Utah Admin. Code R649-2-4 - Designation of Operator

1. Subject to the provision of Subsections R649-2-4(3) and (4), the designated operator of a drilling unit for oil and gas operations shall be the owner which, in the applicable drilling unit:

1.1. owns more than an undivided 50% of the working interest;

1.2. owns 50% or less of the working interest, and has the written authorization and designation by additional owners to operate on their behalf which, combined with the designated operator's interest, totals more than an undivided 50% of the working interest; or

1.3. is the designated owner selected by the consenting parties to a JOA if:

(a) a JOA has been entered by owners owning more than an undivided 50% of the working interest;

(b) the operator designated under the JOA has elected to go non-consent to the proposed operation, and

(c) the terms of the JOA allow the designation.

2. Subject to the provision of Subsections R649-2-4(3) and (4) below, in the absence of a board order establishing a drilling unit for oil and gas operations, the designated operator of a well shall be the owner that:

2.1. owns more than the aggregate of the undivided 50% of:

(a) the working interest in the lease covering the lands which the well will physically penetrate and in the targeted formations from which the well will produce; and

(b) the working interest derived from oil and gas owned in fee in the lands which the well will physically penetrate and in the targeted formations from which the well will produce; or

2.2. owns the aggregate of the undivided 50% or less of:

(a) the working interest in the lease covering the lands which the well will physically penetrate and in the targeted formations from which the well will produce; and

(b) the working interest derived from oil and gas owned in fee in the lands which the well will physically penetrate and in the targeted formations from which the well will produce; and (c) has the written authorization and designation by additional owners to operate on their behalf which, combined with the designated operator's interest totals more than the aggregate of an undivided 50%:

2.2.1. the working interest attributable to the lease covering the lands which the well will physically penetrate and in the targeted formations from which it will produce; and

2.2.2. the working interest derived from oil and gas owned in fee in the lands which the well will physically penetrate and in the targeted formations from which it will produce; or

2.3. the designated owner selected by consenting parties to a JOA if:

(a) a JOA has been entered by owners owning more than the aggregate of an undivided 50% of:

(i) the working interest in the lease covering the lands which the well will physically penetrate and in the targeted formations from which the well will produce; and

(ii) the working interest derived from oil and gas owned in fee in the lands which the well will physically penetrate and in the targeted formations from which the well will produce;

(b) the operator designated under the JOA has elected to go non-consent to an operation; and

(c) the terms of the JOA allow the designation.

3. If the criteria set forth in Subsection R649-2-4(1) or (2) cannot be met, or if any owner desires to challenge whether any of the required criteria have been satisfied, or if any owner desires to challenge the designation of the operator on any other good faith basis, including those specified in Subsection R649-3-4(4), the owner may file a request for agency action seeking board review and designation of a different operator provided that no challenge may be asserted after the protest period specified in Subsection R649-3-4(4) has elapsed and, if the division has determined that good cause exists for shortening the ten day period under Subsection R649-3-4(4), preparation for drilling has commenced.

3.1. The board may elect to consider the provisions of the applicable JOA regarding change of operatorship in determining which owner shall be the operator rather than designating an operator under this rule.

3.2. The board may elect to take the designation of an operator under advisement or continue the request until additional information is provided to the board.

4. If a request for agency action is filed as provided in Subsection R649-2-4(3), and after opportunity for a hearing, the board may consider any of the following factors in its deliberations and ruling:

4.1. experience, prudence and competence as an operator in other similarly situated wells;

4.2. multi-well expenditures already made for infrastructure that involve the applicable well or drilling unit;

4.3. good faith negotiations prior to the board's consideration of the operator designation;

4.4. whether drainage of the spacing or drilling unit has occurred or is likely to occur in the immediate future and whether an owner has committed to drill a well in a timely fashion;

4.5. project complexity and geology;

4.6. contractual obligations including those arising under a drilling contract, surface use agreement, or an expiring lease; and

4.7. any other factors the board may deem material to its decision.

5. Subject to Subsection R649-2-4 (5.3) the designated operator has the right to request the division revoke any other approved APDs for any wells where preparation for drilling has not yet commenced relating to:

5.1. the applicable drilling unit; or

5.2. in the absence of a board order establishing a drilling unit, any approved APDs for any wells approved under the criteria specified in R649-2-4(2) above.

5.3. The division may not revoke APDs approved pursuant to Subsection R649-3-4(5).

Notes

Utah Admin. Code R649-2-4

Amended by Utah State Bulletin Number 2020-12, effective 6/1/2020 Amended by Utah State Bulletin Number 2020-15, effective 7/27/2020