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| Home > Statutes > Usa Arizona |
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USA Statutes : arizona
Title : Minerals, Oil and Gas
Chapter : OIL AND GAS
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27-501 Definitions
In this article, unless the context otherwise requires:
1. "Certificate of clearance" means a permit approved and issued or registered by
the commission for transportation or delivery of oil, gas or oil and gas products.
2. "Certificate of compliance" means a certificate issued by the commission prior
to connection of an oil or gas well with a pipeline, showing compliance with the
conservation laws of this state and conservation rules and orders of the commission.
3. "Commission" or "commissioner" means the oil and gas conservation commission.
4. "Completed well" means a well that meets any of the following conditions:
(a) Has produced or is ready to produce new formation hydrocarbons or gases.
(b) Has been declared a dry hole or plugged and abandoned.
(c) Has been otherwise readied for operation as in the case of injection and
service wells.
5. "Developed area" or "developed unit" means a drainage unit having a completed
well capable of producing oil or gas in paying quantities.
6. "Drainage unit" or "drilling unit" means the maximum area in a pool which may be
drained efficiently by one well to produce the reasonable maximum amount of recoverable
oil or gas in the area.
7. "Field" means the general area which is or appears to be underlaid by not less
than one pool, including underground reservoirs containing oil or gas, or both.
8. "Fund" means the state general fund.
9. "Gas" means natural gas, casinghead gas, all other hydrocarbons not defined as
oil, carbon dioxide and helium or other substances of a gaseous nature. Natural gas and
casinghead gas are further defined as follows:
(a) "Natural gas" means any combustible gas or vapor composed chiefly of
hydrocarbons occurring in gaseous or vapor phase at initial reservoir conditions.
(b) "Casinghead gas" means any gas or vapor indigenous to an oil stratum and
produced from such stratum with oil.
10. "Illegal oil" and "illegal gas" means oil or gas produced within the state from
any well during any time in which the well has produced more than the amount allowed by
law or any rule or order of the commission or the production of which causes waste.
11. "Illegal product" means any product derived, in whole or in part, from illegal
oil or gas.
12. "Net drainage" means drainage not equalized by counterdrainage.
13. "Oil" means crude petroleum oil and all other hydrocarbons, regardless of
gravity, which are produced at a well in liquid form by ordinary production methods and
which are not the result of condensation of gas.
14. "Owner" means the person having the right to drill into, produce and appropriate
production of oil or gas, or both, from a pool.
15. "Person" includes a corporation, association, partnership, receiver, trustee,
guardian, executor, administrator, fiduciary or representative or any group acting as a
unit and includes any department, agency or instrumentality of the state or any of its
governmental subdivisions.
16. "Pool" means an underground reservoir containing a common accumulation of oil or
gas, or both, and includes each zone of a general structure completely separated from any
other zone in the structure.
17. "Producer" means the owner of a well capable of producing oil or gas.
18. "Product" means oil, gas or any product, by-product, mixture or blend of oil or
gas.
19. "Royalty owner" means a person who possesses an interest in the production but
who is not an owner.
20. "Waste" includes:
(a) Physical waste, as that term is generally understood in the oil and gas
industry.
(b) The inefficient, excessive or improper use of or the unnecessary dissipation of
reservoir energy.
(c) The locating, spacing, drilling, equipping, operating or producing of any oil
or gas well or wells in a manner which causes or tends to cause reduction in the quantity
of oil or gas ultimately recoverable from a pool under prudent and proper operations or
which causes or tends to cause unnecessary or excessive surface loss or destruction of
oil or gas.
(d) The inefficient storing of oil or gas.
(e) The production of oil or gas in excess of transportation or marketing
facilities.
(f) The production of oil or gas when it is unprofitable to dispose of such
production.
21. "Well" includes any hole drilled or spudded in for the purpose, with the
intention or under the representation of penetrating oil or gas bearing strata or of
penetrating any strata in search of stratigraphic data pertinent to the location of oil
or gas bearing strata, whether or not in either case oil or gas is actually discovered,
any hole used in connection with the underground storage of hydrocarbon substances,
whether liquid or gaseous, any hole used in connection with a process to inject any
substance for purposes of disposal or to increase recovery, any hole used for the purpose
of secondary or tertiary recovery and any hole used for the purpose of pressure
maintenance. The commission may, as it considers to be in the best interests of the
state, determine that any hole drilled or spudded in shall be included within this
definition to the extent necessary for the administration and enforcement of the rules
required by section 27-516. The determination of the commission shall be final in any
circumstance involving the question of purpose, intent or representation, except that the
determination shall be subject to appeal as provided by section 27-520.
27-502 Declaration of policy
A. It is the public policy of the state to:
1. Conserve the natural resources of oil and gas and products thereof.
2. Prevent waste of oil and gas resources.
3. Provide for protection and adjustment of correlative rights of owners of land
wherein the natural resources lie and of owners and producers of oil and gas resources
and products thereof, and of others interested therein.
4. Encourage development of natural resources of oil and gas and their products.
5. Encourage continuous and economic supply thereof and demand therefor.
6. Safeguard the health, property and public welfare of citizens of the state and
other interested persons.
7. Promote all purposes indicated by the provisions of this article.
B. This article shall be administered by the oil and gas conservation commission.
C. The legislature finds and declares that oil and gas in commercial quantities
have now been discovered and are being produced within this state.
27-503 Waste of oil or gas prohibited; powers of commissioner to prevent waste
A. Waste of oil or gas is unlawful and is prohibited.
B. The commissioner shall make inquiries he deems proper to determine whether waste
exists or is imminent. In the exercise of such power the commissioner may:
1. Collect data.
2. Make investigations and inspections.
3. Examine property, leases, papers, books and records, including drilling records
and logs.
4. Examine, check, test and gauge oil and gas wells, tanks, refineries and modes of
transportation.
5. Hold hearings.
6. Require keeping of records and making of reports.
7. Take action he deems necessary to enforce and effectuate the provisions of this
article.
C. The commissioner may in order to prevent waste and avoid drilling unnecessary
wells, permit the cycling of gas in any pool or portion thereof or the introduction of
gas or other substance into an oil or gas reservoir for the purpose of repressuring the
reservoir, maintaining pressure or carrying on secondary recovery operations of any
type. The commissioner shall permit the pooling or integration of separate tracts when
reasonably necessary in connection with the operations.
27-504 Drilling units; rules and regulations; exceptions
A. For the prevention of waste, to protect and enforce the correlative rights of
owners in a pool, and to avoid augmentation and accumulation of risks arising from
drilling an excessive number of wells, or reduced recovery which might result from too
small a number of wells, the commission shall, after a hearing, establish a drilling unit
or units for each pool. The establishment of a unit for gas shall be limited to the
production of gas.
