The Oil and Gas Division of the State Land Office Is Responsible for Leasing Activities
Oil and Gas Division Processes
Table of Contents
1.0 Overview of Land Grid & Lease Management 2
2.0 Oil Gas & Minerals Division Goals 4
3.0 Lease Sales 6
3.1.1 Nomination Maintenance 6
3.1.2 Lease Sales notice print 7
3.1.3 Sales Day Activities 8
3.1.4 Lease sale results 9
4.0 Surface Damage Bonds 10
4.1.1 Damage Bond Overview 10
4.1.2 Damage bond entry validation logic; 11
4.1.3 Damage Bond Verification 11
5.0 Lease Maintenance 12
5.1.1 Lease Initiation 13
5.1.2 Lease Assignments 15
5.1.3 Lease Expirations and Extensions 17
5.1.4 Lease Cancellations 18
5.1.5 Lease Stipulations 19
5.1.6 Lease Releases 19
5.1.7 Shut-in payments 20
5.1.8 Lease Miscellaneous instruments 21
5.1.9 Current Lease Status Information 22
5.1.10 Lease Re-instatements 22
6.0 Communitization Agreement 23
7.0 Unitization Agreement 26
7.1.1 Unit initiation 27
7.1.2 Unit inquiry 28
7.1.3 Unit Termination 28
7.1.4 Unitization Agreement Summary Reports 28
7.1.5 OCD Activity Updates 29
7.1.6 Unit maintenance 29
8.0 Monthly Reports 29
9.0 Spill Reporting 30
Business process
The focus of this document is to identify requirements at a business process level. A business process is a stand-alone logical unit of work. Ideally, it should consist of end-to-end processing that begins with an event of some kind and ends in the production of the output that responds to the event. This is known as straight-through processing (STP). Business reality will dictate to an application what the business processes are. Within each process however, there will be a number of steps. These fit into the STP-like manner. At the point in the development cycle where requirements are transformed into specifications, the discrete steps in each process are defined.
1.0 Overview of Land Grid & Lease Management
Each functional area has been given a numerical identification to assist in the management of the requirements and related information. Business area OG5, Land/Lease Management provides the ONGARD project with basic information about the ownership, beneficiaries, etc. of the Land in the State of New Mexico. It also provides creation and maintenance functions for all encumbrances on State Trust Land, including state oil & natural gas leases, and all associated Unit and Communitization agreements. These leases and/or agreements provide the basis for preventing conflicting/overlapping uses and calculating how much money is due to the state for the use of state land and how the money is distributed to the assigned beneficiaries.
The current ONGARD categorizes land to the Public Land Survey System quarter-quarter division, which is represented by the Unit Letter designation (ULSTR). This level or resolution of land description is sufficient for most oil and gas activity, but is woefully short of the needs all right-of-way, most commercial and agricultural state land users. There are situations where the entire unit letter is not State Land, this deficiency must be resolved. The other abnormality is the situation where an individual unit letter has multiple beneficiaries, although rare this situation must be handled. The State Land Office has installed ESRI GIS software and is currently implementing several applications on this system. The reengineered ONGARDII system will be based on this GIS system for determination of the ownership rights and usage of state lands to benefit the designated beneficiaries. The minimum mapping unit in ONGARD is currently the PLSS subdivision a quarter-quarter section or a survey lot/tract). The new minimum mapping unit may need to be smallest land parcel with a unique land ownership/beneficiary combination. This section of the requirements addresses only the needs of the Oil & Gas leases, the other lease types (Mineral, Agricultural and Commercial) are covered in separate sections.
