By Chisum H.B. No. 1354
75R2357 MI-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to authorizing plans for unit operations for oil and gas
1-3 production.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Subtitle C, Title 3, Natural Resources Code, is
1-6 amended by adding Chapter 104 to read as follows:
1-7 CHAPTER 104. UNITIZATION
1-8 SUBCHAPTER A. GENERAL PROVISIONS
1-9 Sec. 104.001. SHORT TITLE. This chapter may be cited as the
1-10 State Assisted Unitization Act.
1-11 Sec. 104.002. DEFINITIONS. In this chapter:
1-12 (1) "Commission" means the Railroad Commission of
1-13 Texas.
1-14 (2) "Common source of supply" means an accumulation or
1-15 multiple accumulations of oil and gas that can best be produced and
1-16 operated as a single reservoir.
1-17 (3) "COPAS" means the Council of Petroleum Accounts
1-18 Societies of North America.
1-19 (4) "Extraneous substances" are hydrocarbon or other
1-20 substances purchased or otherwise obtained from outside a unit area
1-21 for injection into the common source of supply during unit
1-22 operations.
1-23 (5) "Oil and gas" includes oil and gas separately or
1-24 in combination, oil, gas, and other hydrocarbons and other
2-1 substances in solution or suspension, or any combination of those
2-2 substances found in or produced from the unit area.
2-3 (6) "Plan of unitization" means a plan or agreement
2-4 that is consistent with the requirements of this chapter between
2-5 working interest owners and royalty owners of mineral interests in
2-6 a common reservoir in which unit operations may be conducted to
2-7 enhance the production of oil or gas or oil and gas from the common
2-8 reservoir above the volumes that would otherwise be produced by
2-9 primary recovery operations only.
2-10 (7) "Primary recovery" means the displacement of oil
2-11 or gas or oil and gas from the earth into the well bore by means of
2-12 the natural pressure of the reservoir, including artificial lift.
2-13 (8) "Royalty interest" means the right to, or interest
2-14 in, oil and gas or proceeds of oil and gas production. The term
2-15 does not include a working interest.
2-16 (9) "Royalty owner" means the owner of a royalty
2-17 interest.
2-18 (10) "Tract" means a parcel of land of uniform
2-19 ownership lying within the unit area that, immediately before
2-20 unitization:
2-21 (A) was not producing; or
2-22 (B) was under separate operation for production
2-23 of oil and gas.
2-24 (11) "Tract participation" means the percentage shown
2-25 in the plan of unitization for allocating unit production to a
2-26 tract.
2-27 (12) "Unit area" includes the surface area inside the
3-1 boundaries of the unit and the common source of supply or the part
3-2 of the common source underlying the surface area that may be
3-3 reasonably required for conduct of unit operations. "Unit area,"
3-4 "unit," or "prior unit" includes only those units formed
3-5 voluntarily or by commission order for the purpose of unit
3-6 operations.
3-7 (13) "Unit expense" includes any cost or expense
3-8 incurred in the conduct of unit affairs or unit operations.
3-9 (14) "Unit operations" means:
3-10 (A) operations related to the production of oil
3-11 and gas from the unit area, including:
3-12 (i) cycling;
3-13 (ii) recycling;
3-14 (iii) repressuring;
3-15 (iv) waterflooding;
3-16 (v) pressure maintenance;
3-17 (vi) tertiary recovery operations; or
3-18 (vii) other operations to increase the
3-19 ultimate recovery of oil or gas, oil and gas, or other hydrocarbons
3-20 from the proposed unit area; or
3-21 (B) the establishment and operation of the
3-22 necessary facilities for the operations listed in Paragraph (A).
3-23 (15) "Unit operator" means the working interest owner
3-24 designated under the plan of unitization to conduct unit
3-25 operations, acting as operator and not merely as a working interest
3-26 owner.
3-27 (16) "Unit participation of a royalty owner" means the
4-1 percentage equal to the product obtained by multiplying the
4-2 royalty interest of each royalty owner in each tract by the tract
4-3 participation of the tract.
