1. (a) Applicability.

   1. (1) Except as provided in subdivision (a)(2) of this section, below, this section applies to all controlled sources of supply as defined in Arkansas Code § 15-71-107, occurring within any existing field created by an order of the Oil and Gas Commission within Crawford, Franklin, Johnson, Logan, Madison, Pope, Scott, Yell, Sebastian, and Washington counties.

   2. (2) This section does not apply to:

      1. (A) The Hartshorne Coal Formation or any other coal formation;
      2. (B) Any uncontrolled conventional source of supply occurring within the commission established fields covered by this section;
      3. (C) Any source of supply governed by 15 CAR § 275-230; or
      4. (D) Any source of supply governed by 15 CAR § 275-231.
   3. (3) After notice and hearing, the commission shall retain jurisdiction to extend the provisions of this section to any new fields established by the commission.
   4. (4) This section applies to wells in which controlled and uncontrolled sources of supply are commingled.

2. (b) Definitions. As used in this section:

   1. (1) “Encroachment footage” means the actual footage of the new or existing PRU from the drilling unit boundary, when that footage is less than the setback footage specified by this section;
   2. (2) “Existing PRU” means a production reporting unit, which is either an individual producing zone or approved commingled producing zones within a dry natural gas well which was previously productive prior to the effective date of this section;
   3. (3) “FUB” means distance from a drilling unit boundary line;
   4. (4) “New PRU” means a production reporting unit, which is either an individual producing zone (in a newly drilled dry natural gas well or a new zone in an existing dry natural gas well), or approved commingled producing zones within a dry natural gas well which becomes productive after the effective date of this section;
   5. (5) “Penalty allowable” means the PRU deliverability of the new or existing PRU, subject to a penalty factor, a new or existing PRU is allowed to produce and sell on a per day basis;
   6. (6) “Penalty factor” means the factor which is multiplied by the new or existing PRU to impose a penalty (or reduction) upon the PRU deliverability;
   7. (7) "PRU deliverability" means the measured volume of dry natural gas from an existing or new PRU under normal operating conditions for that existing or new PRU as determined by the IOPT or production test; and
   8. (8) “Setback footage” means the required minimum distance a new or existing PRU must be from the drilling unit boundary.

3. (c) After the effective date of this section, the setback footage for all drilling units subject to this section shall be as follows:

   1. (1) For all existing drilling units with a setback footage that is less than six hundred sixty feet (660’), the setback footage shall remain unchanged; and
   2. (2) For all existing drilling units with a setback footage that is six hundred sixty feet (660’) or greater, the revised setback footage shall be reestablished to six hundred sixty feet (660’).
4. (d) After the effective date of this section, any existing PRU not subject to a penalty allowable may produce at the PRU deliverability.
5. (e) After the effective date of this section, any new PRU not subject to a penalty allowable may produce at the PRU deliverability.

6. (f) The penalty allowable, for any existing or new PRU, after the effective date of this section, shall be determined as follows:

   1. (1) For any existing PRU where the setback footage is equal to or greater than six hundred sixty feet (660’), and where the setback footage has been reestablished to six hundred sixty feet (660’) in accordance with subdivision (c)(2) of this section, above, the previously imposed penalty on the allowable established prior to the adoption of this section shall be removed and the existing PRU allowed to produce at the PRU deliverability;
   2. (2) For any existing PRU where there is encroachment footage, and where the setback footage has been reestablished to six hundred sixty feet (660’) in accordance with subdivision (c)(2) of this section, above, the previously imposed penalty on the allowable established prior to the adoption of this section shall be recalculated based on the revised setback footage of six hundred sixty feet (660’) in order to calculate the penalty allowable, except that any existing PRU that has a recalculated penalty allowable of less than seventy-five (75) MCFD shall be assigned a penalty allowable of seventy-five (75) MCFD;
   3. (3) For any existing PRU, where the setback footage remains unchanged in accordance with subdivision (c)(1) of this section, above, the penalty allowable established prior to the adoption of this section shall remain in effect, except that any existing PRU that has a recalculated penalty allowable of less than seventy-five (75) MCFD shall be assigned a penalty allowable of seventy-five (75) MCFD; and
   4. (4) No new PRU may be located less than six hundred sixty feet (660’) FUB where the setback footage has been reestablished to six hundred sixty feet (660’) in accordance with subdivision (c)(2) of this section, above, or closer than the applicable setback footage that remained unchanged in accordance with subdivision (c)(1) of this section, above, unless approved in accordance with 15 CAR § 275-227, or an alternative is approved by the commission after notice and hearing.

7. (g) In accordance with subdivision (f)(2) of this section, above, the penalty allowable shall be calculated as follows:

   1. (1) If the encroachment footage encroaches upon only one (1) boundary of said drilling unit, the penalty allowable shall be the greater of seventy-five (75) MCFD or calculated as follows: Penalty Allowable = PRU Deliverability x Penalty Factor (Encroachment Footage ÷ Setback Footage) x proposed drilling unit acreage ÷ 640 acres or applicable established drilling unit acreage
   2. (2) If the encroachment footage encroaches upon two (2) boundaries of said drilling unit, then the penalty allowable shall be the greater of seventy-five (75) MCFD or the cumulative of the penalties calculated as follows: Penalty Allowable = PRU Deliverability x Penalty Factor [(1^st Encroachment Footage + 2nd Encroachment Footage) ÷ Setback Footage – 1] x proposed drilling unit acreage ÷ 640 acres or applicable established drilling unit acreage

8. (h) Sales in excess of the penalty allowable.

   1. (1) An existing or new PRU subject to a penalty allowable in accordance with this section shall have an annual balancing date of July 1, where the preceding twelve-month (July 1 – June 30) sales must be reconciled with the preceding twelve-month penalty allowable to determine if the PRU had excess sales.

   2. (2)

      1. (A) An existing or new PRU subject to a penalty allowable which has sales in excess of the assigned penalty allowable must be shut in on the annual balancing date of July 1 and remain shut in until all excess sales are eliminated.
      2. (B) The shut-in period shall be determined by dividing the excess sales by the penalty allowable.
   3. (3) Any existing or new PRU subject to a penalty allowable which has excess sales on the annual balancing date of July 1 and which fails to shut in within thirty (30) days after July 1, may be subject to a civil penalty not to exceed two thousand five hundred dollars ($2,500) per day for every day the PRU produced beyond the thirty-day period, and may be subject to further enforcement actions in accordance with 15 CAR § 275-104 and Arkansas Code §§ 15-72-401 — 15-72-406.

Codification Notes: “FUB” means from unit boundary. "IOPT" means initial one-point test. "MCFD" means a thousand cubic feet per day. This section as promulgated prior to codification into the Code of Arkansas Rules provided as follows: "(Source: new rule August 01, 2014)"