CHAPTER 7 PLANS OF DEVELOPMENT, EXPANSION, OR UNIT CONTRACTION

• Jurisdiction: United States

Federal Onshore Oil & Gas Pooling & Unitization - part 1
(Oct 2014)
CHAPTER 7
PLANS OF DEVELOPMENT, EXPANSION, OR UNIT CONTRACTION
Sheryl L. Howe
Welborn Sullivan Meck & Tooley, P.C.
Denver, Colorado

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SHERYL L. HOWE is an attorney with the Denver law firm of Welborn Sullivan Meek & Tooley, P.C., where her practice focuses on oil and gas, including title, transactions, and royalty issues, along with a variety of other real property matters. She has practiced law in Denver since 1982 and has worked on oil and gas and natural resources matters throughout her legal career. Ms. Howe received her B.A. with honors from the University of Iowa in 1979. She attended the University of Colorado Law School and received her Juris Doctor in 1982. She is licensed to practice law in Colorado and Wyoming.

I. INTRODUCTION

II. PLANS OF DEVELOPMENT

A. Generally

B. Timing

C. Contents

D. Supplements

E. Unit Operating Agreement Procedures

F. Available on WOGCC Website

III. UNIT EXPANSION AND CONTRACTION TO CONFORM WITH THE PURPOSES OF THE UNIT AGREEMENT

A. Procedure to Expand or Contract the Unit Area under Section 2(a)-(d) of the Unit Agreement

B. BLM Approval of Expansion

C. Required Well and Other Terms

D. Effective Date of Expansion

E. Required Joinder to Expansion

F. Caution - Regarding a Unit Expansion and Automatic Contraction

IV. AUTOMATIC UNIT CONTRACTION

A. Automatic Contraction under Section 2(e) of the Unit Agreement

B. Some Older Unit Agreements Do Not Have Automatic Contraction Provisions

C. Federal Leases Are Not Segregated if Part of the Lease Lands are Contracted Out of a Unit

V. DESIGNATION OF AGENT OR SUB-OPERATOR

VI. CONCLUSION

Exhibit A - Guidelines for Expanding or Contracting the Unit Area

Exhibit B - Cooper Reservoir Unit Area Map Showing Unit Area Automatically Contracted

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I. INTRODUCTION

Plans of development and summaries of operations are filed to show activity in the unit in the past year and planned activity in the next year. Unit expansions or contractions are initiated if an expansion or contraction of the unit area is needed to accomplish the purposes of the unit agreement.¹ Automatic unit contraction occurs under the terms of most unit agreements and eliminates non-productive lands from the unit. Plans of development, expansions and unit contractions, therefore, relate to the geology of the unit area and reflect the goal of producing unitized substances efficiently based on the characteristics of the pool or field covered by the unit area. Designations of agent or sub-operator are agreements parties may make to allow someone other than the unit operator to conduct certain operations on the unit area.

II. PLANS OF DEVELOPMENT

A. Generally

Plans of development are required by Section 10 of the model form onshore federal exploratory unit agreement.² The unit operator is required to submit for the approval of the authorized officer an acceptable plan of development and operation for the unitized land. When the plan of development is approved by the authorized officer, it shall constitute the further drilling and development obligations of the unit operator under the unit agreement for the period specified in the plan of development. Section 10 of the unit agreement provides reasonable diligence shall be exercised in complying with the obligations of the approved plan of development and operation.

Operators must submit three counterparts of all plans of development and operation for approval under an approved agreement.³

B. Timing

The first plan of development is to be filed within six months after completion of a well capable of producing unitized substances in paying quantities. The authorized officer can grant a reasonable extension of the six month period prescribed in the unit

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agreement for submission of an initial plan of development and operation where such action is justified because of unusual conditions or circumstances. Thereafter, before the expiration of any existing plan, the unit operator shall submit for the approval of the authorized officer a plan for an additional specified period for the development and operation of the unitized land. The unit agreement provides that subsequent plans should normally be filed on a calendar year basis not later than March 1 each year. Any proposed modification or addition to the existing plan is to be filed as a supplement to the plan.

