CHAPTER 6 THE NEW MODEL OPERATING AGREEMENT FORMS: WHY CHANGE THE RULES IN THE NINTH INNING?
| Jurisdiction | United States |
(Jan 1997)
THE NEW MODEL OPERATING AGREEMENT FORMS: WHY CHANGE THE RULES IN THE NINTH INNING?
Holme Roberts & Owen LLP
Denver, Colorado
I. INTRODUCTION
There are a number of organizations that publish form operating agreements. These form operating agreements are designed for a number of situations. Each form, however, is generally designed to be used with a specific unit agreement, and the type of unit will often dictate the type of operating agreement. In the past eight years all of the commonly used form operating agreements have been modified. Some of these, like the AAPL-610 and the RMOA—Form 2 have undergone significant changes. While others, like the API Forms have undergone only relatively minor changes.
II. FORMS AVAILABLE
As indicated above, a number of industry organizations publish form operating agreements; these include the American Association of Petroleum Landmen, the Association of International Petroleum Negotiators, the American Petroleum Institute and the Rocky Mountain Mineral Law Foundation.
A. American Association of Professional Landmen.
The American Association of Petroleum Landmen (the "AAPL") is a voluntary international organization of landmen and land-related persons. The AAPL presents seminars, workshops, home study programs and conferences. It also publishes a bi-monthly Landmen magazine and a bi-monthly AAPL Update newsletter.
The AAPL also publishes a number of model form agreements such as leases, assignments, ratifications, farmouts and other forms. Generally, all the model form agreements published by the AAPL are land-related.
1. Form. One of the forms published by the AAPL is the AAPL Form 610 Model Form Operating Agreement (the "AAPL-610"). The AAPL was originally published in 1956 and was revised in 1977 and 1982. The most recent update occurred in 1989 when the AAPL-610 underwent significant revision. A number of the changes made in 1989 are viewed as radical by the industry and, accordingly, a number of producers continue to use the 1982 version of the AAPL-610.
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The AAPL-610 is the primary form used in connection with single well operations, such as spacing or communitization, wherein the interests in a single drilling and spacing unit are pooled to conform to state spacing requirements. The AAPL-610 however, can also be used in other situations and is often used to establish so-called "working interest" units.
2. Where to Obtain.
(a) Kraftbuilt
P.O. Box 800
Tulsa, Oklahoma 74101
800-331-7290
(b) AAPL
4100 Fossil Creek Blvd.
Fort Worth, Texas 76137-2791
817-847-7700
B. Association of International Petroleum Negotiators.
The Association of International Petroleum Negotiators (the "AIPN") publishes a number of form agreements, including a Model Form International Study and Bid Agreement, AIPN Model Form International Accounting Procedure and AIPN Model Confidentiality Agreement, in addition to the AIPN Operating Agreement described below.
1. Form. In 1990 and again in 1995, the AIPN, in conjunction with the American Corporate Counsel Association, published the Model Form International Operating Agreement (the "AIPN Operating Agreement"). The AIPN Operating Agreement is principally drafted for international operations. Because international operations are seldom uniform and the underlying rights of the parties can derive from a variety of situations, the AIPN Operating Agreement contains a significant number of options and alternatives.
2. Where to Obtain.
Barrows Company Inc.
116 East 66th Street
New York, NY 10021
212-288-7242
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C. American Petroleum Institute.
The American Petroleum Institute (the "API") is a national trade association which encompasses all branches of the petroleum industry. The API publishes various forms and information relating to exploration and production, marine operations, marketing, measurement coordination, pipeline operations, refining, health, environmental, safety, and fire protection.
1. Forms. The API publishes a number of form agreements pertaining to unitization. These include unit agreements as well as unit operating agreements.
(a) Model Form of Voluntary Unit Operating Agreement. The API Model Form of Voluntary Unit Operating Agreement (the "API Voluntary Operating Agreement"), is designed to be used with the API Model Form of Voluntary Unit Agreement (the "API Voluntary Unit Agreement"). These agreements were first published in 1957, with revisions being published in 1961 and 1970. In 1974, the API issued a supplement to the 1970 form relating to the withdrawal of working interest owners. In 1993 the API Voluntary Operating Agreement was further revised and is the current form.
