Draft BLM Manual Section 3180

Draft BLM Manual Section 3180 - Unitization (Exploratory)

               BLM HANDBOOK H-3180-1 - UNITIZATION (EXPLORATORY)



NOTE TO USERS: The attached DRAFT BLM Handbook H-3180-1 is being issued as
INTERIM GUIDANCE for those involved in administration of the oil and gas units
program.









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Table of Contents

Page

I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. Guidelines and Procedures. . . . . . . . . . . . . . . . . . . . . . . 2
A. Procedures for Designation of Unit Area; Depth of Test Well. . . 2
1. Application Letter . . . . . . . . . . . . . . . . . . . . 2
2. Geologic Report. . . . . . . . . . . . . . . . . . . . . . 2
3. Land Ownership Map . . . . . . . . . . . . . . . . . . . . 3
4. Special Unit Provisions. . . . . . . . . . . . . . . . . . 3
5. Review of the Application. . . . . . . . . . . . . . . . . 3
B. Unit Area and Well Obligation. . . . . . . . . . . . . . . . . . 4
C. Approval of an Executed Unit Agreement . . . . . . . . . . . . . 5
D. Operating Rights . . . . . . . . . . . . . . . . . . . . . . . . 7
E. Exploratory Drilling Operations. . . . . . . . . . . . . . . . . 8
1. Diligent Drilling of a Unit Well . . . . . . . . . . . . . 8
2. Further Drilling and Development . . . . . . . . . . . . . 9
3. Multiple Test Well . . . . . . . . . . . . . . . . . . . . 9
4. Producible Wells Prior to Unitization. . . . . . . . . . . 9
F. Determining Production in Paying Quantities. . . . . . . . . . ..9
1. Paying Well Evaluations. . . . . . . . . . . . . . . . . .10
2. Non-Paying Well/Recompletion Evaluations . . . . . . . . .11
G. Establishment or Revision of Participating Areas . . . . . . . .12
1. Initial Participating Area . . . . . . . . . . . . . . . .12
2. Revision of Participating Area . . . . . . . . . . . . . .14
3. MMS Notification of Participating Area Approvals . . . . .16
H. Plan of Further Development and Operation. . . . . . . . . . . .17
1. Purpose. . . . . . . . . . . . . . . . . . . . . . . . . .17
2. Plan of Development. . . . . . . . . . . . . . . . . . . .17
3. Summary of Operations. . . . . . . . . . . . . . . . . . .18
I. Procedures for Expansion or Contraction of Unitized Areas. . . .18
1. Filing of the Request. . . . . . . . . . . . . . . . . . .19
2. Notification of Involved Parties . . . . . . . . . . . . .19
3. Request for Approval . . . . . . . . . . . . . . . . . . .19
4. Effective Date of Expansion or Contraction . . . . . . . .19
5. Submission of Exhibits and Joinders. . . . . . . . . . . .19
J. Suspensions. . . . . . . . . . . . . . . . . . . . . . . . . . .20
1. Unavoidable Delay. . . . . . . . . . . . . . . . . . . . .20
2. Suspension of Lease Terms. . . . . . . . . . . . . . . . .21
3. Suspension of Automatic Elimination Provisions of the
Unit Agreement . . . . . . . . . . . . . . . . . . . . . .21
K. Extensions of Time . . . . . . . . . . . . . . . . . . . . . . .22
L. Effect of Unit Agreement on Committed Lease Terms,
Lease Segregations and Lease Extensions. . . . . . . . . . . . .23
M. Unleased Federal Lands . . . . . . . . . . . . . . . . . . . . .25
N. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . .25
1. Automatic Termination. . . . . . . . . . . . . . . . . . .26
2. Voluntary Termination. . . . . . . . . . . . . . . . . . .27

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O. Amendment of Approved Unit Agreement . . . . . . . . . . . . . .27
P. Allocation of Production . . . . . . . . . . . . . . . . . . . .27
Q. Drainage - Compensatory Royalty. . . . . . . . . . . . . . . . .28
R. Treatment of Existing Wells. . . . . . . . . . . . . . . . . . .28
S. Reporting Format for Unit Wells. . . . . . . . . . . . . . . . .29
T. Unit Activity Report . . . . . . . . . . . . . . . . . . . . . .29
U. Lease Commitment Status. . . . . . . . . . . . . . . . . . . . .29
1. Fully Committed. . . . . . . . . . . . . . . . . . . . . .29
2. Effectively Committed. . . . . . . . . . . . . . . . . . .30
3. Partially Committed. . . . . . . . . . . . . . . . . . . .30
4. Not Committed. . . . . . . . . . . . . . . . . . . . . . .30
V. Designation of Agent . . . . . . . . . . . . . . . . . . . . . .30
W. Designation of Suboperator . . . . . . . . . . . . . . . . . . .31
X. Successor Unit Operator. . . . . . . . . . . . . . . . . . . . .31
Y. Bankrupt Unit Operator.. . . . . . . . . . . . . . . . . . . . .32
Z. Subsequent Joinder and Late Joinder. . . . . . . . . . . . . . .32
AA. Bond Requirements. . . . . . . . . . . . . . . . . . . . . . . .33
AB. Development or Operation of Nonparticipating Lands . . . . . . .34
AC. Non-Federal Form of Unit Agreement . . . . . . . . . . . . . . .34
AD. Indian Land. . . . . . . . . . . . . . . . . . . . . . . . . . .35
1. Special Provisions in Unit Agreement . . . . . . . . . . .35
2. Procedures for Unitization of Indian Lands . . . . . . . .36
AE. State Agencies . . . . . . . . . . . . . . . . . . . . . . . . .37

Illustrations
1. Form Letters and Notices Used in Units Administration
1-1. Unit Designation Letter
1-2A. Unit Approval Certification-Determination Page (Federal
Form Agreement)
1-2B. Unit Approval Certification-Determination Page (Non-
Federal Form Agreement)
1-2C. Unit Approval Letter
1-3. Non-Paying Well Determination Notice
1-4A. Initial Participating Area Approval Letter
1-4B. Participating Area Revision Approval Letter
1-5A. Request for Lands Automatically Eliminated From Unit
1-5B. Automatic Contraction Concurrence Letter
1-6A. Preliminary Approval for Unit Expansion Letter
1-6B. Final Approval for Unit Expansion Letter
1-7A. Automatic Unit Termination Notice for Cessation of
Production
1-7B. Automatic Unit Termination Notice for Failure to Meet
Drilling Requirements
1-7C. Voluntary Unit Termination Approval Letter
1-8A. Successor Operator Approval Letter
1-8B. Successor Operator Request Letter and Instrument
1-9A. Subsequent Joinder Approval Letter
1-9B. Late Joinder Approval Letter


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2. Guidelines and Suggested Formats for Operator Submissions
3. Numbering System for Approved Unit Agreements
4. Compensatory Royalty Provision in Unit Agreement for
Unleased Federal Lands
5. Communitization Agreements in Units
6. AIRS/MRO Reporting Format for Unit Wells
7. Guidelines for the Unit Activity Report
8. Sample Text for State Land Provisions in the Unit Agreement


Bibliography







































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I. Introduction.

The objective of unitization is to proceed with a program that will
adequately and timely explore and develop all committed lands within the unit
area without regard to internal ownership boundaries. Exploratory units
normally embrace a prospective area that has been delineated on the basis of
geological and/or geophysical inference. Exploratory unit agreements normally
encompass all oil and gas interests in all formations within the unit area and
provide for the allocation of unitized production to the committed lands
reasonably proven to be productive of unitized substances in paying quantities
on the basis of the surface acreage included within the controlling
participating area. By effectively eliminating internal property boundaries
within the unit area, unitization permits the most efficient and cost-
effective means of developing the underlying oil and gas resources.

The BLM will approve the commitment of Federal lands to a unit agreement
in the interest of conserving the natural resources, when it is determined to
be necessary or advisable in the public interest. When such a determination
is made and Federal lands are committed to the unit, the authorized officer
has a responsibility to ensure that unit development proceeds in a way that
continues to serve the public interest, regardless of whether the Federal
lands comprise only a small fraction or a major part of the unit area.

The guidelines and procedures discussed in this Handbook apply generally
to all unit agreements involving Federally-supervised leases, but specifically
to those agreements that adopt the text of the form of agreement contained in
43 CFR 3186.1. While reference is made throughout this Handbook to specific
sections of the Federal form of unit agreement (43 CFR 3186.1), any such
reference should be understood as applying also to the equivalent provision in
a non-Federal form of agreement, if appropriate.

Section II of this Handbook discusses the general procedures to be
followed in administering oil and gas exploratory unit agreements. As an aid
to BLM personnel involved in units administration, the Handbook also provides,
in Illustration 1, a recommended format for the various notices and approvals
that are required during the life of a unit. Illustration 2 of the Handbook
provides general guidance and suggested formats for submissions required from
the unit operator. Further illustrations are included that provide
supplemental guidance for managing units information, for treating
communitized areas within units and for including special provisions in the
unit agreement.









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II. Guidelines and Procedures.

A. Procedures for Designation of Unit Area; Depth of Test Well.

When requesting designation of an area as logically subject to
development under a unit plan, an applicant must submit all required
information in duplicate to the authorized officer. An application for
designation of unit area should consist of an application letter accompanied
by a geologic report and land ownership map, as follows.

1. Application letter. In its request for designation, the applicant
must:

a. Accurately define the proposed unit area either by reference to
the accompanying map or by including a legal description of all lands in the
proposed unit area. The description should show lots and tracts, if any, and
the exact acreage thereof, including the total acreage in each section and the
entire unit area.

b. List in sequence (grouped by Land Office identities) the serial
numbers of all Federal leases and pending lease applications, Indian leases,
and the expiration date of each lease.

c. If geological and geophysical data and discussions are to be
confidential, the applicant should so state and clearly mark each page of such
documents as CONFIDENTIAL INFORMATION. The geologic report should be a
separate report supporting the application for designation of a unit area.

d. Cite the deepest formation that the proponent plans to test, the
projected depth that the initial test well(s) must reach to adequately test
that formation, and the number of initial wells to be required.

2. Geologic Report. The geologic report should include:

a. A map on the public land survey base showing the proposed unit
boundary and a detailed geologic map illustrating the limiting mechanism for
production of the objective formation, along with structural cross section(s)
and other geologic data as they relate to the proposed unit area. The
geologic map and the cross section(s) should show the strike and dip of all
pertinent faults. The map must show the location of all wells drilled in the
unit area and immediate vicinity thereof and should indicate the status and
depth of each well and the lowest formation penetrated.

b. Appropriate cross-sections and stratigraphic columns, identifying
prospectively productive formations and indicating expected depths.

c. Pertinent geophysical interpretations.



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d. The geologic basis for selecting the proposed unit area boundary,
such as closing structural or stratigraphic contour, fault, or pinch-out.

e. A brief discussion of the unit area, including (1) the location
of the prospect geographically and physiographically; (2) pertinent geologic
factors, including structure and stratigraphy, as they relate to the proposed
unit area; and (3) the location of existing wells with emphasis as to why the
prospect has not been evaluated by these tests.


f. The location of the initial test well, its proposed total depth,
projected formations to be tested, and a brief discussion of the rationale for
drilling the initial test well at the chosen location.

3. Land Ownership Map. The land ownership map, on a scale not less
than 1 inch to 1 mile, shall show:

a. The specified outline of the proposed unit area based on the
official public land survey, including the acreage and official number of each
lot, tract, and section, and total acreage of the unit area.

b. The boundary of each lease and unleased tract of land. Insofar
as possible, the lands should be identified with the same tract numbers that
will be used later in Exhibit B of the unit agreement.

c. By use of distinctive colors or symbols, the different types of
land, such as Federal, Indian, State, railroad, and other fee lands. Also
indicate different types of Federal lands, such as Forest Service, Fish and
Wildlife Service, and Indian allotted or tribal lands.

d. Working interest owners and lease numbers of Federal and Indian
leases and lease expiration dates.

4. Special Unit Provisions. Use of the model form of unit agreement
(43 CFR 3186.1) is encouraged. However, certain types of lands require the
inclusion in the unit agreement of special provisions, which must be approved
in advance unless recited in the designation letter. If any other deviations
from such form are deemed advisable, the proposed form, with Exhibits A and B,
or equivalents, attached to each copy and with all deviations from the model
form plainly marked and explained, must be submitted for approval by the
authorized officer.

5. Review of the Application. To ensure the adequacy of the
application, the authorized officer reviews the application for correctness
and acceptability as to format, unit area, initial well requirement(s), and
information presented in the geologic report. Individual Federal and Indian
leases are checked for expiration dates and for any special land stipulations
that should be included in the agreement. For unit agreements that contain
unleased right-of-way or other lands, additional steps should be taken to have
these lands leased prior to final approval of the unit.
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The proposed form of unit agreement is reviewed to determine if the
agreement language meets the needs of the specific case. The proposed
location of the initial unit well(s) should be reviewed and, if the location
is near the edge of the proposed area and it is not justified geologically,
the operator should be requested to select a more appropriate well site or to
consider revising the unit boundary.

Each application for designation submitted to the authorized officer for
approval must be accompanied by a report demonstrating that the proposed unit
outline is consistent with the geologic information submitted. Geologic
information should show that unitization is necessary and advisable in the
public interest.

Illustration 1-1 is a form letter recommended for use by the authorized
officer in notifying the applicant that the land identified in his application
has been designated a logical unit area.

B. Unit Area and Well Obligation

The general intent of unitization is to pool mineral interest ownership
in an entire geologic structure or area in order to provide for adequate
control of operations so that exploration, development, and production can
proceed in the most efficient and economical manner. It follows that a unit
area should encompass only those lands considered necessary for the proper
development of the unitized resources. An actual unit boundary may be
established by honoring structural, stratigraphic, or other limiting geologic
parameters. Administrative boundaries should not be used except in rare
circumstatunces such as an adjoining unit boundary. A unit area may extend
into designated Wilderness, Park System, Wildlife Refuge, or other protected
area. In that instance, the unit proponent should be made aware that
operations (surface or sub-surface) may be conducted within the protected area
only on lands that are leased and only if such operations are not precluded by
law, regulation, or by surface use restrictions imposed by the surface
management agency (SMA).

Historically, the ratio of one well per 25,000 acres has been used.
However, the authorized officer shall require the unit proponent to drill
sufficient number of wells to adequately test the trap or series of traps
identified in the geologic report and supporting maps. Contributing factors
would include the nature, extent and depth of the potential reservoir(s), and
pertinent information from any wells which have already been drilled in the
general area. If the unit agreement requires more than one obligation well,
then all obligation wells must be drilled to the formation/depth requirements
specified in the unit agreement in order to fulfill the public interest
requirement (43 CFR 3183.4[b]), unless the authorized officer determines that
the public interest requirement has been satisfied with the drilling of less
than the full multiple well commitment. Section 9(a) of the model form of
exploratory unit agreement (43 CFR 3186.1) contains substitute language that
should be used in agreements that incorporate a multiple well obligation.

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C. Approval of an Executed Unit Agreement.

When an executed unit agreement is received for approval, it is
processed as follows.

1. The application is reviewed for proper format, including the filing
of a sufficient number of copies. Unless specified otherwise in the
designation letter, a minimum of four signed counterparts are required.

2. The text of the executed agreement must be identical to that
approved in the designation letter. Any exceptions are noted and, if
significant, the application is returned unapproved for correction by the
applicant.

3. All tracts listed on Exhibit B (43 CFR 3186.1) are reviewed as to
proper arrangement, land description, and acreage. Lease numbers, expiration
dates, royalty rates, and lessees of record for all Federal and Indian leases
are verified from BLM and Bureau of Indian Affairs records. The subtotal of
acreage for each type of land and its percentage of the total unit area should
be shown.

4. The ratification and joinders submitted with the agreement are
checked against the lessees of record, basic royalty owners, and working
interest owners to determine the commitment status of each tract (see
paragraph II-U.) All lessees of record and working interest owners for each
Federal/Indian tract must submit a ratification and joinder before the tract
is considered fully committed. Since the basic royalty, lessee of record, and
working interest ownership in State and fee lands cannot be verified, joinders
by parties purported to own such interests are to be accepted as correct.

5. All signatures should be either witnessed or acknowledged before a
notary. Execution by a corporate officer should show that person's title and
carry proper attestation and the corporate seal. The commitment of overriding
royalty and production payment interests can be accomplished either by the
unit operator submitting a list of such owners which indicates those who have
executed the unit agreement, or by the filing of appropriate joinders. When
specific interests are held by different individuals or companies, each such
entity holding an interest should execute the agreement even where one company
may be wholly owned by another signatory party.









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6. To assure effective control over unit operations, generally at least
85 percent, on an acreage basis, of the lands within the unit area must be
fully, effectively, or partially committed to the unit agreement. Approval
may be granted with a lesser commitment when all or a substantial portion of
the noncommitted land is "fringe acreage", i.e., is located adjacent to the
outer boundary of the unit area or otherwise far removed from the site of the
initial unit well.

7. Every owner of an interest in the unit must be invited to join the
unit agreement. If any owner fails or refuses to join, evidence of reasonable
effort to obtain joinder should be submitted by the unit proponent, together
with a copy of each refusal giving the reasons for nonjoinder.

8. Two true copies of any unit operating agreement should accompany the
executed unit agreement.

9. Any lands in the unit area that are subject to an option agreement
should be identified in Exhibit B (43 CFR 3186.1), and the basic provisions of
the option should be described. In all cases, the person committing such
interest should exercise the option promptly after approval of the unit
agreement.

10. Fully and effectively committed Federal leases are subject to
segregation pursuant to 30 U.S.C. 226(m) and, where segregation is
appropriate, the lease is so noted on Exhibit B (43 CFR 3186.1). Horizontal
segregation is discouraged and should be avoided whenever possible.
Horizontal segregation normally can be averted if a statement is submitted by
the unit operator advising that it is not the intent of the signatory parties
to the unit agreement that horizontal segregation occur as a result of the
unitization (see Solicitor's Opinion M-36776, May 7, 1969.)

11. A Certification-Determination page (see Illustrations 1-2A and
1-2B for recommended format) and approval letter (Illustration 1-2C) are
prepared and signed by the authorized officer. Generally, if State, Indian,
and/or fee lands are involved, the unit agreement should be approved by the
appropriate State and Indian agency before the agreement is submitted for
approval by the authorized officer. However, where a majority of acreage
within the proposed unit is Federal, and where sufficient acreage has been
committed to assure effective control, the authorized officer may approve the
agreement prior to its approval by the appropriate State or Indian Agency. In
all cases, the State or Indian Agency should be notified of the proposed
unitization and be given the opportunity to commit its lands prior to
authorized officer approval. Unit agreements that contain only Indian lands
are not approved by the authorized officer. For such units, a memorandum
giving the reviewing officer's recommendations, with the unit instruments
filed for review, are transmitted to the appropriate BIA office for final
approval.



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12. Upon approval, the unit is assigned a Case Recordation System (CRS)
number (see Illustration 3) and entered into the CRS.

13. One complete copy of the unit agreement, unit operating agreement,
designation, approval, and associated papers is retained in the office of
record. Where the authorized officer is a State Office official, one copy of
such documents is transmitted to the appropriate District Office.

14. The effective date of a unit is not negotiable, and a retroactive
date may not be used even if justification is submitted by the proponent. A
unit agreement will be effective as of the date of the authorized officer's
approval signature. However, for non-Federal form units that are not
designated by the authorized officer, the effective date will be that date
specified in the agreement.

15. While it is desirable to have the owners of Federal overriding
royalty interest (ORRI) join in the unit, approval will not be denied if they
do not join. Private basic royalty owners must execute joinders to the unit
agreement unless the lease specifically authorizes the lessee to commit their
basic royalty interest to a unit agreement.

D. Operating Rights

Certain unit approvals (e.g., final unit agreement approval, successor
operators, subsequent joinders, etc.) depend on the consent of a sufficient
percentage of working interest owners. Since BLM does not verify present
working interest ownership, the most current Exhibit "B" must be accepted as
the unit operator's self-certification of ownership. If the actual working
interest ownership does not correspond with necessary consent or executed
instruments submitted with the approval request, then an updated Exhibit B
must be submitted by the unit operator. Any approval letter related to
working interest ownership, such as for the approvals noted above, must
contain the following, or similar, disclaimer:

"In accepting/approving this (unit agreement, designation,
etc.) the authorized officer neither warrants nor
certifies that the (unit operator, designated party, etc.)
has obtained all required approvals that would entitle it
to conduct operations or otherwise exercise its rights
under terms of the _____________________ Unit Agreement."










