73)

North Dakota also granted incentives in the form of temporarily reduced severance taxes, flexible spacingrules, full production, and a streamlined permitting process to test the horizontal well potential.(74) (A June12, 1991 hearing was scheduled to consider spacing of horizontal wells for shallow well situations.(75))

Montana. Montana has developed no special rules for horizontal drilling.(76) The maximum size of spacingis 320 acres. In the Red River area, horizontal wells drilled to date have fit within that spacing.(77)

Provisions do exist for exceptions.(78) The Montana Board of Oil and Gas Conservation treats horizontalwells as a single wellbore and allows two wildcat drilling units to be considered as one unit for the purposeof drilling a horizontal well.(79)

New Mexico. Horizontal wells continue to be permitted on an individual basis. No special rules have beenpromulgated to date.(80)

Wyoming. Wyoming has addressed the issue of horizontal drilling in the "Rules & Regulations of WyomingOil & Gas Conservation Commission" dated August 7, 1990. Only a few provisions of the existing rules andregulations were modified to accommodate horizontal wells.(81) A horizontal well is defined in the rules.(82)

Wyoming requires that directional, deviation, and or measurement-while-drilling (MWD) surveys besubmitted to the Commission. In the absence of special orders, spacing of horizontal wells is in accordancewith established procedures.(83) Wyoming also requires that any owner within one-half mile from thesurface to the terminus of the wellbore receive notification of the application for the permit to drill.(84) Thedeviation, direction, and any MWD survey is not confidential.(85)

§ 21.07. Appalachian Considerations.

[1]--Horizontal Drilling Activity to Date.

Thus far, the only modern horizontal drilling activity in Appalachia has been conducted in connection withUSDOE and industry sponsored research into drilling in the Devonian shale. Albert B. Yost, II, in anundated paper has observed:

Since 1986, DOE/METC has been investigating the improvements in gas production from Devonian Shalein the Appalachian Basin through the use of multiple hydraulic fracturing of long horizontal wells. Fourwells have been drilled at carefully selected sites. All four wells have demonstrated improvement in initialgas production rates of 3-to-11 fold compared to vertically stimulated gas wells adjacent to the wellsite. Theamount of improvement in total gas produced over the entire life of these wells remains to be verified bylong term production but initial results are encouraging.

The objective of verifying improved gas production by these test wells has been achieved for initialproduction. From an economic point of view, only one of the four test wells has been proclaimed by theoperator (Columbia Gas) as a "commercial well" with an 11-fold increase in initial production rate.

The original premise of this effort was to utilize on-the-shelf horizontal drilling technology to demonstrateimproved gas recovery. However, after drilling the first well it became obvious that the drilling technologyfor air drilling of horizontal wells was not well-developed by the oil field service industry. Through DOEsupport new technology was developed by producers and the service industry in order to reduce the cost.Drilling-related costs for the initial well was 5 times the costs of vertical wells in the area. Costs for themost recent well drilled with Consolidated Gas were only three times that of a vertical well. Other specificaccomplishments include demonstrating a five-fold increase in downhole drill motor life and directionalsteering tool life from the first well to the fourth test well using air drilling technology.

This DOE research program has been able to demonstrate a learning curve to operators in the AppalachianBasin by utilizing the same consultant team to work with all the operators to foster direct technologytransfer.

From a national perspective, horizontal drilling costs for oil production have been reduced substantially byseveral operators who have 10 to 20 well programs in selected fields. These learning curves are typicallyunique to the specific reservoir being tested and also related to the drilling contractors' techniques andoperators' technical programs for accomplishing the work.

Technological and cost barriers have been identified that prevent full commercial use of the oil reservoirtechnologies in Devonian Shale. Methods to improve directional drilling rates in making the turn fromvertical to horizontal need to be developed and measurement-while-drilling methods need to be improved toprovide better directional control during horizontal drilling. Furthermore, reliable directional horizontaldrilling systems need to be developed combining these different components in order to reduce the time itcurrently takes to drill these wells from typically 20-25 days to 10-15 days hence reducing the current costratios even further. The air horizontal drilling technology, developed as a secondary spinoff of these fourhorizontal gas recovery tests, is now being applied by operators engaged in drilling directional wells using

air drilling in the Appalachian Basin, east Oklahoma, Midland, Texas area, and Alberta, Canada.

