ENCHANCED RECOVERY UNIT AGREEMENTS
| Jurisdiction | United States |
(Jan 1990)
ENCHANCED RECOVERY UNIT AGREEMENTS
U.S. Department of the Interior—Bureau of Land Management
Worland, Wyoming
TABLE OF CONTENTS
Page
INTRODUCTION
I. AUTHORITY AND PURPOSE
II. PROCEDURE
A. The Technical Committee
B. The Application for Designation of Logical Unit Area for Enhanced Recovery Operations
C. The Request for Preliminary Approval of the Proposed Form of Unit Agreement
D. The State Oil and Gas Regulatory Agency Hearing and Approval
E. Application for Final Approval
F. Effective Date and Term
G. Plan of Operation
III. THE COMMENCEMENT OF ENHANCED RECOVERY OPERATIONS UNDER EXPLORATORY UNIT AGREEMENTS
IV. THE FUTURE
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INTRODUCTION
This paper examines the role of the Bureau of Land Management in the approval and administration of Federal enhanced recovery unit agreements. Although no BLM manual or handbook guidance has yet been issued, many of the approval and administrative guidelines used for exploratory unit agreements are also applicable to enhanced recovery unit agreements. The paper will emphasize those aspects unique to enhanced recovery unit agreements.
AUTHORITY AND PURPOSE
The authority for Federal lease interests to enter into unit agreements is granted by the Mineral Leasing Act of February 25, 1920, 41 Stat. 437, as amended, 30 U.S.C. Secs. 181 et seq., whenever the Secretary of the Interior determines and certifies that such unit plan is necessary or advisable in the public interest for the purpose of more properly conserving the natural resources.1 The appropriate Code of Federal Regulations reference is 43 CFR 3180 .
An enhanced recovery unit is proposed when the owners of working interests in non-unitized Federal, State or Fee oil and gas leases contemplate the injection of water or other substance into a common pool in order to augment the recovery of hydrocarbons. If Federal lands constitute more than 10% of the proposed area, the unitization proposal is presented to the Bureau of Land Management for designation, approval and administration.
PROCEDURE
THE TECHNICAL COMMITTEE
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The establishment of a technical committee is the first step taken when a group of working interest owners contemplate the formation of an enhanced recovery unit agreement. The committee undertakes the task of describing the area by means of geology and engineering. A feasibility study is also performed to prepare a plan of operations for the project and to estimate the additional recovery of hydrocarbons expected.
The information generated by the committee is used to satisfy the requirements of the Bureau of Land Management and the state oil and gas regulatory agency for approval for the enhanced recovery unit agreement. In addition, the committee identifies and proposes the reservoir parameters that will be used to allocate production when enhanced recovery operations commence.
When the work of the technical committee is complete, the working interest owners meet to negotiate the allocation formula(s) and to approve the plan of operations. An operator for the proposed unit is selected at this time if not done previously.
THE APPLICATION FOR DESIGNATION OF LOGICAL UNIT AREA FOR ENHANCED RECOVERY OPERATIONS
The application for designation is presented to the Bureau of Land Management in a meeting called the preliminary conference. The request consists of an application letter and an engineering and geologic report. Further details can be found in the reference section for enhanced recovery unit agreements.
The most important elements of the application letter are:
1. The additional recovery of hydrocarbons expected by the proposed operations;
2. A description of the proposed basis for allocating unitized production; and
3. A description of the proposed unit area and formation.
The engineering and geologic report define and support these elements.
The Allocation Formula
There are numerous parameters that can be used to generate an allocation formula. Which parameters are proposed for use in the allocation formula will depend on the way in which the prospect has been developed and produced, the reservoir characteristics of the prospect and the geologic definition of the area. These items should be thoroughly discussed in the geologic and engineering report.
The simplest formula used for production allocation involves one parameter, such as acre-feet. Acre-feet is a measure of reservoir volume. The formula would be:
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Tract Participation = Tract Acre-Feet
Unit Acre-Feet
This is, of course, a very simplistic formula. A more equitable allocation formula would result from the consideration of all available geologic and engineering factors. Other examples of commonly used parameters are:
-Productivity
-Production Rate During a Given Period
-Surface Acres
-Remaining Primary Reserves
-Number of Producing Wells
-Original Oil in Place
-Moveable Oil.
There are many other parameters that could be used in the allocation formula depending on the history and characteristics of the reservoir. Generally, allocation formulas are composed of two or more parameters that are weighted according to their relative importance.
Another consideration in the preparation of allocation formulas is the 'phase'. A phase is a period of time usually defined by the cumulative production of a stated number of barrels of oil. In general, this number of barrels represents the oil that would have been produced if an enhanced recovery project was not undertaken.
The following example illustrates a typical enhanced recovery production allocation formula:
Phase I: Effective date of agreement until 7:00 AM first day of month following cumulative oil production of 705,000 barrels of oil subsequent to 12-31-88.
Tract Participation = .50 Tract Remaining Primary Reserves
Unit Remaining Primary Reserves
+ .50 Tract Current Production (1988)
Unit Current Producti on (1988)
Phase II: End of Phase I until termination of unit.
Tract Participation = .50 Tract Net Acre-Feet of Pay
Unit Net Acre-Feet of Pay
+ .25 Tract Ultimate Primary Production
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Unit Ultimate Primary Production
+ .25 Tract Current Production (1988)
Unit Current Production (1988)
It is very difficult to generalize about the use of parameters and phases, even in the case of similar geologic and reservoir characteristics, primarily because the allocation formula must be negotiated among the working interest owners for each specific case. In addition, the development and production history of the prospect and the quality of the data generated by the technical committee heavily influence the use and availability of allocation parameters and phases.
From the perspective of the Bureau of Land Management and the state oil and gas regulatory agency, it is imperative that "the oil and gas allocated to each separately owned tract within the unit area under the proposed plan of unitization represents, so far as can be determined, each such tract's just and equitable share of the oil or gas in the unit area."2
THE REQUEST FOR PRELIMINARY APPROVAL OF THE PROPOSED FORM OF UNIT AGREEMENT
The request for approval of the proposed form of unit agreement is normally combined with the application for designation of the unit area.
A model form of unit agreement does not exist for enhanced recovery unit agreements. However, a form that evolved through many years with the U.S.G.S. and now the BLM is in common use. The form is referred to as the standard or Wyoming form. A copy is included in the reference material. The standard form for enhanced recovery agreements is similar to the model form for exploratory agreements with the obvious exclusion of drilling obligations, participation after discovery and contraction provisions. Instead, the standard form incorporates provisions for the allocation of production.
Exhibits "A", "B" and "C" are submitted with the unit agreement. Exhibit "A" is a map of the unit area showing the separate tracts and mineral ownership. Exhibit "B" is the schedule of lands and ownership. These exhibits are identical to the form required for exploratory unit agreements. Exhibit "C" is the schedule of allocation. The tracts are listed in numerical order and the allocation to each tract is shown. If more than one phase is used in the allocation formula, the allocation credited to each tract is shown during each phase.
At this point, BLM specialists review and research all of the data submitted by the unit proponent to insure that the unit proposal is reasonable, equitable and in the public...
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