B. Each well permitted to be drilled on a drilling unit shall be drilled under the
applicable rules and regulations and in accordance with the applicable spacing pattern
prescribed by the commission. Exceptions to the rules and spacing pattern may be granted
where it is shown, after notice and hearing, that the unit is partly outside the pool or,
for some other reason, a well so located on the unit would be non-productive. Exceptions
permitting a proposed well to be drilled on an unorthodox location may be granted on the
basis of topography or terrain without notice or hearing.
C. If an exception is granted, the commission shall take action which will offset
any advantage which the person securing the exception may have over other producers by
reason of drilling the well as an exception, and so that drainage from developed units to
the tract with respect to which the exception is granted will be prevented or minimized,
and the producer of the well drilled as an exception will be allowed to produce no more
than a just and equitable share of the oil and gas in the pool.
27-505 Pooling of interests
A. When two or more separately owned tracts of land are embraced within an
established drilling unit, persons owning the drilling rights therein and the right to
share in the production therefrom may agree to pool their interests and develop their
lands as a drilling unit. If the persons do not agree to pool their interests, the
commissioner may, for prevention of waste, for protection of correlative rights, or to
avoid drilling of unnecessary wells, enter an order pooling and integrating their
interests for the development of their lands as a drilling unit. Orders effectuating such
pooling shall be made after notice and hearing, and shall be upon terms and conditions
which will afford the owner of each tract the opportunity to recover or receive his just
and equitable share of the oil and gas in the pool without unnecessary
expense. Operations incident to drilling a well upon any portion of a unit covered by a
pooling order shall be deemed for all purposes to be the conduct of such operations upon
each separately owned tract in the unit by the several owners thereof. The portion of the
production allocated to the owner of each tract included in a drilling unit formed by a
pooling order shall, when produced, be considered as if it had been produced from the
tract by a well drilled thereon. If such pooling is effectuated, the cost of development
and operation of the pooled unit chargeable by the operator to other interested owners
shall be limited to the actual and reasonable expenditures required for that purpose,
including a reasonable charge for supervision. As to owners who refuse to agree upon
pooling, the order shall provide for reimbursement for costs chargeable to each such
owner out of, and only out of, production from the unit belonging to such owner. In
event of dispute relative to such costs, the commissioner shall upon notice to all
interested parties and hearing thereon, determine the proper costs. Appeals may be taken
from the determination as from any other order of the commissioner. If one or more of
the owners drills and operates, or pays the expense of drilling and operating the well
for the benefit of others, then, in addition to any other rights conferred by the pooling
order, the owner or owners so drilling or operating shall have a lien on the share of
production from the unit accruing to the interest of each of the other owners for the
payment of his proportionate share of the expenses. All the oil and gas subject to the
lien, or so much thereof as necessary, shall be marketed and sold by the creditor and the
proceeds applied in payment of the expenses secured by the lien, with the balance if any
payable to the debtor.
B. The commissioner shall, in all instances where a unit has been formed from lands
or areas of more than one ownership, require the operator, upon request of an owner, but
subject to the right of the operator to market production and collect the proceeds with
respect to an owner in default, as provided in subsection A, to deliver to the owner or
his assigns his proportionate share of the production from the well common to the
drilling unit. The owner receiving his share shall provide at his own expense proper
receptacles for the receipt and storage thereof.
C. If the persons owning and drilling or exercising other rights in separate tracts
embraced within a drilling unit fail to agree upon the pooling of the tracts and drilling
of a well on the unit, and if the commissioner is without authority to require pooling as
provided by this section, then, subject to all other applicable provisions of this
article, the owner of each tract embraced within the drilling unit may drill on his
tract, but the allowable production from the tract shall be the proportion of the
allowable production for the full drilling unit as the area of such separately owned
tract bears to the full drilling unit.
D. An agreement for repressuring or pressure-maintenance operations, cycling or
recycling operations, including extraction and separation of liquid hydrocarbons from
natural gas in connection therewith, or for carrying on any other method of unit or
cooperative development or operation of a field or pool or a part of either, is
authorized and may be performed, and shall not be held or construed to violate any
statutes of this state relating to trusts, monopolies or contracts and combinations in
restraint of trade, if, after notice and a public hearing, the agreement is approved by
the commissioner as being in the public interest, protective of correlative rights, and
reasonably necessary to increase ultimate recovery or to prevent waste of oil or gas. The
agreements shall bind only the persons who execute them, and their heirs, successors,
assigns, and legal representatives.
27-506 Regulation of drilling in pools; notice of sale, transfer or purchase
A. The commissioner shall, upon notice and hearing, regulate drilling and location
of wells in any pool and the production therefrom to prevent reasonably avoidable net
drainage from each developed unit so that each owner in a pool shall have the right and
opportunity to recover his fair and equitable share of recoverable oil and gas in the
pool.
B. A rule, regulation or order of the commissioner made under the provisions of
this section shall not be of such effect as to:
1. Make it necessary for a producer from, or an owner of, a tract of land in a
pool, in order to obtain his just and equitable share of the production of the pool, to
drill and operate a well on the tract in addition to such wells as may without waste
produce his share.
2. Occasion net drainage unless wells are drilled and operated on the tract in
addition to such wells thereon as can without waste produce the tract's just and
equitable share of the production of the pool.
C. Any owner of a well, any owner of land upon which a well is located, or any
lessor or lessee of land upon which a well is located shall notify the commission, in
writing and on such form as the commission may prescribe, of the sale, assignment,
transfer, conveyance or exchange of such well, land or lease. Such notice shall be made
within ten days of such sale, assignment, transfer, conveyance or exchange and shall
contain:
1. The name and address of the person to whom sold, assigned, transferred, conveyed
or exchanged.
2. The name and location of the well.
3. The date of the sale, assignment, transfer, conveyance or exchange.
D. Any person who acquires ownership or operation of any well, ownership of any
land upon which a well is located or any lease rights to land on which a well is located,
whether by purchase, assignment, transfer, conveyance, exchange or otherwise, shall,
within ten days after acquiring such well, land or lease rights, notify the commission,
in writing and on such form as the commission may prescribe, of his ownership or
operation. Such notice shall contain:
1. The name and address of the person from whom acquired.
2. The name and location of the well.
3. The date of acquisition.
4. The date when operations are assumed or resumed by new owner.
27-507.01 Common purchaser of crude oil and petroleum; duties; ratable taking; discrimination prohibited
A. Every person as defined in this article which may now, or hereafter, purchase
crude oil or petroleum in this state, whether they be common carriers or affiliated with
common carriers or not, shall be a common purchaser of such crude oil or petroleum, and
shall purchase crude oil or petroleum offered it for purchase without discrimination in
favor of one producer or person as against another in the same field. The question of
justice or unreasonableness shall be determined by the commission, taking into
consideration the production and age of the wells in respective fields and all other
proper factors. It shall be unlawful for any common purchaser to discriminate between or
against crude oil or petroleum of a similar kind or quality in favor of its own
production, or production in which it may be directly or indirectly interested, either in
whole or in part, but for the purpose of allocating the purchase of crude oil or
petroleum to be marketed, such production shall be taken in like manner as that of any
other person or producer and shall be taken in a ratable proportion that such production
bears to the total production offered for the market in such field. The commission shall
have the authority, however, to relieve any such common purchaser, after due notice and
hearing, from the duty of purchasing crude oil or petroleum of inferior quality or grade.
