The order of the commission must define the area of the common source of supply or
portion thereof to be included within the unit area and prescribe with reasonable detail the plan
of unitization applicable thereto.
Each unit and unit area must be limited to all or a portion of a single common source of
supply.
A unit may be created to embrace less than the whole of a common source of supply only
where it is shown by the evidence that the area to be so included within the unit area is of such
size and shape as may be reasonably required for the successful and efficient conduct of the
unitized method or methods of operation for which the unit is created, and that the conduct
thereof will have no material adverse effect upon the remainder of such common source of
supply.
The plan of unitizat
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The order of the commission must define the area of the common source of supply or
portion thereof to be included within the unit area and prescribe with reasonable detail the plan
of unitization applicable thereto.
Each unit and unit area must be limited to all or a portion of a single common source of
supply.
A unit may be created to embrace less than the whole of a common source of supply only
where it is shown by the evidence that the area to be so included within the unit area is of such
size and shape as may be reasonably required for the successful and efficient conduct of the
unitized method or methods of operation for which the unit is created, and that the conduct
thereof will have no material adverse effect upon the remainder of such common source of
supply.
The plan of unitization for each such unit and unit area must be one suited to the needs and
requirements of the particular unit dependent upon the facts and conditions found to exist with
respect thereto. In addition to such other terms, provisions, conditions, and requirements found
by the commission to be reasonably necessary or proper to effectuate or accomplish the
purposes of sections 38-08-09.1 through 38-08-09.16, and subject to the further requirements
hereof, each such plan of unitization must contain fair, reasonable, and equitable provisions for:
1. The efficient unitized management or control of the further development and operation
of the unit area for the recovery of oil and gas from the common source of supply
affected. Under such a plan, the actual operations within the unit area may be carried
on in whole or in part by the unit itself, or by one or more of the lessees within the unit
area as unit operator subject to the supervision and direction of the unit, dependent
upon what is most beneficial or expedient. The designation of the unit operator must
be by a vote of the working interest owners in the unit in a manner provided by the
plan of unitization and not by the commission, and the unit-operating agreement must
contain a provision that the owners of a simple majority of the working interest in the
unit area may vote to change the unit operator.
2. The division of interest or formula for the apportionment and allocation of the unit
production, among and to the several separately owned tracts within the unit area
such as will reasonably permit persons otherwise entitled to share in or benefit by the
production from such separately owned tracts to produce or receive, in lieu thereof,
their fair, equitable, and reasonable share of the unit production or other benefits
thereof. A separately owned tract's fair, equitable, and reasonable share of the unit
production must be measured by the value of each such tract for oil and gas purposes
and its contributing value to the unit in relation to like values of other tracts in the unit,
taking into account acreage [hectarage], the quantity of oil and gas recoverable
therefrom, location on structure, its probable productivity of oil and gas in the absence
of unit operations, the burden of operation to which the tract will or is likely to be
subjected, or so many of said factors, or such other pertinent engineering, geological,
or operating factors, as may be reasonably susceptible of determination. Unit
production as that term is used in sections 38-08-09.1 through 38-08-09.16 means and
includes all oil and gas produced from a unit area from and after the effective date of
the order of the commission creating the unit regardless of the well or tract within the
unit area from which the same is produced.
3. The manner in which the unit and the further development and operation of the unit
area shall or may be financed and the basis, terms, and conditions on which the cost
and expense thereof shall be apportioned among and assessed against the tracts and
interests made chargeable therewith, including a detailed accounting procedure
governing all charges and credits incident to such operations. Upon and subject to
such terms and conditions as to time and legal rate of interest as may be fair to all
concerned, reasonable provision must be made in the plan of unitization for carrying or
otherwise financing owners who are unable to promptly meet their financial obligations
in connection with the unit and, in addition to the unit expense assessed against each
tract and chargeable to each owner, the recovery of a risk penalty from each owner
electing not to participate in the unit expense. The recovery of the risk penalty is as
follows:
a. If the nonparticipating owner's interest in the unit is derived from a lease or other
contract for development, the risk penalty is two hundred percent of the
nonparticipating owner's share of the unit expense and may be recovered out of,
and only out of, production from the unit, exclusive of any royalty or overriding
royalty.
b. If the nonparticipating owner's interest in the unit is not subject to a lease or other
contract for development, the penalty is fifty percent of the nonparticipating
owner's share of the unit expense and may be recovered out of production from
the unit exclusive of any royalty provided for in section 38-08-09.13.
c. The owner paying for the nonparticipating owner's share of the unit expense may
recover from the nonparticipating owner a risk penalty for the risk involved in the
unit expense only if the paying owner has made an unsuccessful, good-faith
attempt to have the unleased nonparticipating owner execute a lease or to have
the leased nonparticipating owner join in and participate in the risk of the unit
expense. Before a risk penalty may be imposed, the paying owner must notify the
nonparticipating owner with proof of service that the paying owner intends to
impose a risk penalty and that the nonparticipating owner may object to the risk
penalty by either responding in opposition to the petition for a risk penalty or if no
such petition has been filed, by filing an application or request for hearing with the
industrial commission.
4. The procedure and basis upon which wells, equipment, and other properties of the
several lessees within the unit area are to be taken over and used for unit operations,
including the method of arriving at the compensation therefor, or of otherwise
proportionately equalizing or adjusting the investment of the several lessees in the
project as of the effective date of unit operation.
5. The creation of an operating committee to have general overall management and
control of the unit and the conduct of its business and affairs and the operations
carried on by it, together with the creation or designation of such other subcommittees,
boards, or officers to function under authority of the operating committee as may be
necessary, proper, or convenient in the efficient management of the unit, defining the
powers and duties of all such committees, boards, or officers and prescribing their
tenure and time and method for their selection.
6. The time when the plan of unitization shall become and be effective.
7. The time when and conditions under which and the method by which the unit must or
may be dissolved and its affairs wound up; however, the unit may be dissolved ten
years after the unit agreement becomes effective upon a petition to the commission by
the royalty owners who are credited with at least the percentage of interest of the
royalty production and proceeds thereof required to ratify the unit agreement on the
date the unit agreement was initially approved by the commission, and a subsequent
hearing and order by the commission. The commission may not dissolve any unit if the
dissolution would be likely to result in waste or the violation of the correlative rights of
any owner. This provision does not limit or restrict any other authority which the
commission has.