J.P. Furlong Company, Petitioner,
Board of Oil, Gas and Mining and the Department of Natural Resources, Respondents.
Petition for Review of Administrative Agency Action
Board of Oil, Gas and Mining Docket No. 2015-013 Cause No.
Anthony T. Hunter, Wichita, KS, for petitioner.
D. Reyes, Att'y Gen., Michael S. Johnson, Meg Osswald,
Asst. Att'ys Gen., Salt Lake City, for respondents.
Justice Pearce authored the opinion of the Court in which
Chief Justice Durrant, Associate Chief Justice Lee, Justice
Himonas, and Justice Petersen joined.
1 J.P. Furlong Company (Furlong) owns a mineral lease.
Furlong challenges the Board of Oil, Gas, and Mining's
(Board) decision to impose a joint operating agreement
(JOA) on its relationship with the party
operating a drilling unit that includes Furlong's lease.
Furlong primarily complains that the Board accepted, without
change, the JOA the operator proposed. Furlong also assails
the Board's refusal to make any of the changes to the JOA
that Furlong wanted.
2 The JOA is materially the same agreement that governs other
interests in the project and is based on a widely accepted
form agreement. Furlong nevertheless challenges the
Board's decision, arguing that there was not substantial
evidence to support it, and that the Board erroneously
applied the law to arrive at its conclusion that the JOA was
just and reasonable. We see no merit in either of these
contentions and affirm.
3 Utah law allows the Board to "establish . . .
drilling units for a pool." Utah Code § 40-6-6(1).
A "pool" is "an underground reservoir
containing a common accumulation of oil or gas or both."
Id. § 40-6-2(19). And drilling units are
"defined as an area from which the oil or gas may be
efficiently and economically produced through one well
located in the center of the unit." 1 Summers Oil and
Gas § 5:1 (3d ed. 2017).
4 Utah also allows for voluntary and compulsory pooling.
Pooling "bring[s] together . . . separately owned
interests for the common development and operation of a
drilling unit." Utah Code § 40-6-2(20). Voluntary
pooling occurs when "[t]wo or more owners within a
drilling unit . . . bring together their interests for the
development and operation of the drilling unit."
Id. § 40-6-6.5(1). In the absence of such a
voluntary agreement, "the board may enter an order
pooling all interests in the drilling unit for the
development and operation of the drilling unit."
Id. § 40-6-6.5(2)(a). This is, as the name
suggests, compulsory pooling. See 1A Summers Oil and
Gas § 6:4 (distinguishing between voluntary and
5 In the course of pooling their interests, parties often
enter into a joint operating agreement. 4 Summers Oil and Gas
A joint operating agreement . . . is a contract typical to
the oil and gas industry whose function is to designate an
operator, describe the scope of the operator's authority,
provide for the allocation of costs and production among the
parties to the agreement, and provide for recourse among the
parties if one or more default in their obligations.
6 The drilling unit here is split into several tracts of
land. EP Energy E&P Company, L.P. (EPE) and Furlong,
among other parties, have an interest in Tract 6 of the
drilling unit. Tract 6 represents 11.59 percent of the drilling
unit. 89.48 percent of Tract 6 is under lease to EPE. 2.08
percent of Tract 6 is under lease to Furlong and another
company, KKREP, in equal proportion. Therefore, Furlong has
an interest in only 1.04 percent of Tract 6, and just 0.12
percent of the drilling unit.
7 All but three working interest owners voluntarily
pooled their interests and signed a joint operating agreement
with EPE. Furlong is one of the three holdouts.
8 Furlong and EPE negotiated in hopes of agreeing to
voluntarily pool their interests. EPE sent Furlong a proposed
joint operating agreement which Furlong returned with
suggested changes. EPE accepted one change, rejected others,
and asked for explanation on the rest. Furlong explained the
rationale behind its edits.
9 At that point, EPE ceased negotiations, stating that the
parties had "reached an impasse as to mutually agreeable
[joint operating agreement] terms." EPE also informed
Furlong that it had filed a Request for Agency Action before
the Board and that it would seek to force pool all of the
interests in the drilling unit. EPE left open the option of
further negotiation "[s]hould Furlong be willing to
reconsider its position" on changes to the JOA.
10 The Board conducted a hearing. EPE asked the Board to force
pool the remaining three interests-including
Furlong's-and to impose the JOA on the interest
11 The JOA the Board adopted was "materially the same
form as the [joint operating agreement] signed by the other
participating working interest owners in Section 2, including
Furlong's co-lessee . . . ." It is also
"materially identical" to joint operating
agreements EPE has used since 2011. EPE has agreed to these
same terms when it is an interest holder and not an operator.
In other words, the Board accepted evidence that EPE had
agreed to terms like those in the JOA when it stood in
12 An EPE employee testified that the adopted JOA was "a
standard industry form supplied by the American Association
of Professional Landmen [AAPL], Form 610." Furlong did
not dispute that EPE used the model form to craft the JOA.
Indeed, it conceded that the Board "could [look] at the
AAPL" to identify terms to include in a joint operating
13 Nevertheless, Furlong argued that any joint operating
agreement the Board imposed should differ from the standard
form in several ways. First, Furlong did not want the JOA to
be recorded and publicly available. Furlong explained that it