(a) In regard to the establishment of drilling units and operation units, the allocation of production, the integration of separately owned tracts of land, and agreements in the interest of conservation, the board, in addition to the jurisdiction, authority, or powers granted elsewhere in this part, shall have the specific powers with respect to the exploration or production of oil or gas enumerated below.
(1) Drilling units. For the prevention of waste and to avoid the augmenting and accumulation of risk arising from the drilling of an excessive number of wells, the board shall, after due investigation and a hearing, have full power and authority to establish such drilling unit or units as may, in its discretion, seem most reasonable and practicable. The board shall have control of the allocation of production over such units and shall, after investigation and hearing, set up, establish, and allocate to each unit its just and equitable share of production, and shall make such orders, rules, and regulations as will give to each producer the opportunity to use his just and equitable share of the reservoir energy of any pool. The board shall have power after notice and hearing to review and approve, or disapprove, agreements made among owners or operators, or among owners and operators in the interest of conservation of oil or gas or both or for the prevention of waste. When two or more separately owned tracts of land are embraced within an established drilling unit, the owners thereof may validly agree to integrate their interests and to develop their lands as a drilling unit. Where, however, such owners have not agreed to integrate their interests, the board may, for the prevention of waste or to avoid the drilling of unnecessary wells, after notice and hearing, require such owners to do so and to develop their lands as a drilling unit. Should the owners of separate tracts embraced within a drilling unit fail to agree upon the integration of the tracts and the drilling of a well on the unit, and should it be established that the board is without authority to require integration as provided for above, then subject to all other applicable provisions of this part, the owner of each tract embraced within the drilling unit may drill on his tract, but the allowable production from said tract shall be such proportion of the allowable production for the full drilling unit as the area of such separately owned tracts bears to the full drilling unit.
(2) Operation units.
(A) For the prevention of waste and to assure the ultimate recovery of gas or oil, the board may hold a hearing to consider the need for the operation as a unit of an entire field, or of any pool or any portion thereof, or combination of pools, within a field, for the production of oil or gas or both and other minerals which may be associated and produced therewith by additional recovery methods.
(B) At the conclusion of the hearing the board shall issue an order requiring unit operation if it finds that:
(i) Unit operation of the field, or of any pool or of any portion or combinations thereof within the field, is reasonably necessary to prevent waste as defined in Code Section 12-4-42 or to increase the ultimate recovery of oil or gas by additional recovery methods; and
(ii) The estimated additional cost incident to the conduct of such operation will not exceed the value of the estimated additional recovery of oil or gas; provided, however, that the board shall be authorized to prohibit the production of gas or oil by any recovery method if it has determined that such recovery method will result in waste or reduce the ultimate recovery of gas or oil from any field or pool or portion or combination thereof.
(C) The phrase "additional recovery methods" as used in this Code section shall include, but shall not be limited to, the maintenance or partial maintenance of reservoir pressures by any method recognized by the industry and approved by the board; recycling; flooding a pool or pools, or parts thereof, with air, gas, water, liquid hydrocarbons or any other substance, or any combination or combinations thereof; or any other secondary method of producing hydrocarbons recognized by the industry and approved by the board.
(D) The order provided for in subparagraph (B) of this paragraph shall be fair and reasonable under all the circumstances, shall protect the rights of interested parties, and shall include:
(i) A description of the area embraced, termed the unit area; and a description of the affected pool or pools, or portions thereof, which lie within the unit area;
(ii) A statement of the nature of the operations contemplated;
(iii) A method of allocation among the separately owned tracts in the unit area of all the oil or gas or both produced from the unit pool within the unit area and not required in the conduct of such operation or unavoidably lost, such method of allocation to be on a formula that is fair and equitable and will protect the correlative rights of all interested parties;
(iv) A provision for adjustment among the owners of the unit area (not including royalty owners) of their respective investments in wells, tanks, pumps, machinery, materials, equipment, and other things and services of value attributable to the unit operations. The amount to be charged unit operations for any such item shall be determined by the owners of the unit area (not including royalty owners); provided, however, if such owners of the unit area are unable to agree upon the amount of such charges, or to agree upon the correctness thereof, the board shall determine the amount after due notice and hearing thereon. The net amount charged against the owners of a separately owned tract shall be considered expense of unit operation chargeable against such tract. The adjustment provided for in this division may be treated separately and handled by agreements separate from the unitization agreement;
(v) A provision that the costs and expenses of unit operations, including investment, past and prospective, be charged to the separately owned tracts in the same proportions that such tracts share in unit productions. The expenses chargeable to a tract shall be paid by the person or persons not entitled to share in production free of operating costs, and who, in the absence of unit operation, would be responsible for the expense of developing and operating such tracts, and such person's or persons' interest in the separately owned tract shall be primarily responsible therefor. The obligation or liability of such persons in the several, separately owned tracts for the payment of unit expense shall at all times be several and not joint or collective. The unit operator shall have a first and prior lien upon the leasehold estate exclusive of the royalty interest provided thereby and unleased oil and gas rights, exclusive of one-eighth interest therein, in and to each separately owned tract, and the interest of the owners thereof in and to the unit production and all equipment in possession of the unit, to secure the payment of the amount of the unit expense charged to and assessed against such separately owned tract;
(vi) The designation of, or a provision for the selection of, a unit operator. The conduct of all unit operations by the unit operator and the selection of a successor to the unit operator shall be governed by the terms and provisions of the unitization agreements;
(vii) A provision that when the full amount of any charge made against any interest in a separately owned tract is not paid when due by the person or persons primarily responsible therefor, then all of the oil and gas production allocated to the interest in default in such separately owned tract, upon which production the unit operator has a lien, may be appropriated by the unit operator and marketed and sold for the payment of such charge, together with interest at a fair and equitable rate as determined by the board thereon. The remaining portion of the unit production or the proceeds derived therefrom allocated to each separately owned tract shall in all events be regarded as royalty to be paid to the owners, free and clear of all unit expense and free and clear of any lien therefor. The owner of any overriding royalty, oil and gas payment, or other interest, who is not primarily responsible for the unpaid obligation, shall, to the extent of any payment or deduction from his share, be subrogated to all the rights of the unit operator with respect to the interest or interests primarily responsible for such payment. Any surplus received by the operator from any such sale of production shall be credited to the person or persons from whom it was deducted in the proportion of their respective interest;
(viii) The time the unit operation shall become effective, and the manner in which, and the circumstances under which, the unit operation shall terminate.