SUMMARY OF DOE

HORIZONTAL DRILLING RESULTS

EASTERN GAS SHALES SUBPROGRAM(86)

Drilling

Well Completion Flow Rate (Av.Vert. Production

Location (Co.) Date (This Well) Well) Enhancement

Wayne, WV 12/18/86 65 MCFD(2) 13 MCFD 5.0

Putnam, WV 12/29/89 125 MCFD 40 MCFD 3.1

Martin, KY 08/14/90 3100 MCFD 270 MCFD 11.5

Calhoun,WV 12/12/90 N/A 83 MCFD (1)

(1) This well has not yet been stimulated.

(2) MCFD = One thousand cubic feet per day."

The length in the horizontal interval of the first well in Wayne County, West Virginia was approximately2,000 feet.

As the technology becomes proven and, therefore, less expensive, Appalachia offers potential for widespreadapplication for horizontal drilling for several reasons. First, Appalachia contains large numbers of "stripperwells" (those with less than 60 Mcfd production)(87) as indicated in Illustration 8. These wells, though small,are still producing and are in proven production areas. The potential to redrill existing proven formationshorizontally for the remaining reserves exists where the economics are favorable. Second, there is thepotential to drill the Devonian shale formation horizontally. For example, in West Virginia, the success ratefrom

Illustration 7.

drilling more than 4,900 Devonian shale wells over the past twenty years has been better than ninetypercent.(88) The nature of this and other proven formations holds potential for horizontal drilling in largeareas of Appalachia.

Of the five wells drilled under the METC program, four are in West Virginia and one is in Kentucky. Onewell in Jackson County, West Virginia, is a sharply deviated well in the Devonian shale and is therefore notincluded in the previous summary as a horizontal well. Historically, a total of twent-one horizontal wellshave been drilled in the Appalachian area.(89) Interestingly, two of these are classified as "coal bedmethane" wells.

[2]--Status of Oil and Gas Conservation Statutes in the

Appalachian Basin States.

In this historic area, the cradle of oil and gas exploration, a wide variety of "spacing" laws have beenwritten over the years. Usually, if they apply at all, spacing laws have been crafted to regulate well locationbased on distance from another producing well in combination with minimum distances from lease lines.(90)

This practical solution to what had historically been considered shallow well drilling has maintained peacein the oil patch.

As a survey only, and not as an exhaustive analysis of each state's statutes, regulations, and the practicalapplication of their respective regulatory scheme, Appendix A to this Chapter is offered as an opening forthe problems these states will face with

Illustration 8

the application of their existing systems to horizontal exploration.(91) This practical solution to what hadhistorically been considered shallow well drilling has maintained peace in the oil patch.

As a survey only, and not as an exhaustive analysis of each state's statutes, regulations, and the practicalapplication of their respective regulatory scheme, Appendix A to this Chapter is offered as an opening forthe problems these states will face with the application of their existing systems to horizontal exploration.(92)

Most of the states work on the historic rule of capture,(93) largely unhampered by any production allowabledeterminations. Several states, notably West Virginia, Virginia, Kentucky, and Pennsylvania, are large coalproducing states and various statutory provisions have been crafted to comply with the realities of coal, oil,and gas production or potential production in the same area.

No real effort is made to describe this coal/oil-and-gas regulatory interface in this Chapter.(94) Further, lawsenacted primarily for gas production may need to be different than those enacted for oil production.

[3]--Maximum Drainage of Horizontal Wells.

An article by Dr. S. D. Joshi is an excellent introduction to the methods used to calculate the area drained byhorizontal wells.(95) The article states two reasons for obtaining higher ultimate reserves from horizontaldrilling: (1) the increase in the drainage area and (2) increases in the recovery factor.(96) The calculationsare extremely complex, but, "[a]s a rule of thumb a 1,000 foot long horizontal well can drain twice the areaof a vertical well, while a 2,000 foot long well will drain three times a vertical well, in a given time."(97)

With the potential to drill 5,000 foot wells in the not too distant future, it behooves regulated and regulatoralike to re-examine the existing provisions and allow for these developments. The technical key to much ofDr. Joshi's discussion is understanding areal anisotropy and its relationship to the low and high permeabilitysides of the reservoir.

The blending of horizontal well technology with enlightened statutory and regulatory provisions will allowthe implementation of horizontal drilling techniques for the maximum benefit and efficiency of allconcerned. The real beginning point for creating a regulatory framework that efficiently and fairly

encompasses horizontal drilling is the realization that horizontal well drilling was not contemplated whenexisting statutory and regulatory provisions were enacted.

