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Changes Within the AAPL 610 - 1989 Model Form Operating Agreement: Horizontal Modifications and Other Developments

Worth Carlin, Jeff Weems, Development Issues in Major Shale Plays

29.03 New Provisions in the Horizontal Form

As we discuss the new revisions contained in the Horizontal Form, we first tip our hat to the many commentators who foresaw the need for changes related to horizontal operations and, in some instances, gathered industry suggestions into these prior publications.16

[1] Article I--Definitions

Crafting the Horizontal Form required the committee to add and change a series of definitions that address new terms and concepts unique to horizontal operations.17

[a] AFE

Modern exploration activities are very expensive and involve substantial and intensive preliminary planning. A part of this preliminary work involves the preparation and distribution of an Authority for Expenditure (AFE), which is the cost estimate for a proposed operation. As noted below, the Horizontal Form expands the requirements for using an AFE, mandating one for each proposal for a Horizontal Well under Article VI.B.18 In recent years, lawsuits have arisen regarding the weight and importance of an AFE.19 In order to have the definition of AFE more accurately reflect industry standards, Article I.A. of the Horizontal Form reads:

The term “AFE” shall mean an Authority for Expenditure prepared by a party to this agreement for the purpose of estimating the costs to be incurred in conducting an operation hereunder. An A