CHAPTER 17 UNCONVENTIONAL COMBINATION AGREEMENTS OR DO WHAT YOU WANNA DO1
| Jurisdiction | United States |
(Jan 1997)
UNCONVENTIONAL COMBINATION AGREEMENTS OR DO WHAT YOU WANNA DO1
St. Mary Land & Exploration Company
Denver, Colorado
Section 17.01 Introduction
Section 17.02 Cooperative Agreements/Cooperative Plans of Development or Operation
a. Do these Agreements Exist
b. Cooperative Plans of Development or Operation
c. Cooperative Plans of Development or Operation—Why Bother
Application Procedures
1. Plan Qualifications
2. Preliminary Considerations
3. Joinder
4. Inclusion of State and Indian Lands
5. Unit Operator Qualification
6. Filing
7. Plans of Development
8. Additional Drafting Considerations
Section 17.03 Operating, Drilling, or Development Contracts
a. Statutory and Regulatory Guideposts
Section 17.04 Conclusion
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Section 17.01. Introduction. Authoring this paper has proved to be an interesting task. Candidly, it is absolutely no different than that which faces any one desiring to use the agreements discussed. When attempting to draft cooperative agreements, cooperative plans of development or operation, or an operating, drilling, or development contract, there are few examples, if any, of the lawyers' tried and true fallback safety net, a "go-by" in your form files, or anyone's who you might know. It becomes somewhat like a mystic ritual whereby late in the afternoon you call your peers and after explaining what you want to do, ask them if they think it makes sense. That has proved to be the case in drafting this paper, without the reassurance of that late afternoon call. There is the applicable statute, a few regulations, a paragraph here or there in an article or two and you, the draftsman, left to your own devices sitting across from a BLM or BIA representative who may also be more or less inventive at that particular time. This paper, like these agreements, possesses only these few guideposts and a sense of adventure.
Section 17.02. Cooperative Agreements/Cooperative Plans of Development or Operation.
a. Do these agreements exist? While the question may seem rhetorical or fanciful, one has to wonder if these agreements actually still exist, or are a figment of some of our imaginations. The phrase "cooperative agreement" has essentially disappeared from the Mineral Leasing Act and its regulations.2 The phrase "cooperative agreement" no longer appears nor is it in any way defined in the current regulations or the current embodiment of the Mineral Leasing Act of February 25, 1920, the act from which all of these agreements flow.3 The provisions concerning cooperative plans of development, operating, drilling and development contracts, and for that matter unitization and communitization agreements appear at 30 U.S.C. Section 226(m) (1996.)
A cooperative agreement has been defined as an agreement or plan of development and operation for the recovery of oil or gas made subject thereto in which separate ownership units are independently operated without allocation of production.4 Inasmuch as these agreement have disappeared from any direct recognition in the regulations, and
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without the ability to share in production so as to enhance the orderly development and thus conservation and management of a pool or field, it is definitely possible that these agreements have disappeared due to obsolescence, if not irrelevance.
b. Cooperative Plans of Development or Operation. While the bulk of this paper will address what I believe to be a viable and readily available tool, there is a legitimate question for at least grammarians to speculate as to whether or not this is an agreement separate and apart from the federal onshore unitization agreement around which this conference is centered. When reading the operative statute and regulations, the term "cooperative" always appears before the word "or".5 This use of the word "or" instead of "and" between cooperative and unit then should constitute a clear indication that these are different agreements, and that one can select to use either a cooperative agreement or a unit agreement.6 While I must necessarily believe, and in fact do believe, that such a creature as cooperative agreements exists, this is not without some concern that the drafters of the statute were speaking about the character of unit agreements, i.e., they must be necessarily cooperative, and this fear is given some support by the fact that even though the regulations refer you to a specific provision for the suggested terms,7 the section to which you are referred for the suggested contents and procedures, 43 C.F.R. Section 3180 , et seq. (1994), speak only of unit agreements. As one commentator has noted, the term "cooperative plans" as employed in the current regulations appears to be synonymous with unit plans, suggesting that these are really one and the same.8
Notwithstanding the above discussion, like any lawyer when it is convenient, I will assume that the drafters of the Mineral Leasing Act, as amended, knew exactly what they were doing when they chose the word "or" as opposed to the word "and", and further, that the regulatory scheme as expressed in 43 C.F.R. Section 3105.1, which notes that the model form unit agreement as set forth in 43 C.F.R. Section 3186.1 is merely a suggestion as to contents, thus freeing us to engage our creative potential.
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c. Cooperative Plans of Development or Operation — Why Bother. The statutory and regulatory guidelines for cooperative plans of development or operation are slim indeed. The first, second, and fourth paragraphs of the applicable provisions of the Mineral Leasing Act9 subsection (m) and the one sentence contained in 43 C.F.R. Section 3105.1 (1993) offer the sum total of guidance. There are no BLM manuals or handbooks which tell either the lessees or the authorized officer how to go about the creation of a cooperative plan and, therein lies either the beauty or the bane of such agreements. If all concerned can articulate their needs and are willing to creatively craft an agreement which suitable meets all parties respective concerns, then this vehicle can prove an exceptionally effective tool in the efficient exploration and exploitation of an oil and gas pool or field.
The Mineral Leasing Act sets forth the purpose of both a cooperative or unit plan of development or operation. The plan is to more properly conserve the natural resources of any oil or gas pool, field, or like area, or any part thereof. This is accomplished by the lessees within such an area and their representatives uniting with each other or jointly or separately with others and collectively adopting and operating under a plan of development or operation of such pool, field, or like area, or part thereof. This development or operation must be determined and certified by the Secretary of the Interior, or his designated representative to be necessary or advisable in the public interest. The beauty of this plan is that the Secretary through his representative is authorized in his discretion and with the consent of the holders of the leases involved to establish, alter, change, or revoke drilling, producing, rental, minimum royalty, and royalty requirements of the affected leases and to make such regulations with reference to such leases with the consent of the lessees, in connection with the institution and operation of any such cooperative plan as the Secretary may deem necessary or proper to secure the proper protection of the public interest. Of course defining the public interest as opposed to the private interests of the affected lessees can be a challenge; however, when these two needs can be brought into alignment and a greater ultimate yield of hydrocarbons obtained, this tool can become helpful.
The statutory scheme which has been recited above assumes federal or Indian leases. The alternation of state or fee leases will require the consent of not only the lessee, but also the affected lessors. Likewise, the vested rights of any owner of a non-cost bearing interest in production such as an overriding royalty interest or net profits interest must also have previously given consent to such modifications, or must be included in...
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