§ 21.08. Application of Horizontal Drilling to Coal Bed

Methane Development.

Coalbed methane extraction is surrounded by many issues: (1) ownership, (2) consent of the coal operator,(3) produced fluid disposal options, (4) extension of the Section 29 tax credit,(98) (5) hydraulic fracturingtechniques for coal seams, and (6) new technologies, such as horizontal drilling from surface wells into thecoalbed.(99) It has been observed that horizontal drilling "may be a catalyst for the fledgling coal gasproduction industry."(100) While one recent report estimates a 500% increase in coalbed methane wells inthe Appalachian basin, currently only 115 have been drilled, and only an estimated 60 of those areproducing now.(101) Only two of these wells have been surface drilled horizontal wells, according to AlbertB. Yost, II, Project Manager for Eastern Gas Shales, Department of Energy, Morgantown EnergyTechnology Center. Little attention has been given to the regulation of coalbed horizontal wells. The wellspacing scheme in Virginia(102) does deal with coalbed methane production, but contemplates vertical wellsonly. To date there have been no practical applications of horizontal wells drilled from surface wells. Anumber of horizontal boreholes have been used in Alabama's Black Warrior Basin but these have beendrilled from the coal face and are not conventional surface wells.(103)

As a subset of horizontal technology, it is certainly realistic to anticipate horizontal drilling of coalbedmethane wells from the surface. A special area of conservation law could be established in this regard,particularly in the Appalachian basin. It is more realistic to expect a practical resolution of this issuebetween the coal and gas operators.

Due to the costs associated with surface drilling efforts, it is reasonable to expect fracturing of the coalseams will become a part of the debate in any coalbed methane drilling scheme. A recent report concluded:"It is impossible to guarantee that a stimulation treatment in a coalbed will not adversely affect mining insome way. However, the underground evidence from the 22 case studies summarized in this report suggeststhat the probability of adversely affecting mining conditions is minimal."(104)

Mr. Charles W. Byrer, Unconventional Gas Projects Branch, USDOE, Morgantown, W. Va. is of theopinion that two limiting factors, thinner coal seams in the east and topography, would have much to dowith the ability to site and drill surface horizontal wells in the Appalachian Basin.(105)

§ 21.09. Conclusion.

In reviewing all of the foregoing material, it is necessary to reflect on a legislative phenomena known as"grandfathering," i.e., when activity pursued prior to appropriate (or inappropriate) legislation will beconstrained, limited, or otherwise impacted by subsequent legislative developments. With the virtualexplosion of horizontal (and deviated) well activity, a great opportunity exists for the unorganizeddevelopment of oil and gas by means of horizontal drilling. Before a census of wells develops in theAppalachian region, orderly development can be effected. This observation is, of course, implicit throughoutthis Chapter. It is axiomatic that the more wells drilled outside of any cogent regulatory scheme (even withinexisting guidelines), the more any subsequent change or attempted change will bring serious, if not intense,opposition from those who hold existing operations.

To maximize the potential for horizontal wells, we will need field rules that allow us to drill them in theoptimum direction and provide adequate lateral spacing between parallel wells. To drain the entire reservoir

we are going to need to permit closer end to end spacing for horizontal wells than is commonly allowed forvertical wells.(106)

§ 21A. Appendix -- Summary of State Spacing Regulations for

Kentucky, New York, Ohio, Pennsylvania, Tennessee,

Virginia, and West Virginia.(107)

Kentucky.

1. Spacing requirements: yes

a. Density:

Shallow wells: oil well, 660 feet between producing wells and 330 feet from boundary; gas well, 1000 feetbetween producing wells and 500 feet from the boundary.

Special rules for oil wells less than 2,000 feet deep.

Deep oil wells: well less than 7,000 feet, 536 feet from boundary inside a 1,750 foot square; well greaterthan 7,000 feet, 766 feet from boundary inside a 2,500 foot square.

Deep gas wells: well less than 7,000 feet, 1,077 feet from the boundary inside 3,500 foot square; well morethan 7,000 feet, 1,532 feet from boundary inside a 7,000 foot square.

Deep/Shallow division line at 4,000 feet except east of longitude 84 30'. "Shallow well" means any welldrilled and completed at a depth less than 4,000 feet or above the base of the lowest member of theDevonian Brown Shale, whichever is the greater depth.

