By Chisum H.B. No. 1624
76R554 E
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to authorizing plans for unit operations for oil or oil
1-3 and gas 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 Texas Enhanced Recovery Unitization Act.
1-11 Sec. 104.002. DEFINITIONS. In this chapter:
1-12 (1) "Affiliate" means a corporation, partnership, or
1-13 other legal entity that owns, is owned by, or is under common
1-14 ownership with another corporation, partnership, or legal entity to
1-15 the extent of 50 percent or more or that otherwise controls or is
1-16 controlled by another corporation, partnership, or other legal
1-17 entity. Affiliates of a common entity are also affiliates of each
1-18 other.
1-19 (2) "Commission" means the Railroad Commission of
1-20 Texas.
1-21 (3) "Common source of supply" means:
1-22 (A) a common reservoir as defined by Section
1-23 86.002; or
1-24 (B) separate multiple stratigraphic or
2-1 lenticular accumulations of oil or gas or oil and gas that have
2-2 been recognized and regulated as a common reservoir by the
2-3 commission under Section 86.081(b).
2-4 (4) "Extraneous substances" are hydrocarbon or other
2-5 substances purchased or otherwise obtained from outside a unit area
2-6 for injection into the common source of supply during unit
2-7 operations.
2-8 (5) "Marketing" includes sales of production and
2-9 associated gathering, storage, treatment, and compression.
2-10 (6) "Oil and gas" means "oil" and "gas" as defined by
2-11 Section 85.001.
2-12 (7) "Plan of unitization" means a plan or agreement
2-13 that is consistent with the requirements of this chapter between
2-14 working interest owners and royalty owners in a common reservoir in
2-15 which unit operations may be conducted to enhance the production of
2-16 oil or oil and gas from the common reservoir above the volumes that
2-17 would otherwise be produced by primary recovery operations only.
2-18 (8) "Primary recovery" means the displacement of oil
2-19 or oil and gas from the earth into the well bore by means of the
2-20 natural pressure of the reservoir, including artificial lift.
2-21 (9) "Royalty interest" means the right to, or interest
2-22 in, oil and gas or proceeds of oil and gas production, other than a
2-23 working interest.
2-24 (10) "Royalty owner" means the owner of a royalty
2-25 interest.
2-26 (11) "Tract" means a parcel of land lying within the
2-27 unit area that is under uniform royalty and working interest
3-1 ownership.
3-2 (12) "Tract participation" means the percentage shown
3-3 in the plan of unitization for allocating unit production to a
3-4 tract.
3-5 (13) "Unit area" includes the surface area inside the
3-6 boundaries of the unit and the common source of supply or the part
3-7 of the common source underlying the surface area that may be
3-8 reasonably required for conduct of unit operations.
3-9 (14) "Unit cost" or "unit expense" includes any cost
3-10 or expense incurred in the conduct of unit operations.
3-11 (15) "Unit operations" means:
3-12 (A) operations, other than operations involving
3-13 experimental or unproven enhanced recovery techniques, related to
3-14 the production of oil and gas from the unit area, including:
3-15 (i) repressuring;
3-16 (ii) waterflooding;
3-17 (iii) pressure maintenance;
3-18 (iv) tertiary recovery operations; or
3-19 (v) any other similar operations that are
3-20 incidental or necessary to increase the ultimate recovery of oil or
3-21 gas, oil and gas, or other hydrocarbons from the proposed unit
3-22 area; or
3-23 (B) the establishment and operation of the
3-24 necessary facilities for the operations listed in Paragraph (A).
3-25 (16) "Unit operator" means the person designated under
3-26 the plan of unitization to conduct unit operations, acting as
3-27 operator and not merely as a working interest owner.
4-1 (17) "Unit participation of a royalty owner" means the
4-2 percentage equal to the sum of the products obtained by
4-3 multiplying the royalty interest of each royalty owner in each
4-4 tract by the tract participation of that tract.