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E. Exploratory Drilling Operations.

Section 9 of the model form of unit agreement for unproven areas
(43 CFR 3186.1) contains the initial test well requirements for the unit.
Generally, this section requires the unit operator to commence an adequate
test well within 6 months of the effective date of the unit agreement and to
diligently drill such well to completion; to continue drilling one well at a
time, allowing not more than 6 months between the completion of one such well
and the commencement of the next such well; and to pursue such operations
until a well capable of producing unitized substances in paying quantities is
completed. Production in paying quantities is defined in the model agreement
as "quantities sufficient to repay the costs of drilling, completing, and
producing operations with a reasonable profit . . . ." A well that is
commenced prior to the effective date of the unit agreement may satisfy the
initial test well requirements if it is being drilled conformably with the
terms of the agreement on the effective date, i.e., the well can not have
penetrated the objective horizon specified in Section 9 (43 CFR 3186.1) prior
to the effective date of unitization (also, see paragraph R.)

1. Drilling to Discovery - Initial Test Well. In order for a well to
be considered as fulfilling the initial test well requirements under the unit
agreement, the well must be drilled diligently and meet one of the following
criteria:

a. Test the formation specified in Section 9 (43 CFR 3186.1).

b. Reach the depth requirement specified in Section 9.

c. Discover unitized substances which can be produced in paying
quantities at a lesser depth than the formation or depth requirement specified
in Section 9.

d. Establish to the satisfaction of the authorized officer that
further drilling of the well would be unwarranted or impracticable.

When a well satisfies the requirements of Section 9 (i.e., satisfies the
PIR under 43 CFR 3183.4[b]), then all committed unit leases would qualify for
extension by drilling. If a well fails to satisfy the Section 9 requirement,
yet was drilled diligently, then only the lease on which the well was drilled
would qualify for extension by drilling. The standard for diligent drilling
operations is that set out in 43 CFR 3107.1.









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2. Further Drilling and Development. The initial participating area
under an exploratory unit agreement is established by the completion of the
first unit well capable of producing unitized substances in paying quantities
(as defined in 43 CFR 3186.1, Section 9). After such discovery, further
drilling or development is to take place under an approved plan of development
(see paragraph II-H), except as may be necessary to protect the unit area from
drainage. The drilling to discovery provisions in Section 9 of the model form
permit the authorized officer to modify the drilling requirements by granting
reasonable extensions of time when, in his opinion, such action is warranted
(see paragraph II-K).

3. Multiple Test Well. When the unit agreement incorporates a multiple
well requirement, the operator is obligated to drill all required wells.
Failure to commence drilling all required wells beyond the first obligation
well, and to drill them diligently, may result in the unit agreement approval
being declared invalid ab initio by the authorized officer.

4. Producible Wells Prior to Unitization. Where producible wells exist
in the unit area prior to unitization, Section 11 (Participation After
Discovery) of the model form of unit agreement should be modified to provide
that wells completed prior to the effective date of the unit agreement will
not be recognized as unit wells until after an initial participating area is
established based on the completion of a unit well capable of producing
unitized substances in paying quantities as defined in Section 9 of the model
unit agreement (see also paragraph II-R).

F. Determining Production of Unitized Substances in Paying Quantities.

The term "paying quantities" is defined in the model form of unit
agreement as "quantities sufficient to repay the costs of drilling,
completing, and producing operations with a reasonable profit . . ." The cost
of producing operations is defined as "the cost of maintaining the lease and
producing the wells, including the cost of marketing the products." The
phrase "cost of marketing the products" is further defined as "the normal or
usual handling, treating, measurement, and transportation costs which a
responsible lessee could be expected to pay to market his leasehold
production. Such costs would not include abnormal or extraordinary charges,
such as construction of a lengthy pipeline." This definition of the cost of
producing operations, with the criteria applied to such definition, is also
applicable to unit operations. However, the definition of paying quantities
for unit purposes also includes the burden of return of drilling and
completing costs. Generally, the drilling and completion costs to be
considered will be the actual costs involved; however, consideration should
also be given to those reasonable costs which a responsible operator could be
expected to incur while drilling and completing the well in question.
Extraordinary costs, such as drill string failure, extensive coring and
testing programs, loss of well control, etc., normally should not be allowed.



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Generally, no more than 12 months of well production data should be
required to conduct a paying well analysis. On rare occasions, if additional
well production data beyond 12 months is necessary to conduct a paying well
analysis, a letter to the unit operator should be sent outlining the
reason(s). However, the requirement that additional wells be drilled with no
more than 6 months between wells shall continue in effect during any such test
period unless extensions are granted by the authorized officer.

1. Paying Well Evaluations. To evaluate a "paying well" determination
(PWD), a reserve-economic analysis showing a well's discounted pay-out and the
estimated ultimate recovery to be realized usually is required. To retain
quality and consistency in performing a paying well analysis, the use and
application of various economic input parameters should be uniform. At the
time of the paying well determination, the current market or contract price
should be used as the current product price. If the well has produced for a
period of time prior to the paying well determination, then the actual product
price should be used for that period of time. If no contract price for gas is
available, then the highest current gas price being paid for a majority of
like quality gas in the area or field should be used.

Since product prices and field operating costs will likely not remain
constant with time, reasonable projections of these economic variables should
be used in unit PWDs. For consistency in these analyses, a reliable and
readily available source of forecasting data is desirable. The Energy
Information Administration (EIA) in the U.S. Department of Energy is such a
source for oil and gas price forecasting, and publishes periodic reports, such
as their Annual Energy Outlook and Short-Term Energy Outlook, which contain
this information. These oil and gas price forecasts are normally developed
for a range of market assumptions. The product price forecasts developed by
EIA for the medium or base case scenario should be used in unit PWDs. Price
forecasts should be used for all future years to be analyzed. However, since
these forecasts are generally not reported for all future years, interpolating
price inputs for intervening years may be necessary. In addition, since oil
price forecasts are generally made for the world oil price, it may be
necessary to make price adjustments that reflect quality and market
differences between the forecasted product and the resource being analyzed. A
reasonable estimate of future operating costs can be deduced from the Producer
Price Index, published monthly by the Bureau of Labor Statistics, U.S.
Department of Labor.











2-16


H-3180-1 - UNITIZATION (EXPLORATORY)


Additional consistency in unit paying well determinations is achieved
through adoption of a standard discount factor for use in the economic
analysis. Normally, in evaluating the economics of a proposal through
discounted cash flow (DCF) analysis, a certain level of risk is assumed. This
degree of presumed risk is reflected in the discount rate selected for use in
the analysis. Since the well being evaluated in a PWD has already been
drilled and been shown to be producible, the risk of failure has been reduced
considerably. For consistency, the risk component of the discount rate used
in BLM's paying well determinations is assumed to be zero. Under that
assumption, an acceptable proxy for the discount rate used in a unit PWD would
be the yield on United States Government intermediate-term (10-year) bonds, an
essentially risk free investment that captures both inflation expectations and
the time value of money. The average yield (rounded up to the next whole
percent) on intermediate-term Government bonds, as reported in national
financial publications and many major newspapers, should be used as the
discount factor in the economic evaluation for a unit PWD. The discount rate
would continue unchanged for the life of the estimated ultimate recoverable
reserve projection. The use of a conservative discount rate favors the
operator's well in qualifying as a unit paying well and ultimately furthers
the resource conservation objectives of unitization.

The DCF analysis starts at the time the well is completed using actual
or projected production. There is no set limit on the number of years for a
well to payout. However, if payout is longer than 10 years, the economic
assumptions used in the paying well analysis should be reexamined. The use of
the windfall profits tax (repealed in 1988) should not be considered in the
paying well analysis. If such a tax is enacted in the future, however, it
would then be utilized in the analysis.

State Offices are responsible for assuring that adequate source
information for product price/operating cost forecasting and Government Bond
yields is available to offices responsible for conducting unit PWDs.

2. Non-Paying Well/Recompletion Evaluations. The drilling and
completion costs to be used in the economic analysis for a paying well
determination for a recompleted or reentered well should be the typical cost
of drilling and/or completing the same well at the time of recompletion or
reentry. The economic factors and the total remaining reserves at the time of
recompletion or reentry should be utilized. Each producing horizon in a
completed well should be evaluated separately. If a workover is performed in
the current horizon (e.g. additional perforations, frac job, etc.) then the
following guidelines for a non-paying well reevaluation would apply.








2-17 12


H-3180-1 - UNITIZATION (EXPLORATORY)


Wells initially determined to be non-paying normally should not be
considered for reevaluation. However, if there is a significant change in
conditions (such as a sustained increase in product price or significant
increase of monthly production) a non-paying well may be considered for
reevaluation. A non-paying well may be reconsidered upon request by the unit
operator, or may be initiated by the authorized officer if it is believed it
would serve the public interest. When reevaluating a well previously
determined to be a non-paying well, the following economic factors should be
applied, as of the effective date the well potentially becomes paying: (1)
typical cost of drilling and/or completing the same well, (2) remaining
reserves, and (3) the applicable economic parameters. The historical data
prior to the effective date should not be considered in the reevaluation. The
effective date of any revision of a participating area caused by the
reevaluation of a non-paying well should be the first of the month on which
the changing condition occurred regardless of when the request for
reevaluation is received from the unit operator or when initiated by the
authorized officer. For wells completed before a unit was formed, the same
economic factors would apply. Illustration 1-3 may be used in notifying the
operator that a unit well has been determined to be a non-paying well, as
defined in Section 9 of the unit agreement.

G. Establishment or Revision of Participating Areas.

After the first unit well capable of producing unitized substances in
paying quantities is completed, a participating area is established in
accordance with Section 11, "Participation After Discovery", of the unit
agreement (43 CFR 3186.1).

1. Initial Participating Area. The land that is to be included in a
participating area is that land reasonably proven capable of producing
unitized substances in paying quantities or, if so provided in the unit
agreement, that land necessary for unit operations (most older units, i.e.,
prior to 1968, do not provide for such additional lands). In the event that
State spacing orders are still applicable to lands in the unit area, spacing
should be accepted in determining the participating area, unless the
authorized officer determines that it is not in the public interest.
Accordingly, participating areas should include the acreage within the spacing
unit established for every well that is included in the participating area.
Additional acreage is also included where the available information indicates
that such lands reasonably are proven to be capable of producing unitized
substances in paying quantities. The establishment of the initial
participating area causes the unit to convert to a producing status, and all
subsequent unit wells and operations are to be conducted under an approved
plan of operations. The effective date of the initial participating area
usually is the date the "discovery" well was completed, i.e., the date the
well was determined to be physically capable of producing unitized substances
in paying quantities. Illustration 2-2 presents a suggested format for use by
the unit operator in requesting approval of an initial participating area.
Illustration 1-4A is a form letter advising the unit operator that the initial
participating area has been approved.
2-18


H-3180-1 - UNITIZATION (EXPLORATORY)


If an application to establish an initial participating area has not
been filed within 3 months after completion of a unit well, the authorized
officer should contact the unit operator and follow up, as needed, until the
necessary actions are completed.

An application for the authorized officer's concurrence that a well is
not capable of producing unitized substances in paying quantities should be
submitted for every nonpaying unit well by the unit operator. Every unit well
completed for production should either be included in a participating area or
determined to be a non-paying well as soon as possible after completion.

A recommended method for establishing the initial participating area for
an exploratory unit should incorporate basic engineering and geologic
principles. The following equation can be used as a basis for determining the
size of the participating area:

Np = N x Er

Where Np is recoverable reserves, N is the original hydrocarbons in
place and Er is the recovery factor.

Recoverable reserves can be calculated by using decline curve analysis
based on the available production history. If gas reserves are involved, a
graph of P/Z versus cumulative production can be used where there is available
pressure and temperature data. An economic limit or cut-off point will also
need to be established when determining recoverable reserves. A substantial
amount of the calculation was probably accomplished while making the paying
well determination. If available, modeling can be used to determine
recoverable reserves.

A recovery factor can be determined by empirical correlation or through
field experience given a specific reservoir. The reservoir drive mechanism(s)
may have to be determined and used in estimating the recovery factor.

Once the recovery factor and recoverable reserves are determined, the
original hydrocarbons in place can be calculated. Using the volumetric
equation for oil or gas, the area necessary for the participating area can be
determined. Values for porosity, net pay thickness, water saturation, and
formation volume factor can and should be obtained from independent log and
reservoir analysis. If the area calculated compares favorably with what the
unit operator files for approval and the configuration is reasonable, the
application can be approved.







2-19 14


H-3180-1 - UNITIZATION (EXPLORATORY)


The actual configuration of the participating area should be consistent
with available geologic data. Since this configuration logically may be
something other than circular, detailed geologic mapping may be necessary if
adequate data exists. Radial drainage should be assumed when insufficient
data exists and when not contradicted by available information. Since
participating areas are based on subdivisions of the public land survey or
aliquot parts thereof, any subdivision cut 50 percent or more by the outer
boundary of the participating area configuration should be included in the
participating area.

The following table based on participating area size can be used as a
guideline to determine what subdivision should be considered for inclusion in
the participating area.

ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÂÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿
³ Participating Area Size-Acres ³ Subdivision Acres ³
ÃÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÅÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ´
³ Greater than or equal to 320 ³ 40 ³
³ Less than 320 ³ 10 ³
³ ³ ³
ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÁÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ

Smaller divisions of less than 10 acres can be considered when sizing
participating areas as well as cases involving metes and bound surveys. These
situations should be evaluated on a case-by-case basis.

The above method may not be appropriate in all circumstances and the
authorized officer should use discretion in determining the configuration of
the participating area.

2. Revision of Participating Area. A participating area will be
revised in accordance with Section 11 of the unit agreement (43 CFR 3186.1),
when additional paying wells are completed in the formation for which the
participating area has been established. When a revision brings in additional
lands, such lands will be contiguous to the existing participating area.
Although the additional geologic and engineering information obtained from the
completion of each new paying well is used, the amount of acreage that is
brought into the participating area by a revision is dependent on the same
criteria used in determining the initial participating area. Similarly, land
previously included in a participating area that is proven by the subsequent
completion of a dry hole to be incapable of producing unitized substances in
paying quantities should be eliminated from the participating area. The
completion of a well not capable of producing unitized substances in paying
quantities also may be grounds for eliminating acreage if there is no reason
to believe that drainage of the lands in question has occurred from other unit
wells. Since it is virtually impossible to delineate the exact limits of
production in paying quantities, any doubts as to whether or not a tract
should be placed in a participating area should be resolved against
participation, since a participating area can be enlarged more easily than it
can be reduced.
2-20


H-3180-1 - UNITIZATION (EXPLORATORY)


A request for the authorized officer's approval for the establishment or
revision of a participating area should be accompanied by comprehensive
engineering and geologic data that support and justify the unit operator's
proposed definition or redefinition of lands entitled to be in the
participating area. This information should include the status of all wells,
current rates of production, and cumulative volumes of oil and gas production.
Illustrations 2-3 and 1-4B are suggested formats for the application for and
approval of a revision to a participating area.

Separate participating areas should be established for each separate
productive reservoir, pool, formation, or zone covered by a unit agreement.
Separate participating areas should be established for the same producing
horizon when there is uncertainty as to whether the production is continuous
between the two areas. However, separate participating areas should be
combined into one contiguous participating area if subsequent information
shows them to be producing from a common reservoir. Lands may not be
eliminated from a participating area because of the depletion of unitized
substances. However, such lands may be eliminated when reasonable proven to
be nonproductive of unitized substances in paying quantities.

Lands not reasonably proven to be productive of unitized substances, but
which are shown to be necessary for unit operations, may be taken into
a participating area if such inclusion is provided for under terms of the unit
agreement. The phrase, "lands necessary for unit operations" is construed to
mean that the operations thereon would result in improved recovery of unitized
substances (see Champlin Petroleum Co., 100 IBLA 157, decided December 3,
1987.) Lands on which unit operations provide only an indirect benefit to the
participating area such as those that contain water disposal wells, water
supply wells, or product treatment equipment, should not be included in the
participating area. Any request for the inclusion of nonproductive lands
considered necessary for unit operations into a participating area shall
present a rational basis for such inclusion.

When it becomes necessary to revise a participating area by inclusion of
acreage to be determined necessary for unit operations, a detailed geologic
and engineering report will be necessary for justification of additional
acreage. The probability exists that nonproductive acreage will be included
in the participating area; hence, a rational basis should be used when adding
additional acreage. This may include a negotiated agreement between working
interest owners, and the unit operators with the acceptance of the authorized
officer on what acreage should be included. Another consideration would be to
analyze the reservoir area affected receiving the benefit of injection. In an
exploratory unit surface acreage will be used for expanding the participating
area.






2-21 16


H-3180-1 - UNITIZATION (EXPLORATORY)


The effective date for revision of a participating area is normally the
first of the month in which the information upon which the revision is based
is obtained, but a more appropriate date may be used when justified (older
units may specify a different effective date). After a discovery has been
made, the authorized office shall not approve an application for permit to
drill or to perform other operations (except routine operations such as
stimulation, well repair, etc.) under a unit unless the proposed operations
were included in the currently approved plan of development (see paragraph H
below), except where protective drilling is required.

State spacing may be used as a guide in determining the acreage to be
included in participating areas, unless the authorized officer determines that
such spacing is not in the public interest. Accordingly, participating areas
should include the drilling and spacing unit established for every well
included in the participating area. Additional acreage may also be included
if the lands meet the requirements of Section 11 of the model unit agreement.

3. MMS Notification of Participating Area Approvals. All BLM approvals
of Federal/Indian initial or revised participating areas will contain the
following notice from MMS notifying the unit operator to inform payers to make
adjustments to royalty payments within 90 days after a participating area has
been approved:

IMPORTANT NOTICE FROM THE MINERALS MANAGEMENT SERVICE

If this well(s) is producing, this approval
requires the submission of a Payor
Information Form MMS-4025 to the Minerals
Management Service (MMS) within 30 days (30
CFR 210.51). Please notify the designated
payor or payors (purchasers, working
interest owners, or others) as soon as
possible regarding this requirement. Any
production royalties that are due must be
reported and paid within 90 days of the
Bureau of Land Management's approval date
or the payors will be assessed interest for
late payment under the Federal Oil and Gas
Royalty Management Act of 1982 (See 30 CFR
218.54.) If you need assistance or
clarification, please contact the Minerals
Management Service at 1-800-525-9167 or
303-231-3504.







2-22


H-3180-1 - UNITIZATION (EXPLORATORY)


H. Plan of Further Development and Operation.

1. Purpose. The main purpose of a plan of development and operation is
to provide for the progressive exploration and development of the unit area in
an orderly and timely manner until such time as the productive limits of each
participating area have been defined as fully as practicable. Generally,
plans of development and operation should be designed to ensure that the
exploration and development drilling needed to delineate the unitized land
capable of producing unitized substance in paying quantities will be
accomplished as early as 5 years from the effective date of the initial
participating area, and certainly within 10 years from such date. Until the
limits of paying production in each participating area have been determined,
the number of proposed exploratory wells should approximate the number of
proposed development wells. However, the authorized officer should exercise
reasonable judgment in determining this ratio.

2. Plan of Development. Section 10 of the model form of unit agreement
(43 CFR 3186.1) requires that a plan of development and operation be filed for
approval within 6 months after the effective date of the initial participating
area (see paragraph II-G1.) This plan should describe all anticipated unit
operations for the next 6 to 12 months, including the drilling, completing,
conversion, and producing of unit wells, and other surface disturbing
operations, and may be supplemented as necessary. Prior to the expiration of
the initial or any subsequent plan of development and operation, a new plan
covering the next period (the following calendar year) should be submitted on
a calendar year basis not later than March 1 of each year, for the authorized
officer's approval. Any proposed modification or addition to the existing
plan should be filed as a supplement to the plan. Plans of development and
operation should be approved with a notation that the authorized officer's
approval of specific operations must be obtained prior to commencement of such
operations.

