Oil and Gas Operations on Federal Lands Onshore

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• Oil and Gas Operations on Federal Lands Onshore

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Oil and Gas Operations on Federal Lands Onshore

• I. Federal Land Ownership
• II. Federal Leasing
• III. Federal Units
• IV. Communitization
• V. Development Contracts

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Oil and Gas Operations on Federal Lands Onshore
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Oil and Gas Operations on Federal Lands Onshore

• Anadarko Petroleum Corporation
• 2002 Highlights
• Record net income 825 million
• More than replaced annual production for the
  21st
• straight year (368 five year average)
• Kept production volumes flat at 197 million BOE
• Drilled 114 exploratory well - 72 success rate
• Drilled 835 development wells - 98 success
  rate
• Operated on average of 40 rigs in North America

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Oil and Gas Operations on Federal Lands Onshore

• 2003 Plan
• 2.3 billion capital budget
• GOM - 460 million
• U.S. Onshore - 820 million
• Canada - 360 million
• International - 240 million
• 5 production growth
• Strong exploration portfolio

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Oil and Gas Operations on Federal Lands Onshore
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Oil and Gas Operations on Federal Lands Onshore

• I. Federal Land Ownership
• Onshore - 700 million acres, or 31 of U.S.
• Western U.S. - 680 million acres, or 43
• Alaska acres - 237 million acres, or 65
• Indian and Tribal Lands - 56 million acres

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Oil and Gas Operations on Federal Lands Onshore
Potential, Unproved Resources in the Rocky
Mountains Major Basins (Probable Possible
Speculative, Most Likely)
TOTALS 119.0 TCF Conventional Gas 50.8 TCF
Coalbed Methane
Sources Potential Gas Committee (2000)
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Oil and Gas Operations on Federal Lands Onshore

• How did we get here?
• A history of federal land ownership
• In the early days of the U.S. the federal
• government owned up to 76 of lands
• Conversion to private ownership occurred for
• two reasons
• Revenue generation
• Promote settlement and industrial development

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Oil and Gas Operations on Federal Lands Onshore

• Enabling legislation
• Homestead laws
• School land grants
• Railroad grants
• Timber acts
• Desert Land Act
• Lawful mineral development was provided for in
  the
• mining acts of 1866, 1870 and 1872
• Provided that all public lands were available

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Oil and Gas Operations on Federal Lands Onshore

• Conservation movement
• President Harrison, Cleveland and McKinley
• withdrew lands from public access
• President Roosevelt withdrew over 230 million
  acres
• from mineral development access
• The lack of mineral development was highlighted
  by
• WWI

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Oil and Gas Operations on Federal Lands Onshore

• The Mineral Leasing Act of 1920 provided for
• Long term leasing
• Rental fees
• Royalty payments
• Competitive leasing
• While the act has been amended many times,
• regulations created and case law established,
• the basic principles of the act are still
  intact

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Oil and Gas Operations on Federal Lands Onshore
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Oil and Gas Operations on Federal Lands Onshore

• II. Federal Leasing
• Federal lands are made available for leasing
  pursuant to an area specific resource management
  plan. The plan provides for land use practices,
  restrictions, and assessment of all resources of
  the area including mining, agriculture, wildlife,
  oil gas, recreation, historical and cultural
  values.
• The resource management plan determines
• The lands available for oil and gas leasing
• The lease stipulations
• Development and operations

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Oil and Gas Operations on Federal Lands Onshore

• Lands not available under Mineral Leasing Act of
  1920
• National Parks and Monuments
• Indian Reservations
• Incorporated cities, towns and villages
• Naval Petroleum Reserves
• Leases may be acquired by U.S. citizens or U.S.
  corporations

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Oil and Gas Operations on Federal Lands Onshore

• Leases shall not exceed 10,240 acres or less than
  640 acres unless lands are in an approved unit or
  no other contiguous lands are available for
  leasing
• Acreage limitation
• Lower 48 - 246,080 acres held, owned or
  controlled
• Alaska - 300,000 acres in each of the northern
  leasing district and southern leasing district
• No more than 200,000 of such acres can be held
  under option

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Oil and Gas Operations on Federal Lands Onshore

