UTAH OIL AND GAS CONSERVATION LAW AND PRACTICE
| Jurisdiction | United States |
(Jan 1997)
UTAH OIL AND GAS CONSERVATION LAW AND PRACTICE
Snell & Wilmer L.L.P.
Salt Lake City, Utah
SYLLABUS
§ 5C.01 Introduction
[1] History of Oil and Gas Exploration and Production
[2] History of Oil and Gas Conservation Regulation
§ 5C.02 Utah Oil and Gas Conservation Act: An Overview
[1] Jurisdiction
Lands Subject to Act
[b] Persons
[c] Properties
[d] Exclusive Jurisdiction
[e] Criminal Penalties
[f] Limitation of Actions
[2] General Powers of the Board
[3] Correlative Rights
[4] Law of Capture: Utah's Unique Interplay with Conservation Principles
[5] Waste
[6] Multiple Mineral Development
[a] General Rules: Policy and Cooperative Agreements
[b] Mineral-Specific Rules
§ 5C.03 Conservation Controls and Mechanisms
[1] Spacing
[a] Well Location and Siting Rules
[b] Spacing Orders
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[i] Modification of Spacing Orders[ii] Exploratory Well—A Condition Precedent to Spacing?[iii] Temporary Orders[iv] Exception Well Locations[v] Directional and Horizontal Wells[vi] Retroactivity of Spacing Orders[2] Forced (Compulsory) Pooling[a] Constitutionality[b] Who May Initiate the Pooling Hearing?[c] Spacing: A Prerequisite to Forced Pooling[d] Forced Pooling a Condition Precedent to Payment and Accounting[i] Rights to an Accounting Under Forced Pooling Statutes[ii] Rights to Accounting Under Payment Statutes[iii] Rights to Accounting Under Common Law[e] Offer to Pool as a Condition Precedent[f] Mechanics and Nature of the Penalty[g] Nature of the Nonconsenting Owner's Interest[h] Pooling Affects Entire Unit; Accounting is by Well[I] Modification of Pooling Orders[j] Illegal Wells and Showing of Economic Feasibility[k] Retroactivity of Pooling Orders[3] Unitization of Fields or Pools[4] Compulsory Nature of Unitization[5] Payment Accounting[a] Payment Timing—Penalty Interest[b] Payment Information[5] Restrictions on Production (Prorationing and Allowables)—Rejected
§ 5C.04 Conservation Practice [1] Administrative Procedures [2] Conservation Practice [a] Board Composition and Qualifications [b] Appearances and Representation [c] Pleadings, Service, and Intervention [d] Discovery [e] Hearings and Presentation of Evidence [f] Decisions and Orders [g] Appeals: Procedures and Standards of Review
§ 5C.05 Conclusion
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§ 5C.01 Introduction.
Utah ranks eleventh among oil and gas producing states in cumulative crude oil production and fifteenth in cumulative gas production,1 having yielded 1.15 billion barrels of oil and 5.6 trillion Mcf of gas as of December 31, 1995.2 Oil and gas is produced primary from the Uinta and Paradox Basins; however, gas reserves also occur in the Green River Basin, the Wasatch Plateau-Castle Valley province in east-central Utah,3 and the Overthrust Belt of Summit County.4 Major oil fields include the Greater Altamont-Bluebell, Wonsits Valley, and Monument Butte Fields in the Uinta Basin of eastern Utah; the Greater Aneth Field in the Paradox Basin of southeastern Utah; and the Anschutz Ranch East Field on the Overthrust Belt near the Wyoming border.5 Major gas fields include the Anschutz Ranch East Field; Natural Buttes and the Greater Altamont-Bluebell Fields in the Uinta Basin; and the Lisbon Valley and Drunkards Wash Fields in the Paradox Basin.6
Regulation of oil and gas operations falls to the governance of the Utah Board of Oil, Gas and Mining7 and its technical and administrative staff, the Division of Oil, Gas and Mining.8 Unique among Rocky Mountain conservation agencies, the Board and Division oversee mining, as well as oil and gas conservation.9 Combining mineral extraction oversight authority into one agency has distinct advantages, particularly when dealing with the multiple mineral development conflicts that proliferate in Utah between miners and oil and gas operators.
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[1] History of Oil and Gas Exploration and Production in Utah.
The first reported evidence of oil in Utah appears in the July 11, 1847 journal entry of William Clayton. His advance company of Mormon pioneers discovered petroleum seeps 82 miles east of Salt Lake City along what later became the Pioneer Trail on the present-day Utah-Wyoming border.10 In 1850, Captain Howard Stansbury of the Army Corps of Topographical Engineers found oil in seeps on the north shore of the Great Salt Lake.11 Settlers used these and other crude seeps for lubricants for wagon wheels and machinery, for medicinal plasters, and for elixirs.
