CHAPTER 21 B.L.M. WORKSHOP—UNITIZATION SCENARIOS
| Jurisdiction | United States |
(Jan 1990)
B.L.M. WORKSHOP—UNITIZATION SCENARIOS
Bureau of Land Management
Denver, Colorado
TABLE OF CONTENTS
A. INTRODUCTION
B. SCENARIOS
1. Split Estate
2. Size of Participating Area
3. Recomplete in Communitization Agreement
4. Drilling in Unit—Expiring Leases
5. Successor Unit Operator by Assignment
6. Successor Unit Operator by Consent
7. Uncommitted Lease in Unit
8. Revision to Participating Area Without a Well
9. Resurvey and Future Interest Lease
10. Overlapping Unit Proposals
11. Unpatented Oil Shale Mining Claims
12. Participating Area—Unleased Federal Land
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INTRODUCTION
The following unitization/communitization scenarios are actual situations encountered in the field. These scenarios are being presented as an opportunity to apply existing unitization and communitization policies and procedures to specific case studies.
The possible solutions described for each scenario are not intended to represent official Bureau policy nor to be a legal analysis. The possible solutions described for each scenario simply represent one alternative and are provided for the sole purpose of promoting a discussion as to what other alternatives may be available under the terms and conditions of a unit or communitization agreement.
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1. CONSIDERATION:
There is a federal lease in which the federal government owns 75 percent of the mineral interest in one portion and 100 percent of the mineral interest in another portion of the same lease. A well is located on the 75 percent mineral interest portion of the subject lease. The well is subject to an 80-acre spacing unit. The subject lease covers the entire 80-acre spacing unit. Both the 75 percent and 100 percent portions of the lease are contained in the spacing unit.
How should the production from this well be handled?
POSSIBLE SOLUTION:
A communitization agreement is necessary to properly distribute production from the well which is located on the 75 percent tract of the federal lease. As the well is subject to an 80-acre spacing order and contained in the 80-acre unit is fee land (i.e., the remaining 25 percent of the 75 percent federal tract), a communitization agreement is necessary to properly distribute production to both the fee and federal lands.
The United States' percent interest in the communitization agreement would be calculated by totaling that portion of the 100 percent federal tract contained within the communitization agreement with 75 percent of that portion of the 75 percent federal tract within the communitization agreement and then dividing this total by the number of gross acres contained in the entire communitization agreement.
[Page 21-3]
2. CONSIDERATION:
The operator proposes a participating area of 1200 acres in size. A basic royalty interest owner outside the proposed participating area objects to the size of the participating area. The basic royalty interest owner believes that the participating area should be larger in size and submits data to the Bureau to prove its position.
How should the Bureau handle conflicting proposals for a participating area?
POSSIBLE SOLUTION:
The Bureau must consider all technical data submitted by any interested party. If a party protests the size of a participating area, the Bureau will consider all data submitted and decide if the data warrants any changes to the proposed participating area. If the Bureau does not believe that the submitted data warrants an alteration to the proposed participating area, the Bureau will deny the protest and give the protester their appeal rights.
The Bureau has the ultimate authority to determine the size of a participating area. All adversely affected parties will be given their appeal rights if the proper protest procedures have been followed.
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3. CONSIDERATION:
A communitization agreement operator proposes to recomplete the communitization well by commingling the communitized formation with a shallower formation. There is no spacing established for the shallower formation.
How does this proposed procedure impact the communitization agreement?
POSSIBLE SOLUTION:
The lessee did not want to consent to amending the communitization agreement to include the shallower production. He felt that only he should be entitled to production from the shallower formation as there was no state spacing order preventing offset lessees from drilling their own well.
As the communitization agreement could not be amended to include the additional formation, the communitization agreement was terminated due to the lack of paying production. It was realized that the reason for commingling was that the communitized formation could not economically produce by itself. The communitization agreement was longer capable of producing in paying quantities. After termination, all production from the commingled well would be handled separately on a leasehold basis.
If the communitized formation remained capable of producing in paying quantities, the operator would have been required to measure and report production from the two formation separately. Only in this way could production from the communitized formation be properly distributed under the terms of the communitization agreement.
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4. CONSIDERATION:
A unit provides for one obligation well to test the XYZ formation. The operator has drilled its obligation well to a depth much greater than the depth required under our approval. The company wishes to conduct some uphole interpretations and run seismic lines prior to the continuance of drilling.
What would happen to the unitized leases that might be expiring during this period of uphole testing?
POSSIBLE SOLUTIONS:
If these evaluation activities were diligent for a reasonable amount of time (i.e. 3-4 months) and at the end of that period of the time the operator would continue drilling or plug and abandon the well, any federal leases that have the potential of expiring during this evaluation period would be entitled to a two-year drilling extension. The key being that, within a reasonable amount of time after the evaluation period, the operator continues drilling the well or plugs the well. If this did not occur within a reasonable amount of time, operations would not be considered diligent and leases would not be entitled to two-year drilling extension.
If paying production was not discovered by this well, the drilling of the second obligation well would need to be commenced six months after the well was plugged or six months after diligent drilling operations were deemed to have ceased.
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5. CONSIDERATION:
Is there an alternative procedure for designating a successor unit operator other than procedures followed pursuant to section 6 of the unit agreement which requires the consents of the necessary parties?
POSSIBLE SOLUTIONS:
The standard procedure for designating a successor operator is to submit an indenture whereby the unit operator resigns and a new unit operator is designated. Pursuant to the Approval of the Parties requirements of the unit operating agreement, the Bureau of Land Management determines whether proper consent was received and whether bond coverage is adequate prior to approving the indenture.
An alternative procedure for designating a successor unit operator would be to submit the model form in 43 CFR 3186.4, Change in Unit Operator by Assignment. The Colorado State Office will accept this form as long as all parties in the unit were notified that a successor operator by assignment will occur 30 days prior to the Bureau receiving the executed form. Any objections received by an interested party would be considered by the Colorado State Office prior to its approval of the successor operator. If the objections are considered to be valid, then the unit operator would be required to follow typical successor unit operator procedures. If the objections do not appear to be significant, the Colorado State Office would approve the successor operator by assignment and the objecting parties would have to initiate unit operator removal procedures pursuant to section 6 of the agreement if they continued to desire a different operator.
The successor operator by assignment procedure would not be acceptable if the resigning unit operator retains an interest in the unit. If the resigning operator holds interest in the unit, he would have to assign his interest to the new operator before this indenture could be approved. If they do not assign their interest, the typical successor operator procedures would have to be initiated.
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6. CONSIDERATION:
The unit operator submits a successor of operator request. Consents do not match with the working interest owners reflected on the Exhibit "B" in the file. However, the operator certifies they have obtained the necessary consent in their letter requesting approval of the successor operator.
Should successor of operator be approved?
POSSIBLE SOLUTION:
The Bureau may approve the successor unit operator with the condition that the unit operator submit a revised Exhibit "B" reflecting current ownership. If the proper Exhibit "B" was not timely submitted, the...
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