The Oil Conservation Division (OCD) of the New Mexico Energy Minerals & Natural Resources Department manages the spatial locations, production data, and the protection of collateral resource rights including surface safety, groundwater, and the subsurface oil and gas rights of correlative ownership. The basis for all OCD data is spatial as it relates to the Public Land Survey System as well as to geographic coordinate values. Taxation and Revenue Division (TRD) are also key end users of location data for wells as they relate to the tax revenue recipients, which are typically the local county, civic districts (including schools), and municipalities. Each production unit number (PUN), which is the reporting level used for filing production tax returns, is specified with a suffix to provide for identification of the appropriate recipients. Furthermore, TRD interacts with the United States Mineral Management System (MMS) for production from Federal and Indian lands. For the benefit of the Tri-agencies using ONGARD the land grid outside the State Trust lands needs an improved record for ownership rights specifying federal, state, tribal, and fee (private) lands and a viable ongoing strategy to update the land grid.
In the reengineered system, the activities in the land grid maintenance will be primarily accomplished within the ESRI GIS system used to support the ONGARD business activities such as; (1) Creation of unit agreement boundaries, (2) Lease agreement spatial dimensions, (3) Communitization agreement boundaries, (4) Lease sales tracts, (5) Map creation, and numerous online displays showing locations of well completions, leases and other oil & gas related items. The use of the GIS for spatial data will allow various levels of detail tailored to the needs of the individual application. The form of the legal descriptions extracted from the GIS system for use in oil & gas leases, and unit and communitization agreements etc. will use the Public Land Survey System (PLSS) quarter-quarter division, which is represented by the unit letter, lot or tract designation. In this document the term “GIS Feature Class” is used to indicate a display of spatial data from the GIS database. The specific data used will be dependent on the function being accomplished.
2.0 Oil Gas & Minerals Division Goals
The overall goal of this division is to manage the leases to derive the maximum possible revenues from the exploration and production of hydrocarbons and minerals. All the activities (e.g., Leasing, Rental billing, Consolidation agreements and Royalty revenue) are directly tied to a specific parcel of land. Each lease can be related to a specific parcel of land surface described in the New Mexico GIS state land grid. Typically a post 1985 single lease would contain only land belonging to one beneficiary group, this provides for a much cleaner distribution of revenue. However ONGARDII must have the ability to handle the situation in some older leases where the lease spans multiple land sections and contains multiple beneficiary groups. The lease is the vehicle that facilitates the management of the revenue producing activities. The unitization process is the one area where the relationship of a lease to specific parcel of land is no longer strictly valid. Unit agreements can contain several different ownership types: State, Federal, Indian and Fee. There are two unique types of Unit agreements, each impacting the way royalty revenues are collected and distributed.
The following are the sections of this functional area which will be handled in the GIS system and provide the basis for the other activities. In some cases such as the creation of a unit, the process will start with a process in the GIS system and then the appropriate data will be downloaded into the ONGARDII data stores. In other examples the process might be initiated on the ONGARDII system, with subdivision data then passed to the GIS for display purposes. These requirements will be developed later in terms of GIS specifications, the basic functions/requirements however will not change only the technology used to satisfy them. A core functionality is that the ONGARDII database have built-in checks to flag or otherwise govern transactions based on land ownership, beneficiary and coincident uses. For example, a new lease is allowed only when ownership is State, beneficiary is the same across entire lease and no restrictions to use exist such as coincident use types or withdrawals from leasing.
The following are the requirements for the existing ONGARD system and are included to serve as a check list to ensure this functionality is included in the transformation project.
OG5.1.1 - Inquire and Maintain Subdivisions includes facilities for adding and maintaining information about the Land of the State. Included are functions for adding and maintaining base land information, as well as information about Restrictions, Notations, and Natural Resources related to the Land.
OG5.1.2 - Maintain Site Information, provides the functions to enter and maintain information about batteries, pits, and any other point of interest occurring on Land.
OG5.1.5 - Maintain Rental Rates allows for the Maintenance of Rental Rates to be tied to Land.
OG5.1.6 - Maintain Beneficiary Group Information allows for the entry and maintenance of the Beneficiaries included in a Beneficiary Group, and the percentages allocated to each of them.
OG5.1.7 - Maintain Restriction, allows the user to add new Restrictions to be attached to Land.
OG5.1.8 - Inquire Land by Section will give the user a high level visual view of the Land involved in a Section, along with high level details for each ULSTR of Land.