The first exploratory drilling occurred in 1891 near Green River, Utah.12 Productive history in the Paradox Basin commenced in 1907 with discovery of the Mexican Hat Field that produced from the Rico and Hermosa Formations and in 1923 on the Boundary Butte Anticline near the Arizona border.13 Productive history in the Uinta Basin commenced in 1923 with the discovery of carbon dioxide from the Farnham Dome and Navajo Sandstone in Carbon County.14 This was followed in 1925 with discovery of natural gas (including helium) from the Entrada Sandstone in the Harley Dome gas field and establishment of Naval Helium Reserves.15 Lacking markets and transportation facilities until the 1940's, these fields experienced only limited production local uses and the manufacture of carbon black for rubber.
The year 1948 marks the commencement of commercial production in Utah. Equity Oil Company is credited with discovery of the first commercial field with its successful completion of the Ashley Valley #1 Well in the Uinta Basin near Vernal.16 From this initial discovery, Equity Oil Company developed Utah's first truly commercial field on the Ashley Valley Anticline producing oil from the Pennsylvanian Weber Sandstone and Permian Park City Formations.17 Capitalizing on prior discoveries of oil and gas from non-marine sediments in the Green River Formation, Carter Oil
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Company developed the Gusher and Roosevelt fields in 1949.18 In 1951, Carter Oil Company, joined by Stanolind Oil and Gas Company and Phillips Petroleum Company formed the Roosevelt Unit, Utah's first exploratory unit,19 on the Roosevelt field.
Utah resources present several unique problems to oil and gas conservation regulators. First, Utah comprises 69% federal lands (including Indian lands), 10% State of Utah lands, and 21% private lands. These demographics create nightmarish complications for oil and gas conservation regulators and serve in some instances to chill development due to operator frustration with overlapping jurisdiction.20 Second, superimposed upon the problem of competing jurisdictions is the presence in Utah of unique petroliferous minerals such as oil shale, asphaltic sands (native asphalt)21 or tar sands,22 solid and semi-solid bitumen,23 and bituminous rock24 extractable in their in-situ applications by traditional oil and gas drilling methods and in other applications by mining and quarrying. Utah has nearly 95% of all oil-impregnated rock and solid and semi-solid bitumen deposits in the United States.25 During the early years of conservation regulation, both the Bureau of Land Management ("BLM") and the State of Utah issued one lease for asphaltic and bituminous sands and another for oil and gas in the same lands.26 Third, lessees of diverse minerals in the same lands (such as oil shale, oil and gas, coal, combined hydrocarbons, and potash) attempt to exploit their minerals simultaneously. These operational conflicts are referred to in statutes, regulations, and legal literature as multiple mineral development conflicts; and conservation regulators in Utah must address the
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myriad problems attending concurrent development.27
Being a relative new-comer to the oil patch has had its advantages. Utah legislatures and courts have been spared many of the growing pains with conservation statutes and decisional law by drawing on the what they felt were the best precedents developed in Gulf Coast and Mid-Continent states and avoiding many of the miscues and aberrant theorizing experienced when jurisdictions forge new law. The disadvantage (and the conservation practitioner's frustration) has been that Utah had no judicial decisions interpreting its oil and gas conservation acts until 1983. Since then, the Utah Supreme Court handed down seven decisions that provide definition to Utah's oil and gas conservation regulatory scheme.
[2] History of Oil and Gas Conservation Regulation.
Prior to 1955, the common law rule of capture28 governed the limited oil and gas development in Utah.29 The Utah legislature adopted the Interstate Oil Compact Commission ("IOCC") model form oil and gas conservation statute in 195530 to ameliorate the excesses resulting from the rule of capture.31 The legislature lodged regulatory authority and oversight with the Oil and Gas Commission of the Utah State Land Board, a three-man, full-time body comprising state employees.32 The legislature reorganized the State Land Board in 1957, replacing the full-time commissioners with citizen-servants supported by a technical staff of petroleum engineers and geologists. It authorized the governor to join Utah in the Interstate Oil Compact to Conserve Oil and Gas.33 In 1967, the legislature severed the Oil and Gas Conservation Commission from the State Land Board and established it as the policy making and rule enforcement authority of a newly created Division of Oil and Gas Conservation within the Department of Natural Resources.34 In 1975, the legislature expanded the agency's authority to cover mine permitting and inspection, in addition to
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oil and gas, and changed its name to the present day Board of Oil, Gas and Mining ("Board") and Division of Oil, Gas and Mining ("Division").35 In successive years the legislature further expanded the Board's and Division's authority to regulate reclamation of re-refined oil in...
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