ESTABLISHMENT AND REVISION OF PARTICIPATING AREAS

• Jurisdiction: United States

Federal Onshore Oil and Gas Pooling and Unitization
(Nov 2006)
CHAPTER 12A
ESTABLISHMENT AND REVISION OF PARTICIPATING AREAS
Chun Wong
Bureau of Land Management
Billings, Montana
Duane Spencer
Rick Ryan
Bureau of Land Management
Denver, Colorado
Jay Spielman
Bureau of Land Management
Santa Fe, New Mexico
Pascual Laborda
Bureau of Land Management
Billings, Montana
Michael Coulthard
Bureau of Land Management
Salt Lake City, Utah
Rob Coleman
Bureau of Land Management
Cheyenne, Wyoming
Leo Kozola
Fred Crockett
Larry Claypool
Bureau of Land Management
Casper, Wyoming

TABLE OF CONTENTS

A. Introduction

B. Authority/References

C. Establishment of Participating Areas

1. Initial Participating Area

2. Revision of a Participating Area

3. Addition of Lands to a Participating Area

4. Consolidation of a Participating Area

5. Effective Date of a Participating Area

6. Commingling of Production between Participating Areas

7. Termination of a Participating Area

D. State Approaches

1. Colorado

2. Montana

3. New Mexico

4. Wyoming

5. Utah

A. Introduction

Section 11 of the Unit Agreement requires the Unit Operator to submit an application to the BLM for approval to establish a participating area (PA) upon completion of a well capable of producing unitized substances in paying quantities. The PA so established shall be revised upon completion of additional well(s) capable of producing unitized substances in paying quantities. The PA should include all lands reasonably proved to be productive of unitized substances in paying quantities, or which are necessary for unit operations. The interest owners within the PA will share in production based upon a schedule prescribed by Section 12 of the Unit Agreement.

B. Authority/References

43 CFR 3183.5: Participating Area

43 CFR 3186.1 : Model Onshore Unit Agreement for Unproven Areas

Section 11 -- Participation After Discovery

Section 12 -- Allocation of Production

43 CFR 3107.2-2: Cessation of Production

43 CFR 3107.4: Extension by Elimination

Unitization (Exploratory) Manual H-3180, Part C

Unitization (Exploratory) Handbook, H-3180-1, Part F

100 IBLA 157 dated December 3, 1987

[Page 12A-2]

C. Establishment of Participating Areas

1. Initial Participating Area

The Unit Operator must submit an application to establish a PA upon completion of a well capable of producing unitized substances in paying quantities. The size of the PA should be based upon the total reserves of the well. The following well/reservoir data should be submitted with the application:

— recoverable reserves;

— recovery factor;

— original hydrocarbons in place;

— volumetric equation.

The data will be reviewed by the BLM and the application can be approved if the data prove to be reasonable. Since PAs are based on subdivisions of the public land survey, or aliquot parts thereof, any subdivision when cut 50% or more by the outer boundary of the PA configuration will be included in the PA.

The economic data required to be submitted with the application are:

— drilling/completion costs;

— operating costs;

— taxes (severance and ad valorem);

— discount factor;

— current oil/gas price;

— royalty rate.

The Unit Operator must state in the application whether the well is/is not capable of producing quantities based on the data submitted. If the data submitted are reasonable, the application can be approved. Section 9 of the Unit Agreement does not specify any cutoff as to the number of years before payout in determining if a well qualifies as a "paying" well. The payout time varies from office to office, from no set limit to payout within approximately ten years.

The allocation of unitized substances for each tract within a PA is computed based on the percentage of the tract acreage to the total acreage of the PA.

2. Revision of a Participating Area

Upon completion of additional wells within the Unit but outside of an existing PA, the Unit Operator shall submit applications to revise the existing Pas. The criteria for paying well determination should be the same as stated earlier. However, more lands may be included in the PA passed on the geologic interpretation...