4-5 (18) "Unit participation of a working interest owner
4-6 or unleased mineral interest owner" means the percentage equal to
4-7 the sum of the products obtained by multiplying the working
4-8 interest of the working interest owner in each tract or, if the
4-9 working interest owner is an unleased mineral interest owner, the
4-10 mineral interest of that owner in each tract, by the tract
4-11 participation of that tract.
4-12 (19) "Unit production" includes all oil and gas or oil
4-13 or gas produced and saved from a unit area after the effective date
4-14 of the unit regardless of the well or tract in the unit area from
4-15 which the oil and gas are produced. The term does not include the
4-16 following substances if the working interest owners under a lease,
4-17 contract, agreement, or unit plan have excluded the substances from
4-18 unit production:
4-19 (A) recoverable extraneous substances injected
4-20 into the common source of supply or used in well treatment or
4-21 pressure maintenance;
4-22 (B) any production that is reinjected into the
4-23 unit area, unless the reinjected production is later removed from
4-24 the unit area for nonunit purposes or sold, in which case it will
4-25 be considered to be unit production; or
4-26 (C) any production used or consumed in unit
4-27 operations.
5-1 (20) "Working interest" means an interest in oil and
5-2 gas by virtue of a lease, operating agreement, fee title, or
5-3 otherwise, including a carried interest, the owner of which is
5-4 obligated to pay, in cash, out of production, or otherwise, the
5-5 owner's share of the unit expense under the proposed or approved
5-6 plan of unitization.
5-7 (21) "Working interest owner" means the owner of
5-8 working interest.
5-9 Sec. 104.003. POWER AND AUTHORITY OF COMMISSION. (a) The
5-10 commission shall adopt any necessary rule, issue and enforce any
5-11 necessary order, and perform all required acts necessary to carry
5-12 out the purposes of this chapter.
5-13 (b) The commission in accordance with this chapter shall
5-14 determine whether a plan of unitization, including the
5-15 participation formula, proposed under this chapter for all or part
5-16 of a common reservoir is fair, reasonable, and equitable for all
5-17 interests concerned and necessary to carry out the purposes of this
5-18 chapter.
5-19 Sec. 104.004. APPLICABILITY. (a) This chapter does not
5-20 apply to:
5-21 (1) any common source of supply that has produced over
5-22 five billion barrels of oil;
5-23 (2) a gas field that produces primarily dry gas or
5-24 natural gas and condensate; or
5-25 (3) land that has been excluded from unitization under
5-26 Section 104.027.
5-27 (b) This chapter does not affect or apply to a voluntary
6-1 cooperative agreement in secondary recovery operations as provided
6-2 by Subchapter B, Chapter 101.
6-3 Sec. 104.005. APPLICATION TO PUBLIC LAND. (a) This chapter
6-4 does not apply to land owned by the state or land in which the
6-5 state has a direct or indirect interest.
6-6 (b) Except as provided by Subsection (c), this chapter does
6-7 not amend, repeal, change, alter, or affect in any manner the
6-8 authority or jurisdiction of the state, the commissioner of the
6-9 General Land Office, or any board or agency of the state with
6-10 respect to any land or interest in land in which the state, the
6-11 commissioner of the General Land Office, or any board or agency of
6-12 the state has jurisdiction or the unitization of such land.
6-13 (c) With the approval or consent, such approval or consent
6-14 not to be unreasonably withheld, of the state, the commissioner of
6-15 the General Land Office, or any board or agency of the state to a
6-16 plan of unitization first obtained, or at the instance of the
6-17 commissioner of the General Land Office, or with the consent of the
6-18 board or agency having jurisdiction, the land in which the state
6-19 has an interest as described in this chapter may be unitized under
6-20 this chapter. In the event of such approval or consent of a plan
6-21 of unitization, the plan of unitization and unit operating
6-22 agreement shall be subject to and incorporate by reference all
6-23 applicable statutes, rules, and regulations as they pertain to land
6-24 in which the state has an interest.