4-4 (17) "Unit participation of a working interest owner
4-5 or unleased mineral interest owner" means the percentage equal to
4-6 the product obtained by multiplying the working interest of the
4-7 working interest owner in each tract or, if the working interest
4-8 owner is an unleased mineral interest owner, the mineral interest
4-9 of that owner in each tract, by the tract participation of the
4-10 tract.
4-11 (18) "Unit production" includes all oil and gas
4-12 produced and saved from a unit area after the effective date of the
4-13 unit regardless of the well or tract in the unit area from which
4-14 the oil and gas are produced. The term does not include the
4-15 following substances if the working interest owners under a lease,
4-16 contract, or agreement have excluded the substances from unit
4-17 production:
4-18 (A) recoverable extraneous substances injected
4-19 into the common source of supply or used in well treatment or
4-20 pressure maintenance;
4-21 (B) any production that is reinjected into the
4-22 unit area, unless the reinjected production is removed from the
4-23 unit area for non-unit purposes or sold, in which case it will be
4-24 considered to be unit production; or
4-25 (C) any production used or consumed in unit
4-26 operations.
4-27 (19) "Working interest" means an interest in oil and
5-1 gas by virtue of a lease, operating agreement, fee title, or
5-2 otherwise, including a carried interest, the owner of which is
5-3 obligated to pay, in cash, out of production, or otherwise, the
5-4 owner's share of the unit expense under the proposed plan of
5-5 unitization. Any interest in unleased lands or mineral rights is
5-6 considered a working interest to the extent of thirteen-sixteenths
5-7 (13/16) of that interest with all the rights and obligations of a
5-8 lessee as if the mineral rights were leased, and a royalty interest
5-9 to the extent of three-sixteenths (3/16) of that interest. If the
5-10 owner makes an oil and gas lease on that interest, the working
5-11 interest and royalty interest are as stated in the lease.
5-12 (20) "Working interest owner" means the owner of
5-13 working interest.
5-14 Sec. 104.003. POWER AND AUTHORITY OF COMMISSION. (a) The
5-15 commission shall make and enforce any order and perform any act
5-16 necessary to carry out the purposes of this chapter.
5-17 (b) The commission in accordance with this chapter may
5-18 determine whether a plan of unitization proposed under this chapter
5-19 for all or part of a common reservoir is fair, reasonable, and
5-20 equitable for all interests concerned, and necessary to carry out
5-21 the purposes of this chapter.
5-22 (c) Subject to this chapter and the commission's selective
5-23 use of the appropriate provisions of Subchapters C and E, Chapter
5-24 81, the commission by rule shall establish any additional
5-25 requirements and shall issue and enforce any order or perform any
5-26 act it finds necessary to promote the planned development and
5-27 operations of common sources of supply for the ultimate enhanced
6-1 recovery of natural resources, the prevention of waste, or the
6-2 protection of the correlative rights of the owners in each unitized
6-3 area.
6-4 Sec. 104.004. APPLICABILITY. (a) This chapter does not
6-5 apply to any production, lease, royalty, or other interest that is
6-6 subject to an agreement approved by the commission before January
6-7 1, 1969, under Section 101.011.
6-8 (b) This chapter does not affect a voluntary cooperative
6-9 agreement in secondary recovery operations as provided by
6-10 Subchapter B, Chapter 101.
6-11 Sec. 104.005. PARTICIPATION IN PLAN BY GOVERNMENTAL AGENCY.
6-12 The state or an agency or political subdivision of the state,
6-13 subject to other applicable laws, may participate in a plan of
6-14 unitization under this chapter with regard to any land owned by the
6-15 entity.
6-16 Sec. 104.006. CONFLICT WITH ANTITRUST ACTS. (a) An
6-17 agreement, plan of unitization, or operation under an agreement
6-18 that complies with this chapter and is necessary to prevent waste
6-19 and conserve the natural resources of this state may not be
6-20 construed in violation of Chapter 15, Business & Commerce Code.
6-21 (b) If a court finds a conflict between this chapter and
6-22 Chapter 15, Business & Commerce Code, this chapter is intended as a
6-23 reasonable exception to that law that is necessary for the public
6-24 interest described by Subsection (a).