(E) An order requiring unit operation shall not become effective unless and until a contract incorporating the unitization agreement has been signed or in writing ratified or approved by the owners of at least 75 percent in interest as costs are shared under the terms of the order and by 75 percent in interest, as production is to be allocated, of the royalty owners in the unit area, and unless and until a contract incorporating the required arrangements for operations has been signed or in writing ratified or approved by the owners of at least 75 percent in interest as costs are shared, and unless and until the board has made a finding, either in the order or in a supplemental order, that those contracts have been signed, ratified, or approved. Both contracts may be encompassed in a single document. In the event the required percentage interests have not signed, ratified, or approved such agreements within six months from and after the date of such order, or within such extended period as the board may prescribe, the order shall be automatically revoked.
(F) (i) The board, by entry of new or amending orders, may from time to time add to unit operations portions of pools not theretofore included, and may add to unit operations new pools or portions thereof, and may extend the unit area as required. Any such order, in providing for allocation of production from a unitized zone of the unit area, shall first allocate to such pool or pools, or portion thereof so added, a portion of the total production of oil or gas, or both, from all pools affected within the unit area, as enlarged and not required in the conduct of unit operations or unavoidably lost. Such allocation shall be based on a formula for sharing that is considered to treat each tract and each owner fairly and equitably during the remaining course of unit operations. The production so allocated to such added pool or pools or portions thereof shall be allocated to the separately owned tracts which participate in such production on a fair and equitable basis. The remaining portion of unit production shall be allocated among the separately owned tracts within the previously established unit area in the same proportions as those specified prior to the enlargement unless such proportions are shown to be erroneous by data developed subsequent to the former determination, in which event the errors shall be corrected. Orders promulgated under this Code section shall become operative at 7:00 A.M. on the first day of the month next following the day on which the order becomes effective.
(ii) An order promulgated by the board under this subparagraph shall not become effective unless and until:
(I) All of the terms and provisions of the unitization agreement relating to the extension or enlargement of the unit area or to the addition of pools or portions thereof to unit operations have been fulfilled and satisfied, and evidence thereof has been submitted to the board; and
(II) The extension or addition effected by such order has been agreed to in writing by the owners of at least 75 percent in interest as costs are shared in the area or pools or portions thereof to be added to the unit operation by such order and by 75 percent in interest, as production is to be allocated, of the royalty owners in the area or pools or portions thereof to be added to the unit operations by such order, and evidence thereof has been submitted to the board.
(iii) In the event both of the requirements specified in subdivisions (I) and (II) of division (ii) of this subparagraph are not fulfilled within six months from and after the date of such order or within such extended period as the board may prescribe, the order shall be automatically revoked.
(G) When the contribution of a separately owned tract with respect to any unit pool has been established, such contribution shall not be subsequently altered except to correct a mathematical or clerical error that caused the tract contribution to be erroneous, unless an enlargement of the unit is effected. No change or correction of the contribution of any separately owned tract shall be given retroactive effect, but appropriate adjustment shall be made for the investment charges as provided in this Code section.
(H) The portion of unit production allocated to a separately owned tract within the unit area shall be deemed, for all purposes, to have been actually produced from such tract, and operations with respect to any unit pool within the unit area shall be deemed, for all purposes, to be the conduct of operations for the production of oil or gas, or both, from each separately owned tract in the unit area.
(b) Owners, operators, and royalty owners who have separate holdings in the same oil or gas pool or in any area that appears from geological or other data to be underlaid by a common accumulation of oil or gas or both are authorized to make agreements among themselves for establishing and carrying out a plan for the cooperative development and operation of the pool or area, provided that such agreements must be approved by the board; provided, further, that such agreements must be for the purpose of conserving gas or oil or both, or for the prevention of waste, or to assure the ultimate recovery of gas or oil or both. Such agreements shall not be held or construed to violate any of the laws of this state relating to trusts, monopolies, or contracts and combinations in restraint of trade.
Section: Previous 12-4-40 12-4-41 12-4-42 12-4-43 12-4-44 12-4-45 12-4-46 12-4-47 12-4-48 12-4-49 12-4-50 12-4-51 12-4-52 12-4-53 NextLast modified: October 14, 2016