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Permalink Reply by mt "bee" meadows on October 6, 2014 at 15:52

Unit Agreements:  Wolf in Sheep’s Clothing, One RI Receiver’s Opinion            

 

Unit Agreements, innocent name for contracts began in the 1950s and popular into

the1980s, intended to maximize production from a developing field by injection of fluids or gas within the unit’s area thereby maximizing flow, field drainage, overall production and increasing income for both operators and royalty recipients. It may achieved that goal in the early development years, but now this helpful (???) innocent looking agreement is legally recognized as a binding contract and is like the perfect firewall on a computer, nothing gets thru it! This contract ensures that the unit operator has HBP Lockdown on the property; preventing leasing, drilling, and development by outside progressive operators while the royalty income decreases due to diminishing production because exploration is too expensive plus highly risky as is recompletions and well maintenance servicing.

 

In the early development years the first Unit Operator #1 (=UO1) drilled, completed, and serviced wells before selling for appropriate profit to UO2 who drilled a (= singular = 1) well took his turn profiting and sold to UO3 “ Mr. Do-nothing” who in turn reaped and sold to current owner, UO4 “Mr. P. Pincher, CPA”. Although a contract provision required the ”Unit Operator shall conduct unit operations with diligence and in accordance with good engineering  and production practices”, production has decreased from an oil/condensate peak of 1,216bl/d from six wells, status 10 (Active – Producing), to three status 10 wells now producing only 12 bl/d and 289 mcf/d of gas;  nine wells status 33 (Shut In – PRODUCTIVE ???– Future Utility) and one well status 30 (Plugged and Abandoned).

 

Why so many 33s and only one 30?  P Pincher, using latest accounting/investment computer software had determined that even “plug and abandon” had certain risk and expenses and he prided himself in practicing diligent well management.