6-25 (c) If a court finds a conflict between this chapter and
6-26 Chapter 15, Business & Commerce Code, and finds that this chapter
6-27 is not a reasonable exception to Chapter 15, the legislature
7-1 intends that this chapter, or any conflicting part of this chapter,
7-2 be declared invalid rather than that Chapter 15, Business &
7-3 Commerce Code, or any portion of that chapter, be declared invalid.
7-4 Sec. 104.007. APPEALS. A person affected by an order of the
7-5 commission issued under this chapter is entitled to judicial review
7-6 of that order in accordance with Chapter 2001, Government Code.
7-7 (Sections 104.008-104.020 reserved for expansion
7-8 SUBCHAPTER B. APPLICATION PROCEDURES; CONSIDERATION
7-9 AND APPROVAL OF PLAN
7-10 Sec. 104.021. APPLICATION FOR UNITIZATION. (a) Any working
7-11 interest owner may file an application with the commission
7-12 requesting an order for the unit operation of a common source of
7-13 supply or a part of that common source of supply.
7-14 (b) The application shall contain:
7-15 (1) a description of the proposed unit area and the
7-16 vertical limits and producing horizons to be included in that unit
7-17 area with a map or plat attached;
7-18 (2) a statement of the type of operations contemplated
7-19 for the unit area;
7-20 (3) a copy of a proposed plan of unitization that the
7-21 applicant considers fair, reasonable, and equitable;
7-22 (4) an allegation of the facts required to be found by
7-23 the commission under Section 104.024; and
7-24 (5) an allegation that the applicant has obtained at
7-25 least the minimum required approval of the plan of unitization as
7-26 required by Section 104.026.
7-27 (c) The applicant shall submit with the application a list
8-1 including:
8-2 (1) the name of each person owning or having a working
8-3 or royalty interest in the proposed unit area and each adjacent
8-4 offset operator as reflected in the working interest owners'
8-5 division order records or the deed records for each county in which
8-6 the unit area is located; and
8-7 (2) an address for each person listed or a statement
8-8 that the person's address is unknown.
8-9 Sec. 104.022. HEARING REQUIRED. (a) On receipt of an
8-10 application, the commission shall promptly set the matter for
8-11 hearing and cause notice of the hearing to be given as provided in
8-12 Section 104.023.
8-13 (b) At the hearing an interested party is entitled to be
8-14 heard, to introduce evidence, and to introduce witnesses.
8-15 Sec. 104.023. NOTICE. (a) Notice of the application and
8-16 the time and place of the hearing on the application shall be
8-17 mailed, postage prepaid, not later than the 30th day before the
8-18 hearing date to each working interest owner, operator, and royalty
8-19 owner in the unit area and to each offset operator whose name and
8-20 address is shown on the list provided by the applicant under
8-21 Section 104.021.
8-22 (b) Notice of an application and the time and place of
8-23 hearing shall be published in at least one issue of a newspaper
8-24 authorized by law to publish legal notices in the county or
8-25 counties in which the land involved is located, or in another
8-26 newspaper or publication designated by the commission, not later
8-27 than the 30th day before the hearing date.
9-1 (c) Typographical errors in a notice that are not material
9-2 do not affect the validity of the notice.
9-3 Sec. 104.024. FINDINGS OF COMMISSION. After notice and a
9-4 hearing as provided by Sections 104.022 and 104.023, the commission
9-5 shall find whether:
9-6 (1) the unitized operation of the common source of
9-7 supply or the part of the common source of supply involved in the
9-8 plan of unitization is reasonably necessary to conduct unit
9-9 operations and the plan of unitization provides for unit operations
9-10 consistent with the prevention of waste, the protection of
9-11 correlative rights, and the prevention of the drilling of
9-12 unnecessary wells;
9-13 (2) the value of the estimated recovery from the
9-14 common source of supply will exceed any estimated additional cost
9-15 incident to conducting unit operations;
9-16 (3) the proposed plan of unitization is fair,
9-17 reasonable, and equitable in that it prevents waste and promotes
9-18 conservation of natural resources while giving due regard to the
9-19 correlative rights of the owners in the unit area;
9-20 (4) the expense of establishing the unit that is to be
9-21 charged as unit expense is reasonable and necessary;
9-22 (5) the productive limits of the common source of
9-23 supply or the part of the common source of supply proposed for
9-24 unitization have been reasonably defined by development and the
9-25 area proposed for unitization is reasonably necessary and
9-26 sufficient for unit operations; and
9-27 (6) the plan of unitization meets the requirements of
10-1 Subchapter C and reasonably conforms to the requirements of this
10-2 chapter.