6-25 Sec. 104.006. CONFLICT WITH ANTITRUST ACTS. (a) A plan of
6-26 unitization and operation under an agreement that complies with
6-27 this chapter, is approved by commission order, and is found by the
7-1 commission to be necessary to prevent waste and conserve the
7-2 natural resources of this state may not be construed to be in
7-3 violation of Chapter 15, Business & Commerce Code.
7-4 (b) If a court finds a conflict between this chapter and
7-5 Chapter 15, Business & Commerce Code, this chapter is intended as a
7-6 reasonable exception to that law that is necessary for the public
7-7 interest described by Subsection (a).
7-8 (c) If a court finds a conflict between this chapter and
7-9 Chapter 15, Business & Commerce Code, and finds that this chapter
7-10 is not a reasonable exception to Chapter 15, Business & Commerce
7-11 Code, the legislature intends that this chapter, or any conflicting
7-12 part of this chapter, be declared invalid rather than that Chapter
7-13 15, Business & Commerce Code, or any portion of that chapter, be
7-14 declared invalid.
7-15 Sec. 104.007. APPEALS. A person affected by an order of the
7-16 commission issued under this chapter is entitled to judicial review
7-17 of that order in accordance with Chapter 2001, Government Code.
7-18 The petition for review shall be filed in Travis County or in any
7-19 county in which the affected tract is located.
7-20 (Sections 104.008-104.020 reserved for expansion
7-21 SUBCHAPTER B. APPLICATION PROCEDURES; CONSIDERATION
7-22 AND APPROVAL OF PLAN
7-23 Sec. 104.021. APPLICATION FOR UNITIZATION. (a) Any working
7-24 interest owner or proposed unit operator may file an application
7-25 with the commission requesting an order under this chapter for the
7-26 unit operation of a common source of supply or a part of that
7-27 common source of supply.
8-1 (b) The application shall contain:
8-2 (1) a description of the proposed unit area and the
8-3 vertical limits and producing horizons to be included in that unit
8-4 area with a map or plat attached;
8-5 (2) a statement of the type of operations contemplated
8-6 for the unit area;
8-7 (3) a copy of a proposed plan of unitization and all
8-8 agreements related to that plan that the applicant considers fair,
8-9 reasonable, and equitable, including a unit operating agreement
8-10 that contains provisions dealing with:
8-11 (A) overhead rates, interest charges, costs
8-12 directly associated with marketing of unit production, or any other
8-13 profit or benefit that may accrue solely or in unequal shares to
8-14 the unit operator;
8-15 (B) voting procedures;
8-16 (C) removal or replacement of the unit operator;
8-17 (D) allocation of unit expense;
8-18 (E) audit periods and rights to review all
8-19 records pertaining to unit operation;
8-20 (F) dissolution of the unit; and
8-21 (G) disclosure regarding any use by the unit
8-22 operator of any affiliate of the operator for marketing production
8-23 or for products or services costing more than $100,000 in the
8-24 aggregate for each particular product or service;
8-25 (4) an allegation of the facts required to be found by
8-26 the commission under Section 104.024;
8-27 (5) an allegation that the applicant has obtained at
9-1 least the minimum required approval of the plan of unitization as
9-2 required by Section 104.026; and
9-3 (6) an allegation that:
9-4 (A) each owner of an interest in the oil and gas
9-5 under each tract in the proposed unit area has been given an
9-6 opportunity to enter into the unit on the same basis; and
9-7 (B) the applicant or proposed unit operator has
9-8 made a good faith effort to voluntarily unitize all interests in
9-9 the proposed unit area.
9-10 (c) The applicant shall submit with the application a list
9-11 including:
9-12 (1) the name of each person owning or having a working
9-13 or royalty interest in the proposed unit area and each offset
9-14 operator adjacent to the proposed unit area; and
9-15 (2) an address for each person listed or a statement
9-16 that the person's address is unknown.
9-17 Sec. 104.022. HEARING REQUIRED. (a) On receipt of an
9-18 application, the commission shall promptly set the matter for
9-19 hearing and cause notice of the hearing to be given as provided by
9-20 Section 104.023.
