Unitization

Unitization is the combining of leases and tracts over all or part of an oil or gas field or reservoir so that the area is developed and operated as one property under a single plan. It covers a larger area than pooling, which combines interests within a single spacing unit (see Pooling). A unit can be formed by agreement of the owners, and in some states by order when enough owners agree.

Federal unit agreements

30 U.S.C. 226(m) allows lessees, "For the purpose of more properly conserving the natural resources of any oil or gas pool, field, or like area," to unite "in collectively adopting and operating under a cooperative or unit plan of development or operation" when the Secretary finds it "necessary or advisable in the public interest." The rules are in 43 CFR part 3180, which defines:

• Unit area: "The area described in an agreement as constituting the land logically subject to exploration and/or development under such agreement."
• Unitized land: "Those lands and formations within a unit area which are committed to an approved agreement or plan."
• Participating area: "That part of a unit area which is considered reasonably proven to be productive of unitized substances in paying quantities or which is necessary for unit operations and to which production is allocated in the manner prescribed in the unit agreement."

Under 43 CFR 3181.3, "The owners of any right, title, or interest in the oil and gas deposits to be unitized are regarded as proper parties," and "All such parties must be invited to join the agreement."

Effect on leases

• Federal leases committed to a unit agreement that allocates production continue "so long as the lease or portion thereof remains subject to the agreement," if there is paying production under the agreement before the lease expires (43 CFR 3107.31(a)).
• A lease only partly inside the unit area is segregated into two leases (43 CFR 3107.32; see Pugh Clause).

State statutory unitization: North Dakota

North Dakota authorizes the Industrial Commission to create units "to the end that a greater ultimate recovery of oil and gas may be had therefrom" (N.D.C.C. 38-08-09.1). The order does not take effect until the plan is approved by those who "will be required to pay more than fifty-five percent of the costs of the unit operation and by the owners of more than fifty-five percent of the royalty interests, excluding overriding royalties, production payments, and other interests carved out of the working interest" (N.D.C.C. 38-08-09.5). Other states have their own unitization statutes with different requirements.

Why it matters in mineral title research

• A tract's share of unit production comes from the unit's allocation schedule, not from the wells on the tract, so the schedule and its revisions have to be found.
• Participating areas change over time, and the model unit agreement in 43 CFR part 3180, appendix A, provides that lands not entitled to participate "shall be eliminated automatically" on stated anniversaries, so the unit's current boundary may differ from its original one.