10-3 Sec. 104.025. UNITIZATION ORDER. (a) If the commission
10-4 finds that all the conditions under Section 104.024 exist, the
10-5 commission shall order the unitized operation of the unit area.
10-6 (b) The order shall:
10-7 (1) unitize the interests of all owners in the unit
10-8 area regardless of whether those owners have approved the plan of
10-9 unitization in writing;
10-10 (2) approve the area of the common source of supply or
10-11 the part of the common source of supply to be included in the unit
10-12 area and the vertical limits of the common source of supply;
10-13 (3) approve the plan of unitization; and
10-14 (4) designate the initial unit operator designated in
10-15 the plan of unitization.
10-16 Sec. 104.026. APPROVAL OF THE PLAN OF UNITIZATION BY WORKING
10-17 INTEREST AND ROYALTY OWNERS. (a) A plan of unitization must be
10-18 approved in writing by:
10-19 (1) the owners, on a tract participation basis, of at
10-20 least 75 percent of the aggregate unit working interests and by the
10-21 owners, on a tract participation basis, of at least 75 percent of
10-22 the aggregate unit royalty interests; or
10-23 (2) the owners of working interests and royalty
10-24 interests who, on a tract participation basis, will be entitled to
10-25 at least 75 percent of all production from the unit area or
10-26 proceeds of that production, provided that it is approved by the
10-27 owners, on a tract participation basis, of at least 50 percent of
11-1 the aggregate unit royalty interests.
11-2 (b) A commission order providing for unit operations is not
11-3 effective until the commission makes a finding, either in the order
11-4 providing for unit operations or in a supplemental order, that the
11-5 plan of unitization has been approved as required by Subsection
11-6 (a).
11-7 (c) If the plan of unitization has not been approved as
11-8 required by this section within six months after the date the order
11-9 providing for unit operations is issued, the order expires unless
11-10 the commission extends the six-month period for an additional
11-11 period not to exceed one year.
11-12 (Sections 104.027-104.040 reserved for expansion
11-13 SUBCHAPTER C. PLAN OF UNITIZATION
11-14 Sec. 104.041. AUTHORIZED PLANS. (a) Subject to Subsection
11-15 (b), a plan of unitization may be proposed under this chapter for
11-16 the following purposes:
11-17 (1) to establish units and cooperative facilities
11-18 necessary for unit operations;
11-19 (2) to establish units and cooperative facilities
11-20 necessary for the conservation and use of oil and gas, including
11-21 units and facilities for extracting and separating the hydrocarbons
11-22 from the natural gas or casinghead gas and returning the dry gas to
11-23 a formation underlying any land or leases committed to the unit
11-24 area; or
11-25 (3) to establish units necessary for other operations
11-26 to prevent waste, protect correlative rights, or prevent the
11-27 drilling of unnecessary wells.
12-1 (b) The commission may not approve a plan of unitization
12-2 unless the purpose of the plan is to increase substantially the
12-3 production of oil or gas or oil and gas above the volume that would
12-4 otherwise be produced from the primary recovery operations alone.
12-5 (c) The plan of unitization and the commission order of
12-6 approval may provide for unit operation of less than the whole of a
12-7 common source of supply if the unit area is of a size and shape
12-8 that is reasonably suitable for that purpose, and that operation
12-9 will not have an unreasonable adverse effect on the other parts of
12-10 the common source of supply that are not included in the plan of
12-11 unitization.