B. It shall be the duty of the commission to enforce the provisions of this section
and it shall have the power, after notice and hearing, to issue orders defining the
conditions under which extensions of pipelines shall be made to connect wells, but no
such order shall be made unless the commission finds that such extensions are reasonably
required and economically justified. In issuing such orders the commission shall give
specific consideration to the economic factors involved.
27-508.01 Common purchaser of gas; duties; ratable taking; discrimination prohibited
A. Every person as defined in this article now or hereafter engaged in purchasing
from one or more producers, gas produced from gas wells shall be a common purchaser
thereof within each pool from which it purchases, and as such it shall purchase gas
lawfully produced from gas wells with which its gas transportation facilities are
connected in the pool and other gas lawfully produced within the pool and tendered to a
point on its gas transportation facilities. Such purchases shall be made without unjust
or unreasonable discrimination in favor of one producer against another in the price
paid, the quantities purchased, the bases of measurement, or the gas transportation
facilities afforded for gas of like quantity, quality, and pressure available from such
wells. The question of justice or reasonableness shall be determined by the
commission. In the event any such common purchaser is likewise a producer, he is
prohibited to the same extent from discriminating in favor of himself on production from
gas wells in which he has an interest, direct or indirect, either in whole or in part, as
against other production from gas wells in the same pool. For the purposes of this
section, reasonable differences in prices paid or facilities afforded, or both, shall not
constitute unreasonable discrimination if such differences bear a fair relationship to
differences in quality, quantity or pressure of the gas available, the depth of the
producing formation, or to the relative lengths of time during which such gas will be
available to the purchaser. The provisions of this section shall not apply to:
1. Any well or pools used for storage and withdrawal from storage of natural gas
originally produced not in violation of this section or of the rules, regulations or
orders of the commission.
2. Purchases of casinghead gas from oil wells.
3. Persons purchasing gas principally for use in operations for secondary recovery
of oil or gas, or for pressure maintenance, or cycling, or gas lift operations.
B. If a person is unable to purchase all the gas offered, or whenever the
requirement for natural gas produced in ARIZONA from any pool can be fulfilled only by
the production of natural gas therefrom under conditions constituting waste, or whenever
the commission finds and determines that the orderly development of, and production of
natural gas from, any pool requires the exercise of its jurisdiction, then said person
shall purchase gas ratably so as to take the gas in proportion to the allowables or
allocations established by the commission from all the wells to which it is connected,
but this shall not apply when a difference in their production results from the inability
of a well to produce proportionately with other wells connected to the purchaser, and in
the event allowables or allocations have not been established by the commission, then
said person shall purchase gas ratably from all wells to which it is connected in a
manner so as to prevent waste and protect correlative rights as defined in this
article. Any common purchaser taking gas produced from gas wells from a pool shall take
ratably in accordance with the allocation formula, as may be established by special field
rules or statewide regulations of the commission.
C. Nothing in this section shall be construed or applied to require any person to
purchase gas of a quality, pressure, or any other condition, by reason of which such gas
cannot be economically and satisfactorily used by such purchaser by means of his gas
transportation facilities then in service.
27-509 Certificate of compliance
A. An owner or operator of an oil or gas well shall, before connecting with an oil
or gas pipe line, secure from the commissioner a certificate showing compliance with the
conservation laws of the state and the conservation rules, regulations and orders of the
commissioner. No operator of a pipe line shall connect with a well until the owner or
operator furnishes a certificate of compliance.
B. The commissioner may cancel a certificate of compliance issued under this
section when it appears, after due notice and hearing, that the owner or operator of a
well has violated or is violating an oil or gas conservation law of the state, or a rule,
regulation or order of the commissioner promulgated thereunder. Upon notice from the
commissioner to the operator of a pipe line connected to any such oil or gas well that
the certificate of compliance has been cancelled, the operator of the pipe line shall
disconnect from the well, and it shall be unlawful for the operator of the pipe line to
transport oil or gas therefrom until a new certificate of compliance has been issued by
the commissioner. The owner or operator of a well shall not produce oil or gas therefrom
unless a certificate of compliance is in effect covering the well.
C. This section shall not be construed to prevent a temporary connection of not
more than ten days' duration with a well in order to take care of production and prevent
waste until opportunity has been given the owner or operator of the well to secure a
certificate of compliance. If the certificate of compliance is not secured within the
ten-day period, the well shall be shut in until such time as a certificate of compliance
is secured.
27-510 Certificate of clearance
A. The sale, purchase or acquisition, or the transportation, refining, processing
or handling of illegal oil or gas or illegal product is unlawful, but until the
commissioner provides for certificates of clearance or some other method affording an
opportunity to determine whether a contemplated transaction involves illegal oil or gas
or illegal product, no penalty shall be imposed except as provided by subsection B.
B. Penalties may be imposed for each transaction prohibited by this section when
the person committing the prohibited transaction knows that illegal oil or gas or illegal
product is involved in the transaction or when the person could have known or determined
such fact by the exercise of reasonable diligence or from facts within his knowledge.
C. Penalties provided in this article shall apply, regardless of lack of actual
notice or knowledge, to any sale, purchase or acquisition, and to transportation,
refining, sale, purchase or handling in any way without a certificate of clearance of
illegal oil and gas or illegal product, where administrative provision is made for
identifying the character of the commodity as to its legality.
27-511 Confiscation proceedings
A. Illegal oil and gas and illegal products shall be seized and sold as
contraband. The sale shall not take place unless the court finds in a proceeding held as
provided by this section, that the commodity involved is contraband.
