KENTUCKY OIL AND GAS CONSERVATION LAWS: KEEPING PACE WITH TECHNOLOGICAL ADVANCES IN THE OIL AND GAS INDUSTRY

Article Written By: Bryan R. Reynolds

Oil and gas conservation laws, such as rules governing well spacing, limit strict application of the rule of capture. The rule of capture remains a fixture in resolving ownership disputes despite having been modified by courts to address a few specific situations since its initial adoption. Many of Kentucky’s oil and gas conservation laws result directly from application of the rule of capture.

Laws governing conservation of oil and gas developed as knowledge of the mechanisms of oil and gas occurrence and production grew. Tremendous losses of recoverable resources that occurred in association with many early discoveries have largely been eliminated through control of waste and application of well and boundary line spacing requirements. The intent of well and boundary line spacing laws is to approximate the drainage area for a given well in order to maximize production, limit reservoir damage, and to protect correlative rights of adjoining owners by preventing drainage.

The advent of horizontal drilling caused a significant wrinkle in the application of oil and gas well spacing regulations. Prior to the invention of horizontal drilling, well spacing laws were based on horizontal distances from a single point, the wellhead. Now, the same spacing laws that apply to vertical wells are applied along the length of the horizontal well within the producing formation. The question remains as to whether the assumptions on which well spacing distances are based apply equally to horizontal wells.

Furthermore, the combined use of horizontal wells and hydraulic fracturing has opened a vast new frontier of oil and gas development in unconventional resources like shale gas and shale liquids. Unconventional reservoirs have completely different production characteristics than conventional reservoirs, yet Kentucky’s spacing laws are applied in the same way to both types of reservoirs. Oil and gas conservation laws in Kentucky and other states have been specifically amended to address issues related to horizontal drilling and hydraulic fracturing. Whether such changes are adequate to address ever-advancing technology remains to be seen.

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