12-12 Sec. 104.042. SINGLE OR MULTIPLE AGREEMENTS. The plan of
12-13 unitization may consist of one or more agreements that the
12-14 applicant considers to be fair, reasonable, and equitable.
12-15 Sec. 104.043. PARTICIPATION; ALLOCATION OF UNIT PRODUCTION.
12-16 (a) The plan shall provide for the apportionment and allocation of
12-17 the unit production among the tracts in the unit area in order to
12-18 reasonably permit a person entitled to share in, or benefit by,
12-19 the production from a tract in the unit to receive a fair share of
12-20 the unit production or other benefits.
12-21 (b) A tract's fair share of the unit production shall be
12-22 measured by the value of each tract and its contributing value to
12-23 the unit in relation to like values of other tracts in the unit,
12-24 taking into account acreage, the quantity of oil and gas
12-25 recoverable from the tract, its location on structure, its probable
12-26 productivity of oil and gas in the absence of unit operations, or
12-27 as many of those factors or other pertinent engineering,
13-1 geological, or operating factors as can be reasonably determined.
13-2 Sec. 104.044. VOTING BY WORKING INTEREST OWNERS. The plan
13-3 of unitization shall establish a voting procedure for decisions by
13-4 the working interest owners. Each working interest owner must have
13-5 a voting interest equal to the owner's unit participation.
13-6 Sec. 104.045. OPERATING PLAN. The plan of unitization shall
13-7 include a proposed operating plan establishing the manner in which
13-8 the unit will be supervised and managed, unit operations will be
13-9 conducted, and costs will be allocated and paid.
13-10 Sec. 104.046. EFFECTIVE DATE AND TERMINATION DATE OF PLAN OF
13-11 UNITIZATION. (a) The plan of unitization shall provide for the
13-12 date on which the plan takes effect, the manner in which and the
13-13 circumstances under which unit operations terminate, the settlement
13-14 of accounts on termination, and notice by the unit operator to the
13-15 public within 30 days after the effective date of the unit. Notice
13-16 shall be given by filing for record, in the real property records
13-17 of the county or counties in which the unit area or any part of the
13-18 unit area is located, a certificate containing:
13-19 (1) the name of the unit;
13-20 (2) the legal description of the land included in the
13-21 unit area and a description of the common source of supply or the
13-22 part of the common source of supply included in the unit area;
13-23 (3) the commission docket number;
13-24 (4) the date of the commission order, including any
13-25 supplemental orders, relating to approval of the plan of
13-26 unitization;
13-27 (5) the effective date of unit operations; and
14-1 (6) the percentage of participation of each tract.
14-2 (b) The plan of unitization shall require the unit operator
14-3 to file for record a certificate stating the date the unit
14-4 operations will terminate.
14-5 Sec. 104.047. FINANCING UNIT OPERATIONS. The plan of
14-6 unitization shall provide the manner in which the costs and
14-7 expenses of unitized operations, including investment, are charged
14-8 to the separately owned tracts or interests and shall include a
14-9 detailed accounting procedure for all charges and credits incident
14-10 to the operations. The costs and expenses chargeable to a tract or
14-11 interest shall be paid by the working interest owners who, in the
14-12 absence of unit operations, would be responsible for the costs and
14-13 expenses of developing and operating the tract or interest. The
14-14 plan shall also provide for the auditing of records.
14-15 Sec. 104.048. ATTACHMENT OF PROCEEDS OF PRODUCTION TO COVER
14-16 DEBTS OF NONAPPROVING WORKING INTEREST OWNERS. (a) The plan of
14-17 unitization shall provide for carrying or otherwise financing a
14-18 working interest owner who has not approved the plan under Section
14-19 104.026 and is not paying the owner's share of the costs of unit
14-20 operations. The plan of unitization shall allow an interest charge
14-21 against the nonapproving owner payable out of the owner's share of
14-22 production at a rate equal to the interest rate set out in the
14-23 COPAS or other accounting exhibit attached to and made a part of
14-24 the unit agreement or unit operating agreement.
