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A Comparison of the Model Form Gas Balancing Agreements—Catching Up With a Changing Market Environment

Mark D. Christiansen, Proceedings of 40th Annual Rocky Mountain Mineral Law Institute (1994)

Under the model form operating agreements, applicable statutes, and general principles of law, the working interest owner is typically entitled to separately market or dispose of its share of production from an oil or gas well.1 Where a well is capable of producing gas in commercial quantities, it is frequently the case that some owners will enter into gas purchase contracts with one gas purchaser, while other owners will choose to contract for the sale of their gas to one or more different gas buyers. It is not uncommon for each of those gas buyers to purchase gas attributable to their contracted sellers at a rate which varies from the rate at which the other purchasers are taking gas. Moreover, one or more of the interest owners in a well may deliberately choose not to sell their shares of the monthly gas production during certain months at the price and under the terms available in the marketplace.

Where certain of the interest owners are marketing gas at rates which are not proportionate to their interests in the well, whether due to the inability of other owners to find a satisfactory market for their shares of the gas production or due to other causes, the result is typically termed a production imbalance.2 There is a limited body of case law recognizing certain general principles which are to be followed in reconciling or correcting a production imbalance, in th