9-21 (b) At the hearing an affected person is entitled to be
9-22 heard, to introduce evidence, and to introduce and cross-examine
9-23 witnesses.
9-24 Sec. 104.023. NOTICE. (a) Notice of the application and
9-25 the time and place of the hearing on the application shall be
9-26 mailed, postage prepaid, not later than the 31st day before the
9-27 hearing date to each working interest owner, operator, and royalty
10-1 owner in the unit area and to each offset operator whose name and
10-2 address is shown on the list provided by the applicant under
10-3 Section 104.021.
10-4 (b) Notice of an application and the time and place of
10-5 hearing shall be published once a week for four consecutive weeks
10-6 in a newspaper of general circulation authorized by law to publish
10-7 legal notices in the county or counties in which the land involved
10-8 is located, or in another newspaper or publication designated by
10-9 the commission, not later than the 31st day before the hearing
10-10 date.
10-11 (c) Typographical errors in a notice that are not material
10-12 do not affect the validity of the notice.
10-13 Sec. 104.024. FINDINGS OF COMMISSION. After notice and a
10-14 hearing as provided by Sections 104.022 and 104.023, the commission
10-15 shall determine whether:
10-16 (1) the unitized operation of the common source of
10-17 supply or the part of the common source of supply involved in the
10-18 plan of unitization is reasonably necessary to conduct unit
10-19 operations and the plan of unitization is reasonably necessary to
10-20 prevent waste, protect correlative rights, and promote the
10-21 conservation of oil or oil and gas;
10-22 (2) the present value of the estimated incremental
10-23 recovery of oil or oil and gas from the common source of supply is
10-24 reasonably anticipated to exceed the present value of all estimated
10-25 incremental expenses incident to conducting unit operations;
10-26 (3) the productive limits of the common source of
10-27 supply or the part of the common source of supply proposed for
11-1 unitization have been reasonably defined by development and the
11-2 area proposed for unitization is reasonably necessary and
11-3 sufficient for unit operations;
11-4 (4) the unsigned owners of interests in the oil and
11-5 gas under each tract of land in the proposed unit area have been
11-6 given a reasonable opportunity to enter into the unit on the same
11-7 basis as the owners of interests in the oil and gas under the other
11-8 tracts in the unit area and the applicant or proposed unit operator
11-9 has made a good faith effort to voluntarily unitize all interests
11-10 within the proposed unit area;
11-11 (5) the applicant has obtained approval for the plan
11-12 of unitization from at least the minimum number of working interest
11-13 and royalty interest owners required by Section 104.026;
11-14 (6) the expense of establishing the unit and unit
11-15 expenses that are to be charged as unit expenses are reasonable and
11-16 necessary;
11-17 (7) the expenses relating to unit operations will:
11-18 (A) be for the common benefit of all persons
11-19 with interests in the unit;
11-20 (B) be allocated on a fair and equitable basis;
11-21 and
11-22 (C) result in a profit or other benefit that
11-23 accrues solely or in unequal shares to the unit operator or an
11-24 affiliate of the operator only if authorized by the plan of
11-25 unitization;
11-26 (8) a working interest owner has a reasonable right to
11-27 review all records pertaining to unit operations and a reasonable
12-1 amount of time to audit unit expenses;
12-2 (9) the plan of unitization meets the requirements of
12-3 Subchapter C and reasonably conforms to the requirements of this
12-4 chapter; and
12-5 (10) the proposed plan of unitization, including the
12-6 tract participation formula and percentages, is in all respects
12-7 fair, reasonable, and equitable.
12-8 Sec. 104.025. UNITIZATION ORDER; EFFECT OF OPERATIONS. (a)
12-9 If the commission finds that all the requirements of Section
12-10 104.024 are met, the commission shall order:
12-11 (1) the unitized operation of the unit area; and
12-12 (2) unitization of all working interests and royalty
12-13 interests in the unit area.