2. Exceptions: yes

a. For tracts that are so situated that they have do drillable site;

b. Adjustments made on deep wells by conservation commission.

New York.

1. Spacing requirements: Yes. No specific distinction is made between oil and gas wells.

a. Density: 40 acres or in the center of a circle having a radius of 660 feet, subject to change underprovision of a spacing order.

b. Lineal: 660 feet from the boundary line of any lease or unit and 1,320 feet from any other producing wellcompleted or being drilled to the same pool. Wells along the New York/Pennsylvania border have a reducedminimum setback distance of 330 feet to meet Pennyslvania's requirements. A spacing order promulgatedafter a hearing supersedes statewide spacing provisions.

2. Exceptions: Yes.

a. Basis: Reasonable exceptions to protect correlative rights and prevent waste.

b. Approval: Typically, by proper application and public hearing. Some exceptions may be grantedadministratively after proper notice and if no objections are filed. For municipal variances the hearing maybe waived where no objection has been filed by a certain date before the scheduled date of the hearing, nofacts are disputed, and the Department does not object. Production from such a well may be adjusted.

c. Oil fields or pools discovered, developed, and operated prior to 1/1/81 are exempt from spacingrequirements.

Ohio

1. Spacing requirements: Yes. No specific distinction is made between oil and gas wells.

a. Density: Wells drilled to a pool from zero to 1,000 feet in depth require a tract or drilling unit containingnot less than one acre.

Wells drilled to a pool from 1,000 to 2,000 feet in depth require a tract or drilling unit containing not lessthan 10 acres.

Wells drilled to a pool from 2,000 to 4,000 feet require a tract or drilling unit containing not less than 20acres.

Wells drilled to a pool from 4,000 feet or deeper require a tract or drilling unit containing not less than 40acres.

b. Lineal: Wells 0 to 1,000 feet in depth must be located not less than 200 feet from any well drilling to,producing from, or capable of producing from the same pool. Well must be located not less than 100 feetfrom any boundary of the subject tract or drilling unit.

Wells 1,000 to 2,000 feet in depth must be located not less than 460 feet from any well drilling to,producing from, or capable of producing from the same pool. Well must be not less than 230 feet from anyboundary of the tract or drilling unit.

Wells 2,000 to 4,000 feet in depth must be located not less than 600 feet from any well drilling to,producing from, or capable of producing from this same pool. Well must be located not less than 300 feetfrom any boundary of the tract or drilling unit.

Wells 4,000 feet or deeper must be located not less than 1,000 feet from any well drilling to, producingfrom, or capable of producing from the same pool. Well must be located not less than 500 feet from anyboundary of the tract or drilling unit.

2. Exceptions:

a. Basis: For offset wells and if an applicant can demonstrate that an exception will protect correlative rightsor promote conservation by permitting oil and gas to be produced which could not otherwise be produced.

b. Approval: Exceptions can be granted by the Chief. Establishing temporary minimum well spacing in thevicinity of discovery wells requires approval of the Technical Advisory Council.

Pennsylvania.

1. Spacing requirements: Act (OGA): None. RCA: Wells must be at least 1,000 feet from any other well and330 feet from the tract boundary. OGCL: Operator may apply for a spacing order pursuant to Section 7 ofthe Act. Also, a well location must be at least 330 feet from the boundary of the tract or unit.

2. Exceptions under RCA: Yes.

a. Basis: Minimum spacing may be as little as 900 feet where permit applicant and owner of workable coalseam consent; exceptions to 330 foot requirement from tract boundary may be granted pursuant to Section 7.

b. Approval: Department of Environmental Resources.

Exceptions under OGCL: Yes, if the well would not be likely to produce in paying quantities, if there areadverse surface conditions, or if coal operators have objected and a well is prohibited in a certain area.Section 7.

Approval: Department of Environmental Resources.

Tennessee.

1. Spacing requirements: yes.

a. Density:

Oil wells: 0-1,000 feet, 10 acres; 1,001-2,000 feet or to the base of the Devonian Chattanooga Shale,whichever is deeper, 20 acres; more than 2,000 feet or below the base of the Devonian Chattanooga Shale,whichever is deeper, 40 acres. No density requirement for horizontal wells.

