The United States is undergoing a shale energy revolution driven by hydraulic fracturing, or "fracking," and horizontal drilling. This revolution dramatically will strengthen the domestic energy supply. Indeed, it may allow the country to become energy independent by 2035, according to the International Energy Agency's World Energy Outlook 2012.
Fracking nonetheless has proven controversial among environmentalists and others. For these and other reasons, the shale revolution has spurred an increase in regulations in Texas and across the country. Complicating matters is the fact that, while oil and gas regulation traditionally has been left to the states, government at all levels is regulating fracking in one manner or another.
The shale revolution has had particular impact on three major legal areas: conservation regulation, environmental protection and community impact. In-house lawyers must be prepared to protect their clients in all of these arenas.
First, consider conservation regulation. In Texas, the rule of private ownership is arguably the single most important doctrine of oil and gas law. This is subject to the rule of capture, which precludes liability for drainage of a neighbor's tract so long as one produces the oil or gas by lawful means and without negligence.
Against this background, the Railroad Commission of Texas long has enforced regulations governing well spacing and density to prevent waste and protect correlative rights. However, regulators wrote these rules, in large part, for vertical wells. With the unprecedented increase in horizontal drilling, the Railroad Commission has moved to adapt the rules to fit horizontal wells.
As an example, nearly a century ago, the Railroad Commission drafted Rule 37 (16 Texas Administrative Code §3.37), a spacing rule, and initially adopted it in in contemplation of vertical wells. But the rule also applies to cutting edge horizontal wells, and special field rules are refining the rule's application. These refinements include the take-point rule, which requires that only perforated portions of a horizontal well comply with Rule 37's spacing rules, and the stacked-lateral rule, which treats all stacked wellbores from multiple wells as single wells, to avoid the prohibition against double assignment of acreage.
These special field rules have helped address issues unique to horizontal drilling. The question is whether these and other special field rules should be incorporated into Rule 86, the Railroad Commission's statewide rule for horizontal wells, found at 16 Texas Administrative Code §3.86.
Since Rule 86's adoption in 1990, the Railroad Commission has adopted many special field rules to accommodate horizontal drilling. At present, however, the commission adopts these rules on a field-by-field basis. Therefore, some rules that promote horizontal drilling may apply in the Barnett Shale, for example, but not in the Eagle Ford Shale, complicating life for the legal departments of companies active in multiple regions. Including these types of special field rules in Rule 86 would allow for more predictability and uniformity in application of spacing rules.
As it stands today, prior to developing a particular field, lawyers for an operator must consider whether special field rules exist for a target field, whether those special field rules are adequate, and, if not, whether special field rules should be adopted or amended.
Environment and Community
Second, environmental matters make up a large part of the portfolio of work for any oil and gas company's legal department. Traditionally, the federal government has left oil and gas regulation to the states, including regulation of environmental matters.