12-14 (b) The order shall:
12-15 (1) unitize all interests of all owners in the area
12-16 covered by the plan of unitization with the same effect as if those
12-17 owners had executed the plan of unitization and had been parties to
12-18 the unit agreement;
12-19 (2) approve the area of the common source of supply or
12-20 the part of the common source of supply to be included in the unit
12-21 area and the vertical limits of the common source of supply;
12-22 (3) approve the plan of unitization, including the
12-23 allocation of production and costs among tracts; and
12-24 (4) designate the initial unit operator named in the
12-25 plan of unitization.
12-26 (c) Unit operations on and production from any lease in the
12-27 unit area for which a unitization order has been entered shall be
13-1 considered for all purposes the conduct of unit operations on and
13-2 production from each separately owned lease in the unit.
13-3 (d) If only a part of a lease is included in the unit, unit
13-4 operations on or production from the unit maintains an oil and gas
13-5 lease as to the part excluded from the unit only if the excluded
13-6 part of the lease would have been maintained under the lease.
13-7 Sec. 104.026. APPROVAL OF PROPOSED PLAN OF UNITIZATION BY
13-8 WORKING INTEREST AND ROYALTY OWNERS. (a) A proposed plan of
13-9 unitization must be approved in writing by:
13-10 (1) the owners, on a unit participation basis, of at
13-11 least 80 percent of the aggregate unit working interests; and
13-12 (2) at least 80 percent of the owners, on a unit
13-13 participation basis, of the aggregate unit royalty interests that
13-14 complete and return the ballot provided for in Subsection (b).
13-15 (b) A ballot distributed to the owners of royalty interests
13-16 must:
13-17 (1) state that the applicant will confirm by mail that
13-18 the ballot has been received and whether it has been counted as a
13-19 vote for or against the proposed plan;
13-20 (2) be sent by certified mail, return receipt
13-21 requested, to each owner of a royalty interest in the proposed unit
13-22 area, including each owner of an unleased mineral interest;
13-23 (3) be sent a second time by certified mail, return
13-24 receipt requested, to any interest owner for whom a receipt from
13-25 the first mailing is not returned after a reasonable effort has
13-26 been made between the first and the second mailings to correct any
13-27 address that appears to be inaccurate; and
14-1 (4) be accompanied by:
14-2 (A) a copy of the proposed plan of unitization;
14-3 (B) an objective summary of the proposed plan
14-4 that is reasonably calculated to provide an ordinary royalty owner
14-5 with an adequate understanding of how the royalty owner's property
14-6 interest would be affected by a favorable vote and how that
14-7 interest would be affected by an unfavorable vote; and
14-8 (C) a postage-paid reply envelope.
14-9 (c) A royalty owner may not be required to return a ballot
14-10 earlier than the 14th day after the date the owner receives the
14-11 ballot and other information required by Subsection (b).
14-12 (d) The applicant shall confirm the receipt of each ballot
14-13 and indicate to the royalty owner returning the ballot whether it
14-14 has been counted as a vote for or a vote against the proposed
14-15 plan.
14-16 (e) The commission shall dismiss the application if the
14-17 commission finds that the applicant has not reasonably complied
14-18 with Subsection (b), (c), or (d).
14-19 Sec. 104.027. EXCLUSION OF LAND. (a) Land may be excluded
14-20 from a unitization plan if, on the date the application for
14-21 unitization is filed with the commission under Section 104.021:
14-22 (1) the land is not under current lease or agreement
14-23 providing for permitting the exploration for or production of oil
14-24 or oil and gas;
14-25 (2) the fee surface ownership has not been severed
14-26 from the fee mineral ownership; and
14-27 (3) all the owners owning present possessory or future
15-1 possessory interests in the land have elected to exclude the land
15-2 from the proposed plan of unitization.
15-3 (b) Such owners shall be accorded an opportunity, but not be
15-4 required, to make an election at least 30 days before balloting as
15-5 provided for in Section 104.026.