A plan of development should describe the exploratory and development
drilling operations and other related operations proposed to be performed
within the unit during the coming year and should be revised or supplemented
as necessary. Generally, all work that would change a well's producing
formation or status, or operations that would require the prior approval of
the authorized officer (such as drill deeper, plug back, abandonment, or
conversion to an injection well), should be included in the plan of
development. Routine stimulation and workover operations need not be covered
by a plan of development as long as the resulting producing interval of the
well remains within the productive limits of the participating area for the
well. Each annual plan must provide for additional exploration and/or
development drilling necessary to fully delineate the productive limits within
the unit area, or must fully justify the lack of such drilling during the
period covered by the plan. Since all proposed wells must be included under
an approved plan of development once the initial participating area is
established, subsequent unit operations should not be approved by the
authorized officer if these operations were not included in the latest
approved plan, unless drilling is necessary to protect the unit from
drainage. 2-23 18


H-3180-1 - UNITIZATION (EXPLORATORY)


When the annual plan of development and operation is reviewed, the
authorized officer shall determine whether the exploration and development of
the unit, in accordance with good oil field practice, requires the drilling
and/or producing of additional wells or the commencement of pressure
maintenance or enhanced recovery operations. If further exploration of unit
lands outside the participating area(s) is believed necessary, the authorized
officer may approve the plan of development, subject to the condition that
additional exploratory drilling operations will be required and that a
supplemental plan covering such operations must be submitted for approval.
The operator may also be requested to submit a new plan which provides for
such additional exploratory drilling operations.

Upon approval, one approved copy of the plan of development will be
returned to the unit operator; the original will be retained by the approving
office; and, if the authorized officer is a State Office official, one copy
will be sent to the appropriate District Office.

3. Summary of Operations. Section 10 of the model form of unit
agreement (43 CFR 3186.1) requires that a summary of operations be included
with the annual plan of development. Such summary should include complete up-
to-date maps showing the latest structural and geologic interpretations; all
participating area boundaries; a field map showing all wells, flow-lines, and
roads; status of all wells; and a summary of all operations conducted during
the past year. Any proprietary geologic information should be submitted as a
separate report and should be clearly marked by the unit operator on each page
as CONFIDENTIAL INFORMATION. Performance graphs covering the productive life
of each horizon or reservoir for which a participating area has been
established should also be included. The operations summary should be
reviewed by the authorized officer to determine that all well completion and
production data agree with the data contained in the authorized officer's
records.

When additional unit drilling operations are no longer necessary because
the area has been fully developed, the authorized officer may require an
annual summary of operations to be submitted in lieu of the annual plan of
further development and operations. All annual plans and/or summaries should
be submitted in triplicate. A plan of development or summary of operations
may be requested but not required for a non-Federal form of unit agreement,
since BLM supervision is maintained only over Federal and Indian leases in
such units.

I. Procedures for Expansion or Contraction of Unitized Areas.

Applications for the expansion or contraction of a unit area should be
filed with the authorized officer in accordance with the following procedures.





2-24


H-3180-1 - UNITIZATION (EXPLORATORY)


1. Filing of the Request. The unit operator shall file two copies of
the request with the authorized officer. The request should describe the
contemplated changes in the boundary of the unit area, the reasons therefor,
and the proposed effective date. Any geologic report justifying the proposed
expansion or contraction should be similar to the one that accompanied the
application for designation of unit area as logically subject to unitization.

2. Notification of Involved Parties. After the authorized officer has
given preliminary concurrence to the request, the unit operator should send
out notices of the.proposed change of unit area to each working interest
owner, lessee, lessor, and State or Federal agency whose interests are
affected, advising that 30 days will be allowed for submission to the unit
operator of any objections. A copy of the notice should be submitted to the
authorized officer. The date on which the expansion or contraction is to be
effective should be specified in the notice. Normally, the effective date
should be either the first of the month following approval by the authorized
officer, or the first of the month following expiration of the 30-day period.
A plat clearly showing the current area and the area to be added and/or
deleted should be included with the notice.

3. Request for Approval. After the expiration of the required 30 days,
an application should be filed in quadruplicate with the authorized officer
requesting final approval of the proposed action. The application should
include a statement that all principals were provided proper notice, with a
copy of any objections that were received by the unit operator. The
application should also contain a copy of the notice indicating the proposed
effective date.

4. Effective Date of Expansion or Contraction. After due consideration
of all pertinent information, the expansion or contraction shall, upon
approval by the authorized officer, become effective as of the date prescribed
in the notice. The authorized officer should notify the personnel responsible
for realty actions of the contraction or expansion so that appropriate action
can be taken.

5. Submission of Exhibits and Joinders. Revised Exhibits A and B
(43 CFR 3186.1) should be submitted concurrently with or shortly after
approval for contractions, but always concurrently for expansions so that the
commitment status of new unit tracts can be established. Tract numbers of the
new tracts included in the unit area by an expansion should follow the
original tract numbers on Exhibits A and B in proper sequence. Tracts that
existed prior to the expansion should not be renumbered. For effective
commitment of new tracts, in the case of expansions, current signatory parties
to the unit agreement who also own interests in the expanded area, and new
parties, must submit joinders to the unit agreement and, if a working interest
owner, a joinder to the unit operating agreement.




2-25 20


H-3180-1 - UNITIZATION (EXPLORATORY)


Section 2(e) of the model form of unit agreement provides for the
automatic elimination of lands not entitled to be in a participating area at
the end of the initial or extended unit term, if diligent drilling operations
are not underway on such nonparticipating lands. Within 90 days of any such
automatic elimination of lands, the unit operator must describe to the
satisfaction of the authorized officer, all eliminated lands and must also
promptly notify all parties in interest. Illustration 1-5A is a suggested
format for the authorized officer to request a description of lands
automatically eliminated under Section 2(e); while Illustration 1-5B may be
used for authorized officer concurrence in the operator's land description.

Illustrations 1-6A and 1-6B are suggested formats for the authorized
officer's preliminary and final approval for a unit expansion.

J. Suspensions.

1. Unavoidable Delay. There are three general circumstances that may
qualify as unavoidable delay. The three are: (1) when actions by the BLM (or
other surface management agency) taken in the interest of conservation
prohibit the unit operator from beneficially using the unit area; (2) when
events beyond the control of the operator prevent operations in the unit area
(force majeure); and (3) when there is a lack of product market due to remote
location or, in certain cases, a lack of sufficient demand.

Under Section 25 of the model unit agreement (43 CFR 3186.1), a
suspension of the unit operator's drilling obligations for the initial
obligation well, multiple obligation wells, and wells required to be drilled
under Section 2(e) of the model agreement must be granted when events beyond
the operator's reasonable control result in unavoidable delays that prevent
the operator from complying with such obligations. Subsequent test well
requirements under Section 9 (Drilling to Discovery) may also be suspended for
unavoidable delay under Section 25; however, more commonly, the operator will
request an extension of time under Section 9 if additional time is required to
commence drilling the well. If obligatory drilling has not commenced,
temporary relief of drilling obligations may be granted for a period generally
not to exceed 6 months, upon receipt of a statement from the unit operator
that it has been unable to obtain the necessary rig, casing, or associated
equipment, or that adverse weather or other conditions beyond its control
prevent commencement or continuance of operations. No unit obligation that is
suspended under this section shall become due less than 30 days after such
suspension is terminated.

Where a product market is available but the operator wants more for the
oil and gas than a purchaser will offer, a suspension should not be granted
unless the AO determines that the price offered is significantly less than
what that purchaser and other purchasers are offering for like quality oil and
gas in the area. Compelling the operator to sell at such an artificially
depressed price would not be in the public interest since the royalty value to
the Government would be similarly depressed.

2-26


H-3180-1 - UNITIZATION (EXPLORATORY)


Suspensions under Section 25 apply only to unit requirements and will
not serve to extend leases that otherwise would expire. However, if actual
drilling operations had commenced and were being diligently conducted when the
above referenced problem arose, similar relief could be granted that would
serve to hold expiring leases until operations resume or the relief period
otherwise is terminated.

2. Suspension of Lease Terms. Pursuant to 43 CFR 3103.4-2(f), the
authorized officer may grant a suspension of operations and/or production for
any or all leases effectively or fully committed to the unit agreement due to
existing circumstances that prohibit the unit operator from drilling and/or
producing on unitized land. If suspension of the terms of the Federal leases
is desired, the unit operator, on behalf of the lessees, must submit an
application requesting such suspension of operations and/or production and
indicating whether the suspension is being requested for all or only some of
the committed leases. Circumstances that warrant suspension approval must be
deemed to be beyond the control of the unit operator, despite the operator's
exercise of due diligence.

If a suspension of production and/or operations is granted for a lease
in a unit and the unit is subsequently declared invalid, the suspension is
valid for the period prior to the unit being declared invalid. This would be
true even if the application for suspension was executed only by the unit
operator and not by the working interest owners. When a unit that is
benefitting from a suspension of production and/or operations is declared
invalid, working interest owners must be notified that the suspension will be
terminated as of the date the unit is declared invalid, unless sufficient
justification for continuation of the suspension is provided. The working
interest owners should be given a reasonable period of time to submit this
justification.

Manual 3160-10, Suspension of Operations and/or Production, provides
additional guidance on the various types of lease suspensions.

3. Suspension of Automatic Elimination Provisions of the Unit
Agreement. A suspension of the automatic elimination provisions of Section
2(e) may be granted, if justified, due to unavoidable delay. In order to
receive this relief, the unit operator must obtain consent from the owners of
90 percent of the working interest and 60 percent of the basic royalty
interest (exclusive of the basic royalty interests of the United States) in
the current nonparticipating lands.









2-27 22


H-3180-1 - UNITIZATION (EXPLORATORY)


A request for this type of suspension may be submitted at any time after
the establishment of an initial participating area, but prior to the effective
date of the automatic elimination of lands not entitled to participation. If
the suspension is approved, it would be effective the first of the month in
which the request is received. This type of suspension is normally granted
for not more than a two-year period, but may be extended thereafter, subject
to an annual review as to whether continuation is warranted. The authorized
officer may terminate the suspension at any time it is decided that
circumstances warranting the suspension have been resolved. The operator
should be provided notice of termination and granted a minimum of sixty days
in which to resume unit operations, in order to forestall automatic
elimination.

A suspension of the automatic elimination provision serves to extend the
initial or second five-year development term for the period of time covered by
the suspension. Note that if suspension of the automatic elimination
provision is granted during the initial five-year development term of the
unit, the operator will likely have additional time to resume drilling to
forestall automatic elimination. This time period would be equivalent to the
amount of time remaining in the first five-year term at the time the
suspension was granted. Of course, if diligent drilling operations are
commenced timely in accordance with Section 2(e) after a suspension is
terminated, then the automatic elimination date would be further extended by
the terms of the unit agreement.

Suspension of the Section 2(e) automatic contraction provision would not
serve to suspend the operating and producing requirements of any leases
committed to the unit agreement, and committed Federal lessees would need to
continue making minimum royalty and advanced rental payments during the term
of suspension. However, suspension of the automatic contraction date would
serve to extend the life of a committed lease since such leases are held by
unit production during the period of the suspension.

K. Extensions of Time.

There are certain provisions in the model unit agreement (43 CFR 3186.1)
under which the automatic elimination date (Section 2(e)), the time within
which to fulfill certain drilling requirements (Section 9), and the fixed term
of the unit agreement (Section 20) may be extended.

Under Section 2(e) of the model agreement, the automatic exclusion of
nonparticipating acreage at the end of the initial five-year unit term may be
postponed and an additional five years in the unit term may be obtained if
diligent drilling is occurring and pursued on nonparticipating unitized lands
within the timeframes stated in the agreement. Section 2(e) allows the
authorized officer to approve a further, two-year waiver of the automatic
elimination provision, upon consent of the owners of 90 percent of the working
interests and 60 percent of the basic royalty interests (exclusive of the
basic royalty interests of the United States) in the nonparticipating unitized
lands.
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H-3180-1 - UNITIZATION (EXPLORATORY)


Section 9 of the model unit agreement details the unit operator's
drilling requirements and provides for automatic termination of the agreement
if these requirements are not satisfied. Except for unit obligation wells,
this section of the agreement gives the authorized officer the authority and
discretion to grant reasonable extensions of time to meet these requirements.
Such an extension (if approved prior to expiration of the initial term of the
unit) is granted for a period normally not to exceed 6 months, unless a longer
period is deemed justifiable by the authorized officer.

Section 20 of the model agreement provides for extension of the initial
five-year unit term upon request of the unit operator and approval of the
authorized officer, or upon the discovery of unitized substances in paying
quantities on unitized lands. Such a discovery serves to extend the effective
term of the unit agreement for so long as unitized substances can be produced
in quantities sufficient to pay production costs.

Extensions granted for meeting unit drilling requirements do not toll
the running of lease terms. Thus, depending upon the circumstances, a
suspension of operations and/or production pursuant to 43 CFR 3103.4-2 and 43
CFR 3165.1 may also be needed to preserve any committed lease that would
otherwise expire.

L. Effect of Unit Agreement on Committed Lease Terms, Lease Segregations
and Lease Extensions.

When only a portion of a Federal lease is made subject to an approved
unit agreement, the lease is segregated into two separate leases, one
containing the committed land within the unit, and the other containing the
(uncommitted lands) [land outside the unit]. The segregated lease covering
the nonunitized portion continues for the term of the base lease or for 2
years, whichever is greater, pursuant to 43 CFR 3107.3-2.

The effect of lease segregation on the term of the resultant unitized
and nonunitized leases will depend on whether or not the original lease was in
extended term by reason of production. A producing Federal lease in its
primary term, upon segregation, results in two leases that are separate and
distinct. Production on one will not extend the term of the other.
Conversely, the segregation of a producing Federal lease in its extended term
by production, creates a situation where the production on either lease will
serve to extend the term of the other (See Anadarko Production Co., 92 IBLA
212, June 16, 1986, and Celsius Energy Co., Southland Royalty Co., 99 IBLA 53,
September 8, 1987.)








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H-3180-1 - UNITIZATION (EXPLORATORY)


If the unit agreement does not provide for unitization of all
formations, Federal leases may be subject to horizontal as well as vertical
segregation. Horizontal segregation should be avoided whenever possible and
can be averted if a statement advising that it is not the intent of the
parties to the agreement that horizontal segregation occur as a result of
unitization is submitted by the unit operator with its application for final
approval. Upon final approval, the authorized officer should advise the
appropriate BLM office that horizontal segregation is not desired.

Once a discovery of unitized substances is made that can be produced in
paying quantities (as defined under Section 9 of the model form of unit
agreement, 43 CFR 3186.1), a committed Federal lease will continue in force
for as long as it remains subject to a unit agreement. In accordance with an
Interior Board of Land Appeals (IBLA) decision (67 IBLA 246) dated September
24, 1982 (Yates Petroleum Corp., et al.), a committed Federal lease can be
extended by production if a unit well on any lease committed to a unit
agreement is capable of production in paying quantities on a lease basis i.e.,
production in quantities sufficient to cover the cost of production and
marketing, but not drilling. This would serve to extend leases committed to a
unit plan only for the initial 5-year fixed term of the agreement so long as
production in paying quantities on a lease basis is maintained and the unit is
still in effect (i.e., all unit obligations are continued throughout the five-
year term of the unit.)

Upon the authorized officer's approval of the initial participating
area, the unit plan assumes a producing status as defined under Section 11 of
the model unit agreement. Once a unit plan is in this status, any Federal
lease committed to the plan will remain in effect for as long as it remains
subject thereto. However, if production of unitized substances in paying
quantities ceases prior to the end of the initial five-year unit term, and
operations are not in progress to restore production or to establish new
production within 60 days, any individual lease that is in its extended term
at that point, solely by reason of its commitment to a producing unit plan,
would expire.

Federal leases committed to a unit agreement also are eligible for a
2-year extension pursuant to 43 CFR 3107.1, if drilling operations are
commenced on unitized land and are being diligently prosecuted across the end
of the primary term of the lease. (See also paragraph II-E1 of this
Handbook.)

Any Federal lease issued for a fixed term of 20 years, or any renewal
thereof (or any portion of such lease) that is committed to a unit plan,
will continue beyond its term for as long as it remains committed to the plan
(43 CFR 3107.3-3).





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H-3180-1 - UNITIZATION (EXPLORATORY)


Indian leases are not subject automatically to the Section 18 (Leases
and Contracts Conformed and Extended) provisions of the model Federal unit
agreement. Accordingly, BIA may insert appropriate language in Section 18
that modifies the terms and conditions which apply to committed Indian leases,
with approval of the involved tribe and/or allottees. For this reason, the
text of the specific unit agreement must always be consulted to determine the
effect of unitization on committed Indian leases.

M. Unleased Federal Lands

On January 29, 1990, BLM field offices were instructed to include in all
new Federally-approved oil and gas exploratory unit agreements, a provision
requiring the payment of drainage compensation to the Government whenever a
unit participating area contains unleased Federal lands. Illustration 4
provides the modified text of sections 12 and 17 that should be used in new
agreements.

At the time of designation of a unit area, every effort should be made
to identify and, if possible, lease any unleased Federal lands within the
designated area. When a unit with unleased Federal lands is approved, an
increased effort should be made to lease the Federal acreage, with a
requirement for joinder to the unit and unit operating agreements prior to
lease issuance (see 43 CFR 3101.3-1.)

If after discovery of unitized substances in paying quantities, the
established participating area includes unleased Federal lands, the following
steps should be taken. If not already underway, initiate actions to lease the
unleased tracts with a stipulation requiring joinder to the unit and unit
operating agreements. Advise potential lease applicants that negotiations
with the unit operator will be necessary.

Once a successful applicant has been chosen to acquire the lease and
evidence of an acceptable joinder has been received, the lease can be issued.
In some cases, an acceptable joinder to the unit will not be obtained (e.g.,
if the unit operator and successful lease applicant can not come to terms on
monetary settlements). In such cases, the applicant must provide a statement
giving reasons for non joinder that are acceptable to the authorized officer
before the lease can be issued. Upon lease issuance without joinder, the
lessee must be advised that protection of the Federal lease from drainage will
be required. Protection of the Federal lease can be accomplished by drilling
an offset well, paying compensatory royalty, entering into a communitization
agreement or obtaining a pooling order through the appropriate State agency.

N. Termination.

Most unit agreements contain provisions for automatic or voluntary
termination. However, each agreement must be reviewed to determine the
circumstances under which such terminations may occur.


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H-3180-1 - UNITIZATION (EXPLORATORY)


1. Automatic Termination. A Federal exploratory unit agreement will
normally terminate 5 years after its effective date unless production of
unitized substances in paying quantities, as defined in Section 9 of the unit
agreement, has been established, or the term is otherwise extended pursuant to
Section 20(a) of the unit agreement. If production of unitized substances in
paying quantities is established, the agreement remains in effect for as long
as unitized substances can be produced in quantities sufficient to pay for the
cost of operation or for the initial 5-year term, whichever is longer. Should
production cease beyond the initial 5-year term, the unit agreement will
terminate automatically unless diligent operations are in progress within 60
days for the restoration of production or discovery of new production (see
Section 20(c) of the model agreement at 43 CFR 3186.1.)

Section 9 of the model unit agreement provides for the drilling of an
initial test well within 6 months after unit approval. If the initial well
fails to discover unitized substances in paying quantities, the unit operator
is required to commence and continue drilling additional wells, allowing not
more than 6 months between the completion of one such well and the beginning
of the next such well, until a well capable of producing unitized substances
in paying quantities is completed to the satisfaction of the authorized
officer.

General conditions for satisfying the public interest requirement
under an approved unit agreement for unproven areas can be found at
43 CFR 3183.4(b). Failure to commence drilling the initial obligation well,
or the first of multiple obligation wells, on time and to drill it diligently
shall result in the unit agreement approval being declared invalid ab initio
by the AO. In the case of a multiple well requirement, failure to commence
drilling the required wells beyond the first well, and to drill them
diligently, may also result in the unit agreement approval being declared
invalid ab initio by the AO. Failure to timely commence any well required
under Section 9 subsequent to the drilling of the initial obligation well or
wells (in the case of a multiple well requirement) will result in automatic
termination of the unit agreement.

