Whenever the holder of an oil and gas lease of state-owned lands proposes to engage in secondary recovery operations within such lease, the commission and the holder of the lease may mutually agree to modifications of the lease in furtherance of such proposal and with the object of obtaining the maximum economic ultimate recovery of oil and gas from the lands included within such lease, so far as such is reasonably practicable.
Any such amendatory agreement shall contain provisions to assure, so far as reasonably practicable:
(a) That the total royalty production to which the state shall thereafter be entitled shall be no less than the total royalty production to which the state would thereafter have been entitled if such lease had continued to be operated under primary recovery methods, absent any secondary recovery operations, and (b) that the royalty production accruing to the state from the additional oil produced, if any, as a result of the conduct of secondary recovery operations shall be calculated and determined in such manner as to be at least as great in proportion to such additional oil as the royalty production agreed upon in conformance with subdivision (a) of this section is in proportion to the total remaining primary production agreed upon in conformance with subdivision (a).
As a basis for making a determination that it is in the best interests of the state that it enter into such an agreement, and before authorizing the execution thereof, and to determine the appropriate royalty rates on primary and on additional production, the commission shall, using all information available to it, make a calculated projection of the volume of primary royalty to which the state would be entitled under the existing royalty provisions of the lease for the zone or zones involved in the proposal, absent secondary recovery operations, and shall compare its determinations with those of the holder of the lease in an effort to arrive at a mutual agreement.
(Amended by Stats. 1966, 2nd Ex. Sess., Ch. 7.)
Last modified: October 25, 2018