CHAPTER 18 SECONDARY RECOVERY UNITS AND PRESSURE MAINTENANCE
| Jurisdiction | United States |
(Nov 2006)
SECONDARY RECOVERY UNITS AND PRESSURE MAINTENANCE
Attorney
Law Office of Craig Newman
Casper, Wyoming
CRAIG NEWMAN
Mr. Newman received his B.A. from the University of Wyoming in 1971. After a short stint in Washington, D.C. where he had enough of the East and politics, he returned to Wyoming and received his J.D. from the same university in 1975 where he was a division editor of the Land and Water Law Review.
From 1975 to 1977, he was an Assistant Attorney General in the Natural Resources Section of the Wyoming Attorney General's office. From 1977 to 1980, he was an attorney for Atlantic Richfield Company and ARCO Alaska, Inc., in Anchorage, Alaska.
Pressed by ARCO to transfer to Los Angeles, he returned to Wyoming and joined the Brown & Drew firm in Casper in 1980, where he was a partner from 1983 to 1993. In 1993, he "downsized" himself and opened a sole practice.
He continues a general oil and gas law practice, which includes title work and monthly representation of clients before the Wyoming Oil and Gas Conservation Commission. He is the author of several papers for special institutes, this being the third at a Special Institute on pooling and unitization, and a chapter in the Foundation's Law of Federal Oil and Gas Leases. He is a former trustee of the Foundation and former Wyoming representative to the Interstate Oil and Gas Compact Commission.
He is a member of the Wyoming, Natrona County and American Bar Associations.
I. Introduction/Terms
"Secondary recovery" and "pressure maintenance" are both forms of enhanced or improved oil or gas recovery. The methodologies employed to effect "secondary recovery" typically occur at or near the end of what is considered "primary" production, while "pressure maintenance" may be employed relatively early in the life of a producing reservoir to prevent loss of reservoir energy and irremediable loss of hydrocarbon production that would otherwise occur if only "primary" production methods were continued. However, both secondary recovery and pressure maintenance activities are employed by oil and gas operators in an effort to recover oil or gas that would not be recovered if primary production methods were continued.
The discussion which follows is an effort to examine secondary recovery and pressure maintenance units in the context of the federal unit agreement forms and to distinguish secondary recovery and pressure maintenance units from federal exploratory units that are the subject of other papers in this manual. The comparisons of the forms of agreement which follow are limited to the agreement forms in use and/or required to be utilized for units involving federal lands.
In discussing some of these terms and the concept of unitization, one court has observed:
In order to understand the nature of this appeal it is helpful to be cognizant that when oil is initially discovered, it flows or is pumped to surface via wells, assisted by natural pressure existing in the subsurface. This process is terms `primary' recovery of oil. As the
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natural pressure dissipates, oil production declines. Production can sometimes be restored by injecting water (termed `secondary' recovery) or other substances . . . (termed `tertiary' or `enhanced' recovery) through wells to restore or increase pressure. This restoration is expensive and often times can only be made cost effective if various owners of tracts of land consolidate their resources in order to maximize their return of oil. This consolidation occurs via what is termed unitization.1
Williams & Meyers have defined these terms in the following manner, taken from their Manual of Oil and Gas Terms (Matthew Bender 2005):2
"Primary Production": Production from a reservoir by primary sources of energy, that is, from natural energy in the reservoir when it is in an early stage of production, with little loss of pressure and with most wells still flowing.
"Primary Recovery": ... the oil, gas or oil and gas recovered by any method (natural flow or artificial lift) that may be employed to produce them through a single well bore; the fluid enters the well bore by the action of native reservoir energy or gravity. [quoting an American Petroleum Institute definition]
"Secondary Recovery": Broadly defined, this term includes all methods of oil extraction in which energy sources extrinsic to the reservoir are utilized in extraction. One of the early methods was the application of vacuum to the well, thus `sucking' more oil from the reservoir. The term is usually defined somewhat more narrowly as a method of recovery of hydrocarbons in which part of the energy employed to move the hydrocarbons through the reservoir is applied from extraneous sources by the injection of liquids or gases into the reservoir.
