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Adapting Federal Units and Unit Operating Agreements to Account For Horizontal Development

Gregory J. Nibert, Jared A. Hembree, Paul S. Conner, Horizontal Oil & Gas Development (2012)

John Morrison's conclusion in his paper delivered at the Federal Onshore Oil & Gas Pooling & Unitization II Special Institute in 1990 has now come to fruition.1 Mr. Morrison stated that the concept of forming “federal exploratory units may, under certain circumstances, be an important consideration in horizontal drilling.”2 Many of the concerns regarding traditional pooling and spacing are eliminated if all of the tracts of land are committed to a federal exploratory unit. Unitization has been defined as “the agreement to jointly operate an entire producing reservoir or prospectively productive area of oil and/or gas.”3 Unitization provides for the exploration, development, and operation of a geologically defined area by a single operator so that drilling and production may proceed in the most efficient and economical manner.4 This paper does not set forth the procedures to form a federal exploratory unit or detail the numerous terms and provisions encompassed in a unit agreement and an associated unit [10B-2] operating agreement as those matters have been discussed in detail at prior Special Institutes of the Rocky Mountain Mineral Law Foundation and in a number of treatises and articles.5

Many of the concerns raised at this Special Institute may be avoided through the commitment of oil and gas leases to a federal exploratory unit agreement. Unitization would allow