CHAPTER 2 PREPARING FOR THE AREA AND DEPTH MEETING

• Jurisdiction: United States

Federal Onshore Oil & Gas Pooling & Unitization - part 1
(Oct 2014)
CHAPTER 2
PREPARING FOR THE AREA AND DEPTH MEETING
Timothy K. Woodroof
UnitSource Inc.
Denver, Colorado

[Page 2-i]

TIMOTHY K. WOODROOF has been a Landman for 36 years, having spent the last 10 years working for UnitSource Incorporated in Denver, Colorado. On behalf of his clients, Mr. Woodroof has assembled exploratory units, enhanced recovery units, and communitization agreements involving federal, state, fee, and Indian lands throughout the Rocky Mountain Region, California, Texas, and the state of Washington. Mr. Woodroof has a wide range of oil and gas experience, having held various landman positions for Amoco Production Company, Reading and Bates Petroleum Company, Lear Exploration Inc., United Western Exploration Company, as well as his own exploration efforts. Mr. Woodroof is an active member of the American Association of Professional Landmen (AAPL) and the Denver Association of Professional Landmen (DAPL). He is a 1978 graduate of Colorado State University with a Bachelor of Science in Finance and Real Estate.

Table of Contents

1. Introduction

2. Background and Authority For Unitization

3. Purpose

4. Considerations

5. Preparation of the Application

5.1 The Area and Depth Application

5.2 Exhibits "A" and "B"

5.3 Geologic Reports

5.4 Geologic Exhibits

5.5 Confidentiality

6. Presentation of the Area and Depth Application

6.1 Preliminary Meetings

7. Conclusion

[Page 2-1]

1. INTRODUCTION

The unitization process often begins when one of two things happen - 1) either the drilling engineer ran in and says he has a rig which will be moving on location in 45 days or 2) the expiration calendar reveals ten leases expiring in two months! What to do? Well, many call UnitSource - and we're grateful! However, it is important to know how the Area and Depth Application process works. It is the initial step in forming a unit and it lays the groundwork for the relationship between the unit proponent and the Bureau of Land Management (BLM) as well as the terms by which the unit will be operated in the years ahead.

2. BACKGROUND AND AUTHORITY FOR UNITIZATION

Originally, cooperative unit plans were approved by the Secretary of the Department of the Interior in Washington, D.C. In 1946¹ the Mineral Leasing Act of 1920 was amended and granted to the Secretary the ability to authorize a designate, including any person, committee, or state or federal office or agency to approve cooperative agreements. For many years, the Regional Supervisor of the Conservation Division of the United States Geologic Survey Regional (USGS) had approval authority. During this time many of the rules and guidelines were established for unitization that are still in effect to this day.

By Secretarial Order 3071, administrative authority of unitization was assumed by the Minerals Management Service (MMS) in January of 1982. Shortly afterward, Secretarial Order 3087 (December, 1982) created a merger of the MMS (exclusive of Royalty Management and Offshore Operations) and the Bureau of Land Management (BLM). The BLM then decentralized the administrative authority of unit agreements to District and State offices. The person or position of the BLM who is charged with authority regarding units is called the Authorized Officer (AO).

3. PURPOSE

The purpose of the Application for Designation of Proposed Unit Area and Determination of Depth of Test Well, commonly known as the Area & Depth Application, is to initiate the unitization process and to provide the AO with the appropriate data and science to justify designation of an area as a logical unit area. In essence the AO will determine whether the proposed area should be designated as logically subject to exploration and development under a unit plan of operation, if the depth, locaton and objective of the proposed well will adequately serve as the obligation well and whether the proposed Unit Agreement is acceptable. In order to do this the AO will operate by various layers of rules, regulations² and guidelines. The regulations can be found in the Code of Federal Regulations, Title 43, Section 3180. In addition

[Page 2-2]

the individual offices follow guidelines and procedures published in an internal handbook.³ Beyond that each office has its own set of parameters and practices which are unique due to different philosophies and geologic climates; therefore, the unit proponent should contact the appropriate BLM office for clarification on their practices as some guidelines may not be consistent from one BLM office to the next.

4. CONSIDERATIONS

The next question the proponent should ask is, "What do I need to consider in order to move this process forward?"

• Resource Play or Conventional Play - The determination of whether the geologic prospect is a resource play or a conventional play will have implications upon how the boundaries of the unit are formed. The BLM Wyoming Reservoir Management Group uses the United States Geologic Survey's term "continuous accumulation" for a resource play as defined as follows: "Common geologic characteristics of a continuous accumulation include occurrence down dip from water-saturated rocks, lack of obvious trap and seal, pervasive oil or gas charge, large areal extent...