Gas Wells: 0-1,000 feet, 10 acres; 1,001-2,000 feet or to the base of the Devonian Chattanooga Shale,whichever is deeper, 20 acres; more than 2,000 feet deep or below the base of the Devonian ChattanoogaShale, which ever is deeper, 30 acres; 5,000 feet or to the top of the Cambrian Conasauga Group, whicheveris deeper, 40 acres; more than 5,000 feet deep or below the top of the Cambrian Conasauga Group,whichever is deeper, 160 acres. No density requirement for horizonal wells.

b. Lineal: Oil wells: 330 feet or more from any property (lease) or unit line and 660 feet or more from anyother well completed in, drilling to, or for which a permit has been granted to drill to the same pool. Nospecific well-to-well distance requirement for horizontal wells.

Gas wells: 0-5,000 feet or to the top of the Cambrian Conasauga Group, whichever is deeper, 330 feet ormore from any property (lease) or unit line and 660 feet or more from any other well completed in, drillingto, or for which a permit shall have been granted to drill to the same pool; more than 5,000 feet deep orbelow the top of the Cambrian Conasauga Group, whichever is deeper, 660 feet or more from any property(lease) or unit line, and 1,320 feet or more from any other well completed in, drilling to, or which a permitshall have been granted to drill to the same pool. No specific well-to-well distance requirement forhorizontal wells.

2. Exceptions: yes.

a. Basis: For valid geological or topographic reason.

b. Approval: Administratively by Supervisor, or by Oil and Gas Board after public hearing.

Existing wells may be deepened and produced for oil or gas from whatever zone(s) production may beobtained on the existing permitted unit size.

Spacing of oil and gas wells ­ Referendum Tenn. Code Ann. § 60-1-106. Oil or gas wells in OvertonCounty: 0-2,500 feet, 200 feet or more from any property line and 400 feet or more from any other wellcompleted in, drilling to, or for which a permit shall have been granted to drill to the same pool.

Oil and gas wells in Pickett County: 200 feet or more from any property line and 400 feet or more from anyother well completed in, drilling to, or for which a permit shall have been granted to drill to the same pool.

Virginia.

1. Spacing requirements:

a. Density:

Oil wells: not within 1,320 ft. of another well completed in the same pool. (660 feet baseline boundary).

Gas wells: not within 2,640 ft. of another well completed in the same pool. (1320 baseline boundary).

Coalbed methane gas wells (not in the gob): not within 1,000 ft. of another coalbed methane gas well.

Coalbed methane gas wells in the gob: not within 500 feet of another coalbed methane gas well in the gob.

2. Exceptions: Yes.

a. Basis: Determined on a case-by-case basis.

b. Approval: Request to Virginia Gas and Oil Board for variance.

West Virginia.

1. Spacing requirements:

General rule: deep wells, 3,000' from wells producing from same formation; shallow wells, none.

Density: Maximum - 640 acres for gas wells and 160 acres for oil wells in a unit.

Lineal: Deep wells only 3,000' from well producing from the same formation except by special field rules;none for shallow wells for gas or oil.

2. Exceptions: Yes.

Basis: Economic, geological, topographic, or reservoir necessity.

Approval: By application, hearing, and order.

Chart -- Appendix

General Comments to Survey:

1. a. Interstate Oil Compact Commission, Summary of State Statutes and Regulations for Oil and GasProduction (1990).

b. Kramer and Martin, The Law of Pooling and Unitization (3d ed. 1990).

c. Hardy, "Pooling and Unitization in the Eastern United States," 2 Eastern Min. L. Inst. ch. 16 (1981).

d. F.J. Schuh, The Role of Regulators in the Future Growth of Horizontal Drilling (1989) (report preparedfor the IOCC).

e. Farmer, "Horizontal Well Regulatory Issues," Horizontal Drilling and Completion Industry Conference,(1989).

6. The geometry of horizontal drilling up to 5,000 feet is certainly not contemplated by these statutes. Seetext, supra, at § 21.01[6][c]. Based on present activity in the respective state jurisdictional agencies, asubjective determination has been made as to the ability of each state to absorb additional workload.

7. Except for secondary recovery operations, West Virginia and Pennsylvania are particularly peculiar in theeastern provinces in that no spacing, pooling, unitization, pro-rationing, or similar controls exists for wellsdrilled in non-coal areas to a depth to the top of the Onondaga formation.

