Thursday, September 26, 2013

Shell Gains Approval of Farisita Federal Unit

Despite its stated intent to leave the region, Shell Oil has been creating Federal Units in Huerfano County from its acquired federal, state, and private mineral leases. 

See the map below of the Farisita Federal Unit, an area of over 25,000 acres in the heart of Huerfano, approved by the BLM on August 21st.   You or someone you know may own land within the unit.  Federal Units facilitate oil and gas drilling by holding and extending individual leases and also holding the operator to a schedule of drilling 2 wells per year.  The details of the Farisita unit can be found in the Unit Agreements.  These and other documents are available from the BLM Public Room  in Lakewood, CO.

Here is an article detailing the unitization process submitted to the Huerfano World Journal by Roz McCain and Jeff Briggs on Sept 17:

We have been approached with questions by Huerfano County residents about the Farisita Federal Unit.  We have searched public documents and documents sent to mineral rights owners within the Farisita Federal Unit, and this is the information we have gathered.

On July 19th the Colorado State Office of the Bureau of Land Management, Dept. of Interior, US Government designated the creation of the Farisita Federal Unit for oil and gas development at the request of SWEPI, an entity of Shell Oil.  It comprises 25,301.05 acres, 29.67% BLM or federal lands, 11.38 % Colorado state lands, and 58.95% private holdings.  A federal unit must contain at least 10% federal acres.  The unit stretches from the Phase 4 Majors Ranch development to within a few miles of Gardner.  It includes 3 already approved Shell well sites:  the already drilled Freeman, the Seibert 4 miles west of Farisita, and the State well site 2 miles southwest of Gardner.

25,301 acres of land unitized for oil and gas development by the Bureau of Land Management for
SWEPI LP, Houston, TX
August 21, 2013

Authority for creation can be found in the unitization provisions of the Mineral Leasing Act (first written in 1872), as amended.  Additionally, BLM states that the action is in conformance with the Royal Gorge Field Office Resource Management Plan as written in January of 1995 (close to 19 years ago).

There are three stages in the creation of a federal unit.  The first is designation which follows an initial request from the operator, in this case Shell, which was made 3/31/13. This occurred even as Shell was holding citizen information forums detailing only single well development.  (A subsequent Shell forum scheduled for August was canceled.)  In order to obtain approval, the operators must have 85% of the area’s mineral leases under contract as a lease arrangement.  UnitSource was hired by Shell to notify all the lease holders in the area before designation, as required, asking them to join in the agreement. While Shell and the mineral rights owners were in lease negotiations, all information, planning, and decision-making by BLM was kept private until the federal unit was designated.  BLM explains that this is to protect the operator from other operator competition.  As is the case with applications for permits to drill oil and gas with the state through the COGCC (Colorado Oil and Gas Conservation Commission) one must contact the BLM directly for information about federal units.  (In this case Judy Armstrong, Land Law Examiner, BLM  303-239-3761)

The second stage is approval.  Approval requires that the operator secure at least 85% of all the leases within the federal unit.  Shell accomplished this task and the Farisita federal unit was approved by the  BLM 8/21/13. Approval also requires that BLM show that it it has complied with the National Environmental Protection Act.  In this case through the US Department of the Interior BLM CO State Office Decision Record, Categorical Exclusion Review, it decided that no Environmental Impact Statement process was necessary.

The third stage is validation.  In this case an obligation well, designated to be the Siebert site west of Farisita, must be drilled by 2/21/14.  If it comes in as a producing, paygrade well, the federal unit is validated.  If not, the operator must drill a new well within six months of the first.  If that second well does not produce, then another must be drilled within six months of the second and so on until there is a pay grade well to validate the federal unit.

Once the federal unit is validated, the operator needs to present a plan of development.  At minimum after 5 years from validation, a plan of development is required demanding that at least one well is drilled every 90 days within the federal unit.

Although Shell Oil has said it is divesting its holdings in the western United States, development on the Farisita Federal Unit is going full speed ahead.  Also, thousands of acres of new leases have been bought south and north of the Farasita federal unit by both Shell and III-Exploration II, the company that was reformed from Petroglyph, in 2013.

Along with two new applications for permits to drill at the Oakdale complex now owned by Tabula Rasa LLC and even rumors that Occidental will be drilling a new CO2 well, oil and gas development is expanding in Huerfano County.

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