15-6 (c) If land is excluded from unitization under this section,
15-7 and unless the owners who elected to exclude the land and the unit
15-8 owners subsequently otherwise agree, the owners who have elected to
15-9 exclude land forfeit:
15-10 (1) any right to present and future production of oil
15-11 or oil and gas from the unitized formation established under the
15-12 plan of unitization; and
15-13 (2) any right to proceeds or other money arising from
15-14 or associated with the production described by Subdivision (1).
15-15 Sec. 104.028. PARTIAL FIELD UNITIZATIONS. (a) Any party
15-16 who claims that the exclusion of a tract from a proposed unit area
15-17 will have an unreasonable adverse effect on the excluded tract has
15-18 the burden of proving that claim by clear and convincing evidence.
15-19 (b) The commission may not deny an application for
15-20 unitization under this chapter solely because the commission finds
15-21 that exclusion of a tract from a proposed unit area will have an
15-22 unreasonable adverse effect on the excluded tract. In that
15-23 instance the commission shall issue an order under Section 104.025
15-24 approving the application on the condition that the applicant or
15-25 unit operator offer participation in the approved unit under the
15-26 unit expansion provisions of Section 104.072 or under the approved
15-27 unit agreement.
16-1 Sec. 104.029. STATUS OF UNLEASED MINERAL INTERESTS. Any
16-2 mineral interest in the unit area that is unleased on the effective
16-3 date of unitization is considered for purposes of unit
16-4 participation:
16-5 (1) to have a royalty interest of one-fifth (1/5) of
16-6 that interest, unless the commission determines that a different
16-7 royalty interest is reasonable under the circumstances; and
16-8 (2) to be a working interest to the extent of
16-9 four-fifths (4/5) of that interest, unless the commission
16-10 determines that a different working interest is reasonable under
16-11 the circumstances in order to consider the unleased interest or
16-12 right to have a different royalty interest as provided by
16-13 Subdivision (1), with all the rights and obligations of a lessee as
16-14 if the mineral rights were leased.
16-15 (Sections 104.030-104.040 reserved for expansion
16-16 SUBCHAPTER C. PLAN OF UNITIZATION
16-17 Sec. 104.041. AUTHORIZED PLANS. (a) A plan of unitization
16-18 may be proposed under this chapter only to establish units and
16-19 cooperative facilities necessary for unit operations that are
16-20 reasonably anticipated to substantially increase the recovery of
16-21 oil above that which would be recovered by primary recovery alone.
16-22 (b) The proposed plan of unitization and the commission
16-23 order approving the plan may provide for unit operation of less
16-24 than the whole of a common source of supply if:
16-25 (1) the unit area is of a size and shape that is
16-26 reasonably suitable for unit operations; and
16-27 (2) that operation will not have an unreasonable
17-1 adverse effect on the other parts of the common source of supply
17-2 that are not included in the plan of unitization.
17-3 Sec. 104.042. SINGLE OR MULTIPLE AGREEMENTS. The plan of
17-4 unitization may consist of one or more agreements that the
17-5 applicant considers to be fair, reasonable, and equitable if the
17-6 applicant submits each agreement to the commission as required by
17-7 Section 104.021(b)(3).
17-8 Sec. 104.043. PARTICIPATION; ALLOCATION OF UNIT PRODUCTION.
17-9 (a) The proposed plan shall provide for the apportionment and
17-10 allocation of the unit production among the tracts in the unit area
17-11 in order to reasonably permit a person entitled to share in, or
17-12 benefit by, the production from a tract in the unit to receive a
17-13 fair share of the unit production or other benefits.
17-14 (b) A tract's fair share of the unit production shall be
17-15 measured by the value of each tract and its contributing value to
17-16 the unit in relation to like values of other tracts in the unit,
17-17 taking into account the amount of acreage, the quantity of oil and
17-18 gas recoverable from the tract, the tract's location on the
17-19 geological structure, the tract's probable productivity of oil and
17-20 gas in the absence of unit operations, or as many other factors,
17-21 including other pertinent engineering, geological, or operating
17-22 factors, as are reasonable.