• Leases committed to a federal unit or within a
  development contract are not included in acreage
• count
• Upon owning excess leased acres, a party has 90
• days to reduce the holdings, except where
  excess
• is caused by merger or acquisition or a
  corporation,
• the party has 180 days to reduce its holdings

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Oil and Gas Operations on Federal Lands Onshore

• Competitive Leasing
• Offered by oral auction
• Primary term 5 years
• Royalty 12.5 with a minimum of 1.50/acre
• Leasing Process
• Nominate lands
• Decision to lease by federal agencies
• Bid formulation
• Lease sale

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Oil and Gas Operations on Federal Lands Onshore

• Non-Competitive Leasing
• Lands offered only after offered competitively
  and no bid received
• Available for filing on the 1st day after
  competitive sale results
• If multiple applications are received, a random
  drawing determines the winner
• 10 year term
• 12.5 royalty
• 1.50/acre minimum royalty
• Lease size no less than 640 acres or larger
  than 10,240 acres

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Oil and Gas Operations on Federal Lands Onshore
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Oil and Gas Operations on Federal Lands Onshore

• III. Federal Units
• Historical Underpinnings of Unitization
• Proponents advocated unitization for oil
  production
• in early 1900s. The Mineral Leasing Act of
  1920 was
• modified in 1930 to provide for voluntary
  unitization with the approval of the Secretary of
  the DOI. The act has specific provisions
  relating to the extension of lease beyond their
  primary term and the segregation of leases.

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Oil and Gas Operations on Federal Lands Onshore

• Extensive regulations have been developed to
• provide the framework for implementation
  and
• administration of federal unitization
• Require use of BLM model form unit agreement
• Minimum levels of geologic and other information
• Evidence that all interest owners in the unit
  have been given a fair opportunity to join the
  unit
• BLM or BIA approval prior to Secretary approval

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Oil and Gas Operations on Federal Lands Onshore

• Why Unitize
• Public benefits
• Has effect of one lease covering the entire
  reservoir
• Allows for most efficient well siting
• Eliminates competition between lessees for
  capture
• Promotes most effective drainage of reservoir
• Reduces environment impact

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Oil and Gas Operations on Federal Lands Onshore

• Lessee benefits
• Operations anywhere within unit deemed to be
  operations on all leases
• State and fee leases are extended for the life of
  the unit
• Segregated leases and leases contracted out of
  the unit continue through their primary term, but
  no less than two years
• Eliminates duplicate facilities
• Unit leases excepted from the federal lease
  ownership limitation
• One operator

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Oil and Gas Operations on Federal Lands Onshore

• The Federal Unit, what is it?
• Agreement between all interest owners and BLM
• Combines the unit leases into one lease for
  regulatory purposes
• Does not amend the primary term, royalty,
  rentals, minimum royalty or surface or
  operational provisions

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Oil and Gas Operations on Federal Lands Onshore

• Steps in the unitization process
• 1. Area and Depth Meeting
• The meeting between unit proponents and the BLM
  whereby
• the request for designation of a logical unit
  by the BLM is
• made
• The unit aspects presented are
• The geologic model
• The depth and location of the obligation wells
• The unit agreement - changes from standard form

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Oil and Gas Operations on Federal Lands Onshore

• The unit area
• Size - up to 25,000 acres for one well
• Another well obligation for each 10-15 thousand
  acres
• Geologic boundaries
• Administrative boundaries
• The unit name

• 2. Upon unit designation by the BLM, unit
  operator pursues
• approval by all vested parties, including
  WIOs, royalty
• owners and ORRI owners
• Must have 100 of WIOs and RI signed on each
  tract included in the unit

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Oil and Gas Operations on Federal Lands Onshore

• Must have at least 85, on an acreage basis, of
  WIOs in the unit area signed
• BLM may require a federal lease lessee or WIO to
  join unit
• Leases without 100 WIO and RI execution will be
  excluded

• 3. Submission of unit agreement to BLM for
  approval
• Portions of leases outside the unit will be
  segregated into
• new leases with the primary term of the
  segregated leases to
• be the primary term of the original lease, but
  not less than
• two years from segregation
• Primary term of unit leases unchanged