Automatic termination for failure to perform certain required unit
actions requires no formal advance notice by the authorized officer or
operator. However, the authorized officer must concur in all determinations
of automatic termination made by the unit operator. The unit operator should
then notify all other interested parties. All terminations by the authorized
officer shall be in writing to the unit operator. Illustration 1-7A is an
acceptable format for use by the authorized officer in notifying the unit
operator of automatic unit termination for failure to meet the production
requirements of the unit agreement, while the format shown in Illustration
1-7B may be used in notification of automatic unit termination for failure to
meet the drilling requirements of Section 9 of the agreement. Where required
by the unit agreement, prior approval by appropriate State officials should be
obtained before the authorized officer approves the termination.


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H-3180-1 - UNITIZATION (EXPLORATORY)


2. Voluntary Termination. Section 20(d) of the model unit agreement
states that the parties to the unit agreement may initiate a request for
voluntary termination of the agreement at any time prior to the discovery of
unitized substances which can be produced in paying quantities, provided the
public interest requirement has been satisfied. If the public interest
requirement is not met, the approval of the unit by the authorized officer
would be invalid. In cases where voluntary termination is requested, the
application should be reviewed to ensure that the requisite percentage of
working interest approvals has been obtained. The effective date of the
termination may not be a date prior to the receipt of an approvable
application by the authorized officer. Illustration 1-7C provides a format
for the approval of a request for voluntary unit termination. Further
clarification as to when a voluntary termination is effective may be found in
Aquarius Resources Corp., 64 IBLA 153, May 24, 1982.

0. Amendment of Approved Unit Agreement.

A unit agreement may be amended when such action is justified by
circumstances or events not previously anticipated. Amendment of a unit
agreement is accomplished in much the same manner as the designation and
approval of a unit agreement. A request for preliminary approval of the text
of the proposed amendment with supporting data normally is submitted to the
authorized officer. After the authorized officer approves the text of the
proposed amendment, it is circulated by the unit operator for signature by the
owners of interest that are subject to the unit agreement. All parties
committed to the agreement must sign or consent to the amendatory language
before it may be approved by the authorized officer.

P. Allocation of Production.

Unitized substances normally are allocated to the committed working
interest owners in the manner prescribed in the unit operating agreement.
Royalty proceeds on this production are allocated to each tract of unitized
land within the controlling participating area, normally on the basis of the
surface acre percentage each committed tract in the participating area
contributes to the total acres of unitized land within the participating area.
While noncommitted tracts within a participating area generally receive no
allocation from production under the unit agreement, compensatory royalty
payments are due the Government for any unleased Federal lands located within
a participating area, when provided for in the unit agreement (see
Illustration 4 for model text of this provision.)

A situation may be encountered where a communitized area (CA) and a unit
participating area (PA) overlap. Illustration 5 shows several examples to
follow in allocating production under those circumstances.







2-33 28


H-3180-1 - UNITIZATION (EXPLORATORY)


Q. Drainage - Compensatory Royalty.

Section 17 of the model unit agreement provides that the unit operator
will take such measures as are necessary to prevent drainage of unitized
substances by wells on land not subject to the agreement. Accordingly, any
producing non-unit well offsetting unitized land, regardless of the ownership
of the land on which such well is located, subjects the unit to possible
drainage. Prompt drilling of necessary unit protective wells and/or payment
of an appropriate compensatory royalty, as determined by the authorized
officer, may be required. Compensatory royalty payments may be due for
presumed drainage of unleased Federal lands in a participating area. While
all exploratory unit agreements approved since January 29, 1990, should
provide for such compensation, older agreements may not. The specific unit
agreement must be examined to see if it provides for drainage compensation for
unleased lands.

Communitization agreements that include unitized and nonunitized lands
in conformity with State spacing requirements also may be used to remedy
potential drainage situations. Manual Handbook H-3160-2 provides additional
guidelines concerning drainage determinations and computations.

R. Treatment of Existing Wells.

At times, producing or producible oil or gas wells may be present within
the area proposed for unitization. When such wells indicate a discovery of
questionable significance, the following paragraph should be added to Section
11, Participation After Discovery, of the model unit agreement for unproven
areas (43 CFR 3186.1):

Determination as to whether a well
completed within the unit area prior to the
effective date of this agreement is capable
of producing unitized substances in paying
quantities shall be deferred, until an
initial participating area is established
as the result of the completion of a well
for production of unitized substances in
paying quantities in accordance with
Section 9 hereof.

This determination should be made at the time the previously completed
well(s) is to be included in a participating area and should be based on the
same criteria applied in making any paying well determination. Existing wells
should be evaluated for inclusion in a participating area as of the effective
date of the initial participating area.





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H-3180-1 - UNITIZATION (EXPLORATORY)


In unusual cases, where an existing well indicates that a significant
discovery of oil or gas has been made on land proposed for unitization, but
where additional exploration and development is necessary, an initial
participating area based on the information from such wells may be established
effective as of the effective date of the unit agreement. However, a
participating area application based on such well(s) should not be approved
until after a unit test well has been drilled and completed as a paying well
under the terms of Section 9 of the unit agreement (43 CFR 3186.1). In this
situation, all committed leases including those that otherwise would expire
are extended automatically, since the effective date of the participating area
and the unit agreement would be the same date. A requirement for the
concurrent submission of a plan of operations and development may be added to
Section 9, if warranted.

S. Reporting Format for Unit Wells.

For reporting purposes, the unit operator or his delegated party is
responsible for submitting all required reports for unit wells, be it a paying
or non-paying unit well as long as the well remains on land that is considered
committed to the unit agreement. Wells located on non-committed lands or
lands that have been automatically eliminated from the unit area, would be
reported on a lease basis. A chart detailing how the Automated Inspection
Record Systems (AIRS) should be set up for unit wells is presented in
Illustration 6.

T. Unit Activity Report.

A unit activity report similar in format to that shown in
Illustration 7, should be prepared monthly by the BLM Office having
jurisdiction over well operations. This report will be used by the BLM Office
that administers the unit agreement to fulfill its responsibilities concerning
wells drilled to meet unit obligations, establishment and revision of
participating areas, automatic elimination dates, and unit terminations.
Guidelines for completing the activity report are also included in
Illustration 7.

U. Lease Commitment Status.

Before a Federal lease can be considered for segregation or for benefits
by unitization, it must be fully or effectively committed to the unit
agreement.

1. Fully Committed (FC). Fully committed indicates that all interest
owners in that tract have committed their interests therein. This includes
the lessee(s) of record, basic royalty owners in fee tracts, owners of
overrides or production payments, if any, and working interest owners if
different from the lessee of record. The working interest owners also must
have signed the operating agreement. A fully committed tract is subject to
segregation, if applicable, and is eligible for all benefits under the unit.

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H-3180-1 - UNITIZATION (EXPLORATORY)


2. Effectively Committed (EC) or (FC ex OR)). Effectively committed
indicates that all interest owners, except the owners of overrides or
production payments have signed. An effectively committed tract is also
subject to segregation, if applicable, and is eligible for all benefits under
the unit.

3. Partially Committed (PC). In reference to a fee tract, partially
committed indicates that the basic royalty interest owner has not signed the
unit agreement, but the lessee and working interest owner have committed their
interests. Absent joinder by the basic royalty owner, such interest may be
considered committed only if the underlying lease empowers the lessee/working
interest owner to commit that interest to the unit agreement. A State or
Federal tract is considered partially committed to the unit agreement when the
lessee of record has not signed but the working interest owner has committed
its interests (Note: In some States, commitment under a State or fee tract by
a lessee of record who owns no working interest is considered unnecessary, and
the tract may be considered as fully or effectively committed without such
signature.) A partially committed lease is not subject to segregation or any
benefit by unit operations unless there are actual operations and/or
production on the lease itself, or it is included within and receives an
allocation of production from an approved participating area. Unitized
drilling is permissible on a partially committed tract, however, if unitized
production is obtained on such a tract and a participating area is established
on the basis thereof, the entire production must be allocated to the
participating area, and the responsible working interest owner must pay the
noncommitted parties their just royalty on a leasehold basis.

4. Not Committed (NC). Any tract in which a working interest has not
committed, regardless of other committed interest, is considered as not
committed and is not subject to the unit agreement.

V. Designation of Agent.

Whenever a party other than the unit operator files an application for
permit to drill a well on unitized land, the application must include an
acceptable Designation of Agent from the unit operator (Illustration 2-4).
This designation covers only the drilling and completion of the well, and must
clearly state who has authority to operate the well, once completed. If the
well encounters unitized substances capable of being produced in paying
quantities, as defined in Section 9 of the unit agreement (43 CFR 3186.1),
then either the unit operator will take over operation of the well or the
designated agent will be named as successor unit operator and assume
responsibility for operating the well. If a well is completed as a nonpaying
unit well and a party other than the unit operator is designated to operate
the well, the unit operator will remain ultimately responsible for all legal
and regulatory obligations related to such operations, as long as the well is
located on land that is considered committed to the unit agreement.



2-36


H-3180-1 - UNITIZATION (EXPLORATORY)


Illustration 2-5 provides a model form for the delegation of authority
to operate a non-paying unit well. If a form different from that in
Illustration 2-5 is submitted for approval, either the form itself or the
authorized officer's approval must clearly reference the responsibilities and
obligations retained by the unit operator for operation of this well.

W. Designation of Suboperator.

Except as provided above, all operations on unitized land must be
performed by the unit operator, and designations of a suboperator will not be
accepted or approved unless it is the only way to (1) allow operations in a
unit involving special projects or operating techniques that could be handled
more appropriately by a party other than the unit operator; or (2) prevent the
premature termination of a unit agreement or the abandonment of marginal
production. In such cases, suboperators must file all necessary reports
covering all unit operations and production for which they are responsible as
designated suboperators.

In extreme cases, the authorized officer may accept certain unit work to
be performed and reports filed in behalf of or under the unit operator's name
by a nonunit operator. This is considered as work performed by the unit
operator, and acceptance of such work or reports does not relieve the unit
operator of any obligation or responsibility under the unit agreement.

X. Successor Unit Operator.

Procedures for selecting a successor unit operator are included in
Section 6 of the model unit agreement (43 CFR 3186.1) to provide orderly
succession if the unit operator resigns or is removed. Generally, this
succession is accomplished through the approval of an instrument executed by
or on behalf of the unit operator, the successor unit operator, and the owners
of committed working interests. That instrument provides for the resignation
of the unit operator, acceptance by the successor unit operator of the duties
and responsibilities of unit operator, as described in Section 4 of the model
form, and approval of the new unit operator by owners of committed working
interests in the manner prescribed in the unit agreement (Section 6 of the
model form) or unit operating agreement, as appropriate.

The authorized officer may accept a Designation of Successor Operator
which has not been formally ratified by working interest owners, provided the
successor operator certifies in writing that it has obtained the required
working interest owner approvals. The authorized officer's written approval
of such a designation (see Illustration 1-8A) shall include and be subject to
the following, or similar disclaimer:

"In approving this designation, the Authorized Officer
neither warrants nor certifies that the designated party
has obtained all required approvals that would entitle
it to conduct operations under the
Unit Agreement."
2-37 32


H-3180-1 - UNITIZATION (EXPLORATORY)


Normally, if no successor unit operator is selected and qualified within
a reasonable period of time, the authorized officer shall declare the unit
agreement terminated. The Successor Operator Instrument in Illustration I-8B
may be used for the concurrent resignation of a unit operator and designation
of a successor operator.

Y. Bankrupt Unit Operator.

A unit operator who declares bankruptcy may continue to operate the unit
if he so desires. The Bureau lacks the authority to unilaterally remove a
unit operator simply because they have declared bankruptcy. Section 5 of the
model form of unit agreement (43 CFR 3186.1) provides for such removal of a
unit operator, for whatever reason, by consent of a majority of the working
interest owners.

If a unit operator declares bankruptcy, then the Bureau may accept an
appointed agent to act on behalf of the operator to ensure compliance with all
applicable requirements of the unit agreement and regulations. Acceptance of
an agent can occur even if the unit operating agreement is rejected as an
executory contract. Our acceptance of an agent does not relieve the unit
operator of his/her ultimate responsibility for compliance with all the terms
and conditions of the unit agreement. Our acceptance of an agent should
terminate if a sale of the unit properties is consummated because the
purchaser should assume all unit responsibilities. Where unassumed
liabilities exist, the BLM may be able to take action against a bankrupt
operator's unit bond, since a bond is not considered an asset of the bankrupt
debtor's estate.

Z. Subsequent Joinder and Late Joinder.

The commitment of oil and gas interests in lands within the unit area
subsequent to final approval of the unit agreement is governed by the
appropriate provisions of the agreement (Section 28 of the model form,
43 CFR 3186.1).

Usually, once operations are commenced, the unit agreement allows the
commitment of a working interest by the owner who signs joinders to both the
unit and unit operating agreements and obtains such approvals of the owners of
committed working interests as may be required by the unit operating
agreement. Such joinders should be accompanied by a statement from the unit
operator that the terms of the unit operating agreement have been satisfied.

A nonworking interest may be committed to a unit agreement by the owner
of the interest signing a joinder to the unit agreement and the owner of the
corresponding committed working interest approving the commitment of said
interest. Normally, a nonworking interest may not be committed to a unit
agreement unless the corresponding working interest is committed thereto. In
order for a working interest to be committed to a unit agreement, it must also
be committed to the unit operating agreement.

2-38


H-3180-1 - UNITIZATION (EXPLORATORY)


Illustrations 1-9A and 1-9B are suggested formats for use by the
authorized officer in approving subsequent and late joinders to the unit
agreement.

AA. Bond Requirements.

The operator of a Federally approved unit must furnish a bond prior to
the commencement of any surface disturbing activities on a Federal lease.
Such a bond must be conditioned on faithful performance of duties and
obligations under the unit agreement and the terms and conditions of all
Federal leases subject thereto, and be for an amount that the authorized
officer shall determine to be adequate to protect the interests of the United
States. The bond may be posted by one of the following three methods:

1. The unit operator may post a unit bond to cover operations on
Federal leases committed to a specific unit in the language of the sample at
43 CFR 3186.2. The amount of the unit bond must not be less than $25,000. In
the event of unit contraction, lands excluded from the unit area should be
checked for proper bond coverage.

2. The unit operator may use his own statewide/nationwide bond to cover
operations on Federal leases committed to the unit. If his
statewide/nationwide bond was filed on a pre-1987 edition of the bond form,
the unit operator should attach an operator rider which extends coverage of
the bond to all leases he operates, whether or not he owns an interest in the
leases. The unit operator in accordance with 43 CFR 3104.4 may submit a unit
operator rider covering his operations on that specific unit to the
statewide/nationwide bond.

3. The unit operator may be covered on Federal leases committed to the
unit under another lessee/sublessee's individual lease/statewide/nationwide
bond provided that, in accordance with regulations at 43 CFR 3104.2, a consent
of surety, or the obligor in the case of a personal bond, to include the
operator under the coverage of the (lessee's) bond is furnished to the BLM
Office maintaining the bond. If the unit operator utilizes his own individual
lease bond, the coverage will only apply to that specific lease and will not
cover operations on other committed Federal leases within the unit.

A designated agent (or sub-operator) may conduct operations under his
own bond or under the unit operator's bond or under the lessees bond with
consent of surety. A statement must be submitted by the unit operator
identifying the type of bond coverage to be used to cover operations on the
Federal leases committed to the unit, including the BLM Bond Number. A bond
is not required for Federal leases receiving allocated production. The
authorized officer may, when justified, require an increase of the bond amount
in accordance with 43 CFR 3104.5.




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H-3180-1 - UNITIZATION (EXPLORATORY)


AB. Development or Operation of Nonparticipating Lands.

Whenever the owner of a working interest in unitized land and the unit
operator are unable to reach agreement providing for the drilling of a desired
test well, the working interest owner may cause the well to be drilled at its
sole risk and expense. If the well is to test a formation for which a
participating area has been established, it must be drilled at a location
outside the existing participating area. Operations on noncommitted land not
subject to the unit agreement are approved on an individual lease basis.

Whenever a party other than the unit operator files an application for a
permit to drill a well on unitized land, it may be accompanied by a
Designation of Agent from the unit operator. Adequate bond coverage must be
provided. Such designation must clearly state, or be approved conditioned
upon the requirement that the unit operator will assume the operation of such
well if it is determined to be capable of producing unitized substances in
paying quantities. If the completed well is capable of producing unitized
substances in paying quantities, it must either be turned over to the unit
operator for operation or the operator of the well must take over as successor
unit operator, since only one operator may be responsible for unit operations.
If the well is determined to be nonpaying under the terms of the unit
agreement, it will be operated and produced on a lease or spacing unit basis,
as appropriate.

AC. Non-Federal Form of Unit Agreement.

If Federal lands proposed for inclusion in a unit comprise less than 10
percent of the unit area, a non-Federal form of unit agreement may be used.
Typically, an American Petroleum Institute (API) model agreement is submitted.
Procedures for processing and administering non-Federal form unit agreements
involving Federal lands should be consistent within the BLM. The authorized
officer should take an active role in approving and monitoring such
agreements. Unit regulations set forth in 43 CFR 3181-3185 may be applied to
non-Federal form agreements, as appropriate. Specifically, the unit proponent
should be asked to initiate a preliminary review process that allows for
authorized officer concurrence with the proposed unit boundary and with the
proposed terms of the unit agreement. Following preliminary review and
concurrence by the authorized officer, the unit operator should submit the
executed agreement for final approval. These types of agreements normally are
approved by a State jurisdictional agency.










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H-3180-1 - UNITIZATION (EXPLORATORY)


If the authorized officer agrees to the commitment of Federal land to
the unit agreement, then the authorized officer executes an approval letter
and a modified certification-determination page (see Illustration 1-2B.) An
agreement number should be assigned and reflected on the modified
certification-determination page. The certification-determination page should
contain a statement that site security, measurement, reporting of production
and operations, and assessments or penalties for noncompliance with such
requirements found in 43 CFR Part 3160 are applicable to any well and facility
on land considered committed to the unit agreement which affects Federal
interests. References to the article provisions in the modified
certification-determination page should be checked for conformance with the
articles in the unit agreement.

Upon final approval of a unit agreement, all committed Federal leases
are subject to the provisions of 43 CFR 3107 concerning Federal leases
committed to units and cooperative plans. A Federal lease committed to an
approved unit agreement is subject to segregation and any corresponding
extensions. A Federal lease committed to an approved unit agreement will not
expire by its own terms if the agreement is considered producing.

If the authorized officer deems the non-Federal from of unit agreement
to be not in the public interest, then the unit agreement should not be
approved. Consequently, the terms and provisions of the agreement would not
apply to the Federal lands and such lands would have to be operated and
administered on a leasehold basis.

AD. Indian Land.

1. Special Provisions in Unit Agreement.

Many of the basic provisions of the model Federal unit agreement
(43 CFR 3186.1) are generally applicable for exploratory unit agreements
involving Indian lands; however, various modifications and/or additions may be
required by the BIA or the Indian tribe. Appropriate language also must be
included in the proposed unit agreement to provide for the preferential hiring
of available Indian labor. The following language from a unit agreement
involving both allotted and tribal Indian land and private land provides an
example, but is not intended to represent a standard format.

  1. Whereas Section. Whereas, the rules and regulations
governing the leasing of restricted allotted and tribal
Indian lands for oil and gas promulgated by the Secretary
of the Interior (25 CFR Part 211 and 212) under and
pursuant to the Allotted Land Mineral Leasing Act of
March 3, 1909, 35 Stat. 783, 25 U.S.C. 396, and the
Tribal Land Mineral Leasing Act of May 11, 1938, 52 Stat.
347, 25 U.S.C. 396a et seq., and the oil and gas leases
covering said allotted and tribal Indian lands provide
for the commitment of such leases to a cooperative or
unit plan of development or operations.
2-41 36


H-3180-1 - UNITIZATION (EXPLORATORY)


  1. Enabling Act and Regulations. The Indian Tribal and
Allotted Leasing Acts, supra, and all valid pertinent
regulations, including operating and unit plan
regulations, heretofore issued thereunder or valid
pertinent and reasonable regulations hereafter issued
thereunder are accepted and made a part of this agreement
as to Indian lands, provided such regulations are not
inconsistent with the terms of this agreement.