After completion of a well capable of producing unitized substances in paying quantities, no further wells, except as may be necessary to afford protection against operations not under the agreement and such as may be specifically approved by the authorized officer, shall be drilled except in accordance with an approved plan of development and operation.

C. Contents

Section 10 of the unit agreement provides the plan shall "(a) specify the number and locations of any wells to be drilled and the proposed order and time for such drilling; and (b) provide a summary of operations and production for the previous year."

The Draft Bureau of Land Management ("BLM") Manual provides the initial plan of development and operations should describe all anticipated unit operations for the next 6 to 12 months, including the drilling, completing, conversion, and production of unit wells, and other surface disturbing operations.⁴ Generally, all work that would change a well's producing formation or status, or operations that would require the prior approval of the authorized officer (such as drill deeper, plug back, abandonment, or conversion to an injection well), should be included in the plan of development. Routine stimulation and workover operations need not be covered by a plan of development as long as the resulting producing interval of the well remains within the productive limits of the participating area for the well.⁵

The plan shall provide for the timely exploration of the unitized area, and for the diligent drilling necessary for determination of the area or areas capable of producing unitized substances in paying quantities in each and every productive formation. The unit agreement provides the plan shall be as complete and adequate as the authorized officer may determine to be necessary for timely development and proper conservation of the oil and gas resources in the unitized area.

The Draft BLM Handbook provides that until the limits of paying production in each participating area have been determined, the number of proposed exploratory wells should approximate the number of proposed development wells. The Handbook qualifies

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this, however, by providing the authorized officer should exercise reasonable judgment in determining this ratio.⁶

A BLM representative has advised that the BLM would like to see in a plan of development and summary of operations updated maps, especially field maps showing new wells, pipelines, roads and facilities.

Any proprietary geologic information should be marked on each page as CONFIDENTIAL INFORMATION.

When the unit area has been fully developed, the authorized officer may require an annual summary of operations to be filed, without a plan of development.⁷

D. Supplements

Section 10 of the unit agreement provides plans shall be modified or supplemented when necessary to meet changed conditions or to protect the interests of all parties to the agreement.

E. Unit Operating Agreement Procedures

Article 7 of the unit operating agreement relates to plans of development.⁸ Section 7.1 requires the unit operator to submit plans of development to the authorized officer. The unit operator shall initiate each proposed plan by submitting it in writing to each party to the unit operating agreement at least 30 days before filing it with the authorized officer. If, within the 30-day period, the plan receives the approval of the parties (defined as the percentage of approval required in the unit operating agreement) or no written objection is received, then the plan shall be filed.⁹ During the 30-day period, any party may submit to the unit operator written objections to the plan. If, despite any objections, the plan receives the approval of the parties, then the party making the objections may renew the objections before the authorized officer. If the plan does not receive the approval of the parties and the unit operator receives written objections to the plan, the unit operator shall submit a revised plan to the parties taking into account the objections made to the first plan. However, if no plan receives the approval of the parties within 60 days from the submission of the first plan, the unit operator shall file with the authorized officer a plan reflecting as nearly as practicable the views expressed by the parties.

If a plan filed by the unit operator is rejected by the BLM, the operator shall initiate a new plan following the same procedures required in Section 7.2.

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If and when a plan has been approved or disapproved by the BLM, the unit operator shall give prompt notice of the approval or disapproval to each party to the unit operating agreement.

The unit operating agreement provides for the unit operator to submit a supplemental plan to the authorized officer, or to request the authorized officer to consent to the operation, if consent is sufficient, in the event that the parties have elected to proceed with certain operations under the unit operating agreement which are not provided for in the then current plan of development approved by the authorized officer. Also, if any approved plan provides for cessation of any drilling or other operation under certain circumstances, the unit operator shall promptly cease the drilling or other operation and shall not incur any additional costs in connection with such operation, absent additional approval from the parties.

F. Available on WOGCC Website

Plans of development and operation affecting Wyoming...