§ 48-43-350 — Hearing and orders concerning need for unit operation of one or more pools or parts.

(A) The department upon its own motion may, and upon the application of any interested person shall, hold a hearing to consider the need for the operation as a unit of one or more pools or parts thereof in a field. (B) The department shall make an order providing for the unit operation of a pool or part thereof if it finds that: (1) such operation is reasonably necessary to increase the ultimate recovery of oil or gas; and (2) the value of the estimated additional recovery of oil or gas exceeds the estimated additional cost incident to conducting such operations. (C) The order shall be upon terms and conditions that are just and reasonable and shall prescribe a plan for unit operations that shall include: (1) a description of the pool or pools or parts thereof to be so operated, termed the unit area; (2) a statement of the nature of the operations contemplated; (3) an allocation to the separately owned tracts in the unit area of all the oil and gas that is produced from the unit area and is saved, being the production that is not used in the conduct of operations on the unit area or not unavoidably lost. The allocation shall be in accord with the agreement, if any, of the interested parties. If there is not such agreement, the department shall determine the relative value, from evidence introduced at the hearing, of the separately owned tracts in the unit area, exclusive of physical equipment, for development of oil and gas by unit operations, and the production allocated to each tract shall be the proportion that the relative value of each tract so determined bears to the relative value of all tracts in the unit area; (4) a provision for the credits and charges to be made in the adjustment among the owners in the unit area for their respective investments in wells, tanks, pumps, machinery, materials, and equipment contributed to the unit operations; (5) a provision providing how the costs of unit operations, including capital investments, shall be determined and charged to the separately owned tracts and how such costs shall be paid, including a provision providing when, how, and by whom the unit production allocated to an owner who does not pay the share of the cost of unit operations charged to such owner, or the interests of such owner, may be sold and the proceeds applied to the payment of such costs; (6) a provision, if necessary, for carrying or otherwise financing any person who elects to be carried or otherwise financed, allowing a reasonable interest charged for such service payable out of such person's share of the production; (7) a provision for the supervision and conduct of the unit operations, in respect to which each person shall have a vote with a value corresponding to the percentage of the costs of unit operations chargeable against the interest of such person; (8) the time when the unit operations shall commence, and the manner in which, and the circumstances under which, the unit operations shall terminate; and (9) such additional provisions that are found to be appropriate for carrying on the unit operations, and for the protection of a correlative rights. (D) No order of the department providing for unit operations shall become effective unless and until the plan for unit operations prescribed by the department has been approved in writing by those persons who, under the department's order, will be required to pay at least seventy-five percent of the costs of the unit operation, and also by the owners of at least seventy-five percent of the production or proceeds thereof that will be credited to interests which are free of cost, such as royalties, overriding royalties and production payments, and the department has made a finding, either in the order providing for unit operations or in a supplemental order, that the plan for unit operations has been so approved. For purposes of calculating the requisite percentages necessary to effectuate an order of the department when unleased acreage is effected by such order, the owner of the acreage shall be considered to be an owner and royalty owner in respective proportions of seven-eighths as owner and one-eighth as royalty owner except in a case when the acreage is owned by the State in which case the proportion shall be five-sixths as owner and one-sixth as royalty owner. If the plan for unit operations has not been so approved at the time the order providing for unit operations is made, the department shall upon application and notice hold such supplemental hearings as may be required to determine if and when the plan for unit operations has been so approved. If the persons owning required percentage of interest in the unit area do not approve the plan for unit operations within a period of six months from the date on which the order providing for unit operations is made, such order shall be ineffective, and shall be revoked by the department unless for good cause shown the department extends such time. (E) An order providing for unit operations may be amended by an order made by the department in the same manner and subject to the same conditions as an original order providing for unit operations, provided (a) if such an amendment affects only the rights and interests of the owners, the approval of the amendment by the royalty owners shall not be required, and (b) no such order of amendment shall change the percentage for the allocation of oil and gas as established for any separately owned tract by the original order, except with the consent of all persons owning oil and gas rights in such tract, or change the percentage for the allocation of cost as established for any separately owned tract by the original order, except with the consent of all owners in such tract. (F) The department, by an order, may provide for the unit operation of a pool or pools or parts thereof that embrace a unit area established by a previous order of the department. Such order, in providing for the allocation of unit production, shall first treat the unit area previously established as a single tract, and the portion of the unit production so allocated thereto shall then be allocated among the separately owned tracts included in such previously established unit area in the same proportions as those specified in the previous order. (G) An order may provide for unit operations on less than the whole of a pool where the unit area is of such size and shape as may be reasonably required for that purpose, and the conduct thereof will have no adverse effect upon other portions of the pool. (H) All operations, including, but not limited to, the commencement, drilling or operation of a well upon any portion of the unit area shall be deemed for all purposes the conduct of such operations upon each separately owned tract in the unit area by the several owners thereof. The portion of the unit production allocated to a separately owned tract in a unit area shall, when produced, be deemed, for all purposes, to have been actually produced from such tract by a well drilled thereon. Operations conducted pursuant to an order of the department providing for unit operations shall constitute a fulfillment of all the express or implied obligations of each lease or contract covering lands in the unit area to the extent that compliance with such obligations cannot be had because of the order of the department. (I) The portion of the unit production allocated to any tract, and the proceeds from the sale thereof, shall be the property and income of the several persons to whom, or to whose credit, the same are allocated or payable under the order providing for unit operations. (J) No division order or other contract relating to the sale or purchase of production from a separately owned tract shall be terminated by the order providing for unit operations, but shall remain in force and apply to oil and gas allocated to such tract until terminated in accordance with the provisions thereof. (K) Except to the extent that the parties affected so agree, no order providing for unit operations shall be construed to result in a transfer of all or any part of the title of any person to the oil and gas rights in any tract in the unit area. All property, whether real or personal, that may be acquired in the conduct of unit operations hereunder shall be acquired for the account of the owners within the unit area, and shall be the property of such owners in the proportion that the expenses of unit operations are charged.

Legislative History

HISTORY: 1977 Act No. 179, Part 1, SECTION 8; 1993 Act No. 181, SECTION 1236.