  1. Expansion of Unit Area. The unit area may,
therefore, with approval of the Commissioner of the
Bureau of Indian Affairs or his duly authorized
representative hereinafter referred to as 'Commissioner',
be expanded to include therein any additional tract or
tracts. (Note: Requires preliminary recommendations by
the BLM.)

  1. Indian Employment. The unit operator shall comply
with the terms and conditions of the leases on Indian
lands with respect to the employment of available Indian
labor while engaged in operations hereunder.

The normal responsibilities of the authorized officer with respect to
approvals of successor unit operator, plans of development, establishment and
revision of participating areas, and other unit activities will be done in
accordance with the Memorandum of Understanding between the Bureau of Land
Management, Bureau of Indian Affairs, and Minerals Management Service
Regarding Working Relationships Affecting Mineral Lease Activities. For units
involving only Indian land or Federal and Indian lands, these provisions and
other appropriate references to Indian lands may be incorporated in the model
Federal form prior to circulation of the agreement for execution. Where both
Federal and Indian lands are involved, the authorized officer's approval of
such actions should be made after approvals are obtained from the Bureau of
Indian Affairs and the Indian owners.

2. Procedures for Unitization of Indian Lands.

In summary, the steps in the unitization of Indian lands are:

a. The authorized officer's review of the proponent's proposal with
recommendations furnished to the Bureau of Indian Affairs (may be in the form
of a proposed letter designating the area as logically subject to
unitization).

b. Preliminary approval of agreement by BIA and/or the Indian tribe.
(BIA's concurrence may be indicated in a memorandum or by endorsement of the
proposed designation letter.)



2-42


H-3180-1 - UNITIZATION (EXPLORATORY)


c. Designation of the area as logically subject to unitization by
the authorized officer. (If no Federal lands are involved, BIA may show
approval of the proposal by a letter indicating preliminary approval of the
proposal to unitize and approval of the text of the proposed unit agreement.)

d. Approved form of unit agreement is circulated to interest owners
for execution.

e. The executed agreement is submitted to the authorized officer for
review and forwarding with recommendations to BIA.

f. Final approval by BIA (Indian owners should have approval prior
to submission of executed agreement). If Federal lands are also involved, BIA
returns the approved agreement to the authorized officer for approval, which
should determine the effective date of the agreement.

AE. State Agencies.

The control of specific operations on State and fee lands is the general
responsibility of the appropriate State regulatory agency. Some earlier
versions of the model form of unit agreement for unproven unit areas
incorporate provisions which provide parallel authority to be exercised by
State agencies, as appropriate. Generally, any provisions which a State
wishes to include in a unit agreement will be acceptable as long as they do
not adversely affect Federal/Indian lands or the authorized officer's
authority and responsibility. Illustration 8 provides an example of State
land provisions that may be found in joint Federal/State agreements.

If a proposed unit includes lands which are subject to existing State
spacing orders covering unitized formations, the BLM may recommend to the unit
proponent that a request be made to have the spacing order, as it applies to
the unit area, rescinded. Some BLM offices have an agreement with the
corresponding State agency whereby, whenever the BLM approves a unit
agreement, the spacing order is automatically vacated as it applies to the
unit area. This generally is the preferable situation. However, it is
recognized that in some circumstances it is necessary to retain State spacing
within the unit area to provide a means for allocating production (i.e., when
the unit area contains prior unit wells that have been communitized or when
non-committed tracts within the unit area would be eligible for production
allocation under the spacing order). In these cases, spacing should be
accepted in the unit area unless the authorized officer determines that such
spacing is not in the public interest.








2-43


H-3180-1 - UNITIZATION (EXPLORATORY)




















PAGE INTENTIONALLY BLANK































2-44 Biblio


H-3180-1 - UNITIZATION (EXPLORATORY)


Bibliography



Ashland Oil, Inc., et al., 7 IBLA 58 (August 9, 1972), which determined
that an oil and gas lease extended only by reason of its inclusion in a
producing unit is not within its "primary term."

Martin Yates III, et al., 7 IBLA 261 (September 15, 1972), concerning
the effect of unitization on 20-year oil and gas leases.

Amoco Production Company, 10 IBLA 215 (April 3, 1973), concerning
royalty computation on unitized leases.

Atlantic Richfield Company, 16 IBLA 329 (August 14, 1974), concerning
royalty computation on unitized leases.

Marathon Oil Company, 16 IBLA 298 (August 14, 1974), concerning royalty
computation on unitized leases.

Bruce Anderson, 30 IBLA 179 (May 19, 1977), concerning nonjoinder and
subsequent joinder to a unit agreement.

Aquarius Resources Corp., 64 IBLA 153 (May 24, 1982), concerning
voluntary termination of a unit agreement.

Yates Petroleum Corp., et al., 67 IBLA 246 (September 24, 1982),
concerning extension of leases committed to unit agreement by production
in paying quantities.

Conoco, Inc., 80 IBLA 161 (April 11, 1984), concerning consolidation of
oil and gas leases.

Anadarko Production Co., 92 IBLA 212 (June 16, 1986), concerning oil and
gas lease segregation and extension.

Celsius Energy Co. and Southland Royalty Co., 99 IBLA 53
(September 8, 1987), concerning oil and gas lease segregation and
extension.

2-45 Bibliography, Page 2


H-3180-1 - UNITIZATION (EXPLORATORY)


Champlin Petroleum Company, 100 IBLA 157 (December 3, 1987), concerning
the inclusions of lands in a participating area considered necessary for
unit operations.

Coors Energy Co., 110 IBLA 250 (September 11, 1989), concerning
protection of the Federal royalty interest in unleased Federal lands in
units.

Solicitor's Opinion M-36629 concerning constructive production. A
unitized lease shall not be subject to automatic termination for failure
to pay rental if there is a producing or producible well anywhere in the
unit, June 25, 1962.

Solicitor's Opinion M-36776 concerning horizontal lease segregation when
less than all formations are unitized, May 7, 1969.

Solicitor's Opinion interpreting the unitization provisions of the
Mineral Leasing Act, June 4, 1973.

Unitization Instructions, Northern Rocky Mountain Area (May 1, 1972).


2-46



H-3180-1 - UNITIZATION (EXPLORATORY)



















FORM LETTERS AND NOTICES USED IN UNITS ADMINISTRATION































2-47


H-3180-1 - UNITIZATION (EXPLORATORY)




















PAGE INTENTIONALLY BLANK































2-48 Illustrati


H-3180-1 - UNITIZATION (EXPLORATORY)


Unit Designation Letter







Gentlemen:

Your application of , filed with the (BLM office name) ,
requests the designation of acres, more or less, in
County, , as logically subject to exploration and development
under unitization provisions of the Mineral Leasing Act, as amended.

Pursuant to unit plan regulations 43 CFR Part 3180, the land requested, as
outlined on your plat marked "Exhibit 'A', "
is hereby designated as a logical unit area.

The unit agreement to be submittedse for the area designated should provide
for a well located in the ____of Section _____ Township _____ Range
_______,______ County, _________________ to test the
Formation or to a depth of feet. Your proposed use of the Form
of Agreement for Unproven Areas at 43 CFR 3186.1, modified only as shown in
your application, will be accepted.

If conditions are such that further modification of said standard form is
deemed necessary, two copies of the proposed modifications with appropriate
justification must be submitted to this office for preliminary approval.

In the absence of any other type of land requiring special provisions or of
any objections not now apparent, a duly executed agreement identical with said
form, modified only as outlined above, will be approved if submitted in
approvable status within a reasonable period of time. However, notice is
hereby given that the right is reserved to deny approval of any executed
agreement submitted that, in our opinion, does not have the full commitment of
sufficient lands to afford effective control of operations in the unit area.

Please include the latest status of all acreage when the executed agreement is
submitted for final approval. The format of the sample exhibits attached to
the model unit agreement (43 CFR 3186.1) should be followed closely in the
preparation of Exhibits A and B. A minimum of copies of the
executed agreement should be submitted with your request for final approval.








2-49 Illustration 1-1, Page 2


H-3180-1 - UNITIZATION (EXPLORATORY)


Optional Paragraph

Inasmuch as this unit area contains State of lands, we
are sending a copy of this letter to the State (appropriate agency) at
, and we hereby request that you contact the
State promptly in connection with this letter before soliciting joinders.

Sincerely yours,





(Authorized Officer)





cc: Appropriate District or Resource Area Office
BIA (if appropriate)
State Agency (if appropriate)
Surface Management Agency (if appropriate)



























2-50 Ill


H-3180-1 - UNITIZATION (EXPLORATORY)


Unit Approval Certification-Determination Page
(Federal Form Agreement)



CERTIFICATION-DETERMINATION


Pursuant to the authority vested in the Secretary of the Interior, under
the Act approved February 25, 1920, 41 Stat. 437, as amended, 30 U.S.C. sec
181, et seq., and delegated to the Authorized Officer of the Bureau of Land
Management, under the authority of 43 CFR 3180, I do hereby:

A. Approve the attached agreement for the development and operation of
the ___________ Unit Area, State of ____________. This approval shall be
invalid ab initio if the public interest requirement under  3183.4(b) of this
title is not met.

B. Certify and determine that the unit plan of development and
operation contemplated in the attached agreement is necessary and advisable in
the public interest for the purpose of more properly conserving the natural
resources.

C. Certify and determine that the drilling, producing, rental, minimum
royalty and royalty requirements of all Federal leases committed to said
Agreement are hereby established, altered, changed or revoked to conform with
the terms and conditions of this agreement.



Dated: _____________, 19___






(Authorized Officer)
Bureau of Land Management


Contract No: ___________________








2-51


H-3180-1 - UNITIZATION (EXPLORATORY)




















PAGE INTENTIONALLY BLANK































2-52 Illustratio


H-3180-1 - UNITIZATION (EXPLORATORY)


Unit Approval Certification-Determination Page
(Non-Federal Form Agreement)


CERTIFICATION-DETERMINATION

Pursuant to the authority vested in the Secretary of the Interior, under the
act approved February 25, 1920, as amended (41 Stat. 437, 30 U.S.C. 181, et
seq.) and delegated to the Authorized Officer of the Bureau of Land Management
by Order of the Secretary of the Interior, I do hereby:

A. Approve the attached agreement for the development and operation of
the Unit, County, .

B. Certify and determine that the unit plan of development and
operation contemplated in the attached agreement is necessary and
advisable in the public interest for the purpose of more properly
conserving the natural resources.

C. Certify and determine that the drilling, producing, rental, minimum
royalty, and royalty requirements of the Federal lands committed to said
agreement are hereby established, altered, changed, or revoked to
conform with the terms and conditions of this agreement, except as
follows:

1. The provisions of Article 6.3* requiring a party to bear any
extra expenditures incurred in the taking in kind or separate
disposition of its proportionate share of the production shall be
ineffective as to any royalty which may be taken in kind by the
Federal Government.

2. The provisions of Article 6.6* relative to the royalty free
recovery of Outside Substances shall be rendered ineffective as to
Federal lands. In the event an Outside Substance is injected into
a Unitized Formation, its recovery on royalty free basis shall be
in accordance with such formula as the Authorized Officer may
approve or prescribe.

3. The provisions of Article 9.2* shall be ineffective as to
Federal lands.

4. Regulations relating to site security, measurement, reporting
of production and operations, and assessments or penalties for
noncompliance with such requirements are applicable to all wells
and facilities on State or privately-owned mineral lands committed
to the unit agreement which affect Federal or Indian interests,
notwithstanding any provision of the unit agreement to the
contrary.


2-53 Illustration 1-2B, Page 2


H-3180-1 - UNITIZATION (EXPLORATORY)


(Optional) 5. In the event the lands subject to this agreement
are re-surveyed, the Federal Government shall have the right to
require a redetermination of tract participation percentage for
the Federal tracts subject to this agreement.






Approved: Date:
(Authorized Officer)
Bureau of Land Management

Contract No.:






























* The actual agreement should be reviewed to ensure the articles are
consistenet with the intent.



2-54 Illustratio


H-3180-1 - UNITIZATION (EXPLORATORY)


Unit Approval Letter







Gentlemen:

The Unit Agreement, County, ,
was approved on , 19 . This agreement has been assigned
Number X and is effective as of the date of approval.

The basic information is as follows:

  1. No oil and gas has been discovered in the unit area. The depth of
the test well and the area to be unitized were approved by letter dated
, 19 .

  1. formation(s) are unitized.

  1. The unit embraces acres, more or less, of which acres
( . percent) are Federal lands, acres ( . percent) are Indian
lands, acres ( . percent) are State lands, and
acres ( percent) are patented lands.

  1. The following Federal leases embrace lands within the unit area:






*Indicates committed leases to be considered for segregation pursuant
to Section 18(g) of the unit agreement, Public Law 86-705, and
43 CFR 3107.3-2.

All lands and interests are fully committed except Tracts , totaling
acres ( . percent) which are not committed and Tracts ,
totaling acres ( . percent) which are partially committed. Certain
overriding royalty interest owners have not signed the unit agreement. All
parties owning interests within the unit were invited to join the unit
agreement.






2-55 Illustration 1-2C, Page 2


H-3180-1 - UNITIZATION (EXPLORATORY)


In view of the foregoing commitment status, effective control of operations
within the unit area is assured. We are of the opinion that the agreement is
necessary and advisable in the public interest and for the purpose of more
properly conserving natural resources.

This unit provides for the drilling of an "obligation well" and subsequent
drilling obligations pursuant to Section 9 of the unit agreement. The
obligation well is considered to be a contractual commitment on the part of
the Unit Operator. No extension of time beyond , 19 , will be
granted to commence the obligation well other than "unavoidable delay"
(Section 25), where justified. Any extension granted for "unavoidable delay"
requires convincing written justification and documentation prior to the
critical date, and is limited to 30 days with possible renewal for 30-day
periods if the delay is extensive, with timely written documentation for each
extension.

Pursuant to 43 CFR 3183.4(b) and Section 9 of the unit agreement, if the
Public Interest Requirement is not fulfilled, the unit will be declared
invalid and no lease committed to this agreement shall receive the benefits of
43 CFR 3107.3-2 and 3107.4.

Approval of this agreement does not warrant or certify that the operator
thereof and other holders of operating rights hold legal or equitable title to
those rights in the subject leases which are committed hereto.

Copies of the approved agreement are being distributed to the appropriate
Federal offices. You are requested to furnish all interested parties with
appropriate evidence of this approval.



Sincerely,





(Authorized Officer)
Bureau
of Land Management




bcc: District Manager _________ w/enc
____________ Unit File
Lease Adjudication Section
MMS-RMP Reference Data Branch w/exhibit B
State Land Board




2-56 Il


H-3180-1 - UNITIZATION (EXPLORATORY)


Non Paying Well Determination Notice




____________________ 19___


_______________________
_______________________
_______________________
_______________________


Re: ____________
____________
____

____________________________

Gentlemen:

Pursuant to your request of _______________, it has been determined by this
office that under existing conditions the ________________ Unit Well
No._____,_______________ Lease No.___________, Unit Tract No.________, located
in the ___¬ ___¬, Section ___ Township _____, Range _____, ________________
County, ____________ is not capable of producing unitized substances in paying
quantities as defined in Section 9 of the unit agreement. Production from
this well shall be handled and reported on a lease basis.


Sincerely,





(Authorized Officer)
Bureau
of Land Management




bcc: District Manager _____________
____________ Unit File
Lease Adjudication Section
MMS-RMP Reference Data Branch









2-57


H-3180-1 - UNITIZATION (EXPLORATORY)






















PAGE INTENTIONALLY BLANK





























2-58 Illustratio


H-3180-1 - UNITIZATION (EXPLORATORY)


Initial Participating Area Approval Letter




_________________ 19___


_______________________
_______________________
_______________________
_______________________



Re: Initial
___________Formation PA "___"

_______________ Unit

______________ County, ________

Gentlemen:

The Initial ____________________ Formation Participating Area, "____"
_______________ Unit, ____________, is hereby approved effective as of
____________, 19___, pursuant to Section 11 of the _________________ Unit
Agreement, ____________ County, ____________.

The Initial ____________________ Formation Participating Area results in an
Initial Participating Area of __________.__ acres and is based upon the
completion of Unit Well No. ___________, located in the ____¬ _____¬, Section
______, Township ______, Range ______, ________, Unit Tract No. _____, Lease
No. ___________, as being a well capable of producing unitized substances in
paying quantities. Enclosed is a schedule showing the lands and their
percentage of allocation in the participating area. Copies of the approved
request are being distributed to the appropriate agencies and one copy is
returned herewith. Please advise all interested parties of the establishment
of the _________________ Formation Participating Area, _____________ Unit, and
the effective date.














2-59 Illustration 1-4A, Page 2


H-3180-1 - UNITIZATION (EXPLORATORY)

For production and accounting reporting purposes all submissions pertaining to
the _________________ participating area should refer to ______________
(appropriate participating area identifier).

If the subject well is producing, this approval requires the submission of a
Payor Information Form MMS-4025 to the Minerals Management Service (MMS)
within 30 days (30 CFR 210.51). Please notify the designated payor or payors
as soon as possible regarding this requirement. Any producing royalties that
are due must be reported and paid within 90 days of the Bureau of Land
Management's approval date or the payors will be assessed interest for late
payment under the Federal Oil and Gas Royalty Management Act of 1982 (See
30 CFR 218.54). If you need assistance or clarification, please contact the
Minerals Management Service at 1-800-525-9167 or 303-231-3504.



Sincerely,





(Authorized Officer)
Bureau
of Land Management




Enclosure



bcc: District Manager _____________
____________ Unit File
Lease Adjudication Section
MMS-RMP Reference Data Branch w/exhibit B

















2-60 Illustratio


H-3180-1 - UNITIZATION (EXPLORATORY)


Participating Area Revision Approval Letter



_________________ 19____


_______________________
_______________________
_______________________
_______________________


Re: ___ Revision of
________ Formation PA "___"

_______________ Unit
______________
County, ____________


Gentlemen:

The ____ Revision of the _____________ Formation Participating Area, "___"
___________________ Unit, ____________, is hereby approved effective as of
__________________, 19___, pursuant to Section 11 of the _______________ Unit
Agreement, ___________ County, __________.

The ____ Revision of the ___________ Formation Participating Area, "____"
results in the addition of __________.____ acres to the participating area for
a total of ___________.___ acres and is based upon the completion of Unit Well
No. ______, located in the ____¬ ____¬, Section _____, Township ______, Range
______, Unit Tract No. ________, Lease No. ____________, as a well capable of
producing unitized substances in paying quantities.

Copies of this approval letter are being distributed to the appropriate
Federal agencies and one copy is returned herewith. Please advise all
interested parties of the ____ Revision of the _________________ Formation
Participating Area, "___" ___________________ Unit and the effective date.














2-61 Illustration 1-4B, Page 2


H-3180-1 - UNITIZATION (EXPLORATORY)


For production and accounting reporting purposes all submissions pertaining to
the _________________ participating area should refer to ______________
(appropriate participating area identifier).

If the subject well is producing, this approval requires the submission of a
Payor Information Form MMS-4025 to the Minerals Management Service (MMS)
within 30 days (30 CFR 210.51). Please notify the designated payor or payors
as soon as possible regarding this requirement. Any producing royalties that
are due must be reported and paid within 90 days of the Bureau of Land
Management's approval date or the payors will be assessed interest for late
payment under the Federal Oil and Gas Royalty Management Act of 1982 (See 30
CFR 218.54). If you need assistance or clarification, please contact the
Minerals Management Service at 1-800-525-9167 or 303-231-3504.



Sincerely,





(Authorized Officer)
Bureau
of Land Management


Enclosure


bcc: District Manager _____________
____________ Unit File
Lease Adjudication Section
MMS-RMP Reference Data Branch w/exhibit B






















2-62 Illustratio


H-3180-1 - UNITIZATION (EXPLORATORY)


Automatic Contraction Concurrence Letter



_________________
19________


_______________________
_______________________
_______________________
_______________________

Re: Automatic
Contraction

______________ Unit

__________ County, ______


Gentlemen:

Your letter of ________________, l9___, describes the lands automatically
eliminated effective ______________, l9___ from the _____________________
Unit, __________ County, _________, pursuant to Section 2(e) of the unit
agreement and requests our concurrence. The lands you have described contain
______ acres, more or less, and constitute all legal subdivisions, no parts of
which are in the ____________________ Participating Area "___" _____________,
____________________ Participating Area "___" _____________,
___________________ Participating Area "___" _____________,and the
__________________ Participating Area "____" _____________. As a result of
the automatic elimination, the unit area is reduced from _______ acres to
_______ acres.

