Could someone school me on the practice of drilling vertical wells to hold acreage. It seems that this significantly goes against the purpose of oil exploration and fair treatment of landowners. I get it from a business perspective. But should the rules be revisited. Has this issue been raised. I’ve noticed, even just this year, some large companies granted permission to drill vertical and it can’t be about getting the product. Seems like land owners should be able to weigh in if they believe another company might actually drill an horizontal in fulfillment of the actual drilling purpose - to extract as much oil or gas as possible.
Decisions to drill vertical or horizontal wells depends on the geology, depths and formations and are made to maximize economic returns. Vertical wells are most commonly used in shallow formations where oil is in particular spots but not pervasive across the formation. Often these are 20, 40 or 80 acres. Think of an isolated small pond which would only need a vertical well to pull out the oil. A horizontal wellbore going through swaths of ‘dry’ formation would be a waste of money. Vertical wells are used for very deep gas wells which are capable of producing out the gas under large acreage, 160, 320 to 640 acres depending on the formation geology in that area. Horizontal drilling made shale formations such are the wolfcamp economic to produce. The fracs go out around the long wellbore to allow the oil to flow in. These zones did not work for vertical wells. RRC has field rules regarding the acreage requirements for wells depending on the formation. In the event that both vertical and horizontal wells are drilled, the acreage will not be the same. If you post a question about a specific well, you can get more specific responses.
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I’m referring to the (seeming) practice of an operator drilling vertical wells for the express purpose of holding a lease, taking the landowner out of the decision making process of renewing or not (if not addressed in initial contract) and not paying the landowner an extension fee, etc. The true intention, of course, is to drill a lengthy lateral when the production arm of the company gets around to it.
The lessor should put retained acreage, pugh and depth clauses in their lease so that the lands are not HBP’d after expiration of the primary term.
So is the lessor simply stuck if they did not? Can the lessor maintain that the sole purpose of the vertical well is to retain the acreage and otherwise is inconsequential to the purpose of the commercially productive activity of extracting minerals from the landowners property?
Many oil companies use a less expensive smaller rig to drill the vertical wellbore and later bring in a large rig to drill the horizontal wellbore. Sometimes there is a gap in time due to rig schedules. Smaller rigs are more readily available and can drill quickly and vertical wellbores could be sitting. Or the large rig gets delayed due to drilling problems and then schedules get moved around. Many leases only requires activity on the well site or that a well be spud by the end of the primary term. Others require a well be spud by a rig capable of drilling the well, which would require a large rig be in place. If you are seeing a very long gap in time, then you would need to review all your lease language.
TennisDaze’s answer regarding vertical vs horizontal well types, spacings and reasons for each is excellent. Drilling a vertical well and doing little more would only hold a small acreage at best and, for a short tome. Did you have a continuous drilling clause? Did your lease define the activities or have other terms, like paying quantities, needed to secure the holding of the lease? What other drilling activity is going on around your interests? Is it vertical or horizontal?
Extensive seismic analysis by the geologist determines which approach to use to secure the greatest potential return. Your rights are governed by the terms of the lease you entered into with the O&G company.
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