14-25 (b) The plan of unitization shall allow the additional
14-26 attachment of proceeds due any nonapproving owner who is not paying
14-27 the owner's share of the costs of unit operations as compensation
15-1 to the approving owner or owners for assuming the investment risk
15-2 of the nonapproving owner. The compensation amount may not exceed
15-3 200 percent of the nonapproving owner's share of unit costs and
15-4 expenses, with the maximum compensation amount to be set by the
15-5 commission in each case. An interest charge equal to the interest
15-6 rate specified in Subsection (a) shall be applied to the
15-7 compensation amounts set by the commission.
15-8 (c) The plan of unitization shall provide that
15-9 thirteen-sixteenths (13/16) of the unit production allocated to the
15-10 nonapproving owner of each separately owned tract or interest that
15-11 does not pay the share of the unit expenses charged and additional
15-12 compensation amounts applied to that nonapproving owner may be
15-13 appropriated by the unit operator and marketed and sold for the
15-14 payment of unit costs, expenses, and additional compensation
15-15 amounts. Any money remaining after payment of unit expenses and
15-16 additional compensation amounts shall be remitted to the
15-17 nonapproving working interest owner.
15-18 (d) As to any unleased interest located in the unit,
15-19 three-sixteenths (3/16) of the production as provided in Section
15-20 104.097(b) shall be free and clear of all unit expenses and
15-21 additional compensation amounts. Thirteen-sixteenths (13/16) of
15-22 the production is subject to being financed or carried under this
15-23 section.
15-24 Sec. 104.049. INVESTMENT ADJUSTMENTS AND PROPERTY TAKEN
15-25 OVER. The plan of unitization shall provide for the procedure and
15-26 basis for adjustment among the owners of the unit area of their
15-27 respective investment in wells, tanks, pumps, machinery, materials,
16-1 equipment, facilities, and other items of value taken over and used
16-2 in unit operations.
16-3 Sec. 104.050. ADDITIONAL PLAN PROVISIONS. The plan of
16-4 unitization may include any additional provisions that are
16-5 reasonably appropriate for carrying on unit operations.
16-6 (Sections 104.051-104.070 reserved for expansion
16-7 SUBCHAPTER D. AMENDMENT OF PLAN OR
16-8 ORDER OF UNITIZATION; EXPANSION OF
16-9 UNIT AREA
16-10 Sec. 104.071. AMENDMENT OF PLAN OR ORDER FOR UNITIZATION.
16-11 (a) An original or supplemental order may be amended in the same
16-12 manner and subject to the same conditions as are required for an
16-13 original order providing for unitized operations.
16-14 (b) Approval of an amendment by royalty owners is not
16-15 required if the amendment affects only the rights and interests of
16-16 working interest owners.
16-17 (c) An amendment to an order may not, without the aggregate
16-18 approval of at least the minimum percentage of working interest and
16-19 royalty interest ownership required under Section 104.026 for
16-20 approval of unitization:
16-21 (1) change the unit oil and gas participation
16-22 percentage allocated to each tract in the plan approved by the
16-23 original or supplemental order approving the existing unit; or
16-24 (2) change the percentage for allocation of unit
16-25 expenses to each tract in the plan of unitization approved by the
16-26 original or supplemental order for the existing unit.
16-27 (d) This section does not apply to an order:
17-1 (1) expanding an existing unit area under Section
17-2 104.072; or
17-3 (2) creating a new unit area under Section 104.073.
17-4 Sec. 104.072. EXPANSION OF UNIT AREA. (a) In accordance
17-5 with this section and subject to Section 104.073, an existing unit
17-6 area may be expanded to include additional tracts under the terms
17-7 contained in the plan of unitization for the existing unit.
17-8 (b) Working interest owners in the existing unit area must
17-9 approve the expansion in accordance with the voting procedures
17-10 prescribed by the plan of unitization. The requirements for
17-11 creating a new unit under this chapter apply to the expansion of
17-12 the unit area under this section.
