1. (a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

   1. (1) Commission designee--Director of the Oil and Gas Division or any Commission employee designated in writing by the director or the Commission.
   2. (2) Drilling unit--The acreage assigned to a well for drilling purposes.
   3. (3) Proration unit--The acreage assigned to a well for the purpose of assigning allowables and allocating allowable production to the well.
   4. (4) Substandard acreage--Less acreage than the smallest amount established for standard or optional drilling units.
   5. (5) Surplus acreage--Substandard acreage within a lease, pooled unit, or unitized tract that remains unassigned after the assignment of acreage to each applied for, permitted, or completed well in a field, in an amount equaling or exceeding the amount established for standard or optional drilling units. Surplus acreage is distinguished from the term "tolerance acreage," in that tolerance acreage is defined in context with proration regulation, while surplus acreage is defined by this rule only in context with well density regulation.
   6. (6) Tolerance acreage--Acreage within a lease, pooled unit, or unitized tract that may be assigned to a well for proration purposes pursuant to special field rules in addition to the amount established for a prescribed or optional proration unit.

2. (b) Density requirements.

   1. (1) General prohibition. No well shall be drilled on substandard acreage except as hereinafter provided.

   2. (2) Standard units.

      1. (A) The standard drilling unit for all oil, gas, and geothermal resource fields wherein only spacing rules, either special, country regular, or statewide, are applicable is hereby prescribed to be the following.
         Attached Graphic
         
      2. (B) The spacing rules listed in subparagraph (A) of this paragraph are not exclusive. If any spacing rule not listed in subparagraph (A) of this subsection is brought to the attention of the commission, it will be given an appropriate acreage assignment.

3. (c) Development to final density. An application to drill a well for oil, gas, or geothermal resource on a drilling unit composed of surplus acreage, commonly referred to as the "tolerance well," may be granted as regular when the operator seeking such permit certifies to the commission in a prescribed form the necessary data to show that such permit is needed to develop a lease, pooled unit, or unitized tract to final density, and only in the following circumstances:

   1. (1) when the amount of surplus acreage equals or exceeds the maximum amount provided for tolerance acreage by special or county regular rules for the field, provided that this paragraph does not apply for a lease, pooled unit, or unitized tract that is completely developed with optional units and the special or county regular rules for the field do not have a tolerance provisions expressly made applicable to optional proration units;
   2. (2) if the special or county regular rules for the field do not have a tolerance provision expressly made applicable to optional proration units, when the amount of surplus acreage equals or exceeds one-half of the smallest amount established for an optional drilling unit; or
   3. (3) if the applicable rules for the field do not have a tolerance provision for the standard drilling or proration unit, when the amount of surplus acreage equals or exceeds one-half the amount prescribed for the standard unit.

4. (d) Applications involving the voluntary subdivision rule.

   1. (1) Density exception not required. An exception to the minimum density provision is not required for the first well in a field on a lease, pooled unit, or unitized tract composed of substandard acreage, when the leases, or the drillsite tract of a pooled unit or unitized tract:

      1. (A) took its present size and shape prior to the date of attachment of the voluntary subdivision rule (§3.37(g) of this title (relating to Statewide Spacing Rule)); or
      2. (B) took its present size and shape after the date of attachment of the voluntary subdivision rule (§3.37(g) of this title (relating to Statewide Spacing Rule)) and was not composed of substandard acreage in the field according to the density rules in effect at the time it took its present size and shape.

   2. (2) Density exception required. An exception to the density provision is required, and may be granted only to prevent waste, for a well on a lease, pooled unit, or unitized tract that is composed of substandard acreage and that:

      1. (A) took its present size and shape after the date of attachment of the voluntary subdivision rule (§3.37 of this title (relating to the Statewide Spacing Rule)); and
      2. (B) was composed of substandard acreage in the field according to the density rules in effect at the time it took its present size and shape.
   3. (3) Division after joinder or unitization. If two or more separate tracts are joined or unitized for oil, gas, or geothermal development and accepted by the commission, the joined or unitized tracts may not thereafter be divided into the separate tracts with the rules of the commission applicable to each separate tract, if the division results in any tract composed of substandard acreage at the time of division, unless and until the commission approves such division after application, notice to all current lessees and unleased mineral interest owners of each tract within the joined or unitized tract, and an opportunity for hearing. If written waivers are filed or if a protest is not filed within the time set forth in the notice of application, the application will be granted administratively.
5. (e) Application involving unitized areas with entity for density orders. An exception to the minimum density provision is not required for a well in a unitized area for which the commission has granted an entity for density order, if the sum of all applied for, permitted, or completed producing wells in the field within the unitized area, multiplied by the applicable density provision, does not exceed the total number of acres in the unitized area. The operator must indicate the docket number of the entity for density order on the application form.
6. (f) Exceptions to density provisions authorized. The Commission, or Commission designee, in order to prevent waste or, except as provided in subsection (d)(2) of this section, to prevent the confiscation of property, may grant exceptions to the density provisions set forth in this section. Such an exception may be granted only after notice and an opportunity for hearing.

