Potash is an abundant source for potassium and related salts, and is an essential nutrient for food crops (think fertilizer). Its name is derived from the historical method of production that involved leaching wood ash in large pots and scraping the white residue from the side of the pot. As a consequence, potash is pronounced pot-ash, and not poe-tash, as I initially suspected.
As is well known, West Texas and South Eastern New Mexico were once part of a vast shallow sea. As the sea evaporated, large deposits of salt and potash remained. The Carlsbad Mining District in New Mexico consequently contains one of the richest potash deposits in the world with the purest potash deposit, close to 80% pure, located in Lea County, New Mexico.
Potash mining in Southeastern New Mexico is big business as the area accounts for 75% of all U. S. Production. The Bureau of Land Management reports total sales volume for 2015 in New Mexico in excess of 1.7 million tons, with a total value of over $500 million, with over $21.7 million in royalties paid to the BLM. The 2015 Annual Report of the New Mexico State Land Office reports over $4.5 million in potash royalties were paid to the state.
DPA and Federal Oil and Gas Leases
In the 1920’s, the U. S. government set aside over 9 million acres for review and classification in order to begin potash conservation efforts. A 1939 Order of the Secretary of the Interior created an initial Designated Potash Area (DPA) of 23,000 acres. This area has subsequently been enlarged to encompass approximately 497,002 acres, with 350,613 acres rich in both potash and oil and gas.
Historically, there has been some friction between the potash mining community and the oil and gas community operating within the DPA. Recognizing these difficulties, the Secretary of the Interior passed Order No. 3324 on December 3, 2012 (the “Order”). The Order replaces earlier orders and outlines a framework by which potash mining companies and oil and gas companies can co-develop the DPA.
The Order outlines preferred methods to lease and produce known “barren areas,” those without significant potash deposits, as well as methods to prove up the commercial viability of potash deposits in “unknown areas.” The overall purpose of the DPA is conservation of potash deposits. Accordingly, the policy of the Department of the Interior is to deny drilling permits within the DPA.
There are three exceptions to the Department of the Interior’s drilling permit policy. Permits will be granted for operations on “drilling islands,” or on “barren areas” the BLM has determined will not be affected by drilling operations. Additionally, a drilling island not created by the Order or a prior order, can be established if the oil and gas lessee as well as the nearest potash lessee jointly petition the BLM.
Once an application to drill is approved, the BLM creates a Development Area and determines drilling island locations. Operations within the Development Area should occur on a barren area or from a drilling island and should be managed under a unitization or communitization agreement. Buffer zones of a 1/4 mile for oil wells and a 1/2 mile for gas wells are required.
An interesting effect of the DPA is the ability of a lessee to petition the BLM to suspend his oil and gas lease so long as potash operations occur on the leased premises. 43 CFR 3102.4-4 (the “Statute”) provides for the suspension of all operations and production in the interest of conservation of natural resources. Upon approval by the BLM, the Statute extends the term of the lease for the suspension period, during which it cannot expire. No rental or minimum royalty payments are due during the suspension.
This article is by no means meant to be a comprehensive guide to oil and gas operations within the DPA. The foregoing are some of the major highlights. The Department of the Interior’s press release re: Order No. 3324 can be accessed below for further inspection: Click Here