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Unitization of Federal OCS Oil & Gas Leases
Introduction
The Outer Continental Shelf Lands Act (OCSLA)
directs the Secretary of the Interior to promulgate regulations
that provide for the prevention of waste and the conservation of
natural resources of the OCS, and the protection of correlative
rights therein (43 USC 1334(a)). The Department of the Interior
(DOI) has employed
the concept of unitization as one of several methods to implement
this directive of the OCSLA. Its practice of unitization has evolved
through several rulemakings, each of which adds to the understanding
of unitization as a regulation (See, for example, the final rules
published in the following Federal Registers: 45 FR 29280, May 2,
1980; 53 FR 10596, April 1, 1988; and 62 FR 5329, February 5, 1997).
Purpose
Consistent with the OCSLA, current regulations define the purpose
of unitization to (1) conserve natural resources, (2) prevent waste,
or (3) protect correlative rights, including Federal royalty interests
(30 CFR 1300). The MMS
Regional Director may require compulsory unitization of leases held
by different lessees for any of these three purposes (30 CFR 1301(b)).
Similarly, the Regional Director may approve voluntary unitization
for any of these three purposes or to promote and expedite exploration
and development (30 CFR 1301(a)). However, DOI does not intend to
authorize or require an area to be developed and produced under
a unit agreement when the objectives that would be obtained through
unitization are being, or can be, obtained without a unit agreement
(45 FR 29283).
The following definitions help to clarify the stated purposes of
unitization.
- Conserve Natural Resources. Natural resources of the
OCS include mineral resources, living resources, and protection
of the marine environment (45 FR 29281).
- Prevent Waste. As defined in current regulations (30
CFR 105), waste of oil, gas, or sulfur means:
- the physical waste of oil, gas, or sulfur;
- the inefficient, excessive, or improper use of,
or the unnecessary dissipation of reservoir energy;
- the locating, spacing, drilling, equipping, operating,
or producing of any oil, gas, or sulfur well(s) in a manner
which causes or tends to cause a reduction in the quantity
of oil, gas, or sulfur ultimately recoverable under prudent
and proper operations or which causes or tends to cause unnecessary
or excessive surface loss or destruction of oil or gas; or
- the inefficient storage of oil.
- Protect Correlative Rights. Correlative rights, when
used with respect to lessees of adjacent tracts, mean the rights
of each lessee to be afforded an equal opportunity to explore
for, develop, and produce, without waste, minerals from a common
sources (30 CFR 105). Rulemaking in 1980 offers additional clarification.
Generally, unitization will not be authorized solely to protect
correlative rights. A lease does not grant lessees the ownership
of minerals in place, and the Law of Capture applies to the development
and production of OCS minerals. However, where development rights
are constrained so that different lessees with separate rights
to develop a common resource have unequal development opportunities,
and the inequality was not apparent at the time the leases were
offered, unitization may be authorized to protect correlative
rights. Protection of correlative rights expressly includes Federal
interests such as royalty interests, which is now of greater importance
due to the different types of bidding systems authorized by the
Act (45 FR 29281, written response to comment in explaining adoption
of final rule).
- Promote and Expedite Exploration and Development. The
unit area includes the minimum number of leases that will allow
the lessees to minimize the number of platforms, facility installations,
and wells necessary for efficient exploration, develop, and production
of mineral deposits, oil and gas reservoirs,
or potential hydrocarbon
accumulations (30 CFR 1301(c)).
- The Interior Department has specified that its
policy on unitization is designed to minimize the number of
unitized leases necessary for efficient exploration, development,
and production (62 FR 5330, responding to a suggestion from
industry to substitute the word "appropriate" for
the word "minimum").
- Generally, units will be formed for single reservoirs
or structures where potential hydrocarbon accumulations are
anticipated. However, exploration may prove the presence of
several non-contiguous reservoirs in a single structure. Non-geological
constraints may require the unitization of an area containing
more than one reservoir or an area containing less than a
complete reservoir in order to use the optimum number of platforms
or artificial islands (45 FR 29281).
Practice Offshore California
Unitization has been practiced extensively offshore California;
all but three of the existing 79 OCS leases are situated within
17 separate units. Most units encompass a single field, including
Hueneme, Cavern Point, Pitas Point, Gato Canyon, Sword, Point Arguello,
Tranquillon Ridge, and Point Pedernales. Two units, Santa Clara
and Santa Ynez, were approved with two or more fields. Finally,
six units, including Lion Rock, Point Sal, Purisima Point, Santa
Maria, Bonito, and Rocky Point, were thought to encompass only one
field each when first unitized, but now may contained two or more
fields.
However, several examples offshore Santa Barbara and Ventura Counties
demonstrate that the foregoing objectives, including minimization
of platforms, can occur without the authorization of large units,
such as:
- Early development of the Point Arguello field without
unitization
- Proposed development of the Rocky Point Unit from platforms
installed to develop Point Arguello
- Proposed development of the Cavern Point Unit from
platforms installed to develop fields in the Santa Clara Unit
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