The forward to the API Voluntary Operating Agreement states that the revised editions were prepared to update the model forms by making revisions found from experience to be desirable. The design of the form is to "aid in the accomplishment of voluntary unitization of oil and condensate reservoirs that are substantially developed in order to conduct some form of pressure maintenance, repressurizing, water flooding or other cooperative forms of operation to increase ultimate recovery. Accordingly, these forms are prepared for secondary or tertiary recovery and are not generally used in primary recovery situations.
(b) API Model Form of Statutory Unit Operating Agreement. The API Model Form of Statutory Unit Operating Agreement (the "API Statutory Operating Agreement"), is designed to be used with the API Model Form of Statutory Operating Agreement (the "API Statutory Unit Agreement"). These forms were first issued in 1974. The second and current editions, were issued in 1993.
The forward to the API Statutory Operating Agreement states that the forms were "designed for use in states where so-called 'field-wide' units may be established by order of the appropriate regulatory agency for the purpose of increasing the ultimate
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recovery of oil and gas." The API Statutory Operating Agreement is modeled after the API Voluntary Operating Agreement, and the API Statutory Unit Agreement is modeled after the API Voluntary Unit Agreement.
(c) API Model Form Off-Shore Unit Operating Agreement. The API Model Form Off-Shore Operating Agreement is designed to be used offshore. The current version was originally published in 1993.
2. Where to Obtain.
American Petroleum Institute
Publications and Distribution Section
1220 L Street, NW
Washington, DC 20005
202-682-8375
D. Rocky Mountain Mineral Law Foundation.
The Rocky Mountain Mineral Law Foundation ("RMMLF"), is a nonprofit corporation dedicated to the study of the legal system and issues affecting mineral and water resources. The RMMLF goals are to foster and encourage a scholarly and yet practical study of the law related to oil and gas, mining, water, public land management, land use, conservation, environmental protection and other related areas. The RMMLF serves a variety of functions related to education, including publishing treatises, providing for scholarships and grants, presenting seminars and programs, and publishing forms and various other publications.
1. Forms. The forms published by the RMMLF include not only operating agreements, but also development and mining agreements, a gas balance agreement and, most recently, a confidentiality and nondisclosure agreement.
(a) Rocky Mountain Unit Operating Agreement—Form 1 (Undivided Interest). The Rocky Mountain Unit Operating Agreement—Form 1 (Undivided Interest) (the "RMOA—Form 1") is designed to be used in connection with federal exploratory units, established pursuant to the Model On-shore Unit Agreement for Unproven Areas contained in 43 C.F.R. § 3186.1 (1996) (the "Model Federal Unit Agreement"). The RMOA—Form 1 was published in 1954 and has not been revised.
The RMOA—Form 1 is an "undivided type" operating agreement wherein the working interest owners participate in costs and
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production on a unit-wide basis in proportion to the committed acreage each owns in the entire unit area. In this type of operating agreement, the working interests owners' share of production and the costs associated therewith are "fixed" and do not change even when the participating areas within the unit changes. In this respect, the RMOA—Form 1 is similar to the other types of operating agreements, such as the AAPL-610 and the API Forms. As such, the RMOA—Form 1 is good for federal exploratory units containing a comparatively small amount of acreage, but the RMOA—Form 1 does not work well for larger units.
(b) Rocky Mountain Unit Operating Agreement—Form 2 (Divided Interest). The Rocky Mountain Unit Operating Agreement—Form 2 (Divided Interest) (the "RMOA—Form 2") was originally published in 1955. The RMOA—Form 2 was revised in 1980 and again in 1985. These revisions were to clarify certain provisions and were minor in nature. In 1994 however, the RMOA—Form 2 was significantly revised.
The RMOA—Form 2 is a "divided type" operating agreement and, like the RMOA—Form 1, is designed to be used in connection with federal exploratory units, established pursuant to the Model Federal Unit Agreement. Under the RMOA—Form 2 the working interest owners participate in costs and production on the basis of "participating areas" (smaller areas within the unit approximating the area capable of producing unitized substances in paying quantities), in proportion to the committed acreage each owns in the participating areas. While participation is based upon acreage within participating areas, the participating areas can expand or contract and each participant's share of costs and production in wells within a participating area can change based upon a number of factors, including the drilling of additional wells. This concept makes divided type units unique and some of the most complicated agreements in...
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