7. (g) Filing requirements.

   1. (1) Application. An application for permit to drill shall include the fees required in §3.78 of this title (relating to Fees, Performance Bonds, and Alternate Forms of Financial Security Required To Be Filed) and shall be certified by a person acquainted with the facts, stating that all information in the application is true and complete to the best of that person's knowledge.

   2. (2) Plat. When filing an application for an exception to the density requirements of this section, in addition to the plat requirements in §3.5 of this title (relating to Application to Drill, Deepen, Reenter, or Plug Back) (Statewide Rule 5), the applicant shall attach to each copy of the application a plat that:

      1. (A) depicts the lease, pooled unit, or unitized tract, showing thereon the acreage assigned to the drilling unit for the proposed well and the acreage assigned to all current applied for, permitted, or completed oil, gas, or oil and gas wells in the same field or reservoir which are located within the lease, pooled unit, or unitized tract;
      2. (B) on large leases, pooled units, or unitized tracts, if the established density is not exceeded as shown on the face of the application, outlines the acreage assigned to the well for which the permit is sought and the immediately adjacent wells on the lease, pooled unit, or unitized tract;
      3. (C) on leases, pooled units, or unitized tracts from which production is secured from more than one field, outlines the acreage assigned to the wells in each field that is the subject of the current application;
      4. (D) corresponds to the listing required under subsection (g)(1)(A) of this section.
      5. (E) is certified by a person acquainted with the facts pertinent to the application that the plat is accurately drawn to scale and correctly reflects all pertinent and required data.
   3. (3) Substandard acreage. An application for a permit to drill on a lease, pooled unit, or unitized tract composed of substandard acreage must include a certification in a prescribed form indicating the date the lease, or the drillsite tract of a pooled unit or unitized tract, took its present size and shape.
   4. (4) Surplus acreage. An application for permit to drill on surplus acreage pursuant to subsection (c) of this section must include a certification in a prescribed form indicating the date the lease, pooled unit, or unitized tract took its present size and shape.

8. (h) Procedure for obtaining exceptions to the density provisions.

   1. (1) Filing requirements. If a permit to drill requires an exception to the applicable density provision, the operator must file, in addition to the items required by subsection (g) of this section:

      1. (A) a list of the names and addresses of all affected persons. For the purpose of giving notice of application, the Commission presumes that affected persons include the operators and unleased mineral interest owners of all adjacent offset tracts, and the operators and unleased mineral interest owners of all tracts nearer to the proposed well than the prescribed minimum lease-line spacing distance. The Commission designee may determine that such a person is not affected only upon written request and a showing by the applicant that:

         1. (i) competent, convincing geological or engineering data indicate that drainage of hydrocarbons from the particular tracts subject to the request will not occur due to production from the proposed well; and
         2. (ii) notice to the particular operators and unleased mineral interest owners would be unduly burdensome or expensive;
      2. (B) engineering and/or geological data, including a written explanation of each exhibit, showing that the drilling of a well on substandard acreage is necessary to prevent waste or to prevent the confiscation of property;
      3. (C) additional data requested by the Commission designee.
   2. (2) Notice of application. Upon receipt of a complete application, the Commission will give notice of the application by mail to all affected persons for whom signed waivers have not been submitted.

   3. (3) Approval without hearing. If the Commission designee determines, based on the data submitted, that a permit requiring an exception to the applicable density provision is justified according to subsection (f) of this section, then the Commission designee may issue the exception permit administratively if:

      1. (A) signed waivers from all affected persons were submitted with the application; or
      2. (B) notice of application was given in accordance with paragraph (2) of this subsection and no protest was filed within 21 days of the notice; or
      3. (C) no person appeared to protest the application at a hearing scheduled pursuant to paragraph (4)(A) of this subsection.

   4. (4) Hearing on the application.

      1. (A) If a written protest is filed within 21 days after the notice of application is given in accordance with paragraph (2) of this subsection, the application will be set for hearing.
      2. (B) If the application is not protested and the Commission designee determines that a permit requiring an exception to the applicable density provision is not justified according to subsection (f) of this section, the operator may request a hearing to consider the application.
9. (i) Duration. A permit is issued as an exception to the applicable density provision shall expire two years from the effective date of the permit; unless drilling operations are commenced in good faith within the two year period.

Source Note:The provisions of this §3.38 adopted to be effective November 1, 1989, 14 TexReg 5255; amended to be effective April 21, 1997, 22 TexReg 3404; amended to be effective July 10, 2000, 25 TexReg 6487; amended to be effective June 11, 2001, 26 TexReg 4088.