U.S. DEPARTMENT OF THE INTERIORBUREAU OF LAND MANAGEMENT
The following information has been written for both the general public, and the oil and gas industry.
Oil and gas leases are issued by the person, organization, company, etc., that owns the oil and gas rights or, in some cases, the royalty rights to the oil and gas, for a specific piece of land.
Most oil and gas leases, including Federal leases issued by the Bureau of Land Management (BLM), have a requirement to establish and continue oil and/or gas production from the leasehold (the lands affected by a lease) once the lease goes past its primary term. The primary term of a lease, which is often measured in a few years to ten years, is the time which the lessee has the right to hold a lease without beginning oil and gas production associated with the lease, or the payment of additional funds to whomever issued the lease. For Federal leases issued by the BLM, a lease which "has gone past its primary term" is subject to termination if production associated with the lease has not begun and continues to occur, unless the lessee is granted a Suspension of Operations and/or Production by the BLM.
The total area affected by any given oil and gas lease can range from blocks of land containing thousands of acres, to tiny plots of land containing a fraction of an acre. In many areas of the country, requiring a company to drill a well on each lease to keep a lease past its primary term would literally result in large numbers of useless wells drilled within an extremely short distance of each other. To prevent such wasteful practices, lands whose oil and gas resources are expected to be produced by a single well are "pooled" under a variety of legal documents, and/or committed to state-approved "spacing units" or "drilling units" which specify the lands that will be allocated production from an oil or gas well. Under these actions, all lands within the boundaries of the documents, spacing units and drilling units are considered to be in one lease. Hence only one well is needed to hold the various affected leases past their primary terms.
Most oil and gas leases which affect privately owned oil and gas rights have a "pooling clause" within their lease terms. Such a clause allows the lessee to pool a lease at the lessee's discretion without further authorization by the lessor. Occasionally, private oil and gas rights are "force pooled" by a State to foster efficient development of oil and gas resources and such actions are carried out under State regulations. However, leases administered by the BLM do not contain such a clause. Further, while BLM may consent to having Federal lands force pooled by a State, it cannot be forced to do so, due to the accepted principle that Federal law supersedes State law. Consequently, whenever it is desirable to pool oil and gas leases administered by BLM, BLM has to grant approval to pool. When such actions are entered into by BLM they are referred to as "Agreements" versus pools, spacing units or drilling units.
A Communitization Agreement (CA) is established to provide for allocation of production from one well. Additional wells can be drilled within a CAs boundaries if it is determined that such wells would promote efficient development of oil and gas resources.
A Federal Unit Agreement is established to provide for allocation of production form more than one well within a "Logical Unit Area." Proposals for having a Logical Unit Area established within the purview of the Milwaukee Field Office are submitted to Milwaukee, along with the reasons why it should be established.
If a non-Federal Unit Agreement is being formed, or has been formed, and the total amount of Federal lands within the boundaries of the non-Federal Unit is relatively small, the BLM can simply ratify, i.e., join the non-Federal Unit as long as all Federal requirements for joining can be met by the BLM.
Though most CAs and Federal Units are fairly standardized, non-standardized issues frequently arise which need to be addressed before everyone can be satisfied with an Agreement being formed. To handle these circumstances, additional language can be added to an Agreement, and examples are given below.