B. If the commissioner believes that illegal oil or gas or illegal product is
subject to seizure and sale, he shall, through the attorney general, bring a civil action
in rem for that purpose in the superior court of the county in which the commodity is
found, or the action may be maintained in connection with any action or cross action for
injunction, or for penalty relating to any prohibited transaction involving illegal oil
or gas or illegal product. Any interested person adversely affected by seizure and sale
may intervene in the suit to protect his rights. The action shall proceed in the name of
the state as plaintiff against the illegal oil or gas or illegal product as defendant,
and no bond shall be required of plaintiff.
C. Upon filing of the complaint, the clerk of the court shall issue a summons
directed to the sheriff of the county or to any person the court may authorize to serve
process, requiring him to summon all persons interested in the illegal oil or gas or
illegal product mentioned in the complaint to appear and answer within thirty days after
issuance and service of summons. Such persons need not be named or otherwise
identified. The summons shall contain the style and number of the suit and a brief
statement of the nature of the action. It shall be served by posting one copy at the
courthouse door of the county in which the commodity is alleged to be located and by
posting another copy near the place where the commodity is located. Copies of the
summons shall be posted not less than five days before the return day stated therein, and
posting shall be deemed constructive possession of the commodity by the state. A copy of
the summons shall be published once each week for three weeks in a newspaper published in
the county where the suit is pending. No judgment shall be pronounced by a court
condemning the commodity as contraband until five days from the last publication of the
summons. Proof of service by the person authorized by the court to serve process shall
be by affidavit of the person making the service and proof of service by the sheriff
shall be by return as required by law with respect to service of process in civil
actions.
D. When it appears by a verified pleading on the part of the plaintiff, or by
affidavit, that grounds for the seizure and sale exist, the clerk, in addition to the
summons, shall issue an order of seizure, which shall be signed by the clerk and bear the
seal of the court. The order of seizure shall specifically describe the illegal oil or
gas or illegal product so that it may be identified with reasonable certainty. It shall
direct the sheriff to whom addressed to take into his actual or constructive custody the
illegal oil or gas or illegal product described in the order, and hold the commodity
subject to order of the court. The order of seizure shall be executed as a writ of
attachment is executed. No bond shall be required before the issuance of the order of
seizure, and the sheriff shall be responsible upon his official bond for the proper
execution thereof.
E. The sheriff shall receive, for his service, a fee as in case of seizure of
personal property, to be assessed as other costs in the cause.
27-512 Sale of illegal oil or gas or illegal products
A. Sale and notice of sale of illegal oil or gas or illegal product seized under
the authority of this article shall be in accordance with the laws of the state relating
to the sale of personal property under execution. For his services at the sale the
sheriff shall receive a fee and expenses in the amount and manner provided by law for
sales of personal property, to be paid from the proceeds of the sale, to be fixed by the
court ordering the sale.
B. The court may order that the commodity be sold in specified lots or portions,
and at specified intervals. Title to the amount sold shall pass as of the date of the
act which is found by the court to make the commodity contraband. The judgment shall
provide for payment of the proceeds of the sale into the fund, after first deducting the
costs of the proceedings and sale, and after paying to any royalty owner intervening as
an interested party in the suit who has established title to the oil or gas royalty
interest, the value of his interest in the oil or gas. The amount sold shall be treated
as legal oil, legal gas or legal product in the hands of the purchaser, but the purchaser
and the commodity shall be subject to all applicable laws, rules, regulations and orders
with respect to further sale, purchase or acquisition, and with respect to the
transportation, refining, processing or handling in any manner the commodity purchased.
C. The producer, owner, or other party contesting the validity of a seizure and
having an interest in securing the release of the seized oil, gas or other product, may
obtain the release thereof upon furnishing a bond made and executed by a corporate surety
company duly qualified to do business in the state, in an amount double the current
market value of the oil, gas or other product held under seizure. The bond shall be
conditioned and approved in the same manner as a replevin bond.
D. Nothing in this article shall deny or abridge any action a royalty owner, lien
holder or other claimant may have because of the forfeiture of the illegal oil or gas or
illegal product, against the person whose act resulted in the forfeiture.
E. All illegal oil, gas, or other illegal product sold as provided in this section
shall be sold as provided by law for the sale of personal property under execution.
27-513.01 Appointment by drilling permittee of attorney upon whom to serve process
A. The acceptance of a permit to drill under section 27-513 shall be deemed to
constitute and be the appointment of the commission by the permittee as his true and
lawful attorney upon whom may be served all legal process in an action against such
permittee growing out of or in any way connected with said permittee's use, occupancy, or
activities upon the drilling unit or tract of land under single ownership for which his
permit shall have issued, including, but not limited to, liabilities to the state, debts
contracted by such permittee for labor upon or materials furnished to his drilling site,
and violations of the securities act of ARIZONA.
B. Service of process under subsection A of this section shall be made by leaving a
copy of the summons and complaint and a fee of two dollars with any member, officer, or
employee of the commission in the commission's office during office hours, and shall be
deemed sufficient service upon the permittee if either of the following are complied
with:
1. The plaintiff forthwith sends notice of such service and a copy of the summons
and complaint by registered mail to the permittee defendant at the latest address for
such permittee shown by records in the office of the commission, appends the defendant's
return receipt and plaintiff's affidavit of compliance with this section to the original
summons and files them with the court within such time as the court allows.
2. The plaintiff serves notice of such service and a copy of the summons and
complaint upon defendant, if found without this state, by a duly constituted officer
qualified to serve like process in the state or jurisdiction where the defendant is
found, and files with the court within such time as the court allows, the officer's
return showing that the notice, copy of the summons and complaint were served as provided
by this section upon defendant.
C. The court in which the action is pending may order postponements necessary to
afford defendant reasonable opportunity to defend the action.
D. The commission shall keep a record, which shall include the day and hour of
service, of all process served upon it under this section.
E. The fee paid to the commission at the time of service shall be taxed as costs in
the suit if plaintiff recovers, and shall be paid into the fund.
27-513 Permit to drill well
A person desiring to drill a well in search of oil or gas shall notify the
commissioner on a form prescribed by the commissioner, and shall pay a fee of twenty-five
dollars for each well. Upon receipt of notification and the fee, the commissioner shall
promptly issue the person a permit to drill, unless drilling the well is contrary to law
or to a rule, regulation or order of the commissioner. Drilling the well is prohibited
until a permit to drill is obtained in accordance with the provisions of this section.
27-514 Commission; appointment; terms; compensation
A. There is created an oil and gas conservation commission.
B. The commission shall consist of the state land commissioner ex officio who shall
have no vote, and five members to be appointed by the governor, no more than three of
whom shall be of the same political party. The appointive members shall be United States
citizens and shall have been residents of ARIZONA for not less than the five years
immediately preceding their appointment. Three members of the commission shall
constitute a quorum for the transaction of business.