17-13 (c) Allocation of unit production from the expanded unit
17-14 shall be calculated first by allocating to the expansion area a
17-15 portion of the total production of oil or gas or both oil and gas
17-16 from the unit area as enlarged. That allocation shall be based on
17-17 the relative contribution to the total production of oil or gas or
17-18 both oil and gas that the expansion area is expected to make during
17-19 the remaining course of unit operations. If the expansion area
17-20 consists of separately owned tracts, the production allocated to
17-21 the expansion area shall be allocated to the separately owned
17-22 tracts in proportion to the relative contribution of each of those
17-23 tracts as provided by Section 104.043. The remaining portion of
17-24 unit production shall be allocated among the tracts in the existing
17-25 unit area in the same proportions as those set out in the existing
17-26 plan of unitization.
17-27 Sec. 104.073. ENLARGEMENT INCLUDING ALL OR PART OF
18-1 PREVIOUSLY ESTABLISHED UNIT. (a) The commission by order may
18-2 create a new unit area that includes all or part of a unit area
18-3 established by previous commission order either voluntarily or
18-4 under this chapter.
18-5 (b) The order, in allocating unit production, shall first
18-6 treat the unit area previously established as a single tract, and
18-7 the portion of the unit production allocated to that tract shall
18-8 then be allocated among the separately owned tracts included in the
18-9 previously established unit area in the same proportion as set
18-10 forth in the previous order.
18-11 (Sections 104.074-104.090 reserved for expansion
18-12 SUBCHAPTER E. UNIT OPERATIONS
18-13 Sec. 104.091. STATUS OF PRODUCTION PROCEEDS; DISTRIBUTION.
18-14 (a) Unit production, proceeds from the sale of production, or
18-15 other receipts may not be treated or taxed as income or profit of
18-16 the unit. All unit production and proceeds are income of the
18-17 owners to whom or to whose credit the production or proceeds are
18-18 payable under the plan of unitization.
18-19 (b) The unit operator may receive or disburse production or
18-20 proceeds under the plan of unitization without becoming an agent of
18-21 any person to whom the production or proceeds is payable.
18-22 Sec. 104.092. LIABILITY OF WORKING INTEREST OWNER. (a) The
18-23 liability of a working interest owner for payment of unit expense
18-24 is several and not joint or collective.
18-25 (b) Except as provided by this subsection and Section
18-26 104.048, a working interest owner in a tract is not liable,
18-27 directly or indirectly, for more than the amount charged to that
19-1 owner's interest in the tract. A working interest owner shall
19-2 indemnify the operator or share a proportionate part of a
19-3 defaulting working interest owner's share as provided by the plan
19-4 of unitization.
19-5 (c) An indemnification provision in a plan of unitization is
19-6 not unenforceable solely because it does not expressly provide that
19-7 the indemnification covers an operator's own negligent acts or
19-8 omissions.
19-9 Sec. 104.093. LIEN FOR COSTS. (a) Subject to any
19-10 reasonable limitations in the plan of unitization, a unit has a
19-11 lien on the leasehold estate and other oil and gas rights in each
19-12 separately owned tract, the interest of the owners in the unit
19-13 production, and all equipment in the possession of the unit to
19-14 secure the payment of the amount of the unit expense and other
19-15 additional compensation charges as provided for in Section 104.048
19-16 charged to each separately owned tract.
19-17 (b) The lien established under this section does not attach
19-18 to the three-sixteenths (3/16) royalty interest or the free of cost
19-19 interest provided in the plan of unitization that allocates costs,
19-20 if that interest is different from three-sixteenths (3/16).
19-21 Sec. 104.094. EFFECT OF UNIT OPERATIONS ON EXPRESSED OR
19-22 IMPLIED COVENANTS. Operations conducted in accordance with a plan
19-23 of unitization approved by the commission are presumed to comply
19-24 with all provisions, covenants, and obligations, express or
19-25 implied, of each lease or contract covering lands in the unit area
19-26 to the extent that the lease or contract relates to the common
19-27 source of supply or the part of the common source of supply
20-1 included in the unit area.
20-2 Sec. 104.095. DISTRIBUTION OF UNIT PRODUCTION. (a) The
20-3 amount of unit production allocated to each tract in the unit, and
20-4 only that amount, regardless of the location of the well or wells
20-5 in the unit area from which it may be produced and regardless of
20-6 whether it is more or less than the amount of any actual production
20-7 from the well or wells on the tract, has, for all purposes, the
20-8 same effect on maintaining the term of each lease or each tract as
20-9 actual production from the tract.
