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Contractions and Termination

Paul S. Conner, Federal Onshore Oil and Gas Pooling and Unitization (2006)

The purpose of contracting a unit area is to provide a mechanism whereby lands subject to a unit area can be eliminated from the unit area if those lands are not capable of production at a defined time in the unit agreement's life or that have not been timely evaluated by unit drilling. Contraction of a unit area along with the process for obtaining contraction can be found in Section 2 of the Model Form1 Unit Agreement. Section 2 actually sets out two types of contractions to the unit area, those being a voluntary contraction and an automatic contraction.

2. VOLUNTARY CONTRACTION

Section 2 of the Model Form Unit Agreement provides for voluntary contraction of the unit area and states in part “....when practicable be expanded to include therein any additional lands or shall be contracted to exclude lands whenever such expansion or contraction is deemed to be necessary or advisable to conform with the purposes of this agreement”.

Reasons or circumstances that might warrant voluntary contraction might be due to 1) the depletion of oil and gas in unit lands as a result of diligent producing operations, 2) the parties to the unit agreement have no further plans to continue unit drilling or, 3) the geological prospect has been adequately defined by unit drilling and is smaller than the current unit area.

When advisable it is possible to voluntaril