News & Alerts
June 1, 2020 UTAH BOARD OF OIL, GAS & MINING APPROVES SUBSTANTIAL AMENDMENTS TO FORCE POOLING RULE – EFFECTIVE JUNE 1, 2020
The amended Force Pooling Rule, Section R649, was approved by the Utah Board of Oil, Gas & Mining (“Board”), effective June 1, 2020. The amended rule provides substantial changes to the previously ambiguous rule, includes consent to participate in a well, revisions of existing force pooling hearings, notice to unlocatable and unidentified owners, impositions of statutory risk compensation award and application of a compulsory pooling order to subsequently drilled wells in a drilling unit.
As required by legislative rule changes, the following definitions were added to Section R649-1-1:
- “Authority for Expenditure”;
- “Joint Operating Agreement”; and
- “Notice of Opportunity to Participate”, which provides for a list of ten (10) items that must be provided to each “owner” when pooling interest in a drilling unit.
The most significant change to this approved amendment is the adoption of Section R649-2-8a Consenting to Participate in a Well. This section provides for the events in which an “owner” will be deemed as a “Nonconsenting owner” or “Consenting owner” as provided in Utah Code 40-6-2. An owner is deemed “Nonconsenting” if within thirty (30) days from the date the Notice of Opportunity to Participate is received, the owner fails to execute and deliver an executed AFE for the well to the operator or fails to execute and deliver a JOA to govern the drilling and operation of the well and applicable drilling unit to the operator. An owner who executes an operator’s AFE, adheres to Articles VII.A through D of the standard and unmodified A.A.P.L Form 610-2015 Model Form Operating Agreement, and submits written objections, made in good faith, addressing the specific provisions of an operator’s JOA for which the owner does not agree with, and provides modifications in lieu thereof, is deemed a “Consenting owner”.
Section R649-2-8a further provides that if an owner is deemed “Consenting” by the means stated above, but the operator objects to the owner’s modifications, in good faith, the owner or operator may seek Board determination on the terms of the JOA given the following:
- If an operator has filed a request for Compulsory (Force) Pooling of the well and associated drilling unit, either the owner or operator may request the Board to determine the reasonableness of the costs charged and the terms of the JOA; and
- If an operator has not filed a request for Compulsory (Force) Pooling of the well and associated drilling unit, then either the owner or operator may file a request for agency action within sixty (60) days of the operatory’s receipt of the owner’s written objections.
- If either of the two above are not timely met, the Board will deem the actual costs incurred just and reasonable and the provisions proposed by the operator in the Notice of Opportunity to Participate shall be deemed to govern between the operator and owner in any subsequent hearing before the Board.
- Any hearing held before the Board regarding disputed provisions of a JOA will be limited to only the terms at issue within the proposed JOA.
The Board also adopted Section R649-2-9a Notice of Unlocatable and Unidentified Owners. This section provides that an operator may file a motion, concurrently with a Compulsory (Force) Pooling request, that requests notice by publication in a newspaper of general circulation, for two (2) weeks, in the county for which the well is located, so as to satisfy the notice requirement for any owner who is not locatable. The request for notice by publication shall be accompanied by an affidavit from the operator to include, among other things, the operator’s reasonable and diligent efforts to locate all mineral owners. The Board may then deem the owners who are not locatable as “Nonconsenting owners” if the Board finds the operator has exercised reasonable, diligent and good faith efforts.
Section R649-2-9b Imposition of Statutory Risk Compensation Award was also a new section adopted by the Board. The section describes the factors, such as geologic and engineering uncertainties, difficulty in drilling the well, the availability of information from prior and current drilling and development in the area and the unique specific costs of the well, that the Board may consider when assigning the risk compensation award between the range of 150% to 400% as provided under Subsection 40-6-6.5(4)(d)(i)(D).
The final section that was adopted by the Board in the amended Force Pooling Rule is Section R649-2-13 Application of a Compulsory Pooling Order to Subsequently Drilled Wells in a Drilling Unit. This rule states that the initial compulsory (force) pooling order, to include the JOA provisions adopted by the Board will apply to any subsequently drilled wells within the drilling unit so long as an operator files a motion to modify the initial order to include the additional proposed well. The motion to modify the initial order requires the operator to file an affidavit with detailed information on the initial order, among other things, and to include a description of the subsequent well and identifying the “Nonconsenting owners” and “Consenting Owners”. An owner may object to the operator’s motion within thirty (30) days of the mailing of the motion to modify the order for which the Board will hold a hearing to address the objections. If there are no objections, the motion to modify the order to apply to subsequent wells will be approved by the Board.
The newly adopted rule under Section R649-2 has not been posted in its entirety at this point. However, the rule as adopted, can be found in the attached Utah State Bulletin, pages 115-124.