OG5.1.9 - Maintain Natural Resources allow the user to add new Natural Resources to be attached to Land.
The overreaching requirement is to provide the appropriate GIS Feature Classes to update and maintain these types of attributes at the appropriate PLSS level. The GIS Feature Classes must be interactive and provide drop down windows etc. to facilitate the entry of these attributes. Based on the data model the GIS system must enable PLSS descriptors to view data at the various levels such as unit letters up to sections or leases, units etc.
3.0 Lease Sales
Process Overview
Prior to releasing parcels of State Trust land for lease, the SLO Oil & Gas Minerals Division staff reviews the quality of the specific parcel, in terms of gas and/or oil production, then selects the most appropriate lease type. The various lease types are covered in the lease initiation section of this document. Some part of this pre-sale review process will be accomplished by reviewing the land parcels in the GIS system selecting various views based on the attributes associated to each PLSS. Actual reported oil & gas production and drilling activities will be of course key information at this state of the leasing process.
The monthly lease sale auction process begins with nominations of specific parcels of state trust land to be auctioned, these nominations can initiate with someone from industry or from within the State Land Office. The presales activities include entering the nominations and publishing the sales notices. Sales day activities involve registering the bidders, recording & validating the sealed bids and recording the oral bids. The post sales activities require the capacity to print the leases and to generate the bid summary report. Certain of these activities require mobility and are currently processed on a stand-alone personal computer, with custom download and upload modules to and from ONGARD.
3.1.1 Nomination Maintenance
Process Description
Using the GIS Feature Class “Nomination”, the maintenance process records the tracts of land which have been nominated and the data including the PLSS descriptors, nominator name, oral or sealed bid preference and the proposed lease sale date. This process is strictly confidential until the Lease Sale Notice has been released. Strict security must be provided during the monthly development phase of the nomination process. Edits are performed on identified fields for accuracy, such as verifying that the land description exists in the GIS land grid , that it is not already been leased, is there a potash drilling restriction, will the lessee be required to join a Communitization or Unit agreement and are surface rights owned by the State. Also a check to assure that the land does not have an active Seismic Permit. The beneficiary for the nominated land is identified and additional data, such as minimum bid, lease terms, etc. is gathered for each parcel of land. This continues until all required data has been entered for a nomination. This process could be much facilitated with a geographic user interface.
At this point in the process, the individual nomination is ready to be sold and will appear on the Lease Sale Notice. After all of the individual nominations are complete and the entire packet of nominations to be included in the next monthly lease sale has been assembled, only then can this information be reclassified from the confidential status to non-restrictive status. Having passed all the tests, the appropriate subdivisions are updated in the GIS system indicating the status as “nominated for lease sale”. The ability to withhold an individual nomination from the lease sale must also be provided. This option would occur only after all of the required information had been gathered and entered.
The ability to display a list of the nominations for a specific sales date and allow for the selection and transfer to the nomination entry display is required. After the user has reviewed and/or modified the nomination data, the transfer back to this display must be provided. Each line on the inventory display will contain nomination number, section-township-range, acreage, county code, minimum bid, bid type, sale type, beneficiary group, lease terms. The approved nomination must be available for output as a geographic data file for use in the Industry’s GIS systems.
3.1.2 Lease Sales notice print
Process Description
The process prints the lease sales notices using the quarter-quarter legal descriptions creating a Lease Sale Notice report which will be distributed to the Oil and Gas mailing list and/or delivered electronically. The Notice includes Tract Number, County, Section, Township, Range, Description, Acres, Primary Rental and Minimum Acceptable Bid for oral and sealed bids. The report process will footnote individual nominations if the new owner must join the Communitization or Unit agreement when the land is leased. Also footnoted are nominations with potash drilling restrictions and when the surface is not totally owed by the State. The appropriate rental rate will be retrieved and printed on the notice. The ability to maintain a mailing list for the distribution of the sales notices is required; the origin of this list must be the Oil & Gas identification (OGRID) data store.