The following Federal leases are entirely eliminated from the unit area.

___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________










2-63 Illustration 1-5A, Page 2


H-3180-1 - UNITIZATION (EXPLORATORY)



The following Federal leases are partially eliminated from the unit area.

___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________


The following Federal leases are contained entirely within the unit area.

___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________


You have complied with the requirements of Section 2(e), provided you promptly
notify all interested parties.



Sincerely,





(Authorized Officer)
Bureau
of Land Management


Enclosure


bcc: District Manager _________ w/enc
____________ Unit File
Lease Adjudication Section
MMS-RMP Reference Data Branch w/exhibit B
State Oil and Gas Regulatory Agency
State Land Board






2-64 Ill


H-3180-1 - UNITIZATION (EXPLORATORY)


Request For Lands Automatically Eliminated from Unit



_________________
19________


_______________________
_______________________
_______________________
_______________________

Re: Automatic
Contraction

______________ Unit

__________ County, _________


Gentlemen:

All legal subdvision of lands (i.e., 40 acres by government survey or its
nearest lot or tract equivalent) no part of which is the _________________
Participating Area "____", _________________ Unit Agreement,
___________________ County, _________, were automatically eliminated from the
unit area effective _______________, l9___, pursuant to Section 2(e) of the
unit agreement.

You are requested to timely submit a description of the lands eliminated
within 90 days after the effective date of the automatic elimination, as
required by Section 2(e). Revised Exhibits "A" and "B" should also be
submitted showing the lands remaining in the unit area.



Sincerely,





(Authorized Officer)
Bureau
of Land Management


bcc: District Manager _____________
____________ Unit File
Lease Adjudication Section








2-65


H-3180-1 - UNITIZATION (EXPLORATORY)






















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2-66 Illustratio


H-3180-1 - UNITIZATION (EXPLORATORY)


Preliminary Approval for Unit Expansion Letter




_________________ 19________


_______________________
_______________________
_______________________
_______________________

Re: Preliminary
Approval of the

Proposed Expansion of the

______________ Unit

___________ County, __________

Gentlemen:

Your application of _____________, 19___, requests preliminary approval of the
proposed expansion of the _______________ Unit Area, ___________ County,
________. This expansion will add ________.___ acres to the ________.___ acre
unit, resulting in an enlarged unit area of _________.__ acres, more or less.

* The expansion of the unit must provide for an obligation well to test the
upper _____ feet of the ______________ Formation. The obligation well
will be located in the ____ ¬ ____¬ Section ____, Township _________,
Range _______, __________, ____________ County, ____________. The well
must commence drilling operations within 6 months after final approval.
Said obligation shall be considered the Public Interest Requirement
pursuant to 43 CFR 3183.4(b). Should you fail to meet the Public Interest
Requirement, this expansion will be invalidated ab initio.

The expansion is regarded as acceptable on the basis of the geologic/reservoir
information accompanying your application. We hereby concur in the proposed
expansion, provided it is accomplished pursuant to Section 2 of the unit
agreement. The effective date of the proposed expansion will be ____________,
19___, in accordance with your application, pursuant to Section 2(a).







* Optional paragraph for use when an obligation well will be required.




2-67 Illustration 1-6A, Page 2


H-3180-1 - UNITIZATION (EXPLORATORY)



A minimum of _____ copies of the application for final approval, accompanied
by the appropriate joinders and supplements to Exhibits "A" and "B" should be
filed with the Authorized Officer. The format of Exhibits "A" and "B"
attached with your application is acceptable.


Sincerely,





(Authorized Officer)
Bureau
of Land Management


bcc: District Manager, _____________
____________ Unit File
Lease Adjudication Section
State Oil and Gas Regulatory Agency
State Land Board






























2-68 Illustratio


H-3180-1 - UNITIZATION (EXPLORATORY)


Final Approval for Unit Expansion Letter



________________________ 19____


_______________________
_______________________
_______________________
_______________________

Re: Final
Approval
____
Expansion___
____________
Unit County,
____________
___

_______________________________

Gentlemen:

The Unit, County, , was
approved , 19 . Request for final approval for expansion of
the unit was received by letter dated , 19 . All of the
requirements set forth in Section 2 of the unit agreement have been fulfilled.
Said expansion is hereby approved, to be effective as of , 19 .

The basic information is as follows:

  1. The expansion of the unit area was given preliminary approval by Bureau
letter dated , 19 .

  1. As a result of the expansion, the unit area is increased from .
acres to . acres, more or less, of which . acres ( .
percent) are Federal lands, . acres ( . percent) are State lands,
and . acres ( . percent) are patented lands.

  1. The following Federal leases embrace lands within the expanded unit area:







*Indicates committed leases to be considered for segregation pursuant
to Section 18(g) of the unit agreement, Public Law 86-705, and
43 CFR 3107.3-2.




2-69 Illustration 1-6B, Page 2


H-3180-1 - UNITIZATION (EXPLORATORY)


  1. All lands in the expanded area are fully committed except Tracts ,
totaling . acres ( . percent) which are not committed and Tracts
, totaling . acres ( . percent) which are partially
committed. Certain overriding royalty interest owners have not signed the
unit agreement.

In view of the foregoing commitment status, effective control of operations
within the expanded unit area is assured. We are of the opinion that the
expansion is necessary and advisable in the public interest for the purpose of
more properly conserving natural resources.

* The unit expansion provides for the drilling of one "obligation well"
pursuant to our preliminary approval of __________________, 19___. The
obligation well will be located in the ______ of Section ____, T. ____,
R. ____, _________, _____________ County, ______________ and wil be
drilled to a depth of ______ feet or to a depth sufficient to test the
upper ______ feet of the ______________ Formation. Failure to commence
drilling the obligation well within the expanded area, if required, within 6
months of the approval date will result in this expansion being invalidated ab
initio. No extension of time will be granted to commence the obligation
well other than that justified as "unavoidable delay" under Section 25 of
the unit agreement.

Approval of this expansion does not warrant or certify that the operator
thereof and other holders of operating rights hold legal or equitable title to
those rights in the subject leases which are committed hereto.

Copies of the approved expansion are being distributed to the appropriate
Federal offices. You are requested to furnish all interested parties with
appropriate evidence of this approval.


Sincerely,





(Authorized Officer)
Bureau
of Land Management


bcc: District Manager, _____________
____________ Unit File
Lease Adjudication Section
MMS-RMP Reference Data Branch w/exhibit B
State Oil and Gas Regulatory Agency
State Land Board

* Optional paragraph for use when an obligation well is required.



2-70 Ill


H-3180-1 - UNITIZATION (EXPLORATORY)


Automatic Unit Termination Notice
for Cessation of Production




_____________________ 19____


_______________________
_______________________
_______________________
_______________________

Re: ____________
Unit________
County,
___________

____________________________

Gentlemen:

The _____________ Unit, No. ____________X, ____________ County, __________,
automatically terminated effective _________________, 19___, in accordance
with Section 20(c) of the unit agreement.

The termination is based on the plugging of Well No. ______________ located in
the ___¬ ___¬, Section ___, Township _____, Range _____, on _____________,
19____, as the last well within a participating area capable of producing
unitized substances in quantities sufficient to pay for the cost of producing
same from said well.

Please advise all interested parties of this unit termination and its
effective date.


Sincerely,





(Authorized Officer)
Bureau
of Land Management


bcc: District Manager _____________
____________ Unit File
Lease Adjudication Section
MMS-RMP Reference Data Branch
State Oil and Gas Regulatory Agency
State Land Board




2-71


H-3180-1 - UNITIZATION (EXPLORATORY)






















PAGE INTENTIONALLY BLANK





























2-72 Ill


H-3180-1 - UNITIZATION (EXPLORATORY)


Automatic Unit Termination Notice for
Failure to Meet Drilling Requirements




____________________ 19____


_______________________
_______________________
_______________________
_______________________

Re: Automatic
Termination
____________
Unit________
County,
________
Gentlemen:

The _____________ Unit, No. ___________X, _____________ County, ___________,
automatically terminated effective ________________, 19____, pursuant to the
last paragraph of Section 9 of the unit agreement.

Copies of this letter are being distributed to the appropriate Federal
agencies. It is requested that you furnish notice of this termination to each
working interest owner, lessee and lessor.


Sincerely,





(Authorized Officer)
Bureau
of Land Management


bcc: District Manager, _____________
____________ Unit File
Lease Adjudication Section
MMS-RMP Reference Data Branch
State Oil and Gas Regulatory Agency
State Land Board









2-73


H-3180-1 - UNITIZATION (EXPLORATORY)






















PAGE INTENTIONALLY BLANK





























2-74 Ill


H-3180-1 - UNITIZATION (EXPLORATORY)


Voluntary Unit Termination Approval Letter




_________________ 19________


_______________________
_______________________
_______________________
_______________________

Re: Voluntary
Termination

_____________ Unit

_____________ County, _________

Gentlemen:

Your request for voluntary termination of the __________________ Unit
Agreement, _____________ County, ____________, is hereby approved, effective
_______________, 19___, pursuant to the last paragraph of Section 20
thereof. You have fulfilled the Public Interest Requirement as defined in
43 CFR 3183.4(b).

Copies of this letter are being distributed to the appropriate Federal
agencies. It is requested that you furnish notice of this termination to each
interested owner, lessee, and lessor.


Sincerely,





(Authorized Officer)
Bureau
of Land Management


bcc: District Manager, _____________
____________ Unit File
Lease Adjudication Section
MMS-RMP Reference Data Branch
State Oil and Gas Regulatory Agency
State Land Board






2-75


H-3180-1 - UNITIZATION (EXPLORATORY)




















PAGE INTENTIONALLY BLANK































2-76 Ill


H-3180-1 - UNITIZATION (EXPLORATORY)


Successor Operator Approval Letter



_________________ 19_____


_______________________
_______________________
_______________________
_______________________

Re: __________
Unit
____________
County,
________

Gentlemen:

On , 19 , we received an indenture dated , 19 ,
whereby resigned as Unit Operator and
was designated as Successor Unit Operator for the Unit,
County, . The indenture was executed by both
parties and the signatory parties (working interest owners) have complied with
Sections 5 and 6 of the unit agreement.

The instrument is hereby approved effective ______________ 19___. In
approving this designation, the Authorized Officer neither warrants nor
certifies that the designated party has obtained all required approvals that
would entitle it to conduct operations under the Unit Agreement.

Your oil and gas bond, No. (BLM Bond No. )
will be used to cover unit operations.

It is requested that you notify all interested parties of the change in unit
operator. Copies of the approved instruments are being distributed to the
appropriate Federal offices, with one copy returned herewith.


Sincerely,




(Authorized Officer)
Bureau
of Land Management


bcc: District Manager _____________
____________ Unit File
Lease Adjudication Section
State Oil and Gas Regulatory Agency
State Land Board

2-77


H-3180-1 - UNITIZATION (EXPLORATORY)




















PAGE INTENTIONALLY BLANK































2-78 Illustratio


H-3180-1 - UNITIZATION (EXPLORATORY)


Successor Operator Request Letter and Instrument




_________________ 19____


_______________________
_______________________
_______________________
_______________________

Re: ____________
____________
______

______________________________

Gentlemen:

A designation of a successor operator for the __________________ Unit
Agreement, _____________ County, ___________, authorizing __________________
to operate the unitized area has not been filed with this office.

A successor operator is designated by the owners of the working interests, in
accordance with Section ____ of the unit agreement. If the change of operator
is not filed with and approved by this office, you are operating the
______________ Unit Area without authority.

The procedure for processing and approving successor operator designations
under unit agreements has been amended to provide an optional method for
obtaining approval of successor operators which should expedite the approval
process. Bureau of Land Management (BLM) offices now have a
self-certification procedure for unit agreements. A party proposing to become
the successor operator may submit a statement certifying that the required
working interest owner approvals have been obtained. The party to be
designated successor operator must still execute a Designation of Successor
Unit Operator, but the document does not necessarily need to be signed by the
working interest owners. Upon verification that adequate bonding has been
obtained, the Authorized Officer (AO) may accept and approve in writing the
designation of successor operator.

For consistency in processing requests for successor operator, a standardized
statement certifying that working interest owner approvals have been obtained
can be used to facilitate processing the requests for approvals of
designations of successor unit operator. The certification statement submitted
to BLM offices requesting approval of the successor operator should contain
the following language:





2-79 Illustration 1-8B, Page 2


H-3180-1 - UNITIZATION (EXPLORATORY)



(Name of the proposed successor unit operator), as the
designated successor operator under the ________________
Unit Agreement, hereby certifies that the requisite
approvals of the current working interest owners in the
agreement have been obtained to satisfy the requirements for
selection of a successor operator as set forth under the
terms and provisions of the agreement.

Please be advised that you may adopt the self-certification procedure to
complete the change in operator for the above Unit Agreement, or you may
submit the working interest owner signatures and a revised Exhibit "B" showing
the current ownership under the Unit Agreement. A copy of the latest Exhibit
"B" on file with this office is available at your request.

Please complete the enclosed forms for effecting a change in operator for the
____________________ Unit Agreement and submit them, in triplicate, to this
office within 60 days from receipt of this letter.

Should you have any questions, please contact _____________________ at
__________________.


Sincerely,





(Authorized Officer)
Bureau
of Land Management


Enclosures



bcc: District Manager _____________
____________ Unit File













2-80 Illustratio


H-3180-1 - UNITIZATION (EXPLORATORY)



Successor Operator Instrument


RESIGNATION OF UNIT OPERATOR

Unit Area

County of

State of

Unit Agreement No.


Under and pursuant to the provisions of Section 5 of the Unit Agreement
for the Development and Operation of the Unit Area,
County, , , the designated Unit Operator
under said Unit Agreement, does hereby resign as Unit Operator, effective upon
the selection and approval of a successor Unit Operator.
EXECUTED with effect as aforesaid the day of , l9 .
ATTEST:





DESIGNATION OF
SUCCESSOR UNIT OPERATOR

Unit Area

County of

State of

Unit Agreement No.


THIS INDENTURE, dated as of the day of , l9____, by
and between , hereinafter designated as "First Party,"
and the owners of unitized working interests, hereinafter designated as
"Second Parties,"


2-81 Illustration 1-8B, Page 4

H-3180-1 - UNITIZATION (EXPLORATORY)

W I T N E S S E T H :

WHEREAS, under the provisions of the Act of February 25, 1920,
41 Stat. 437, 30 U.S.C. Secs. 181, et seq., as amended by the Act of August 8,
1946, 60 Stat. 950, the Secretary of the Interior, on the day of
, l9 , approved a Unit Agreement for the
Unit Area; and
WHEREAS (current operator) has resigned as such Operator and the
designation of a successor Unit Operator is now required pursuant to the terms
thereon; and
WHEREAS the First Party has been and hereby is designated by Second
Parties as Unit Operator, and said First Party desires to assume all the
rights, duties and obligations of Unit Operator under the said Unit Agreement:
NOW, THEREFORE, in consideration of the premises hereinbefore set forth
and the promises hereinafter stated, the First Party hereby covenants and
agrees to fulfill the duties and assume the obligations of Unit Operator under
and pursuant to all the terms of the Unit Agreement,
and the Second Parties covenant and agree that, effective upon approval of
this indenture by the Authorized Officer, Bureau of Land Management, First
Party shall be granted the exclusive right and privilege of exercising any and
all rights and privileges as Unit Operator, pursuant to the terms and
conditions of said Unit Agreement; said Unit Agreement being hereby
incorporated herein by reference and made a part hereof as fully and
effectively as though said Unit Agreement were expressly set forth in this
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this instrument as
of the date hereinabove set forth.


FIRST
PARTY (Successor Unit Operator)



BY



SECOND
PARTIES (Working Interests)



BY


Execution Date:





BY


Execution Date:




2-82 Illustratio


H-3180-1 - UNITIZATION (EXPLORATORY)



CORPORATE ACKNOWLEDGEMENT


STATE OF )
) SS.
COUNTY OF )

The foregoing instrument was acknowledged before me this day of
, 19 , by , President, and by
, Secretary of , a
corporation.

WITNESS my hand and official seal.

My Commission Expires:



Notary
Public

Place of Residence:




INDIVIDUAL ACKNOWLEDGEMENT


STATE OF )
) SS.
COUNTY OF )

On the day of , 19 , personally appeared
before me , the signer(s) of the above instrument,
who duly acknowledge to me that he (she or they) executed the same.

WITNESS my hand and official seal.

My Commission Expires:



Notary
Public

Place of Residence:






2-83


H-3180-1 - UNITIZATION (EXPLORATORY)




















PAGE INTENTIONALLY BLANK































2-84 Ill


H-3180-1 - UNITIZATION (EXPLORATORY)


Subsequent Joinder Approval Letter




_________________ 19________


_______________________
_______________________
_______________________
_______________________

Re: Subsequent
Joinder Tract #

__________ Unit ___________ County, _____

Gentlemen:

Your letter dated , 19 , transmitted a ratification
and joinder to the Unit and Unit Operating Agreements,
County, . The document was executed by , as the
working interest owner in Tract No. , Federal Lease No. .

Pursuant to Section 28 of the unit agreement, this joinder is approved as
of , 19 . (Tract No. is now considered fully committed
and Federal Lease No. is now eligible for segregation pursuant
to Section 18(g) of the unit agreement, Public Law 86-705, and
43 CFR 3107.3-2).

It is requested that you notify all interested parties of the joinder
approval. This office will make distribution to the appropriate Federal
offices.


Sincerely,





(Authorized Officer)
Bureau
of Land Management



bcc: District Manager _____________
____________ Unit File
Lease Adjudication Section
MMS-RMP Reference Data Branch w/exhibit B
State Oil and Gas Regulatory Agency
State Land Board


2-85


H-3180-1 - UNITIZATION (EXPLORATORY)




















PAGE INTENTIONALLY BLANK































2-86 Ill


H-3180-1 - UNITIZATION (EXPLORATORY)


Late Joinder Approval Letter




_________________ 19________


_______________________
_______________________
_______________________
_______________________

Re: Late Joinder
Tract # ____________



Gentlemen:

Your letter dated , 19 , transmitted a ratification
and joinder to the Unit and Unit Operating Agreements,
County, . The document was executed by , as the
working interest owner in Tract No. , Federal Lease No. . No
working interest owner consent is required for this joinder due to the fact
that unit operations have not commenced.

Pursuant to Section 28 of the unit agreement, this joinder is approved as
of , 19 . (Tract No. is now considered fully committed
and Federal Lease No. is now eligible for segregation pursuant
to Section 18(g) of the unit agreement, Public Law 86-705, and
43 CFR 3107.3-2).

It is requested that you notify all interested parties of the joinder
approval. This office will make distribution to the appropriate Federal
offices.


Sincerely,




(Authorized Officer)
Bureau
of Land Management


bcc: District Manager _____________
____________ Unit File
Lease Adjudication Section
MMS-RMP Reference Data Branch w/exhibit B
State Oil and Gas Regulatory Agency
State Land Board


2-87


H-3180-1 - UNITIZATION (EXPLORATORY)




















PAGE INTENTIONALLY BLANK































2-88 Illustra


H-3180-1 UNITIZATION (EXPLORATORY)




















GUIDELINES AND SUGGESTED FORMATS FOR OPERATOR SUBMISSIONS
































2-89 Illustration 2, Page 2


H-3180-1 UNITIZATION (EXPLORATORY)




















PAGE INTENTIONALLY BLANK
































2-90 Illustra


H-3180-1 UNITIZATION (EXPLORATORY)


LETTER TO THE APPLICANT PROVIDING INFORMATION ON
PREPARING APPLICATION FOR UNIT AGREEMENT

Gentlemen:

The attachments to this letter have been prepared as an aid to those
responsible for preparing and handling requests for the Bureau of Land
Management's (BLM) approval of actions relating to unit agreements. If
the suggestions contained in the attachments are followed carefully, our
personnel will be able to process requests with a minimum of delay, and
the time and effort of your personnel will be employed more effectively.