C. Of the members first appointed, one shall be appointed for a term ending
December 31, 1960, and one each for terms ending one, two, three and four years
thereafter. Subsequent appointments shall be for a full term of five years which shall
expire on the third Monday in January in the appropriate year.
D. Appointive members of the commission shall receive compensation as determined
pursuant to section 38-611 for each day actually spent in the performance of official
duties.
27-515 Administration; powers of the commission; fees
A. The commission shall administer and enforce the provisions of this article and
other laws relating to conservation of oil and gas. The commission and administrative
staff may, at any time, enter upon property and inspect wells drilled for oil or gas, and
well records, and shall control property, machinery and appliances necessary to gauge the
wells. The ARIZONA geological survey shall provide staff support to the commission to
administer the provisions of this chapter.
B. The commission may:
1. Administer oaths to a witness in any hearing, investigation or proceeding held
under this article or other law relating to conservation of oil and gas.
2. Issue subpoenas requiring attendance and testimony of witnesses and production
of books, papers and records deemed material or necessary, and direct service of
subpoenas by a sheriff or other officer authorized by law to serve process.
3. Prescribe rules and do all acts necessary or advisable to carry out the
provisions of this article.
4. Collect such fees as will cover the costs of such services as, but not limited
to, reproduction of records or any portion thereof and copies of rules. The monies so
collected shall not be subject to the provisions of section 27-523 but shall be
deposited, pursuant to sections 35-146 and 35-147, by the commission in the fund from
which the expenditure was originally made.
5. Publish technical maps, cross sections and reports and sell these materials for
such fees as will cover the costs incurred in their preparation, reproduction and
distribution.
C. The commission may enter into cooperative agreements with agencies of the United
States government, with agencies of state or local government or with Indian tribes for
the purpose of protection of the fresh water supplies of the state from contamination or
pollution brought about by the drilling of any well or for any other purpose of this
article.
D. The commission may apply for and accept gifts, devises and donations of books,
well records, maps or other materials. All donated materials shall become public records.
E. Monies collected under subsection B, paragraph 5 of this section shall be
deposited, pursuant to sections 35-146 and 35-147, in the geological survey fund
established by section 27-152.02 and shall be used to prepare, reproduce and distribute
further publications. Monies in the fund are not subject to section 27-523.
27-516 Rules
A. The commission shall make rules and amend them as deemed necessary for the
proper administration and enforcement of this article, including the following rules and
orders:
1. Requiring the drilling, casing and plugging of wells in a manner to prevent:
(a) Escape of oil and gas from one stratum to another.
(b) Intrusion of water into an oil or gas stratum from a separate stratum.
(c) Pollution of fresh water supplies by oil, gas or salt water.
(d) Waste.
2. Requiring reports showing the location of oil and gas wells and requiring filing
of logs and drilling records within thirty days after drilling is completed for a well
drilled for oil or gas.
3. Requiring a reasonable bond with good and sufficient surety conditioned on the
performance of the duties prescribed in paragraphs 1 and 2 of this subsection including
the obligation to plug each dry or abandoned well.
4. Preventing drowning by water of any stratum or part capable of producing oil or
gas in paying quantities and preventing the premature and irregular encroachment of water
which reduces or tends to reduce the total ultimate recovery of oil or gas from any pool.
5. Requiring the operation of wells with efficient gas-oil ratio and fixing the
limits of such ratios.
6. Preventing blowouts, caving and seepage.
7. Preventing creation of unnecessary fire hazards.
8. Requiring identification of ownership of oil and gas wells, producing leases,
refineries, tanks, plants, structures and storage and transportation equipment and
facilities.
9. Regulating shooting, perforating and chemical treatment of wells.
10. Regulating gas cycling operations.
11. Regulating secondary recovery methods, including introduction of gas, air, water
or any other substances into producing formations.
12. Regulating spacing of wells and establishing drilling units.
13. Limiting, allocating and apportioning production of oil and gas from a pool or
field for prevention of waste, and allocating production between tracts of land under
separate ownership in a pool on a fair and equitable basis so that each tract will be
permitted to produce not more than its just and equitable share from such pool.
14. Preventing, so far as practicable, reasonably avoidable drainage from each
developed unit, not equalized by counterdrainage.
15. Requiring a producer of oil or gas to submit for each oil or gas well operated,
on a form prescribed by the commission, a monthly report of actual production from each
oil or gas well. Such report shall be submitted on or before the twenty-fifth day of the
next succeeding month.
16. Requiring persons making settlement with the owner of oil or gas interests to
render statements to the owner showing the quantity and gravity purchased and the price
per barrel of oil or the price per one thousand cubic feet of gas.
17. Requiring, either generally or in a particular area, a certificate of clearance
for transportation or delivery of oil, gas or any product.
18. Requiring the applicant for a drilling permit, if the surface of the land is
owned by another not in a contractual relationship with the applicant, to post bond in a
reasonable sum with good and sufficient surety conditioned on payment of just
compensation to the landowner for actual damages to the surface of or improvements on the
land caused by the drilling permittee's operations.
19. Requiring all forms and reports requested by the commission to be submitted to
the commission on or before the twentieth day of the next succeeding month for monthly
reports or within twenty days following the completion of the action requiring the
report, except as otherwise provided by the commission.
20. Requiring the permitting of all wells and the approval of all equipment and
methods:
(a) To create or use existing storage space for the underground storage of
hydrocarbon substances, whether liquid or gaseous.
(b) Used for the injection of any substance into geological strata for the purpose
of pressure maintenance or for the purpose of increasing ultimate recovery.
(c) Used for the purpose of secondary and tertiary recovery.
(d) Used for the disposal of any substance.
B. No rule or order, or change, renewal or extension, except as otherwise provided
by this article, shall, in the absence of an emergency, be made by the commission under
the provisions of this article except after a public hearing of which not less than ten
days' notice has been given. The public hearing shall be held at such time and place as
may be prescribed by the commission, and any interested person shall be entitled to be
heard. Notice shall be given by personal service, by publication or by United States
mail addressed, postage prepaid, to the last known mailing address of the person or
persons affected. The date of service shall be the date on which service was made in the
case of personal service, the date of first publication in the case of notice by
publication and the date of mailing in the case of notice by mailing. The notice shall
issue in the name of the state, shall be signed by a member of the commission or its
deputy, shall specify the style and number of the proceeding and the time and place of
the hearing and shall briefly state the purpose of the proceeding. If the commission
gives notice by personal service, such service may be made by an officer authorized to
serve process or by the commission in the same manner as is provided by law for the
service of process in civil actions in the courts of this state. Proof of service by the
commission shall be by the affidavit of the commission or its authorized representative
making personal service. If service is made by the sheriff, the proof of service shall
be as required by law for service of process in civil actions. If the matter to be heard
concerns the adoption, amendment or repeal of a rule of general applicability, notice
shall be by publication.