8. Operator's discretion. No regulator influence.

9. The gas oil ratio test has been suggested as a means of controlling reservoir pressures in order not toimproperly deplete the reservoir pressure. See text, supra, at § 21.05[2]. The usual use of the test in theAppalachian basin is for the purpose of defining whether a well is an oil or gas well. Its use is usuallydiscretionary with the jurisdictional agency.

10. Provisions are generally made for forced pooling subsequent to drilling. However, as a practical matter ithas been little used to date. Usually forced pooling in Appalachia is done to establish the legal integrity ofthe drill site. Remarkably little experience has actually been encountered in the Appalachian states inhearings or governmental determinations with respect to forced pooling or unitization schemes. Mostpooling is accomplished by private treaty, outside of state regulatory schemes. State concurrence whenprovided for is unusual.

11. All determinations are made on a case-by-case basis. While applicable, field rules, are rarely, if ever,used in the eastern states.

12. Graham, "Energy Resources in the Commonwealth, The Virginia Gas and Oil Act of 1990," VirginiaLaw. (January 1991).

13. See implied covenants discussion in the text, supra, at § 21.04[2].

14. Exceptions made for horizontal wells.

1. 1. Goetz, Remarks at the Gas Daily Horizontal Drilling Conference in Houston, Texas (March 20-21, 1991).

2. 2. Counts, "Regulatory and Operations Aspects of Horizontal Drilling," proceedings of the mid-year meeting of the Interstate OilCompact Commission 58 (June 17-20, 1990).

3. 3. Newton, "Global Trends in Horizontal Drilling," graph of "Projected Horizontal Activity," Gas Daily Horizontal DrillingConference, Houston, Texas (March 20-21, 1991).

4. 4. Morrison, "Horizontal Drilling," The Landman 7 (March/April 1990) [hereinafter Landman].

5. 5. Id.

6. 6. Ahmed, Practical Aspects of Horizontal Well Technology: A Perspective 1 (Society of Petroleum Engineers No. 21260 1990).

7. 7. First Boston Equity Research, Horizontal Drilling: The Sequel 3 (1991).

8. 8. Id.

9. 9. National Energy Strategy (1st ed. 1991/1992).

10. 10. Letter from Norman H. Bangerter, Governor of Utah and Chairman of the Interstate Oil Compact Commission, to AdmiralJames Watkins, Secretary of Energy (April 5, 1991).

11. 11. Reply from Admiral James Watkins, Secretary of Energy, to Norman H. Bangerter, Governor of Utah and Chairman of theInterstate Oil Compact Commission (May 10, 1991).

12. 12. See text, infra, at §§ 21.07 and 21A for further discussion.

13. 13. Farmer, "Horizontal Well Regulatory Issues," Horizontal Drilling and Completion Industry Conference 1 (1989).

14. 14. F.J. Schuh, The Role of Regulators In The Future Growth of Horizontal Drilling (1989) (report prepared for the IOCC)[hereinafter Schuh].

15. 15. Newton, Remarks at the Gas Daily Horizontal Drilling Conference (Houston, Texas, March 20-21, 1991).

16. 16. Id.

17. 17. Nazzal, Remarks at the Gas Daily Horizontal Drilling Conference (Houston, Texas, March 20-21, 1991).

18. 18. Id.

19. 19. Id.

20. 20. Hebert, "Horizontal Drilling Operational Aspects," proceedings of the mid-year meeting of the Interstate Oil CompactCommission (June 17-20, 1990) [hereinafter Herbert].

21. 21. Carden, "Air Drilling Has Some Pluses for Horizontal Wells," Oil & Gas J. 77 (April 8, 1991).

22. 22. Ahmed, Practical Aspects of Horizontal Well Technology: A Perspective 1 (Society of Petroleum Engineers No. 212601990).

23. 23. See also EPA "Preliminary Effluent Characterization Study, Onshore Oil and Gas, Air Drilling Technology, Five Sites inWest Virginia" (Nov. 15, 1985).

24. 24. Holifield, "Giddings Austin Chalk Formation Horizontal/Directional Drilling Program, Lee, Fayette, Burleson andWashington Counties, Texas," Gas Daily Horizontal Drilling Conference (Houston, Texas, March 20-21, 1991).

25. 25. Joshi, "Methods to Calculate Area Drained by Horizontal Wells," Oil & Gas J. , 79 (Sept 17, 1990).

26. "Horizontal Well Will Be Employed in Hydraulic Fracturing Research," Oil & Gas J. 45 (May 20, 1990).