All requests relating to unit agreements should be submitted to the
appropriate BLM office having jurisdiction over the area in question.
Preliminary discussions with the appropriate BLM office personnel during
the preparation of an application are very helpful. Such discussions
are especially desirable in connection with requests for approval of
proposed forms of unit agreement and designation of areas as logically
subject to unitization and requests defining or redefining areas
reasonably proven productive of unitized substances in paying
quantities.

Since some filing systems bind on the left and others bind on the top,
special effort should be made to ensure that there is an adequate margin
along the left side and at the top of all material prepared for
submittal to the BLM.

Please ensure that all personnel who are responsible for the preparation
and handling of actions relating to unit agreements are aware of the
contents of the attachments to this letter.

Sincerely yours,


(Authorized Officer)
Bureau of Land Management


Attachments:
1 - Guidelines for Requesting Approval of a Proposed Form of
Unit Agreement
2 - Guidelines for Requesting Designation of an Area as
Logically Subject to Unitization
3 - Guidelines for Requesting Approval of the Executed Unit
Agreement
4 - Guidelines for Expanding or Contracting the Unit Area
5 - Participating Areas
6 - Format for a Designation of Agent
7 - Format for the Delegation of Authority to Operate a
Non-Paying Unit Well

2-91 Illustration 2, Page 4


H-3180-1 UNITIZATION (EXPLORATORY)




















PAGE INTENTIONALLY BLANK
































2-92 Illustra


H-3180-1 UNITIZATION (EXPLORATORY)


GUIDELINES FOR REQUESTING APPROVAL OF A
PROPOSED FORM OF UNIT AGREEMENT

(This request is normally combined with the application requesting designation
of an area as logically subject to unitization.)

Use of the model form of unit agreement approved by the BLM is encouraged.
Whenever circumstances justify or require the use of special provisions, their
inclusion in the agreement must have prior approval by the BLM authorized
officer. Whenever conditions require major deviations from the forms approved
by the BLM, three copies of the proposed form, including Exhibits A and B,
should be submitted for the authorized officer's approval.

Every deviation from the model form of agreement should be plainly marked on
the proposed form of agreement and explained in the material submitted in
support of the request for approval of the form of unit agreement.
































Attachment 1


2-93 Illustration 2, Page 6


H-3180-1 UNITIZATION (EXPLORATORY)


GUIDELINES FOR REQUESTING DESIGNATION OF AN AREA
AS LOGICALLY SUBJECT TO UNITIZATION

(Submit in duplicate.)

Application should be addressed to the appropriate BLM authorized officer and
should consist of an application letter accompanied by a supporting geologic
report and land ownership map.

The application letter should:

1. Identify the area proposed for unitization.

2. Cite the deepest formation to be tested and the depth to
which the initial test well must be drilled to test that
formation.

3. List the serial numbers of all Federal leases, lease offers,
Indian leases, and lease expiration dates. This list must
be in proper sequence and may be included as part of the
land ownership map.

4. State if geological and geophysical data and discussions are
to be kept confidential. If this information is to be kept
confidential, each page must be clearly marked as
CONFIDENTIAL INFORMATION.

The geologic report should include:

1. A map drawn on the public land base showing the proposed
unit boundary, with detailed structural and stratigraphic
conditions pertinent to the proposed unit area. The map
also should show the status, depth, and lowest formation
penetrated by each well drilled in the unit area and the
immediate vicinity.

2. Appropriate cross sections and stratigraphic columns,
identifying prospectively productive formations and
indicating expected depths.

3. Pertinent geophysical interpretations.

4. Discussion of the specific geologic basis used in
delineating the boundary of the proposed unit area, such as
closing contour, fault, or pinch-out.



Attachment 2, Page 1


2-94 Illustra


H-3180-1 UNITIZATION (EXPLORATORY)


The land ownership map should:

1. Show the area proposed for unitization on a legible plat
based on the official public land survey. (Include the
official number of each lot, tract, and section, the acreage
in each, and the total acreage in the proposed unit area.)

2. Show the boundaries of each lease and each unleased tract of
land, and the working interest owners and lease numbers of
Federal and Indian leases. Unless otherwise specifically
approved, the same numbers will be used on Exhibit "B" of
the unit agreement.

3. Distinguish between the different types of land, such as
Federal, Indian, State, or fee lands by distinctive coloring
or symbols. Different types of Federally supervised lands,
such as Forest Service, Fish and Wildlife Service, and
Indian allotted or tribal lands should also be identified in
a similar manner.





























Attachment 2, Page 2


2-95 Illustration 2, Page 8


H-3180-1 UNITIZATION (EXPLORATORY)


GUIDELINES FOR REQUESTING APPROVAL OF
THE EXECUTED UNIT AGREEMENT

(Submit minimum of ____ duplicate originals.)

Generally, when more than four duplicate originals are required, the
authorized officer's letter designating an area as logically subject to
unitization will specify the number of executed agreements to be filed with
the request for final approval. The executed agreements submitted with the
request for final approval should include an original of the agreement and all
joinders, consents, and exhibits. The proponent is responsible for meeting
non-Federal requirements for copies of the agreement.

During the preparation of an executed agreement for final approval, review the
following requirements.

1. Executed agreement.

a. The executed agreement must be identical to that approved in
the designation letter. The unit area, objective formation,
and drilling depths cited in the agreement must conform with
those prescribed in the designation letter.

b. Exhibit B should list the lands in the unit area in the
following order: Federal, Indian, State, and fee.

(1) Tracts. Each separately owned lease, portion of a lease,
or unleased tract of land should be given a tract number.
This tract number should be determined by the order of
its listing in Exhibit B and should appear in its
appropriate place on Exhibit A.

(2) Federal leases should be listed in numerical order by
issuing land office.

(3) Indian leases should be listed in numerical order.

(4) The total acreage of each type of land and its percentage
of the total unit area should be included in Exhibit B.









Attachment 3, Page 1


2-96 Illustra


H-3180-1 UNITIZATION (EXPLORATORY)


2. Number of duplicate originals of the unit agreement to be filed.

a. For Federal leases, all of which are under the jurisdiction of
the BLM, complete duplicate originals are
required.

b. For Federal leases involving other surface management agencies
(SMA's), those in 2a plus the quantities needed for the other
SMA's.

c. For Federal and Indian leases with no other SMA's involved,
add two to requirements under 2a.

3. Joinder and nonjoinder.

a. Invite every owner of an interest to join the unit agreement.

b. Submit evidence of reasonable effort to obtain joinder from
all owners who fail or refuse to sign the unit and unit
operating agreement. (Include copy of each refusal letter
giving reasons for nonjoinder.)

4. Signatures and executions.

a. Signatures should be witnessed or acknowledged before a
notary.


b. Execution by a corporate official should show title and carry
proper attestation and the corporate seal.

c. Agreements submitted for final approval may include a list of
the overriding royalty interest owners who have executed
ratification of the unit agreement in lieu of duplicate
originals of said joinders.


5. Tract Committment Status (optional)

A summary showing the committment status of teh tracts withinb thge unit
boundary (see attached)


Attachment 3, Page 2


2-97 Illustration 2, Page 10


H-3180-1 UNITIZATION (EXPLORATORY)


GUIDELINES FOR EXPANDING OR CONTRACTING
THE UNIT AREA

It is necessary to secure the preliminary concurrence of the authorized
officer for a change in a unit boundary before notices reflecting the proposed
change are sent to the interested parties. Most agreements include provisions
that set forth the procedures to be followed in changing the unit boundaries.

An application for final approval of an expansion or contraction of a unit
area should not be submitted until all pertinent provisions of the unit
agreement have been satisfied.

The procedures recommended in connection with expansion or contraction of unit
areas are outlined below.

1. Preliminary approval (submit request in quadruplicate). (This
action is comparable to designation of an area as logically
subject to unitization.)

The request for preliminary approval of the proposed action
(contraction or expansion) may be in letter form. It must contain
sufficient information and supporting data to justify the proposed
action. The supporting engineering and geologic data may be
submitted as a separate report. Any data considered proprietary
should be clearly marked on each page as CONFIDENTIAL INFORMATION.

2. Notice to interested parties (submit four copies to authorized
officer).

Notices of the proposed change in the unit area should be sent to
all parties whose interest will be affected only after the
authorized officer gives preliminary concurrence in the proposal.
Extreme care should be taken to see that each principal is
notified of the proposal. The date of proper notice establishes
the start of the 30-day period allowed for the submission of
objections to the unit operator. The effective date for the
proposed expansion or contraction should be specified in the
notice. (The first day of a month subsequent to the dispatching
of the notice is suggested as a desirable effective date.) The
notice should include a small plat that clearly shows the current
unit area and the area to be added and/or eliminated.







Attachment 4, Page 1


2-98 Illustrat


H-3180-1 UNITIZATION (EXPLORATORY)


3. Request for final approval (submit in quadruplicate).

The request for final approval may be submitted after the required
30-day waiting period has expired. The application should
summarize the procedures followed and show that all requirements
prescribed in the unit agreement have been fulfilled. If the
application requests approval for expansion of the unit area,
joinders to the unit agreement and, when appropriate, to the unit
operating agreement must accompany the request. Joinders must be
submitted by the owners of interests within the area being added,
even though the interest owner is already a party to the unit
agreement. Copies of any objections to the proposed expansion
and/or contraction should be submitted with the request for final
approval, along with the operator's reply and/or discussion of the
relative merits of the objections received.

4. Revised Exhibits A and B.

Revised Exhibits A and B must be submitted concurrently with a
request for approval of an expansion of the unit area and should
be submitted concurrently with or immediately following approval
of a request for contraction of the unit area. Revised exhibits
prepared in connection with an expansion or contraction should
retain the tract numbers contained in the original exhibits.
Lands being added to the unit area should be assigned tract
numbers that follow the original tract numbers in proper sequence.






















Attachment 4, Page 2


2-99 Illustration 2, Page 12


H-3180-1 UNITIZATION (EXPLORATORY)




















PAGE INTENTIONALLY BLANK
































2-100 Illustrat


H-3180-1 UNITIZATION (EXPLORATORY)


PARTICIPATING AREAS

Participating areas (PA's) are established and revised in accordance with the
applicable provisions of the controlling unit agreement.

The application for approval of the initial PA or for the revision of an
existing PA must be accompanied by a request for determination of production
of unitized substances in paying quantities (see Section 9 of the model form
of unit agreement, 43 CFR 3186.1) for the well or wells being used to justify
the PA, or its revision, unless these determinations have already been made.

Applications for establishment or revision of a PA should be accompanied by
comprehensive engineering and geologic information which justifies the
proposed definition or redefinition of the lands reasonably proven to be
productive of unitized substances in paying quantities. These reports should
indicate which wells are shut in and which wells are producing. Current and
cumulative production figures should also be cited. Comments on expectations
relative to the development of a market should be included when wells are shut
in for lack of a market.

Noncommitted lands within the unit area reasonably proven productive in paying
quantities should be included within the area defined as constituting the
initial or revised participating area for the formation in question. Such
noncommitted lands should be shown on the schedule of participation as
receiving no allocation. Normally, the percentage of participation
attributable to each committed tract within a participating area shall be
computed to four decimals.

Preliminary discussions with the BLM authorized officer should prove helpful
to those responsible for preparation of participating area applications. The
model applications that are attached hereto have been prepared for use as
guides in the preparation of requests for the authorized officer's approval of
the establishment or revision of participating areas.















Attachment 5, Page 1


2-101 Illustration 2, Page 14


H-3180-1 UNITIZATION (EXPLORATORY)


FORMAT FOR INITIAL PARTICIPATING AREA APPLICATION


In Re: Unit Area Application for
County, . approval of initial
participating area
for the
Formation.


(Authorized Officer)
Bureau of Land Management


, as unit operator for the
Unit Agreement, pursuant to provisions of Section thereof, respectfully
submits for your approval the selection of the following described lands to
constitute the initial participating area for the
producing zone or formation, to wit: (Description of initial participating
area by township, range, section, and subdivisions, with exact total acreage.)

In support of this application, the following numbered items are
attached and made a part hereof:

(1) A paying well determination showing that the well upon which the
participating area is based is capable of producing unitized
substances in paying quantities.

(2) An ownership map (Exhibit "A") showing thereon the boundaries of
the unit area and the proposed initial participating area.

(3) A schedule showing the lands entitled to participation in the
unitized substances produced from the Formation,
with the percentage of participation of each lease or tract
indicated thereon. (The schedule may be patterned after Exhibit
"B" of the unit agreement with appropriate adjustments.)

Applicant is submitting separately in triplicate a geological and
engineering report with accompanying geologic maps supporting and justifying
the proposed selection of lands for inclusion in the initial
Formation participating area.







Attachment 5, Page 2


2-102 Illustrat


H-3180-1 UNITIZATION (EXPLORATORY)


This proposed initial participating area is predicated upon the
knowledge and information first obtained upon the completion in paying
quantities under the terms of the unit agreement on , 19 , of
Unit Well No. , in the 1/4 1/4, Sec. ,T. ,R. , with an
initial production of from the Formation at a
depth of to feet (if several wells, recite or tabulate in
detail). The effective date of this initial participating area shall be
, 19 , pursuant to Section of the unit agreement.

Applicant respectfully requests your approval of the above selection of
lands to constitute the initial Formation participating
area, effective as of , 19 .


Dated this .




(Signature, with typed name and title)




























Attachment 5, Page 3


2-103 Illustration 2, Page 16


H-3180-1 UNITIZATION (EXPLORATORY)


















































Attachment 5, Page 4


2-104 Illustrat


H-3180-1 UNITIZATION (EXPLORATORY)


















































Attachment 5, Page 5


2-105

Exhibit "B"
Initial ____________ Formation
Participating Area
_____________ Unit Agreement
_____________ County, _____________


___________________________________________________________________________________________________
Lease No. or Participating Percent of Working
Tract No. type of land Description acres participation interest owner

1 B-038470 Sec. 14: SW SW 200.00 55.5556 Frost Oil Co.
Sec. 15: S« SE
Sec. 23: W« NW

2 Patented Sec. 22: NE 160.00 44.4444 W. W. Smith


Total Federal lands 200.00 55.5556
Total patented lands 160.00 44.4444
Total 360.00 100.0000



Illustration 2, Page 18


H-3180-1 UNITIZATION (EXPLORATORY)


FORMAT FOR APPLICATION FOR REVISION OF A PARTICIPATING AREA


In Re: Unit Area Application for
County, . approval of the
revision
of the participating
area for the
Formation.


(Authorized Officer)
Bureau of Land Management


, as unit operator for the
Unit Agreement, approved by the Bureau of Land Management,
effective , pursuant to the provisions of Section
thereof, respectfully submits for your approval the selection of the following
described land to constitute the revision of the participating area
for the producing zone or formation, to wit: (Give only the
accurate description and the exact number of acres being added to or being
subtracted from the participating area as established or revised.)

In support of this application, the following numbered items are
attached and made a part hereof:

(1) A paying well determination showing that the well upon which
the participating area is based is capable of producing
unitized substances in paying quantities.

(2) An ownership map (Exhibit "A") showing thereon the boundary
of the unit area, the participating area as established or
revised, and the boundary of the proposed revision requested
herein.

(3) A schedule (Exhibit "B") showing the lands entitled to
participation in the unitized substances produced from the
Formation, with the percentage of
participation of each lease or tract indicated thereon.









Attachment 5, Page 6


2-106 Illustrat


H-3180-1 UNITIZATION (EXPLORATORY)


Applicant is submitting separately in triplicate a geological and
engineering report with accompanying maps supporting and justifying the
proposed selection of lands for inclusion in the revision of the
Formation participating area.

This proposed revision of the participating area is predicated
upon the knowledge and information first obtained upon completion in paying
quantities under the terms of the unit agreement on , 19 , of
Unit Well No. , in the 1/4 1/4, Sec. ,T. , R. , with an
initial production of from the Formation at a depth
of to feet (if several wells, recite or tabulate in detail).
The effective date of this revision shall be , 19 ,
pursuant to Section of the unit agreement.

Applicant requests your approval of the above selection of lands to
constitute the revision of the Formation
participating area effective as of , 19 .

Dated .






(Signature, with typed name
and title)





















Attachment 5, Page 7


2-107 Illustration 2, Page 20


H-3180-1 UNITIZATION (EXPLORATORY)


















































Attachment 5, Page 8


2-108 Illustrat


H-3180-1 UNITIZATION (EXPLORATORY)


















































Attachment 5, Page 9


2-109

Exhibit "B"
Revision ____________ Formation
Participating Area
_____________ Unit Agreement
_____________ County, _____________


___________________________________________________________________________________________________
Lease No. or Participating Percent of Working
Tract No. type of land Description acres participation interest owner

1 B-038470 Sec. 14: SW SW 280.00 38.8889 Frost Oil Co.
Sec. 15: S« S«
Sec. 23: W« NW

3 W-041345 Sec. 21: E« NE 80.00 11.1111 Frost Oil Co.

7 State Sec. 16: SE SE 40.00 5.5556 Deer Oil Co.

9 Patented Sec. 22: N« 320.00 44.4444 W. W. Smith


Total Federal lands 360.00 50.0000
Total State land 40.00 5.5556
Total patented lands 320.00 44.4444
Total 720.00 100.0000


Illustration 2, Page 22


H-3180-1 UNITIZATION (EXPLORATORY)


FORMAT FOR A DESIGNATION OF AGENT

(Submit in triplicate)


The undersigned is, on the records of the Bureau of Land Management,
Unit Operator under the Unit Agreement,
County, , No. , approved and
effective on

and hereby designates:

Name:

Address:



as its agent, with full authority to act on its behalf in complying with the
terms of the unit agreement and regulations applicable thereto and on whom the
Authorized Officer or his representative may serve written or oral
instructions in securing compliance with the Oil and Gas Operating Regulations
with respect to drilling, testing, and completing Unit Well No.
in the 1/4 1/4, Sec. , T. , R. ,
County, . Bond coverage will be provided under
(Statewide, Nationwide, Lessee) Bond No. .

It is understood that this Designation of Agent does not relieve the
Unit Operator of responsibility for compliance with the terms of the unit
agreement and the oil and gas operating regulations. It is also understood
that this Designation of Agent does not constitute an assignment of any
interest under the unit agreement or any lease committed thereto.

In case of default on the part of the designated agent, the Unit
Operator will make full and prompt compliance with all regulations, lease
terms, or orders of the Secretary of the Interior or his duly authorized
representative.

The Unit Operator agrees promptly to notify the Authorized Officer of
any change in the designated agent.

This Designation of Agent is deemed to be temporary and in no manner a
permanent arrangement, and a designated agent may not designate another party
as agent.




Attachment 6, Page 1


2-110 Illustrat


H-3180-1 - UNITIZATION (EXPLORATORY)


This designation is given only to enable the agent herein designated to
drill the above specified well. It is understood that this Designation of
Agent is limited to the field operations performed while drilling and
completing the specified well and does not include administrative actions
requiring specific authorization of the Unit Operator. This designation in no
way will serve as authorization for the agent to conduct field operations for
the specified well after it has been completed for production. Unless sooner
terminated, this designation shall terminate when there is filed in the
appropriate office of the Bureau of Land Management all reports and a Well
Completion Report and Log (Form 3160-4) as required by the approved
Application for Permit to Drill for the specified well.

In the event the above specified well is completed as a non-paying unit
well, the authority for the designated agent to operate this well shall be
established by completion of the Delegation of Authority to Operate Non-paying
Unit Well form and submittal of the form to the appropriate office of the
Authorized Officer.











Date Unit Operator

By:
Date Authorized Officer
















Attachment 6, Page 2


2-111 Illustration 2, Page 24


H-3180-1 - UNITIZATION (EXPLORATORY)


FORMAT FOR THE DELEGATION OF AUTHORITY
TO OPERATE A NON-PAYING UNIT WELL

(Submit in triplicate)


The undersigned delegates authority to:

Name:

Address:



to produce and maintain the following described well which has been determined
to be a non-paying unit well within the Unit.

Well No. Lease No.

Location: 1/4 1/4, Sec. , T. , R. ,

County, .

