CHAPTER 14 3160-9 COMMUNITIZATION MANUAL

• Jurisdiction: United States

Federal Onshore Oil & Gas Pooling & Unitization - part 2
(Oct 2014)
CHAPTER 14
3160-9 COMMUNITIZATION MANUAL

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1. Explanation of Material Transmitted: This release updates R28-CDM 645.3 (formerly USGS Conservation Division Manual 645.3, maintained in the BLM directives system via Instruction Memorandum #85-681) and converts it to the BLM Manual System for the Oil and Gas Operations Program.

2. Reports Required: None.

3. Material Superseded: None.

4. Filing Instructions: File as directed below.

REMOVE:	INSERT:
None	All of 3160-9
(Total: 24 Sheets)

Assistant Director,

Energy and Mineral Resources

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Table of Contents

.01 Purpose

.02 Objectives

.03 Authority

.04 Responsibility

.05 References

.06 Policy

.1 Communitization Involving Federal Lands

.11 Guidelines

A. Justification for Communitization

B. Nonjustification for Communitization

C. Model Communitization Agreement Forms and Instructions

D. Approval and Effective Dates of Communitization Agreements

E. Preliminary Approval of Communitization Agreements

F. Effects of State Orders

G. Authority to Approve Communitization Agreements

H. Communitization of Unleased Tracts

I. Report of Production from Communitized Areas

J. Bond Requirements

K. Compensatory Royalty

L. Communitization Agreements Involving Step- or Sliding-Scale Leases

M. Communitizing Multiple Formations

N. Communitization Involving Unitized and Nonunitized Lands

O. Numbering of Communitization Agreements

P. Termination of Communitization Agreements

Q. Supervision of Operations

R. Payment for Oil and Gas Lost

S. Other Items Related to Communitization Agreements

.12 Procedures

A. Reviewing State Orders

B. Noting Action Affecting Communitization

C. Monitoring Drilling

D. Preparing a First Production/Discovery Report

E. Notifying Lessees of Necessary Communitization

F. Notifying MMS of the Necessity to Assess Compensatory Royalty

G. Preliminary Approval

H. Monitoring Status

I. Final Approval

J. Distributing Copies of the Agreement

K. Further Coordination with MMS

L. Production Decline or Nonproduction

M. Notification of Termination

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.2 Communitization Involving Indian Lands

.21 Guidelines

A. Model Communitization Agreements Forms and Instructions

B. Effects of State Orders

C. Communitizing Multiple Formations

D. Termination of Communitization Agreements

.22 Procedures

A. Reviewing State Orders

B. Noting Action Affecting Communitization

C. Monitoring Drilling

D. Preparing a First Production/Discovery Report

E. Notifying Lessees of Necessary Communitization

F. Review Procedures

G. Approval

H. Notifying the Operator

I. Distributing Copies of the Agreement

J. Further Coordination with MMS

K. Production Decline or Nonproduction

L. Notification of Termination

Illustrations

1. Format of a Letter Informing a Lessee of a Federal Communitization

2. Format of a Letter Informing a Lessee of an Indian Communitization

Appendices

1. Summary Information, Instructions, and Model Form of a Federal Communitization Agreement

2. Model Form for Designation of Successor Operator

3. Uintah and Ouray Agency Office Standard Communitization Agreement

Bibliography

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.01 Purpose.

This Manual Section provides guidelines and procedures for submitting, reviewing, and approving communitization agreements involving Federal (except the National Petroleum Reserve in Alaska) and Indian lands.

.02 Objectives. Communitization allows for the development of a separate lease or a portion thereof that cannot be independently developed and operated in conformity with an established well-spacing or well-development program.

.03 Authority.

A. 43 CFR 3105.2, Communitization or drilling agreements

B. 43 CFR 3107.4, Extension by elimination.

C. 25 CFR 213.31, Restrictions on operations.

D. 25 CFR Parts 211 and 212

E. 25 CFR 227.21, Restrictions on operations.

.04 Responsibility.

A. State Director. The State Director is responsible for the following actions regarding communitization agreements:

1. Monitoring all drilling well starts and completions and advising lessees under BLM supervision and the appropriate Superintendent of the Bureau of Indian Affairs (BIA) as appropriate, and the operator of a well if on State or fee land, when communitization is necessary.

2. Ensuring that appropriate follow-up action is taken on any requests for communitization or changes in the status of communitized areas.

