Effective June 1, 2020, the Utah Board of Oil, Gas & Mining (the “Board”) approved significant revisions to the state’s force pooling rules. The prior rules gave an operator little certainty and direction on how to force pool interests in Utah. The new rules include procedures for handling disputes over the governing terms of the imposed operating agreement, treatment of unidentifiable or unlocatable owners, and application of the initial force pooling order to subsequently drilled wells.
Definitions for “Authority for Expenditure,”1 “Joint Operating Agreement,”2 and “Notice of Opportunity to Participate”3 are now included in Section R649-1-1. Importantly, the definition for “Notice of Opportunity to Participate” contains a list of 10 items that must be included in the written notice of opportunity to participate provided to each “owner.”4
The newly adopted Section R649-2-8a replaces most of Section R649-2-9 and sets forth conditions under which an owner will be deemed to be a “nonconsenting owner” or “consenting owner” for the drilling and operation of a well. An owner will be deemed to be nonconsenting if, within 30 days from the date the notice of opportunity to participate is received, the owner does not execute and return to the operator the proposed AFE and JOA. The new rule allows for the owner to object to certain provisions contained in the proposed JOA and still be deemed consenting if they execute and return the proposed AFE to the operator and provide written objections, in good faith, specifying the provisions they find objectionable and proposing modifications or alternative provisions. Similar to above, this must be done within 30 days from the date the notice of opportunity to participate is received by the owner or such later date as specified in the notice or separate written agreement; otherwise, the owner will be deemed to be nonconsenting. The new rule further provides that an objecting owner, or an operator who in good faith rejects the owner’s proposed modifications to the JOA, may request the Board to determine the disputed terms of the JOA (and also challenge costs charged, if applicable). If no request is timely filed within the stated deadlines, the JOA terms proposed by the operator in the notice of opportunity to participate will govern and the actual costs incurred will be deemed to be reasonable. Moreover, Articles VII.A through D of the standard, unmodified A.A.P.L. Form 610-2015 Model Form Operating Agreement are deemed to be just and reasonable under all circumstances, provided the “risk penalty” will be set by the Board. If these provisions are contained in the proposed JOA without modification, any objection to them will be summarily rejected by the Board. Lastly, a nonconsenting owner is subject to the Board’s determination of a risk compensation award.
The prior rules did not address the treatment of owners that are either not identifiable or not locatable. Under the terms of newly adopted Section R649-2-9a, an operator can file a motion, concurrent with a force pooling request, to provide…