Bond coverage will be provided under (Nationwide, Statewide, Lessee) Bond
No. . The undersigned will promptly notify the appropriate
Bureau of Land Management office of any change in this delegation of
authority. This delegation does not relieve the Unit Operator of unit
obligations and related reporting responsibilities as they apply to the unit
well or for compliance with all applicable laws and regulations for operations
conducted on the well so long as the lands upon which the well is located
shall remain subject to the unit agreement.


Operator - Non-paying Unit Well Unit Operator

By: By:
Authorized Signature Authorized Signature


Title Date Title Date


Approved By:
Authorized Officer


Title Date

Attachment 7


2-112


H-3180-1 - UNITIZATION (EXPLORATORY)


Numbering System For Approved Unit Agreements

The official Bureau of Land Management number for exploratory and
secondary recovery unit agreements approved prior to January 1, 1988, will be
considered to be the Automated Financial System (AFS) number assigned by the
Minerals Management Service (MMS) with an "X" suffix (i.e., 891003502X). All
initial and consolidated participating areas approved for a unit agreement
approved prior to January 1, 1988, will be assigned a unique AFS number which
is the base AFS number with an alpha suffix that sequentially follows the
already assigned alpha suffixes for existing participating areas. This
applies to all participating areas in units approved prior to January 1, 1988,
regardless of when the participating area is approved. New numbers are not
assigned to revisions of participating areas.

For exploratory and secondary recovery unit agreements approved after
January 1, 1988, a Case Recordation System (CRS) number with an "X" suffix
(i.e., COC12345X) will be assigned to all agreements. The same CRS number
with a corresponding A, B, C, D, etc., suffix will be used to identify each
initial or consolidated participating area in a unit area. The first
participating area established for the unit will always be assigned the same
CRS number for the unit agreement but instead of an "X" suffix an "A" suffix
(i.e., COC12345A) will be used. All subsequent participating areas would have
a number composed of the core CRS number for the unit agreement with an
appropriate alpha suffix assigned by effective date in alphabetical order
(i.e., COC12345B, COC12345C, etc.). Again, revised participating areas do not
receive a new alpha suffix.

The old 14-digit contract numbering system will not be used for
agreements approved after January 1, 1988. This 14-digit contract number is
only considered a cross-reference number for agreements approved prior to that
date.

Since initial and consolidated participating areas have a unique
number, it needs to be assigned when the participating area is approved and so
stated in the approval letter to the operator.
















2-113


H-3180-1 - UNITIZATION (EXPLORATORY)




















PAGE INTENTIONALLY BLANK
































2-114 Illustra


H-3180-1 - UNITIZATION (EXPLORATORY)


Compensatory Royalty Provision in Unit Agreement
for Unleased Federal Lands

The following text which revises Section 12, reassigns the existing text of
Section 17 as paragraph 17(a), and adds a new paragraph (b) to Section 17 of
the model form of unit agreement found at 43 CFR 3186.1, should be used in all
future Federally-approved exploratory unit agreements.


12. ALLOCATION OF PRODUCTION. All unitized substances produced
from a participating area established under this agreement, except
any part thereof used in conformity with good operating practices
within the unitized area for drilling, operating, and other
production or development purposes, or for repressuring or
recycling in accordance with a plan of development and operations
which has been approved by the AO, or unavoidably lost, shall be
deemed to be produced equally on an acreage basis from the several
tracts of unitized land and unleased Federal land, if any,
included in the participating area established for such
production. Each such tract shall have allocated to it such
percentage of said production as the number of acres of such tract
included in said participating area bears to the total acres of
unitized land and unleased Federal land, if any, included in said
participating area. Each working interest owner of a tract of
unitized land in said participating area shall have allocated to
it, in addition, such percentage of the production attributable to
the unleased Federal land within the participating area as the
number of acres of such unitized tract included in said
participating area bears to the total acres of unitized land in
said participating area, for the payment of the compensatory
royalty specified in Section 17 of this agreement. Allocation of
production hereunder for purposes other than for settlement of the
royalty, overriding royalty, or payment out of production
obligations of the respective working interest owners including
compensatory royalty obligations under Section 17, shall be
prescribed as set forth in the unit operating agreement or as
otherwise mutually agreed to by the affected parties. It is
hereby agreed that production of unitized substances from a
participating area shall be allocated as provided herein,
regardless of whether any wells are drilled on any particular part
or tract of the participating area. If any gas produced from one
participating area is used for repressuring or recycling purposes
in another participating area, the first gas withdrawn from the
latter participating area for sale during the life of this
agreement, shall be considered to be the gas so transferred, until
an amount equal to that transferred shall be so produced for sale





2-115 Illustration 4, Page 2


H-3180-1 - UNITIZATION (EXPLORATORY)


and such gas shall be allocated to the participating area from
which initially produced as such area was defined at the time that
such transferred gas was finally produced and sold.

* * * * *

17. DRAINAGE.

(a) * * * * *

(b) Whenever a participating area designated under Section 9 of
this agreement contains unleased Federal lands, the value of 12
1/2 percent of the production that would be allocated to such
Federal lands under Section 12 of this agreement, if such lands
were leased, committed and entitled to participation, shall be
payable as compensatory royalties to the Federal Government.
Working interest owners party to this agreement and within the
applicable participating area shall be responsible for such
compensatory royalty payment on the volume of production
reallocated from the unleased Federal lands to their unitized
tracts under Section 12. The value of such production subject to
the payment of said royalties shall be determined pursuant to 30
CFR Part 206. Payment of compensatory royalties on the production
reallocated from unleased Federal land to committed Federal tracts
within the participating area shall fulfill the Federal royalty
obligation for such production and said production shall be
subject to no further Federal royalty assessment under Section 14.
Payment of compensatory royalties as provided herein shall accrue
from the date the committed tracts in the participating area which
includes unleased Federal lands receive a production allocation,
and shall be due and payable monthly by the last day of the
calendar month next following the calendar month of actual
production. If leased Federal lands receiving a production
allocation from the participating area become unleased,
compensatory royalties shall accrue from the date the Federal
lands become unleased. Payment due under this provision shall end
when the unleased Federal tract is leased or when production of
unitized substances ceases within the participating area and the
participating area is terminated, whichever occurs first

2-116 Illustra


H-3180-1 - UNITIZATION (EXPLORATORY)


Communitization Agreements in Units


In situations involving an overlapping communitization agreement (CA)
and participating area (PA), the following procedures should be invoked:

(1) CA entirely within the PA; all CA lands committed to the
unit agreement. Under these conditions, the CA is
considered to be silent as far as production
allocation is concerned. Because the CA serves no
purpose from an allocation standpoint, an attempt
should be made to have the CA terminated effective as
of the effective date of the PA. For reporting
purposes, if the CA is not terminated, the CA well
should be reported under the PA, with one hundred
percent of the CA well's production reported under and
attributed to the PA. The letter approving the PA
engulfing the CA should state that 100 percent of the
royalties due from the CA well's production is to be
applied to and paid for under the PA. A courtesy copy
of this letter should be sent to the CA operator.

(2) CA entirely or partially overlapped by a PA; some
overlapped land not committed to the unit agreement.
Under this scenario, all of the CA well's production
is to be reported under the CA. The location of the
CA well makes no difference. The approval letter for
the overlapping PA should state what percentage of the
royalties due from the CA well's production is to be
applied to and paid for under the PA (i.e., the
number of acres of CA lands within the PA that are
considered committed to the unit agreement, divided by
the total acres of the CA), and also what percentage
of each CA tract considered committed to the unit is
also contained in the PA. A courtesy copy of this
letter should be sent to the CA operator.

(3) CA partially overlapped by PA; all overlapped lands
committed to the unit agreement. The guidelines
described in (2) would also apply in this situation.

MMS has agreed to internally account for the payment of proper
royalties for leases subject to overlapping agreements pursuant to these
procedures. These procedures are applicable if the overlapping CA/PA cover
the same formation; otherwise, there is no potential conflict. The following
examples reflect the situations described above.


2-117 Illustration 5, Page 2


H-3180-1 - UNITIZATION (EXPLORATORY)


Case 1: CA ENTIRELY WITHIN PA; ALL CA LANDS COMMITTED TO UA




CA boundary



In this scenario, where the entire CA is contained within the PA and all lands
in the CA are committed to the unit, the CA could probably have been
terminated by mutual consent. However, the CA was not terminated. In either
case, the CA well is essentially considered a unit well and 100 percent of its
production would be allocated to the participating area. Lease Nos. 1 and 2
each get 20 percent of the gross production for the participating area.

Recording Data in AIRS

  1. AIRS will contain an inspection item identifier for the participating
area. The participating area will contain a well record for each well,
including the CA well. The "Lease-CA-Number" data field should show the lease
number for the well bottomhole location. The remarks section for the CA well
should reflect the CA numbers and the allocated amount according to the
participating area schedule.

  1. Do not set up records for the CA or leases in AIRS.







2-118 Illustra


H-3180-1 - UNITIZATION (EXPLORATORY)


Case 2: CA WITHIN PA; SOME OVERLAPPED LANDS UNCOMMITTED TO UA




















CA boundary



In this scenario, the CA could never be terminated even though it is entirely
included in a PA. It contains lease No. 2, which is not committed to the UA.
Without the CA or joinder to the UA, lease No. 2 could never be protected from
drainage due to the constraints of State spacing. Lease No. 2 is totally
within the PA's boundary. It receives 25 percent allocation from the CA and
nothing from the PA. Lease No. 1 is committed to the unit and within the PA
boundary. It receives 75 percent allocation from the CA which is attributed
to the PA. Subsequently, lease No. 1 receives 20 percent of the production
from the PA.

Recording Data in AIRS:

  1. The CA will be recorded in AIRS as an inspection item. The CA well record
will cross-reference the PA identifier in the well remarks data field. The
CA's Lease-CA-Number element should show the lease for the well bottomhole
location included in the CA with their allocated amount.

  1. AIRS will contain an inspection item for the participating area if there
are Federal wells. However, the CA well will not be recorded under the
participating area. Cross-reference to the CA may be placed in the
participating area's inspection record remarks section.

  1. AIRS will not contain a separate inspection item for the leases in the CA.



2-119 Illustration 5, Page 4


H-3180-1 - UNITIZATION (EXPLORATORY)


Case 3: CA PARTIALLY WITHIN PA; ALL OVERLAPPED LANDS COMMITTED TO UA




















CA boundary

In this scenario, the participating area was effective March 1958. A
communitization agreement was formed June 1974 and comprised lease 1 and lease
  1. The CA well is located outside unit boundaries. Lease 1 is committed to
the unit and 50 percent of this lease is contained inside the PA. Lease 2 is
totally outside the unit. Lease 1 comprises 33 percent of the CA and lease 2
comprises 67 percent of the CA. Therefore, 16.5 percent of the CA well's
production is attributed to lease 1 with the remaining 16.5 percent of the 33
percent allocation for lease 1 being attributed to the participating area.
From this participating area lease 1 will receive an allocation from the gross
production attributed to the participating area. The allocation of production
attributed to the participation area will be the same if the CA well is
located inside the unit boundaries.

Recording Data in AIRS:

  1. The CA will be recorded in AIRS as an inspection item. The CA well record
will cross-reference the PA identifier in the well remarks data field with
their allocated amount. The CA Lease-CA-Number element should show the leases
included in the CA.

  1. No well record for the CA well is to be carried under the inspection item
identifier for the PA. Cross-reference to the CA may be placed in the
inspection record remarks section.

  1. AIRS will not contain an inspection item for the leases in the CA.



2-120 Illustra


H-3180-1 - UNITIZATION (EXPLORATORY)


AIRS/MRO Reporting Format for Unit Wells

UNIT WELL STATUS

Completed
AIRS (Pending Paying Well Non-paying Well
Elements Spud Determination) Determination Determination.
  1. Inspection Item
Identifier (ID) A. Lease No. X** X*** B. Unit
Agreement
(UA) No.

X* X+PA suffix
(replacing
"X" suffix) 2. Lease Name A. Lease No. X** X B. Unit Name X X C. Participating
Area (PA)/
Unit Name





X 3. Operator A. Lessee/
Designated
Operator

X**** B. Unit Operator
(UO) or
Suboperator

X

X

X 4. General Remarks/
Well Records A. Unit
Inspection
ID

"Drilling" Completion
Date "Pending
Determination"

Lease No. B. Lease
Inspection ID Unit Name
"Non-paying
Unit Well"
and possibly
UO



2-121 Illustration 6, Page 2


H-3180-1 - UNITIZATION (EXPLORATORY)


X = Is what entry is to occur on AIRS under a specific inspection
identifier.
* = If UA approved prior to 1/1/88, then the number is the Automated
Financial System No. If UA approved on or after 1/1/88, then the number is
the Case Recordation System No. which includes an "X" suffix. An inspection
record for the UA must be created when the first unit well is spudded. All
wells being drilled in the unit would be carried under this inspection item
ID. However, in the formation covered by the PA, then this well should be
carried under the number for the PA. If there is no drilling activity or
there are no completed wells which have a pending paying well determination
on non-participating area lands for an existing UA, then no inspection
record under the UA number with an X suffix should be created.

** = The exception to reporting unit wells which have a pending
paying/nonpaying well determination under the unit number would be when a
paying well determination for a Federal well completed for production
outside an existing participating area will be delayed for a significant
period of time due to extended production testing requirements or due to a
unit suspension. If the authorized officer approves/orders such a delay for
a Federal well, then this well is to be recorded in AIRS under the lease
inspection item identifier until the determination is made. The remarks
section of the well record should reflect when the well was completed, unit
name, pending determination delayed, and reason for delay (i.e., comp.
9/15/87, McElmo Dome, Pend. Det. Delay, Production Test Req.).

*** = If a fee/State well is determined to be a non-paying unit well and is
not covered by a PA, then its well record should be removed from AIRS. In
some cases, a unit well, be it Federal or non-Federal, may be a non-paying
well, but is situated on land considered part of a PA established for the
same formation from which the well can produce. These unique wells should
be carried under the PA number since all of the wells' production would be
attributed to the gross production for the PA.

**** = In many cases, someone other than the unit operator is allowed to
operate a nonpaying unit well. Whoever is accepted as operator of the well
should be responsible for reporting.

Whenever a non-paying unit well is automatically eliminated from the unit
area, the UO and the unit name can be removed from the remarks section of
the well record which is carried under the lease number for the inspection
item ID.

For a contracted unit area, only those wells drilled in the unit area having
an objective formation not covered by the corresponding PA will be reported
under the UA number with an X suffix.

This reporting format is referenced in the AIRS User Handbook, which
instructs field offices on how to enter unit wells into AIRS. This
structuring of AIRS will be compatible with the way the Monthly Report of
Operations is to be submitted to MMS by the Unit Operator.

2-122 Illustrati


H-3180-1 - UNITIZATION (EXPLORATORY)


Guidelines for the Unit Activity Report


UNIT ACTIVITY REPORT

The Unit Activity Report should be used for the following unit wells.

  1. Any well drilled to extend the date of automatic elimination of lands as
provided in subsection 2(e), 43 CFR 3186.1. The completion date of any
well drilled under this section is very important. The period of time
allowed between wells commences after the well is completed and, if
another well is not timely started, the automatic elimination is
effective the first day thereafter, as provided in the model unit
agreement (43 CFR 3186.1). If a later well is completed prior to a well
that was started earlier, the completion date of the latter well would
govern. These wells should be put on the report when spudded and
carried every month, showing the status until the well is completed.

  1. Any well drilled under Section 9 (43 CFR 3186.1). These wells are
usually required every 6 months and keep the unit in effect for its
fixed term until a well capable of producing unitized substances in
paying quantities is completed. As provided in the model unit agreement
(43 CFR 3186.1), failure to commence a well timely will result in
automatic termination of the unit agreement. These wells should be put
on the report when the well is spudded and carried until completed.

  1. Any well completed or recompleted that may result in the revision of an
existing participating area or establishment of an initial participating
area. It should be noted in the "Paying Well" column of the form
whether you consider the well capable of producing unitized substances
in paying quantities. This should be noted with a "yes", "no", or
"questionable". You need not make a detailed study on this point.
These wells need to be listed on the report for the month in which they
are commenced and the month they are completed.

  1. Any well plugged and abandoned that is the last producing well in a
participating area. These wells need to be listed on the report only
for the month in which they are plugged and abandoned. The model unit
agreement (43 CFR 3186.1) provides that a participating area will
automatically terminate upon the abandonment of the last producing well.
Prior to June 10, 1983, the model unit agreement did not provide for
such participating area termination and, under those earlier agreements,
such a nonproducing participating area will continue for the life of the
unit agreement.







2-123 Illustration 7, Page 2


H-3180-1 - UNITIZATION (EXPLORATORY)















































2-124





____________________, 19__ UNIT ACTIVITY REPORT ___________ DISTRICT



UNIT FORMATION WELL NO. 1/4 1/4 SEC. T. & R. SPUD DATE COMPLETION DATE INITIAL (I.P., completion depth, and formation)


Illustration 8, Page 1


H-3180-1 - UNITIZATION (EXPLORATORY)


Sample Text for State Land Provisions in the Unit Agreement


WYOMING STATE LAND PROVISIONS

35. STATE LAND PROVISIONS. Certain of the unitized land is public land
of the State of Wyoming, and in connection with the approval of this agreement
by the Board of Land Commissioners of said State pursuant to Title 36, Section
36-74, Wyoming Statutes, 1957, it is agreed that there shall be filed with the
Commissioner of Public Lands of said State:

(a) Two copies of the complete unit agreement and two copies of
any revised Exhibits "A" and "B" concurrently with the filing thereof
with the AO, pursuant to Section 2 hereof.

(b) Two copies of any notice of the proposed expansion or
contraction of the unit area required to be delivered to the AO pursuant
to Section 2(b) hereof.

(c) Two copies of any unit operating agreement executed pursuant
to Section 7 hereof.

(d) Two copies of any schedule of proposed participating area
submitted for approval under Section 11, concurrently with its
submission to the AO. The Commissioner or his authorized representative
shall have a period of fifteen days from receipt of said schedule within
which to file with the AO any objection thereto, together with any
recommendation for revision thereof. If such objection or
recommendation is not concurred in by Unit Operator and the AO prior to
submission of the schedule to the AO for final approval, the AO shall
approve or disapprove the schedule after giving due consideration to the
objections and recommendations filed by the Commissioner or his
representative.

(e) Two copies of any proposed plan of development or
modification thereof, which if filed with the AO under Section 10
hereof.

(f) Two copies of all instruments of subsequent joinder executed
under Section 28 hereof.

It is further agreed that:

(1) All valid, pertinent and reasonable regulations
hereafter issued governing drilling and producing operations on
non-Federal lands which are not inconsistent with the terms hereof
or with the laws of the State of Wyoming are hereby accepted and
made a part of this agreement.



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H-3180-1 - UNITIZATION (EXPLORATORY)


WYOMING STATE LAND PROVISIONS


(2) Nothing in this agreement contained shall relieve
lessees of the public lands of the State of Wyoming from their
obligations to pay rentals and royalties with respect to unitized
substances allocated to such lands thereunder, at the rate
specified in their respective leases.

(3) In the event that a title dispute arises as to State
lands or leases, no payment of funds due the State of Wyoming
shall be withheld, but such funds shall be deposited as directed
by the Commissioner of Public Lands to be held as unearned money
pending final settlement of the title dispute, and then applied as
earned or returned in accordance with such final settlement.

Each party to this agreement, holding any lease or leases of public
lands from the State of Wyoming subject to this agreement, or holding any
interest in or under such lease or leases or in the production from the lands
covered thereby, agrees that said Board of Land Commissioners may, and by its
approval thereof, does hereby alter, change, modify or revoke the drilling,
producing and royalty requirements of such lease or leases, and the
regulations in respect thereto, to conform the provisions of said lease or
leases to the provisions of this agreement. Such parties and said Board
further agree that, except as otherwise expressly provided in this agreement,
no such lease shall be deemed to terminate or expire so long as it shall
remain committed hereto. Notwithstanding anything to the contrary in Section
18 hereof contained, should any of the public lands of the State of Wyoming
outside of a participating area established hereunder cease to be committed to
this agreement, such lands shall thereafter be free from the effect of this
agreement unless and until such lands are expressly recommitted to this
agreement pursuant to Section 28 hereof, with the approval of the Board of
Land Commissioners.

IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed and have set opposite their respective names the date of execution.
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