The Parties have agreed that the Permit Area shall be divided into drilling and spacing units, being a designated contiguous area of between 1,280 acres up to a maximum of 6,400 acres (other than Commitment Wells), as determined under this clause 9 (DSU), and that all future Joint Operations (which are not Proposed New Pads or Proposed New Infrastructure Operations) are to be undertaken in parts that in each case is attributable to a particular DSU area (which allocation may have regard in certain circumstances to the Allocation Policy) and that all future Joint Operations generally are to be governed by the process set out in clause 10.
(b)
Each DSU shall be determined by the Operator based on the location of the Productive Wellbore of the first Horizontal Well or Vertical Well drilled within the Permit Area that is not within an existing DSU at the time such drilling commences, except that a Vertical Well that is a pilot well that does not result in a productive interval shall not create a DSU.
(c)
In determining the location of each DSU, the following principles apply:
(i)
the Productive Wellbore that is creating a new DSU must be included in its entirety in the area of that DSU;
(ii)
the well-head may be located in a different DSU to a Productive Wellbore drilled from that well-head and it is the Productive Wellbore that determines a DSU, not the well-head;
(iii)
multiple DSUs may be created from a single drill pad, regardless of whether or not the relevant wells are drilled at or about the same time as each other;
(iv)
a new DSU shall not overlap an existing DSU;
(v)
the Operator may change the location of a DSU at any time prior to the Completion of the Productive Wellbore that creates the DSU, provided that it is acting in accordance with Good Oilfield Practice;
shall be determined based on the first Productive Wellbore Completed within the Permit Area that is not within an existing DSU; and
(B)
shall cover all depths and consist of such acreage designated by the Operator of the area set out in clause 9.2, broadly in the form of a square for Vertical Wells, or the form of a rectangle for Horizontal Wells, to the extent reasonably practicable.
(d)
All subsequent wells drilled within the area of an existing DSU shall be treated as an infill well and such well shall not create a new DSU or expand the size of an existing DSU.
(e)
Within 30 Days of the creation of a new DSU, the Operator shall provide each Party with an updated map of the Permits, clearly showing the areas of the DSUs.
9.2
Size of DSUs
(a)
The DSUs created by each Commitment Well in accordance with clause 9.1 will be the following size:
(i)
5,120 acres as to all depths if the first Productive Wellbore drilled within the new DSU is a productive Vertical Well;
(ii)
20,480 acres as to all depths if a Horizontal Wells first Productive Wellbore drilled within the relevant DSU is less than 2,500 metres; and
(iii)
25,600 acres as to all depths if the Horizontal Wells first Productive Wellbore drilled within the relevant DSU is greater than 2,500 metres.
(b)
The first 75 DSUs, that are not created by a Commitment Well, will be the following size:
(i)
1,280 acres as to all depths if the first Productive Wellbore drilled within the new DSU is a productive Vertical Well;
(ii)
5,120 acres as to all depths if the Horizontal Wells first Productive Wellbore drilled within the relevant DSU is less than 2,500 metres; and
(iii)
6,400 acres as to all depths if the Horizontal Wells first Productive Wellbore drilled within the relevant DSU is greater than 2,500 metres.
(c)
Subsequent DSUs created after the first 75 DSUs, that are not created by a Commitment Well, will be the following size:
(i)
1,280 acres as to all depths if the first Productive Wellbore drilled within new DSU is a productive Vertical Well;
(ii)
1,280 acres as to all depths if the Horizontal Wells first Productive Wellbore drilled within the relevant DSU is less than 2,500 metres; and
(iii)
1,600 acres as to all depths if the Horizontal Wells first Productive Wellbore drilled within the relevant DSU is greater than 2,500 metres.
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