3. Reviewing applications, including preliminary applications if submitted, for approval to communitize.

4. Approving communitization agreements involving Federal lands. For those agreements involving Indian lands, recommendations are made promptly to BIA for approval or disapproval. For those agreements involving both Federal (leased or unleased) and Indian lands, joint approval by BLM and BIA is required.

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5. Ensuring that copies of all communitization agreements and action documents are furnished to the Minerals Management Service (MMS) and other appropriate BLM offices.

6. Advising MMS, the operator (for BLM approved agreements), and appropriate BLM offices of the date a communitization agreement terminates.

B. District Manager. If delegated, the District Manager will be responsible for any or all the responsibilities of the State Director described above.

.05 References.

A. 43 CFR 3100.2-1, Compensation for drainage.

B. BLM Manual Sections.

1. 3100 Oil and Gas Leasing.

2. 3104, Bonds.

3. 3107, Continuation, Extension, or Renewal.

4 3109, Leasing Under Special Acts

5. 3160-2, Drainage Protection

6. 3160-3, First Production/Discovery Reports.

C. Former USGS Conservation Division Manual Chapters.

1. R65-CDM 644.4, Measurement of Crude Oil.

2. R66-CDM 644.4A, Measurement of Natural Gas.

D. NTL-4A, Royalty or Compensation for Oil and Gas Lost.

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.06 Policy.

A. Communitization agreements may be approved when a lease or a portion thereof cannot be independently developed and operated in conformity with an established well spacing or well development program.

B. The Bureau usually will not approve, or recommend approval of, in the case of Indian lands, agreements communitizing more than 640 acres for oil or gas production irrespective of well location and Federal or Indian acreage within the drilling and spacing unit. Nor will the Bureau approve, or recommend approval of, in the case of Indian lands, agreements when the proposed area is not contiguous.

C. The Bureau will not approve, or recommend approval of, in the case of Indian lands, a communitization agreement with any uncommitted working interest for the lease containing the well.

D. The Bureau usually will require operators of Federal and Indian leases to adhere to the well spacing and well location requirements established by the appropriate State regulatory bodies, while reserving the right to impose different requirements in those instances where adherence to a State's requirement is considered not to be in the public interest or in the interest of the Indian lessors.

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.1 Communitization Involving Federal Lands.

The following guidelines and procedures apply to communitization of Federal leases or a Federal lease communitized with State or fee leases.

.11 Guidelines.

A. Justification for Communitization. Communitization is authorized when a Federal lease cannot be independently developed in conformity with an established spacing pattern. The following circumstances will constitute sufficient justification for communitization.

1. Conforming to an Acceptable State Spacing Pattern. Communitization is required in order to form a drilling unit that conforms to an acceptable nonoptional spacing pattern established by State order. As a general guideline, communitization will not be authorized when a single Federal lease or unleased Federal acreage can be fully developed and still conform to an optional (North-South or East-West spacing) pattern established by State order. If the Federal tract cannot be independently developed and there are a number of spacing options, the authorized officer should require the one that is in the best interest of the Federal Government, i.e., the one that provides the largest Federal participation.

2. Providing More Efficient Reservoir Management. Adequate engineering and/or geological data is presented to indicate that communitizing two or more leases or unleased Federal acreage will result in more efficient reservoir management of an area. For example, justification for approval of communitization exists when sufficient control is available to generally define productive reservoir limits and communitization is necessary to confine a spacing unit within the defined reservoir limits.

3. Spacing Comprising Both Unit and Nonunit Lands. Communitization is required when the logical spacing for a well includes both unit and nonunit land, i.e., is located outside the unit boundary or is not committed to the unit agreement.

4. Conforming to Development Pattern. Where, in the absence of State field or area spacing or statewide rules, the area has been developed by the actual drilling of at least three wells on a fixed pattern in reasonable proximity, with the closest well not more than 2 miles away from the proposed well location, a written statement of intentions to develop the leases in the area on this pattern should usually be required from the operator.

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5. Other Justification. In wildcat areas, the authorized officer can approve the communitization of more than one lease or unleased Federal acreage on such reasonable basis as deemed appropriate in order to conform with general statewide spacing for oil or gas or the spacing in a nearby pool or field that appears to be applicable; provided, however, that the Federal lease or unleased Federal acreage proposed for inclusion cannot be independently developed. However, it is normally preferable to...