FEDERAL UNITIZATION - American Association of Professional ...

This was a little ditty about Jack
and Diane, two American kids
doing the best they can.
Oh yeah, life goes on……

Section 12 – Allocation of Production (UA)

ƒ Allocation of production under the Unit Agreement only establishes a basis
for settlement of the royalty, overriding royalty, and production payment
obligations of the working interest owners.

ƒ All unitized substances produced from a participating area established under
this agreement shall be deemed to be produced equally on an acreage basis
from the several tracts of unitized land, and unleased Federal land, if any,
included in the participating area established for such production.

ƒ Each tract of Unitized land within a Participating Area is credited with such
percentage of production as the number of acres of that tract bears to the
total number of Unitized acres within the participating area.

Article 14- Supervision of Operations by Parties (UOA)

ƒ Each operation conducted by Unit Operator under this Agreement
or the Unit Agreement shall be subject to supervision and control
by the Parties that are chargeable with the Costs thereof.

ƒ Parties chargeable with the Costs of the operation shall have the
right to vote in proportion to their respective obligations for such
Costs. Agreements generally provide for 65% approval of the
parties.

Section 18 - Leases And Contracts Conformed And Extended (UA)

ƒ “The terms, conditions, and provisions of all leases, subleases, and other
contracts relating to exploration, drilling, development, or operation for oil
or gas on lands committed to this agreement are hereby expressly modified
and amended to the extent necessary to make the same conform to the
provisions hereof but otherwise to remain in full force and effect.”

ƒ Provides for the “One Lease Theory” - operations performed upon any tract
of unitized lands will be deemed to be performed upon, and for the benefit
of, each and every tract of unitized land, and no lease shall be deemed to
expire by reason of failure to drill or produce wells situated on the land
therein embraced.

ƒ Any fee lease which, by its terms might expire prior to the termination of
this agreement, is hereby extended beyond any such term so provided
therein so that it shall be continued in full force and effect for and during
the term of this agreement.

ƒ Any Federal lease committed to the Unit shall continue in force beyond the
primary term, provided that production of unitized substances in paying
quantities is established prior to the expiration date of the term of such
lease; or, in the event actual drilling operations are commenced on unitized
land in accordance with provisions of this agreement prior to the end of the
primary term of such lease and are being diligently prosecuted at that time,
such lease shall be extended for 2 years and so long thereafter as oil or gas
is produced in paying quantities.

Section 20 – Effective Date and Term

ƒ Agreement becomes effective upon approval and shall automatically
terminate 5 years from said effective date unless:
1. Extended by AO
2. Terminated prior to expiration because exploration revealed lands
incapable of producing unitized substances in paying quantities.
3. Unitized substances in paying quantities have been discovered, in
which event, the agreement shall remain in effect for such term and
so long thereafter as unitized substances can be produced in
quantities sufficient to pay for the cost of producing same from wells
on unitized land within any participating area established hereunder.
(Notice this is not a paying quantities definition).
4. Voluntarily terminated by 75% of the working interest owners after
the initial drilling obligation has been met.

General Requirements

Unit Requirement Conventional Unit HORIZONTAL CBM Unit

Size Size negotiated depending on well 25, 000 acres 25, 000 acres or larger depending on well
commitment commitment

Formations Usually all depths Determined by proponent Surface to the base of the coal
Drilling Obligation Drill a single well within 6 months (two or Drill a single well within 6 months Drill 5-9 wells (depth and dollar dependent)
more if a larger unit area) within first 12 months

Continuing Obligation Drill every 6 months from completion until Drill every 6 months from completion Drill 5-10 wells per year for 10 years
producing until producing

Productivity Requirement Paying well determination Paying well determination Single well producing 75 MCFPD or multiple well
producing 300 MCFPD.

Participating Area Revisions Each well must receive a paying well Each well must receive a paying well Once productivity requirement met, any well
determination determination drilled within 1,320’ of a PA (well spacing
dependent)