20-10 (b) Except as authorized by this chapter or in a plan of
20-11 unitization approved by the commission, the unit production shall
20-12 be distributed among, or the proceeds paid to, the owners entitled
20-13 to share in the production from the tract in the same manner that
20-14 those owners would have shared in the production or proceeds from
20-15 the tract if the unit had not been established.
20-16 Sec. 104.096. MODIFICATION OF PROPERTY RIGHTS, LEASES,
20-17 CONTRACTS, OR TITLES. (a) Except to the extent that the parties
20-18 affected by the plan of unitization agree, a commission order
20-19 providing for unit operations may not alienate, transfer, or change
20-20 title or ownership, legal or equitable, of a person in or to a
20-21 tract of land or the oil and gas rights in that tract to another
20-22 person or to the unit operator.
20-23 (b) Property rights, leases, contracts, and all other rights
20-24 and obligations shall be regarded as amended and modified to the
20-25 extent necessary to conform to the provisions of this chapter and
20-26 to any plan of unitization approved by the commission.
20-27 Sec. 104.097. ROYALTY OBLIGATIONS; BURDENS; UNLEASED
21-1 INTERESTS. (a) Each working interest owner who is the owner of an
21-2 interest in an oil and gas lease is responsible for the payment of
21-3 a royalty, overriding royalty, or other lease burden affecting the
21-4 owner's leasehold estate unless the plan of unitization provides
21-5 otherwise. If a lease or other contract pertaining to a tract or
21-6 interest stipulates a royalty, overriding royalty, or other lease
21-7 burden in excess of three-sixteenths (3/16) of the production or
21-8 proceeds, the working interest owner subject to that excess payment
21-9 or other obligation shall pay that excess payment.
21-10 (b) Three-sixteenths (3/16) of the production or proceeds,
21-11 free of all unit expense and free of any lien, shall be allocated
21-12 to any unleased interest located in the unit area.
21-13 Thirteen-sixteenths (13/16) of the production or proceeds shall
21-14 bear its pro rata share of all unit expense and is subject to any
21-15 lien provided by this chapter or the plan of unitization.
21-16 Sec. 104.098. UNIT OWNERSHIP OF PRODUCTION, PROCEEDS, AND
21-17 ACQUIRED PROPERTY. (a) The part of the unit production allocated
21-18 to any tract and the proceeds from the sale of that production are
21-19 the property and income of the owners to whom or to whose credit
21-20 the production and proceeds are allocated or payable under the
21-21 order for unit operations.
21-22 (b) Any property that is acquired in the conduct of unit
21-23 operations and charged as an item of unit expense is owned by the
21-24 working interest owners in the unit area as provided in the plan of
21-25 unitization.
21-26 Sec. 104.099. EFFECT OF UNITIZATION ON EXISTING DIVISION
21-27 ORDERS AND CONTRACTS. An order for unit operations does not
22-1 terminate a division order or other contract relating to the sale
22-2 or purchase of production from a separately owned tract. Such a
22-3 division order or contract remains in force and applies to oil and
22-4 gas allocated to the tract until it is terminated in accordance
22-5 with its own terms.
22-6 SECTION 2. This Act is supplemental to other laws relating
22-7 to unitization. Any existing unit agreement or any plan of
22-8 unitization in effect or in the process of being executed on the
22-9 effective date of this Act may be made the subject of an
22-10 application under the terms of Chapter 104, Natural Resources Code,
22-11 as added by this Act, if the agreement otherwise complies with the
22-12 terms of that chapter.
22-13 SECTION 3. The importance of this legislation and the
22-14 crowded condition of the calendars in both houses create an
22-15 emergency and an imperative public necessity that the
22-16 constitutional rule requiring bills to be read on three several
22-17 days in each house be suspended, and this rule is hereby suspended,
22-18 and that this Act take effect and be in force from and after its
22-19 passage, and it is so enacted.