Before a well is drilled, the state oil and gas commission typically issues a spacing order that defines the drilling unit: how big it is, what formation it covers, and where within the unit the well can be located. If you own minerals in the unit, the spacing order directly affects your royalties because it determines the denominator in your decimal interest calculation.

What Spacing Is

Spacing is the regulatory process of dividing land into drilling units and setting rules about well placement within those units. The purpose is to prevent waste (drilling too many wells that drain the same reservoir) and protect correlative rights (making sure each mineral owner gets a fair share of production).

State oil and gas commissions (OCC, RRC, DMR) set spacing rules that vary by formation, depth, and well type.

What a Spacing Order Contains

The unit description. The legal description of the drilling unit, including section, township, range, and any subdivisions. Common unit sizes:

The target formation. Which geologic formation the spacing applies to. Spacing at one depth doesn't necessarily apply to formations above or below.

Well location restrictions. Where within the unit the well can be drilled. This may specify a minimum distance from the unit boundaries (setback) or designate a specific drilling window.

The number of wells allowed. Some spacing orders allow multiple wells per unit. Others limit it to one. Multi-well spacing is common for horizontal wells where the operator plans to drill several laterals from the same pad.

How It Differs From a Pooling Order

Spacing and pooling are related but different:

Spacing happens first. Pooling follows. You may receive both orders for the same unit, or the operator may combine them into a single proceeding depending on the state.

Why Unit Size Matters to You

Your decimal interest depends on how many net mineral acres you own relative to the total unit size:

Net Mineral Acres / Total Unit Acres x Royalty Rate = Decimal Interest

If you own 10 NMA and the unit is 640 acres, your share is 10/640. If the commission spaces the same area into a 1,280-acre unit (two sections), your share becomes 10/1,280, which is half as much per well. However, a larger unit may support a longer horizontal lateral with more production, so the total revenue from the well may be higher even though your percentage is smaller.

How to Respond

In most states, spacing orders are issued by the commission after a hearing. You have the right to participate in the hearing and object to the proposed spacing if you believe it's not in your interest. In practice, most individual mineral owners don't attend spacing hearings, but you can if you want to.

After the order is issued, the spacing is set. The next step is usually pooling (if you're uncommitted) or the operator obtaining your lease.

Checking the Order

When you receive a spacing order or learn that your section has been spaced:

  1. Verify the unit boundaries. Confirm that your property is included and that the legal description is correct.
  2. Note the formation. The spacing applies to a specific formation. If you have interests at multiple depths, spacing at one depth doesn't cover the others (unless a Pugh clause releases the unspaced depths).
  3. Calculate the impact on your decimal interest. The unit size is the denominator in the calculation. Bigger units mean a smaller decimal per well.
  4. Watch for pooling. A spacing order is usually followed by a pooling order if there are uncommitted owners in the unit.