17-23 Sec. 104.044. VOTING BY WORKING INTEREST OWNERS. (a) The
17-24 proposed plan of unitization shall establish a voting procedure for
17-25 decisions by the working interest owners. The voting procedure
17-26 need not be the same for each type of decision that may be made by
17-27 the working interest owners if each working interest owner has a
18-1 voting interest equal to that owner's unit participation.
18-2 (b) Subject to reasonable limitations regarding voting
18-3 frequency and in addition to other appropriate provisions, the plan
18-4 must require an operator to submit the following matters to the
18-5 working interest owners for a decision in accordance with the plan
18-6 if petitioned to do so by the vote of at least 15 percent of the
18-7 nonoperating working interest owners:
18-8 (1) use of an affiliate of the operator to market
18-9 production;
18-10 (2) use of an affiliate of the operator for purposes
18-11 other than marketing production, including acquisition of
18-12 extraneous substances such as carbon dioxide for unit operation
18-13 purposes; or
18-14 (3) commencement of tertiary recovery operations.
18-15 Sec. 104.045. OPERATING AGREEMENT. The proposed plan of
18-16 unitization shall include a proposed operating agreement
18-17 establishing:
18-18 (1) the manner in which the unit will be operated,
18-19 supervised, and managed by the unit operator in the conduct of unit
18-20 operations;
18-21 (2) the grounds on which a unit operator may be
18-22 replaced for cause;
18-23 (3) a procedure by which a unit operator may be
18-24 replaced without cause;
18-25 (4) allocation of and provision for payment of unit
18-26 costs; and
18-27 (5) the other matters required by Section
19-1 104.021(b)(3).
19-2 Sec. 104.046. EFFECTIVE DATE AND TERMINATION DATE OF PLAN OF
19-3 UNITIZATION. (a) The proposed plan of unitization shall provide
19-4 for the date on which the plan takes effect, the manner in which
19-5 and the circumstances under which unit operations terminate, the
19-6 settlement of accounts on termination, and notice by the unit
19-7 operator to the public within 30 days after the effective date of
19-8 the unit. After the commission by order adopts the plan of
19-9 unitization, the unit operator shall give public notice by filing
19-10 for record, in the real property records of the county or counties
19-11 in which the unit area or any part of the unit area is located, a
19-12 certificate containing:
19-13 (1) the name of the unit;
19-14 (2) the legal description of each tract included in
19-15 the unit area and a description of the common source of supply or
19-16 the part of the common source of supply included in the unit area;
19-17 (3) the commission docket number;
19-18 (4) the date of the commission order, including any
19-19 supplemental orders, relating to approval of the plan of
19-20 unitization;
19-21 (5) the effective date of unit operations; and
19-22 (6) a survey plat setting out the unit boundaries.
19-23 (b) The plan of unitization shall require the unit operator,
19-24 not later than the 60th day after the date of termination of the
19-25 unit, to file for record in each county in which any part of the
19-26 unit area is located a certificate stating the date the unit
19-27 operations terminated.
20-1 Sec. 104.047. FINANCING UNIT OPERATIONS. (a) The plan of
20-2 unitization shall provide the manner in which unit costs, including
20-3 overhead and interest, are determined, allocated, and charged to
20-4 the separately owned tracts or interests and shall include a
20-5 detailed accounting procedure for all charges and credits incident
20-6 to unit operations. The unit costs chargeable to a tract or
20-7 interest shall be paid by the working interest owners who, in the
20-8 absence of unit operations, would be responsible for the costs and
20-9 expenses of developing and operating the tract or interest.
20-10 (b) The plan shall also:
20-11 (1) provide for the auditing of all records of the
20-12 unit operator pertaining to unit operation;
20-13 (2) require the operator to maintain records
20-14 sufficient to show the reasonableness of any payments to affiliates
20-15 of the operator and of other unit costs;
20-16 (3) provide for disclosure so that working interest
20-17 owners will be informed in a timely manner whether particular costs
20-18 and expenses relate to activities undertaken by an affiliate of the
20-19 operator; and
20-20 (4) include provisions that disallow or govern
20-21 situations in which a profit or other benefit accrues solely or in
20-22 unequal shares to the operator.
