ESTABLISHMENT AND REVISION OF PARTICIPATING AREAS

• Jurisdiction: United States

Federal Onshore Oil and Gas Pooling and Unitization II
(Jan 1990)
CHAPTER 13B
ESTABLISHMENT AND REVISION OF PARTICIPATING AREAS
Chun Wong
Bureau of Land Management
Billings, Montana
Armando Lopez, B.L.M.
Roswell, New Mexico
Bernie Dillon, B.L.M.
Denver, Colorado
Darryl R. Watts, B.L.M.
Worland, Wyoming
Robert Henricks, B.L.M.
Salt Lake City, Utah

TABLE OF CONTENTS

SYNOPSIS

Page

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 Participating Areas

5. Effective Date of a Participating Area

6. Commingling of the Production between PAs

7. Termination of a Participating Area

D. STATE APPROACHES

1. Colorado

2. Montana

3. New Mexico

4. Wyoming

5. Utah

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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 3183.4 "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

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:

[Page 13B-2]

— recoverable reserves;

— recovery factor;

— original hydrocarbon in place;

— volumetric equation.

The data will be reviewed by the BLM. 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 (basic and overrides).

The Unit Operator must state in the application whether the well is/is not capable of producing unitized substances in paying 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 10 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 based on the geologic interpretation.

Normally, any well completed within an existing PA that contributes to PA production should be considered a PA well. If additional lands outside the PA should be added to the existing PA due to the completion of the well inside the PA, an application similar to the one described earlier must be submitted.

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Lands in a PA may be eliminated upon completion of a dry hole. For unit purposes, a dry hole is defined as a well that encounters no indication of original hydrocarbons in place. To eliminate lands from the PA in this situation, a detailed geologic report must be submitted by the Unit Operator.

3. Addition of Lands to a Participating Area which are Necessary for Unit Operation

In accordance with Section 11 of the unit agreement, lands which are necessary for unit operations can be added to a PA. This situation generally will not occur until it is necessary for secondary operation. Secondary operation usually refers to injection of water into the producing formation. Drilling of additional injection well(s) may be necessary outside the PA to achieve a maximum recovery of hydrocarbons. Lands contributing to this operation can be added to a PA. A geologic and engineering report to justify...