CHAPTER 13 PLANS OF DEVELOPMENT AND UNIT EXPANSIONS

• Jurisdiction: United States

Federal Onshore Oil and Gas Pooling and Unitization
(Nov 2006)
CHAPTER 13
PLANS OF DEVELOPMENT AND UNIT EXPANSIONS
Sheryl L. Howe
Attorney
Welborn Sullivan Meck & Tooley, P.C.
Denver, Colorado

SHERYL L. HOWE

Sheryl L. Howe is an attorney with the Denver law firm of Welborn Sullivan Meck & Tooley, P.C., where her practice focuses on oil and gas, including title, transactions and royalty issues, along with real estate and homeowner association matters. She has practiced law in Denver since 1982 and has worked on oil and gas and natural resources matters throughout her legal career.

Ms. Howe received her B.A. with honors from the University of Iowa in 1979. She attended the University of Colorado Law School and received her Juris Doctor in 1982. She is licensed to practice law in Colorado and Wyoming.

I. INTRODUCTION

II. PLANS OF DEVELOPMENT

A. Generally

B. Timing

C. Contents

D. Supplements

E. Unit Operating Agreement Procedures

F. Available on WOGCC Website

III. UNIT EXPANSIONS

A. Procedure to Expand the Unit Area under the Unit Agreement

B. BLM Approval of Expansion

C. Required Well and Other Terms

D. Effective Date of Expansion

E. Required Joinder to Expansion

IV. CONCLUSION

Exhibit A -- Guidelines for Expanding or Contracting the Unit Area

I. INTRODUCTION

Plans of development and summaries of operations are filed to show activity in the unit in the past year and planned activity in the next year. Unit expansions are initiated if an expansion of the unit area is needed to accomplish the purposes of the unit agreement. Both plans of development and unit expansions, therefore, relate to the geology of the unit area and reflect the goal of producing unitized substances efficiently based on the characteristics of the pool or field covered by the unit area.

II. PLANS OF DEVELOPMENT

A. Generally

Plans of development are required by Section 10 of the model form onshore federal exploratory unit agreement.¹ The unit operator is required to submit for the approval of the authorized officer an acceptable plan of development and operation for the unitized land. When the plan of development is approved by the authorized officer, it shall constitute the further drilling and development obligations of the unit operator under the unit agreement for the period specified in the plan of development. Section 10 of the unit agreement provides reasonable diligence shall be exercised in complying with the obligations of the approved plan of development and operation.

Operators must submit three counterparts of all plans of development and operation for approval under an approved agreement.²

B. Timing

The first plan of development is to be filed within six months after completion of a well capable of producing unitized substances in paying quantities. The authorized officer can grant a reasonable extension of the six month period prescribed in the unit agreement for submission of an initial plan of development and operation where such action is justified because of unusual conditions or circumstances. Thereafter, before the expiration of any existing plan, the unit operator shall submit for the approval of the authorized officer a plan for an additional specified period for the development and operation of the unitized land. The unit agreement provides that subsequent plans shall normally be filed on a calendar year basis not later than March 1 each year. Any

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proposed modification or addition to the existing plan is to be filed as a supplement to the plan.

After completion of a well capable of producing unitized substances in paying quantities, no further wells, except as may be necessary to afford protection against operations not under the agreement and such as may be specifically approved by the authorized officer, shall be drilled except in accordance with an approved plan of development and operation.

C. Contents

Section 10 of the unit agreement provides the plan shall "(a) specify the number and locations of any wells to be drilled and the proposed order and time for such drilling; and (b) provide a summary of operations and production for the previous year."

The Draft Bureau of Land Management ("BLM") Manual provides the initial plan of development and operations should describe all anticipated unit operations for the next 6 to 12 months, including the drilling, completing, conversion, and production of unit wells, and other surface disturbing operations.³ Generally, all work that would change a well's producing formation or status, or operations that would require the prior approval of the authorized officer (such as drill deeper, plug back, abandonment, or conversion to an injection well), should be included in the plan of development. Routine stimulation and workover operations need not be covered by a plan of development as long as the resulting producing interval of the well remains within the productive limits of the participating area for the well.⁴

The plan shall provide for the timely exploration of the unitized area, and for the diligent drilling necessary for determination of the area or areas capable of producing unitized substances in paying quantities in each and every productive formation. The unit agreement provides the plan shall be as complete and adequate as the authorized officer may determine to be necessary for timely development and proper conservation of the oil and gas resources in the unitized area.

The Draft BLM Handbook provides that until the limits of paying production in each participating area have been determined, the number of proposed exploratory wells should approximate the number of proposed development wells. The Handbook qualifies this, however, by providing the authorized officer should exercise reasonable judgment in determining this ratio.⁵

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A BLM representative has advised that the BLM would like to see in a plan of development and summary of operations updated maps, especially field maps...