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Oil and Gas Operations on Federal Lands Onshore

• If HBP by production on segregated portion, the
  base lease remains HBP by the segregated portion
  if the lease is past its primary term
• If the lease is HBP by production on segregated
  portion but in primary term, base lease will
  expire at end of its primary term
• Operating under a Unit Agreement
• 1st well must be commenced within six months
• To keep unit in effect subsequent wells must be
  commenced within six months from completion of
  the prior well until production capable of
  producing in pay quantities is achieved

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Oil and Gas Operations on Federal Lands Onshore

• At the end of 10 years from completion of the
  discovery
• well the unit contracts in only those lands
  within a
• participating area
• Participating area
• Limited to the producing formation a
  participating
• area is the area covering a specific producing
• reservoir

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Oil and Gas Operations on Federal Lands Onshore
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Oil and Gas Operations on Federal Lands Onshore

• IV. Federal Communitization
• The pooling of federal or Indian leases with one
• another or with state or fee leases within a
  state established drilling or spacing unit.
  Communitization
• does not pool working interest, only royalty
  interest.
• Pooling - the voluntary or compulsory joining of
  leases for common development within state
  established drilling or spacing units

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Oil and Gas Operations on Federal Lands Onshore

• Steps to communitize
• 1. Preliminary application for approval to
  communitize - use
• if there are questions regarding
  communitization of tracts
• or if the standard form of communitization
  will not be used
• 2. Execution of Communitization Agreement by all
  parties,
• including working interest owners, lessees
  of record, and
• royalty overriding royalty interests and
  production
• payment interest owners whose interests are
  not subject
• to commitment by the lessee

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Oil and Gas Operations on Federal Lands Onshore

• Elements of a Communitization Agreement
• 1. Communitization Agreement must describe the
  tracts, the formation(s) communitized and the
  apportionment of the production
• 2. Communitization Agreements may cover more
  than one formation, but only if the formations
  have the same spacing requirements
• 3. Allows for the communitized area to be
  developed and operated as one lease

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Oil and Gas Operations on Federal Lands Onshore

• 4. Allocation of production is on an acreage
  basis unless WIOs agree among themselves to the
  contrary
• 5. In force for two years and as long thereafter
  as production in paying quantities exist
  (requires a reasonable yield of profit over and
  above operating and marketing costs)

• 6. If drilling occurs over the expiration date
  of a federal lease,
• the lease is automatically extended for two
  years and as long thereafter

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Oil and Gas Operations on Federal Lands Onshore

• What happens when spacing rules change?
• 1. If spacing is decreased
• Drill a second well
• Terminate the Communitization Agreement and
  recommunitize on the basis of the smaller spacing
  units
• Pay compensatory royalty to the BLM
• 2. If spacing unit is increased
• Continue producing on a reduced allowable per
  states rule
• Amend the communitized area to include additional
  acreage

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Oil and Gas Operations on Federal Lands Onshore
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Oil and Gas Operations on Federal Lands Onshore

• V. Development Contracts
• A contract between two or more federal lease
• owners and approved by the Secretary covering
• a designated area containing federal leases
• Intended to provide incentive for exploration of
• under explored area that require operations
  on a
• scale large enough to justify the risk and
  cost of
• exploration, production and transportation

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Oil and Gas Operations on Federal Lands Onshore

• Requires a definite exploratory plan, including
  exploratory objectives, timetable, capital
  commitment and drilling or seismic commitment

• Sole benefit to lessees is exception of leases
  from state limit on federal lease ownership
• Terms from 5-10 years divided into phases, each
  with its own commitment
• Typically cover from 500,000 - 2,000,000 acres

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Oil and Gas Operations on Federal Lands Onshore
Multiple Regulatory Agencies

• State
• Dept. of Environmental Quality
• Oil Gas Conservation Commission
• Historical Preservation Office
• Game Fish
• Engineer's Office
• Dept. of Transportation

• Federal
• Bureau of Land Management
• U.S. Fish Wildlife
• Bureau of Indian Affairs
• Corps of Engineers
• Environmental Protection Agency
• U.S. Forest Service

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