Typically a differentiation is made between secondary recovery and pressure maintenance; the
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former involves an application of fluid injection when a reservoir is approaching or has reached the exhaustion of natural energy, while the latter involves application of fluid injection early in the productive life of a reservoir when there has been little or no loss of natural reservoir energy. * * *
"Pressure Maintenance": The injection of gas, water or other fluids into oil or gas reservoirs to maintain pressure or retard pressure decline in the reservoir for purpose of increasing the recovery of oil or other hydrocarbons therefrom.
Common to both secondary recovery and pressure maintenance is the deliberate introduction or reintroduction of substances (water, gas, etc.) into the hydrocarbon reservoir and the movement or potential for movement of hydrocarbons in the reservoir from one place to another. In secondary recovery units involving, for example, waterflooding, this movement of hydrocarbons is intended and the direct result of employing the waterflooding technique. In pressure maintenance projects, this movement of hydrocarbons is conceptually more indirect, but nonetheless a consequence of the pressure maintenance activity. It is the intended or consequential movement of hydrocarbons across property/lease lines by the introduction or reintroduction of some substance into the reservoir, together with the expense and area affected by these production techniques, that promote the legal and practical necessity of the aggregation of otherwise separately owned properties. It is this aggregation of separately owned interests for purposes the production of hydrocarbons that is the fundamental precept of "unitization."3
II. Federal Exploratory Units Distinguished
Much of the work of the other authors at this institute involves what may be generally termed, "federal exploratory units." The more precise name given
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such units by the applicable federal regulations, is a unit for use "in unproven areas."4 Such units must utilize the "Model Form Onshore Unit Agreement for Unproven Areas" and are formed for purposes of exploring, viz. "drilling to discovery,"5 an area "logically subject to development under a unit agreement"6 that is "unproven." Such exploratory units, obviously and by their very nature, are at the other end of the continuum of oil and gas exploration and development activities from "secondary recovery" and "pressure maintenance" units.
Federally exploratory units, on the one hand, and secondary recovery or pressure maintenance units on the other, have very different fundamental purposes. Though there is usually an initial geologic target identified, federal exploratory units are generally formed for purposes of exploring a relatively large area for any productive hydrocarbon reservoir that may be found in drilling wells required by the terms of the unit. As stated in the BLM Manual, "[e]xploratory units normally embrace a prospective area that has been delineated on the basis of geologic and/or geophysical inferences."7 Most modern federal exploratory units are so-called "grass roots" units, in that they cover any hydrocarbon reservoir that may be encountered in the exploratory drilling operations to be undertaken prospectively after such a unit is formed. Secondary recovery and pressure maintenance units are generally formed to increase or improve production from a single hydrocarbon reservoir underlying a relatively small area that has already been proven productive and delineated by prior drilling and development.
Federal exploratory units, given the automatic contraction provisions required by the required federal form of unit agreement,8 are designed to begin with a relatively large unit area that gets progressively smaller over time. A given federal exploratory unit may, ultimately, result in a unit area that is composed of
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two or more combinations of tracts of non-adjoining and non-contiguous lands, due to the configuration of distinct participating areas created under such units over time.9 Secondary recovery and pressure maintenance units are generally relatively small unit areas, already proved productive, that in this author's experience virtually never get smaller, but occasionally may expand due to drilling activities outside the unit boundary.10 Secondary and pressure maintenance units are always composed of adjoining, contiguous tracts of land configured so as to overly the involved hydrocarbon reservoir.
Federal exploratory units can only continue to exist if required wells are drilled within the time limits prescribed and prove productive in paying quantities to the requisite economic threshold.11 Secondary recovery units may involve a relatively static number of unit wells over the life of the unit, with the only changes in the number of wells being a consequence of conversion of existing wells from producing wells to injection wells, and vice versa.
Another and overarching distinction between federal exploratory units and secondary...
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