C. If an emergency is found by the commission to exist, which in its judgment
requires making, changing, renewing or extending a rule or order without first having a
hearing, the emergency rule or order shall have the same validity as if a hearing had
been held after due notice. The emergency rule or order shall remain in force for not to
exceed thirty days from its effective date but shall expire when a rule or order with
respect to the subject matter of the emergency rule or order becomes effective after due
notice and hearing.
27-517 Hearings; reporter; fees
A. Any interested person shall, by written request, have the right to have the
commissioner call a hearing for the purpose of taking action in respect to any matter
within the jurisdiction of the commissioner. Hearings shall be held at the time and place
the commissioner directs, and any person having an interest in the subject matter of the
hearing may appear and be heard. Upon receipt of the request, the commissioner shall
promptly call a hearing, and, not more than thirty days thereafter shall take action with
regard to the matter as he deems appropriate. The request for hearing shall be
accompanied by a fee of fifty dollars.
B. The commissioner shall prescribe rules of order and procedure in hearings or
other proceedings held under this article. The commissioner shall appoint a competent
shorthand reporter to be present throughout all public hearings. The reporter shall be
sworn by the commissioner faithfully to perform the duties of a reporter. The
commissioner shall have the same control and authority over the reporter as the judge of
the superior court exercises over a court reporter, and the duties of the reporter shall,
insofar as applicable, be the same as those fixed by law for a court reporter.
C. As soon as possible following the hearing the commission shall bill the person
requesting the hearing for the total cost of publication for the notices of such hearing
and the total cost of the court reporter's fees less the original fifty dollar fee. The
requesting party shall within ten days after receipt of the billing by the commission
reimburse the commission the amount of money so billed or be subject to the penalties as
prescribed in subsection A of section 27-527. The money so collected by the commission
shall not be subject to section 27-523 but shall be deposited, pursuant to sections
35-146 and 35-147, by the commission in the fund from which the expenditure was
originally made. 27-519 Refusal to obey subpoena
A. If a person fails or refuses to comply with a subpoena issued by the
commissioner, or if a witness refuses to testify or answer to a matter regarding which he
may be lawfully interrogated, the judge of the superior court of the county where such
person resides, if a resident of the state, or the judge of the superior court of the
county in which the land or any part thereof lies out of which the controversy arises, if
the person is not a resident of the state, may, on application of the commissioner, issue
an attachment for such person and compel him to comply with the subpoena and appear
before the commissioner and produce such documents and give testimony upon such matters
as required.
B. The court may punish for contempt as in case of disobedience of a subpoena
issued by the court, or for refusal to testify.
27-520 Judicial review; procedures
A. Except as provided in subsection B of this section and section 41-1092.08,
subsection H, any party aggrieved by any final action of the commission is entitled to
judicial review pursuant to title 12, chapter 7, article 6.
B. An action involving a test of the validity of this article or a rule or order
shall be advanced for trial and determined as expeditiously as possible, and no
postponement or continuance shall be granted unless deemed imperative by the court. 27-521 Duties of attorney general
The attorney general shall be attorney for the commissioner. The commissioner may
in cases of emergency or in special cases, upon request of the attorney general, retain
additional counsel to assist the attorney general, and for such purpose may expend funds
available under this article.
27-522 Records
A. All rules and orders made by the commission shall be in writing and entered in
full in a book kept by the commission. The book shall be a public record open to
inspection at all reasonable times during office hours. A copy of any rule, order or
other document on file in the office of the commission and certified by the commission
shall be received in evidence in all courts of the state with the same effect as the
original.
B. Well logs, casing records, compiled data and other information shall be properly
indexed and suitably recorded in the permanent records of the commission and shall be
open to inspection by the public at all reasonable times during office hours. The well
records of a well drilled in unproven territory shall not be subject to inspection for a
period of one year after drilling is completed. The commission shall provide sixty days'
notice to the operator before records become subject to inspection. At the operator's
request, the commission shall extend the confidential period for not more than two years
from the date of the request if the operator can provide credible evidence that
disclosure of the information is likely to cause harm to the operator's competitive
position. The director of water resources may inspect any well records at any time but
shall keep confidential all information that is not subject to inspection as otherwise
provided in this section.
27-523 Deposit of monies; expenses
A. Monies collected by the commissioner under this article shall be deposited,
pursuant to sections 35-146 and 35-147, in the fund.
B. Expenses incident to the administration of this article shall be paid from the
fund, subject to legislative appropriation. 27-524 Enforcement
A. When it appears that a person is violating or threatening to violate any
provision of this article, or a rule, regulation or order made pursuant to this article,
and such person fails or refuses, on notice by the commissioner, to desist from such
violation or threat of violation, the commissioner may bring an action in the superior
court where the offending person resides, or in the county in which violation is alleged
to have occurred or is threatened, to restrain the person from continuing the violation
or from carrying out a threat of violation.
B. The commissioner may without bond obtain a prohibitory or mandatory injunction,
including a temporary restraining order and preliminary injunction, and, where
appropriate, an injunction restraining defendant from moving or disposing of illegal oil
or gas or illegal product. Upon filing the action, summons directed to such person may
be delivered to the sheriff of any county in this state for service.
C. If the commissioner fails to bring action within ten days to enjoin a threatened
or actual violation of any statute relating to conservation of oil and gas, or of any
provision of this article, or a rule, regulation or order made pursuant to this article,
any person or party in interest adversely affected by the threatened or actual violation
who has notified the commissioner in writing thereof and requested the commissioner to
file the action may bring the action in the superior court of any county in which the
commissioner might have brought the action to prevent the threatened or actual
violation. The commissioner shall be made a party to the action.
D. If the court orders that injunctive relief be granted, then the commissioner
shall be substituted for the person who brought the action, and the injunction shall
issue as if the commissioner had at all times been plaintiff.
E. The owner or operator is responsible for the full cost of plugging each dry or
abandoned well. If the owner or operator fails to properly plug and abandon the well,
the commission may:
1. Forfeit the bond and use the money for that purpose.
2. Sue the owner or operator for costs in excess of the amount of the bond and the
owner or operator is liable for that amount.
27-525 Injunctions and restraining orders
A. No temporary restraining order or injunction shall be granted against the
commissioner or his agent, employee or representative to restrain enforcement of a
statute relating to the conservation of oil and gas or any provision of this article, or
rule, regulation or order made thereunder, except after notice to the commissioner and
all other defendants, and a hearing thereon. At the hearing a restraining order or
injunction shall not be granted unless it is shown that the act done or threatened is
unlawful, or that the statute, or provision of this article, or rule, regulation or order
complained of is invalid and, if enforced, will cause irreparable injury to
plaintiff. An order granting temporary or injunctive relief shall state the nature and
extent of the invalidity of the statute, rule, regulation or order complained of and
shall contain a statement of the probable damage relied upon by the court as justifying
temporary injunctive relief.