27. 27. Smith, "Evolution of Oil and Gas Rights in the Eastern United States," 10 Eastern Min. L. Inst. ch. 16 (1989) [hereinafterSmith]; West Virginia-Pittsburgh Coal Co. v. Strong, 42 S.E.2d 46 (W. Va. 1947).

28. 28. Langenberg, "Land and Legal Aspects of Horizontal Drilling," Special Institute on Mineral Development in the Illinois Basin(Eastern Mineral Law Special Institute Evansville, Indiana, May 10-11, 1991).

29. 29. W. Va. Code Ann. §22B-2-2 to 22B-2-9 (1985 Repl. Vol.). [For a thorough discussion of these statutes, see, infra, Polston,"Redefining the Relationship Between the Surface Owner and the Mineral Developer," 12 Eastern Min. L. Inst. ch. 22 (1991) ­ Ed.]

30. 30. Va. Oil & Gas Act of 1990, Va. Code Ann. §§ 45.1-361.1 to 45.1-361.48 (1990).

31. 31. Va. Code Ann. §§ 45.1-361.22 and 45.1-361.29.

32. 32. Graham, "Energy Resources in the Commonwealth, The Virginia Gas and Oil Act of 1990," Virginia Law. 22 (January1991).

33. 33. Bruen v. Columbia Gas Transmission Corp., Civil Action 83-c-2532, June 10, 1983, verdict May 1, 1991.

34. 1. Nazzal, "Planning Matches Drilling Equipment to Objectives," Oil & Gas J. 110 (October 8, 1990).

35. 2. Wyoming Oil and Gas Conservation Commission, Rules and Regulations § 1.167 (August 7, 1990).

36. 3. Texas Statewide Rule 86.

37. 4. Oklahoma Corporation Commission, Rule 3-211 Horizontal Drilling, § B.1, Definitions, Order 355458, Order Adopting RuleProposals (March 21, 1991) [hereinafter Okla. Rule 211].

38. 5. See also Okla. Rule 211.

39. 6. Id. at § B.9.

40. 7. 8 H. Williams & C. Meyers, Oil & Gas Law at 398 (1987).

41. 1. 5 H. Williams & C. Meyers, Oil and Gas Law § 804 (1990).

42. 2. Amoco Prod. Co. v. Alexander, 622 S.W.2d 563, 568 (Tex. 1981).

43. 3. 5 H. Williams & C. Meyers, Oil & Gas Law § 831 (1990).

44. 4. Clifton v. Koontz, 325 S.W.2d 684, 695 (Tex. 1959).

45. 5. See Schuh.

46. 6. See Amoco Prod. Co. , 622 S.W.2d at 567.

47. 7. See 5 H. Williams & C. Meyers Oil & Gas Law § 861 (1990).

48. 8. 374 So. 2d 656 (La. 1979).

49. 9. Vander Ploeg, "The Implied Covenant of Reasonable Development ­ A Delicate Balance," 3 Eastern Min. L. Inst. 18-11(1982).

10. 6 So. 2d 720, 721 (La. 1942).

51. 11. Cole v. Ross Coal Co., 150 F. Supp. 808 (S.D.W. Va. 1957); Robinson v. Robbins Petroleum Corp., Inc., 501 S.W.2d 865(Tex. 1973).

52. 12. Alphonzo E. Bell Corp. v. Bell View Oil Syndicate, 76 P.2d 167 (Cal. Int. App. Ct. 1938).

53. 1. See text, supra, at § 21.01[2].

54. 2. See text, supra, at § 21.01[3].

55. 3. Moore, "Horizontal Drilling ­ New Technology Bringing New Legal and Regulatory Challenges," (Rocky Mtn. Min. L. Fdn.Special Institute at Santa Fe, N.M. July 1990).

56. 4. See Farmer.

57. 5. Telephone conversation with Wesley D. Norton, Director, Oil and Gas Division, North Dakota Industrial Commission (May9, 1991).

58. 6. See Schuh.

59. 1. New Horizontal Drainhole Rule Adopted by the Railroad Commission of Texas, IOCC (June 19, 1990).

60. 2. Id.

61. 3. Id.

62. 4. Id. at 2.

63. 5. Id. at 1.

64. 6. Id. at 6.

65. 7. Id.

66. 8. Id.

67. 9. Id. at 5.

68. 10. Id.

69. 11. Id. at 6.

