Unitization

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This is the second in a multi-part series on the practice of compelled participation – forcing unwilling mineral rights owners to participate in oil and gas production from their property. Part I discussed the history and constitutionality of this practice in the U.S.

Every day, crowds of title researchers and landmen pack county offices in Eastern Ohio looking for the owners of unleased property. They are discovering a quilt of landowners with varying degrees of interest in leasing their land for oil and gas drilling. But even after attempting to negotiate with landowners, oil and gas companies often cannot lease enough land to comply with Ohio’s minimum spacing laws. As a result of those laws, uncooperative landowners threaten to interfere with landowners who have leased and want to have oil produced from their land.

Fortunately, under the right circumstances, an operator or the consenting landowners may be able to invoke Ohio’s mandatory pooling laws, the most common form of compelled participation. Mandatory pooling laws force hold-out landowners to submit their mineral rights to oil and gas operations when their recalcitrance prevents an operator from meeting state spacing requirements. Read more about these and other industry terms in a previous post.
Continue Reading A Tool of Last Resort: Mandatory Pooling in Ohio

The terms “pooling” and “unitization” are often used interchangeably. To confuse the matter further, in Ohio, there are statutory definitions for a “pool” and a “drilling unit” and neither is related to a “unit.” Hopefully, this will provide some clarification.

Pooling and Unitization, Generally

To “pool” [the verb] is to combine multiples into a common entity or fund. In an unfortunate and confusing coincidence, a “pool” [the noun] is an accumulation of a liquid, including oil. As in other specialized areas of law, common terms can have special meanings – so-called “terms of art.”

In the world of oil and gas, the common understanding of pooling, a pool or a pooled unit is the joining together or a combination of small tracts or portions of tracts for the purpose of having sufficient acreage to receive a well drilling permit under the relevant state spacing laws and regulations, and for the purpose of sharing production by interest owners in such a pooled unit. Bruce M. Kramer & Patrick H. Martin, The Law of Pooling and Unitization 1-3 (3d ed. 2006).

In contrast, “unitization” or unit operations refers to the consolidation (don’t use the word “pooling”) of mineral or leasehold interests covering all or part of a common source of supply. Id. at 1-4. That is, “unitization” refers to field or reservoir-wide development, which entails much more to accomplish than a pooled unit around a single well.

The objective of unitization is to provide for the unified development and operation of an entire geologic prospect or producing reservoir so that exploration, drilling and production can proceed in the most efficient and economical manner by one operator.

Usually, a pool or unit is formed by the owner of the leasehold pursuant to the authority granted in the lease by the mineral owner.…

Continue Reading Oil & Gas Terms… Confused? You aren’t the only one