B. No temporary injunction or restraining order against the commissioner, or his
agent, employee, or representative shall become effective until plaintiff executes a bond
in an amount and conditioned as the court directs. The bond shall be made payable to the
clerk of the court, shall be approved by the judge, and shall be for the use and benefit
of all persons who may be injured by the acts done under the protection of the
restraining order or injunction. Any action upon the bond by any person claiming injury
shall be brought within not more than six months after the date of final determination of
the validity, in whole or in part, of such statute, provision of this article, or rule,
regulation or order, the enforcement of which was restrained or enjoined.
27-526 Appeals
In an action brought under this article, or an action which involves any rule,
regulation or order made under this article, any party to the action shall have the right
to appeal from the superior court to the supreme court as provided by law or rules of
court relating to appeals in civil actions.
27-527 Violation; classification
A. Any person who violates any provision of this article, or any rule, regulation
or order of the commission, is subject to a civil penalty of not more than one thousand
dollars for each violation and for each day the violation continues.
B. Any person who, with the intent to evade this article, or any rule, regulation
or order of the commission, knowingly makes or causes to be made a false entry in any
application, report, record, account or memorandum required by this article or by any
such rule, regulation or order, or who knowingly omits or causes to be omitted from any
application, report, record, account or memorandum, full, true and correct entries as
required by this article, or by any such rule, regulation or order, or who knowingly
removes from this state, or destroys, mutilates, alters or falsifies any such
application, record, account or memorandum or knowingly makes any false statement to the
commission or any member, officer, or employee of the commission concerning any matter
within the jurisdiction of the commission is guilty of a class 2 misdemeanor.
C. The penalties provided in this section shall be recoverable by action filed by
the attorney general, in the name and on behalf of the state, in the superior court of
the county in which the defendant resides, or in which any defendant resides if there are
more than one defendant, or in the superior court of any county in which the violation
occurred. The payment of any penalty shall not operate to legalize so that it is no
longer contraband any oil, gas or product involved in the violation for which the penalty
is imposed, and shall not relieve a person on whom the penalty is imposed from liability
to any other person for damages arising out of the violation.
27-531 Integration of interests and spacing units
A. To prevent or to assist in preventing waste, to insure a greater recovery of oil
and gas, and to protect the correlative rights of persons owning interests in the tracts
of lands affected, such persons may validly integrate their interests to provide for the
unitized management, development and operation of such tracts of land as a unit. Where,
however, such persons have not agreed to so integrate their interests, the commission,
upon proper petition, after notice and hearing as provided in section 27-516 shall be
vested with the jurisdiction and authority, and it shall be its duty to make and enforce
such orders and do such things as may be necessary or proper to carry out and effectuate
the purposes of this article.
B. The commission shall make an order providing for the unitized operation of a
pool or part thereof if, after proper petition and notice and hearing it finds that:
1. The unitized management, operation and further development of a pool or portion
thereof is reasonably necessary in order to effectively carry on pressure control,
pressure-maintenance or repressuring operations, cycling operations, water flooding
operations, or any combination thereof, or any other form of joint effort calculated to
substantially increase the ultimate recovery of oil and gas from the pool; and
2. One or more of the unitized methods of operation as applied to such pool or
portion thereof are feasible, will prevent waste and will, with reasonable probability,
result in the increased recovery of substantially more oil and gas from the pool than
would otherwise be recovered; and
3. The estimated additional cost, if any, of conducting such operations will not
exceed the value of the additional oil and gas so recovered.
27-532 Order; units and unit areas; plan of unitization
The order of the commission shall define the area of the pool 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 shall be limited to all or a
portion of a single pool. Only so much of a pool as has been defined and determined to
be productive of oil and gas by actual drilling operations may be so included within the
unit area. A unit may be created to embrace less than the whole of a pool 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 of operation for which the unit is created, and that the conduct
thereof will have no material adverse effect upon the remainder of such pool. The plan
of unitization for each such unit and unit area shall 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 purpose of this article, and subject to the further requirements
hereof, each such plan of unitization shall 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 pool 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 the
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 shall be by vote
of the lessees in the unit in a manner provided in the plan of unitization and not by the
commission.
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 and 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 shall 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 consideration acreage, the quantity of oil and gas recoverable
therefrom, location on the structure, its probable productivity of oil and gas in the
absence of unit operations, the burden of operations 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 this article 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
interest 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 rate of interest as may be fair to all concerned, reasonable
provision shall be made in the plan of unitization for carrying or otherwise financing
lessees who are unable to meet promptly their financial obligations in connection with
the unit.
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 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.
6. The time when the plan of unitization shall become effective.
7. The time when and the conditions under which and the method by which the unit
shall or may be dissolved and its affairs wound up.
27-533 Ratification or approval of plan by lessees and owners
A. No order of the commission creating a unit and prescribing the plan of
unitization applicable thereto shall become effective unless and until the plan of
unitization has been signed, or in writing ratified or approved by lessees of record of
not less than sixty-three per cent of the unit area affected thereby and by owners of
record of not less than sixty-three per cent (exclusive of royalty interest owned by
lessees or by subsidiaries of any lessee) of the normal one-eighth royalty interest in
and to the unit area, and the commission has made a finding either in the order creating
the unit or in a supplemental order that the plan of unitization has been so signed,
ratified or approved by lessees and royalty owners owning the required percentage
interest in and to the unit area. Where the plan of unitization has not been so signed,
ratified or approved by lessees and royalty owners owning the required percentage
interest in and to the unit area at the time the order creating the unit is made, the
commission shall, upon petition and notice, hold such additional and supplemental
hearings as may be requested or required to determine if and when the plan of unitization
has been so signed, ratified or approved by lessees and royalty owners owning the
required percentage interest in and to the unit area and shall, in respect to such
hearings, make and enter a finding of its determination in such regard. In the event
lessees and royalty owners, or either, owning the required percentage interest in and to
the unit area have not so signed, ratified or approved the plan of unitization within a
period of six months from and after the date on which the order creating the unit is
made, the order creating the unit shall cease to be of further force and effect and shall
be revoked by the commission.
B. An order providing for unit operations may be amended by an order made by the
commission, in the same manner and subject to the same conditions as an original order
providing for unit operations, provided:
1. 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.