70. 12. Telephone conversation with Rex Tefertiller, Jr., Geologist, Geological Survey Division of the Department of NaturalResources (May 2, 1991).

71. 13. Telephone conversation with John Lynch, General Counsel for the Department of Mines and Minerals, Division of Oil andGas (May 2, 1991).

72. 14. Telephone conversation with C. D. Davidson, Oil and Gas Conservation Division of the Oklahoma Corporation Commission(May 1, 1991).

73. 15. Landman at 14.

16. See Herbert.

75. 17. Telephone conversation with Wesley D. Norton, Director, Oil and Gas Division, North Dakota Industrial Commission (May9, 1991).

76. 18. Telephone conversation with Thomas P. Richmond, Montana Board of Oil and Gas Conservation (May 9, 1991).

77. 19. Id.

78. 20. Id.

79. 21. See Landman.

80. 22. Telephone conversation with Robert Stovall, Oil Conservation Division, Energy, Minerals, and Natural ResourcesDepartment (May 1, 1991).

81. 23. Telephone conversation with Donald Basko, Wyoming Oil and Gas Supervisor (May 2, 1991).

82. 24. See text, supra, at § 21.02.

83. 25. Wyo. § III 302.

84. 26. Wyo. § III 305.

85. 27. Wyo. § III 319.

86. 1. Summary of DOE/Industry Sponsored Horizontal Wells in Devonian Shale, undated paper by Albert B. Yost II, U.S.Department of Energy, Morgantown Energy Technology Center (METC).

87. 2. States With FERC § 108 Wells, Stripper Gas, chart by DOE/METC from FERC Tape (1979-1990).

88. 3. Zammerilli, "Ranking Horizontal-Well Sites in Tight, Naturally Fractured Reservoirs," U.S. DOE/METC, Journal ofPetroleum Technology 89, 90 (January 1991).

89. 4. Presentation by Albert B. Yost, II, U.S. Department of Energy, Morgantown Energy Technology Center (METC) April 4,1991, Morgantown, West Virginia before Pi Epsilon Tau.

90. 5. See text, infra, at § 21A.

91. 6. See text, infra, at § 21A. See also Hardy, "Pooling and Unitization in the Eastern United States," 2 Eastern Min. L. Inst. ch.16 (1981).

92. 7. See text, infra, at § 21A. See also Hardy, "Pooling and Unitization in the Eastern United States," 2 Eastern Min. L. Inst. ch.16 (1981).

93. 8. See Hardy, "Pooling and Unitization in the Eastern United States," 2 Eastern Min. L. Inst. § 16.02[1] (1981).

94. 9. See Snyder & Christian, "Oil and Gas Operations Through Coal Seams in West Virginia," 1 Eastern Min. L. Inst. ch. 5 (1980)and Graham, "Energy Resources In the Commonwealth, The Virginia Gas and Oil Act of 1990," Virginia Law. January, 1991.

95. 10. Joshi, "Methods to Calculate Area Drained by Horizontal Wells," Oil & Gas J. (September 17, 1990). This article is based onChapter 2 of a publication

written by Dr. Joshi and published by Pennwell Publishing Company entitled Horizontal Well Technology (1991).

11. Id. at 77.

97. 12. Id. at 80.

98. 1. I.R.C. § 29 (1988).

99. 2. [For more on the various issues involved in the development of coalbed methane gas, see Eastern Mineral Law Foundation,Special Institute on Coabed Methane (Nashville, Tenn. 1989) and Eastern Mineral Law Foundation, Special Institute on CoabedMethane (Nashville, Tenn. 1990) ­ Ed.]

100. 3. See Farmer

101. 4. Oil & Gas J. 32 (May 20, 1991).

102. 5. See text, supra, at § 21.01[7].

103. 6. "Methane Control ­ `It's a Gas,'" Landmarc (November/December 1988); Stevenson "Island Creek Corporation's Experiencewith Methane Degasification," Coalbed Methane Symposium (1987) .

104. 7. U.S. Bureau of Mines, Characterization of Fracture Geometry and Roof Penetrations Associated with StimulationTreatments in Coalbeds (1987).

105. 8. Telephone interview (May 23, 1991).

106. 1. Letter from Frank J. Schuh to Rex Burford (December 6, 1989).

107. 1. Note that all states have some variance procedures, but these are limited in the context of horizontal drilling and by specificspacing limits.