POOLING AND UNITIZATION IN NEW MEXICO—THE ROLE OF THE OIL CONSERVATION DIVISION
| Jurisdiction | United States |
(Jan 1997)
POOLING AND UNITIZATION IN NEW MEXICO—THE ROLE OF THE OIL CONSERVATION DIVISION
Campbell, Carr, Berge & Sheridan, P.A.
Santa Fe, New Mexico
This paper examines the role of the New Mexico Oil Conservation Division1 in approving and supervising voluntary and statutory unitization projects.
VOLUNTARY UNITIZATION
In 1935 the New Mexico legislature adopted the Oil and Gas Act which created the Oil Conservation Division, vested it with jurisdiction over "all matters relating to the conservation of oil and gas", NMSA 1978, Section 70-2-6 , and imposed on it the duties to "prevent waste 2 prohibited by this act and to protect correlative rights."3 NMSA 1978, §
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70-2-11 (emphasis added).
The New Mexico Supreme Court has observed that the Division "is a creature of statute" whose powers are expressly defined and limited by the laws creating it, Continental Oil Company v. Oil Conservation Comm'n, 70 N.M. 310, 315, 373 P.2d 809, 814 (1962). Even though no statute addresses approval of voluntary units or otherwise expressly authorizes Division review of these contracts, see, NMSA 1978, § 70-2-12 B, throughout most of its history the Division has reviewed voluntary unit agreements. These reviews include agreements which include state, fee and often federal lands4 and are undertaken by the Division pursuant to its general statutory duties to do all things reasonably necessary to prevent the waste of oil and gas and protect correlative rights, and in response to the requirements of private unitization contracts.
Prior to 1950, units agreements were reviewed only when the operator of a proposed unit submitted the agreement to the Division. Since that time, however, primarily in response to actions by the New Mexico Commissioner of Public Lands ("Commissioner"), most unit agreements have been submitted for review and approval.
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There is no formal relationship between the Division and either the Commissioner or the Bureau of Land Management ("BLM") concerning approval of unit agreements. However, the Division's review of proposed unit agreements is affected by the nature of the lands involved and the scope of the review of proposed units by other government agencies. To understand Division approval procedures, a brief review of the approval conditions of the Commissioner of Public Lands and the BLM is required.
COMMISSIONER OF PUBLIC LANDS
The Commissioner of Public Lands, to conserve the oil and gas resources of the state, may consent to and approve the development and operation of state lands under agreements made by lessees of state lands with other state, federal or fee lessees or interest owners. NMSA 1978, § 19-10-45 . The Commissioner has adopted rules which govern applications for approval of unit agreements and specify what data must be presented in support of these applications (N.M. State Land Office Rule 1.045 et seq. (hereinafter "N.M. SLO Rule ___")). These rules do not contain provisions for a hearings before the Commissioner on proposed unit agreements and when lessees of state lands raised concerns about the impact of proposed units on their correlative rights, no forum existed in which they could present their objections to a proposed unit plan.
In the early 1950's, the Commissioner was approached by the lessees of certain state lands concerning the boundaries of a proposed voluntary unit. Since there were no provisions in State Land Office Rules for hearings on proposed units, the Commissioner5 asked the Director to call a Division hearing on this proposed unit to determine if the unit boundaries had been gerrymandered so as to impair the correlative rights of the lessees of state land. The case was set for hearing, the Commissioner gave preliminary approval to the proposed unit but made Division approval a condition precedent to his final approval. The applicant amended the unit boundaries, and the unit was approved by the Division and the Commissioner. Thereafter, most proposed units involving state leases were referred by the Commissioner to the Division for hearing and soon all units involving fee lands were also being reviewed. This practice continues to the present.6
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This procedure was formalized in the State Land Office Rules when it adopted Rule 1.047. This rule provides that the Commissioner will give preliminary approval as to the form and content of a Unit Agreement when an application and attached data meet certain requirements, see N.M. SLO Rules 1.044 through 1.051, but that the Commissioner may defer final approval of the Unit Agreement pending approval of the Oil Conservation Division7 .
The Commissioner's preliminary approval of a unit agreement should be obtained prior to submitting the agreement to the Division.
THE BUREAU OF LAND MANAGEMENT
The Bureau of Land Management's review of unit agreements affects the procedures before the Oil Conservation Division. The Mineral Leasing Act of February 25, 1920, authorizes federal lessees and their representatives to unite and adopt an operating plan for unit development and operation of an oil and gas pool, or portion thereof, to conserve natural resources when the Secretary of the Interior determines the unitization will be necessary or advisable in the public interest. 30 U.S.C. § 181 et seq.
When the federal lands in a voluntary expansion unit aggregate more than 10% of the Unit Area, applicants must use the federal Model Form of Unit Agreement and follow the federal procedures for the designation of the proposed area. BLM rules contain specific procedures for unit approval and specific requirements for the supporting data that must accompany an application. The BLM reviews the proposed unit boundary and applicants must show that the unit outline is consistent with the submitted geological information. The applicant must show that every operator of an interest in the unit area was given an opportunity to join the unit agreement and that the operator has sufficient voluntary commitment to the unit plan to provide the operator with effective control of unit operations.
Once an operator meets the BLM requirements, the Bureau of Land Management will give its preliminary approval of the unit agreement and designate the proposed unit area as an area logically suited for development under a unit plan. If state and fee lands are included in the unit area, final approval is withheld pending approval of the Division. Operators should obtain preliminary approval from the BLM prior to bring the
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proposed unit to the Division.
OIL CONSERVATION DIVISION
After an operator obtains preliminary approvals of a proposed unit plan from the Commissioner, where state lands are involved, and the Bureau of Land Management, where federal lands are involved, the operator should file an application for approval of the unit agreement with the Oil Conservation Division.
A. Applications
There are no statutes or rules which specify what should be included in an application for approval of a voluntary unit agreement. Typically, the application describes the unit area and the proposed unitized interval and identifies the character of the land in the unit area and any approvals obtained from other government agencies. The application states that sufficient voluntary commitment has been, or will be, obtained to provide effective control of unit operations and requests that the application be set for hearing. Applications must be filed 22 days prior to a scheduled hearing date. Currently, Examiner hearings are held approximately twice each month.
B. Notice
The notice requirements for Division hearings are set out in Division Rules 1204 through 1207. Rule 1204 provides for notice by publication once "...in a newspaper of general circulation in the county, or each of...
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