2. No such order of amendment shall change the percentage for allocation of oil and
gas as established for any separately owned tract by the original order, except with the
consent of all persons owning interests in such tract.
C. The commission, by an order, may provide for the unit operation of a pool or a
part thereof that embraces a unit area established by a previous order of the
commission. 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.
27-534 Unlawful operation
From and after the effective date of an order of the commission creating a unit and
prescribing the plan of unitization applicable thereto, the operation of any well
producing from the pool or portion thereof within the unit area defined in the order by
persons other than the unit or persons acting under its authority or except in the manner
and to the extent provided in such plan of unitization shall be unlawful and is
prohibited.
27-535 Status and powers of unit; liability and expenses; lien
A. The obligation or liability of the lessees or other owners of the oil and gas
rights in the several separately owned tracts for the payment of unit expense shall at
all times be several and not joint or collective and in no event shall a lessee or other
owner of the oil and gas rights in the separately owned tract be chargeable with,
obligated or liable, directly or indirectly, for more than the amount apportioned,
assessed or otherwise charged to his interest in such separately owned tract pursuant to
the plan of unitization and then only to the extent of the lien provided for in this
article.
B. Subject to such reasonable limitations as may be set out in the plan of
unitization, the unit shall have a first and prior lien upon the leasehold estate and all
other oil and gas rights (exclusive of one-eighth landowners' royalty interest) in and to
each separately owned tract, the interest of the owners thereof in and to the unit
production and all equipment in the possession of the unit, to secure the payment of the
amount of the unit expense charged to and assessed against such separately owned
tract. The interest of the lessee or other persons who by lease, contract or otherwise
are obligated or responsible for the cost and expense of developing and operating a
separately owned tract for oil and gas in the absence of unitization shall, however, be
primarily responsible for and charged with any assessment for unit expense made against
such tract and resort may be had to overriding royalties, oil and gas payments, royalty
interests in excess of one-eighth of the production, or other interests which otherwise
are not chargeable with such costs, only in the event the owner of the interest primarily
responsible fails to pay such assessment or the production to the credit thereof, is
insufficient for that purpose. In the event the owner of any royalty interest,
overriding royalty, oil or gas payment, or any other interest which under the plan of
unitization is not primarily responsible therefor pays in whole or in part the amount of
an assessment for unit expense for the purpose of protecting such interest or the amount
of the assessment in whole or in part is deducted from the unit production to the credit
of such interest, the owner thereof shall to the extent of such payment or deduction be
subrogated to all the rights of the unit with respect to the interest or interests
primarily responsible for such assessment. A one-eighth part of the unit production
allocated to each separately owned tract shall in all events be regarded as royalty to be
distributed to and among, or the proceeds thereof paid to, the royalty owners free and
clear of all unit expense and free of any lien therefor.
27-536 Modification of property rights, leases and contracts; title to property; distribution of proceeds; delivery in kind; effect of operations; matters not affected
A. Property rights, leases, contracts and all other rights and obligations shall be
regarded as amended and modified to the extent necessary to conform to the provisions and
requirements of this article, and to any valid and applicable plan of unitization or
order of the commission made and adopted pursuant hereto, but otherwise to remain in full
force and effect. 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.
B. Nothing contained in this article shall be construed to require a transfer to or
vesting in the unit of title to the separately owned tracts or leases thereon within the
unit area, other than the right to use and operate the same to the extent set out in the
plan of unitization, nor shall the unit be regarded as owning the unit production. The
unit production and the proceeds from the sale thereof shall be owned by the several
persons to whom the same is allocated under the plan of unitization. All property,
whether real or personal, which the unit may in any way acquire, hold or possess, shall
not be acquired, held and possessed by the unit for its own account but shall be so
acquired, held and possessed by the unit for the account and as agent of the several
lessees and shall be the property of such lessees as their interests may appear under the
plan of unitization, subject, however, to the right of the unit to the possession,
management, use or disposal of the same in the proper conduct of its affairs, and subject
to any lien the unit may have thereon to secure the payment of unit expense. Neither the
unit production or proceeds of the sale thereof, nor the other receipts shall be treated,
be regarded, or taxed as income or profits of the unit; but instead, all such receipts
shall be the income of the several persons to whom or to whose credit the same are
payable under the plan of unitization. To the extent the unit may receive or disburse
said receipts it shall only do so as a common administrative agent of the persons to whom
the same are payable.
C. The amount of the unit production allocated to each separately owned tract
within the unit, and only that amount, regardless of the well or wells in the unit area
from which it may be produced and regardless of whether it be more or less than the
amount of the production from the well or wells, if any, on any such separately owned
tract, shall for all intents, uses and purposes be regarded and considered as production
from such separately owned tract, and except as may be otherwise authorized in this
article, or in the plan of unitization approved by the commission, shall be distributed
among or the proceeds thereof paid to the several persons entitled to share in the
production from such separately owned tract in the same manner, in the same proportions,
and upon the same conditions that they would have participated and shared in the
production or proceeds thereof from such separately owned tract had not said unit been
organized and with the same legal force and effect. If adequate provisions are made for
the receipt thereof, the share of the unit production allocated to each separately owned
tract shall be delivered in kind to the persons entitled thereto by virtue of ownership
of oil and gas rights therein or by purchase from such owners subject to the rights of
the unit to withhold and sell the same in payment of unit expense pursuant to the plan of
unitization, and subject further to the call of the unit on such portions of the gas for
operating purposes as may be provided in the plan of unitization.
D. Operations carried on under and in accordance with the plan of unitization shall
be regarded and considered as a fulfillment of and compliance with all of the provisions,
covenants and conditions, express or implied, of the several oil and gas leases upon
lands included within the unit area, or other contracts pertaining to the development
thereof insofar as said leases or other contracts may relate to the pool or portion
thereof included in the unit area. Wells drilled or operated on any part of the unit
area no matter where located shall for all purposes be regarded as wells drilled on each
separately owned tract within such unit area.
E. Nothing in this article or in any plan of unitization shall be construed as
increasing or decreasing the implied covenants of a lease in respect to a common source
of supply or lands not included within the unit area of a unit.
27-537 Enlargement of area; creation of new units; amendment of plan
The unit area of a unit may be enlarged to include adjoining portions of the same
pool, including the unit area of another unit, and a new unit created for the unitized
management, operation and further development of such enlarged unit area, or the plan of
unitization may be otherwise amended, all in the same manner, upon the same conditions
and subject to the same limitations as provided in this article with respect to the
creation of a unit in the first instance; except that where the amendment to the plan of
unitization relates only to the rights and obligations as between lessees the requirement
that the same be signed, ratified and approved by royalty owners of record of not less
than sixty-three per cent of the unit area shall have no application.
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