CHAPTER 4 FEDERAL UNITIZATION FOR EOR OPERATIONS
| Jurisdiction | United States |
(May 2015)
FEDERAL UNITIZATION FOR EOR OPERATIONS
The Law Office of Craig Newman
Casper and Story, Wyoming
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CRAIG NEWMAN graduated from the University of Wyoming College of Law in 1975, where he was one of the editors of the Wyoming Land and Water Law Review. He has been oil and gas lawyer since 1976, in private practice since 1980, and a sole practitioner for more than 20 years. For 35 years, he has regularly represented clients before the Wyoming Oil and Gas Conservation Commission and written title opinions for oil and gas clients. He is a member and former trustee of the Rocky Mountain Mineral Law Foundation and has written papers and made presentations at a number of special institutes and one annual institute of the Foundation, including special institutes on title examination and oil and gas conservation law. He also is one of the original chapter authors in The Law of Federal Oil and Gas Leases, a two-volume legal treatise published by Matthew Bender and the Rocky Mountain Mineral Law Foundation. He is the author of the Wyoming portion of Oil & Gas Law, A Nationwide Comparison of Laws on Leasing, Exploration and Production, published in 2010 by the American Association of Professional Landmen (AAPL) and has been a speaker and presenter at an AAPL Annual Meeting and special topic seminars. He is a former Chairman of the Legal Committee of the Interstate Oil and Gas Compact Commission and was Wyoming's representative to the Compact for 8 years. He has been listed as a member of The Best Lawyers in America and in Martindale Hubbell's Bar Registry of Preeminent Lawyers, both for more than 20 years, and has been listed in Rocky Mountain Super Lawyers since 2008. He is married to the best landman he knows, Rita Miller Newman, and resides in Casper and Story, Wyoming.
(Unitization for EOR Projects Involving Federal Lands)*
The potential for involvement of federal lands and, therefore, the need to account for the possibility of unitization involving federal law/regulations and the prescribed federal forms of unit agreements in enhanced oil recovery (EOR) projects is a function of the significant land holdings of the United States in the West.
Federal land ownership is concentrated in the West. Specifically, 62% of Alaska is federally owned, as is 47% of the 11 coterminous western states. By contrast, the federal government owns only 4% of lands in the other states. 1
More specifically, the potential involvement of federal regulations in any given EOR project in the West is a result of the significant ownership of mineral estates in lands owned by the United States in the West and administered by the United States Department of the Interior, Bureau of Land Management. The Bureau of Land Management table in Appendix A yields the following information as to the percentage of the minerals owned by the United States as a percentage of the total land area of selected western states (all acreage numbers are in millions of acres):
| State: | Total Acreage: | Federal Mineral Acreage: | Percent Federal Minerals:2 |
| Alaska | 365.48 | 237.0 | 64.85% |
| Colorado | 66.49 | 29.0 | 43.62% |
| Montana | 93.27 | 37.8 | 40.53% |
| North Dakota | 44.45 | 5.6 | 12.60% |
| New Mexico | 77.77 | 36.0 | 46.29% |
| Utah | 52.70 | 35.2 | 66.79% |
| Wyoming | 62.34 | 41.6 | 66.73% |
I. Introduction/Terms
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"Enhanced oil recovery," according to the Department of Energy (DOE), is generally one of three kinds of operations undertaken after "primary" production and after "secondary recovery" operations.3 DOE says that the three kinds of enhanced recovery operations typically undertaken are thermal recovery, gas injection and chemical injection.4
However, in the broader sense, any operations involving the introduction of extraneous substances and new reservoir energy to the hydrocarbons reservoir are operations for "enhanced recovery." In this broader view, "secondary recovery" and "pressure maintenance" are also forms of enhanced or improved oil or gas recovery. The term "enhanced recovery unit" as used in this paper includes units formed for purposes of secondary recovery and pressure maintenance.
The discussion which follows is an effort: 1) to examine enhanced recovery units in this broad sense in context of the federal unit agreement forms required to be used in a unitization effort involving federal lands of a required acreage threshold, 2) to distinguish units formed for enhanced recovery (including secondary recovery and pressure maintenance units) from federal exploratory units, 3) to discuss the general application and lack application of state oil and gas
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conservation statutes to federal exploratory units and units involving federal lands formed for enhanced recovery purposes, 4) to describe the limited circumstances in which a federal exploratory unit can be utilized for enhanced recovery operations, and 5) to discuss the differences between the federally prescribed unit agreement for exploratory units and that required for enhanced recovery operations.
In discussing 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 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. 5
Williams & Meyers have defined these terms in the following manner, taken from their Manual of Oil and Gas Terms (Matthew Bender 2005):6
"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]
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"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 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. aa1a1
"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 all kinds of enhanced recovery units, including 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, and tertiary or enhanced recovery involving the injection of CO2, this movement of hydrocarbons is intended and the direct result of employing the waterflooding or gas injection technique. In pressure maintenance projects, this movement of hydrocarbons is conceptually more indirect, but nonetheless a consequence of the pressure maintenance activity.
It is this 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 and leases. It is this aggregation of
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separately owned interests in oil and gas leaseholds for purposes of the enhanced production of hydrocarbons that is the fundamental precept of "unitization."7
The unitization of federal oil and gas leases is provided for in the Mineral Leasing Act of 1920, 8 the law under which most federal oil and gas leases are and have been issued. The federal statute contemplating and providing for unitization of federal oil and gas leases provides as follows:
(m) Cooperative or unit plan; authority of Secretary of the Interior to alter or modify; communitization or drilling agreements; term of lease, conditions; Secretary to approve operating, drilling or development contracts, and subsurface storage. For the purpose of more properly conserving the natural resources of any oil or gas pool, field, or like area, or any part thereof (whether or not any part of said oil or gas pool, field, or like area, is then subject to any cooperative or unit plan of...
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