20-23 Sec. 104.048. ATTACHMENT OF PROCEEDS OF PRODUCTION TO COVER
20-24 DEBTS OF NONPAYING WORKING INTEREST OWNERS. (a) The plan of
20-25 unitization shall allow the attachment of proceeds of production
20-26 due any owner who is not paying the owner's share of the costs of
20-27 unit operations as compensation to each paying owner. The
21-1 compensation amount may not exceed 175 percent of the nonpaying
21-2 owner's share of unit costs, which shall be considered to include
21-3 all interest, with the maximum compensation amount to be set by the
21-4 commission in each case.
21-5 (b) The plan of unitization shall provide that all of the
21-6 unit production allocated to a nonpaying working interest owner
21-7 that does not pay the share of the unit expenses charged and any
21-8 additional compensation amounts applied to that nonpaying owner
21-9 under Subsection (a) may be appropriated by the unit operator and
21-10 marketed and sold for the payment of unit expenses and additional
21-11 compensation amounts. Any sale proceeds remaining after payment of
21-12 unit expenses and additional compensation amounts shall be remitted
21-13 to the nonpaying working interest owner.
21-14 (c) As to an interest located in the unit that is not leased
21-15 by the effective date of unitization, one-fifth (1/5) of the
21-16 production attributable to the unleased interest, or a different
21-17 amount determined by the commission under Section 104.097(b), is
21-18 considered as royalty interest and shall be free and clear of all
21-19 unit expenses and additional compensation amounts. Four-fifths
21-20 (4/5) of the unleased interest, or a different amount determined by
21-21 the commission under Section 104.097(b), is considered as working
21-22 interest and is subject to being financed or carried under this
21-23 section.
21-24 Sec. 104.049. SALE BY NONSIGNING WORKING INTEREST OWNER.
21-25 (a) A nonsigning working interest owner may elect to offer through
21-26 the unit operator to sell and assign all of that owner's working
21-27 interest in the unit area to the unit operator and to other working
22-1 interest owners who desire to acquire a portion of the interest
22-2 under this section:
22-3 (1) at any time after a plan of unitization has been
22-4 filed and before the 60th day after the later of the first day on
22-5 which:
22-6 (A) the order approving the plan of unitization
22-7 is final; or
22-8 (B) all appeals are final;
22-9 (2) at any time after the commencement of tertiary
22-10 recovery operations and before the 120th day after the day of the
22-11 commencement of those operations; or
22-12 (3) at any time after an order is final that approves
22-13 an amendment referenced in Section 104.071(c) or (d) and before the
22-14 60th day after the first day on which that order is final.
22-15 (b) The unit operator shall consider the offer to sell the
22-16 interest and shall promptly negotiate any differences in value with
22-17 the nonsigning working interest owner who is offering to sell.
22-18 (c) If the unit operator and the nonsigning working interest
22-19 owner who is offering to sell agree on a price, payment shall be
22-20 made in accordance with the sales agreement. The interest to be
22-21 acquired shall be offered for a period of 21 days to all signing
22-22 working interest owners, including the operator, at cost in
22-23 proportion to each owner's working interest ownership unless the
22-24 signing working interest owners agree on a different proportion.
22-25 Any part of the interest not acquired or contracted for by the
22-26 signing working interest owners within the prescribed period shall
22-27 then be offered for a period of 15 days to those persons who
23-1 acquired or contracted for the other part of the interest in
23-2 proportion to each person's percentage of acquisition. The unit
23-3 operator shall purchase any part of the interest remaining after
23-4 the 15-day period expires.
23-5 (d) If the unit operator and the nonsigning working interest
23-6 owner who is offering to sell are unable to agree on a sales price,
23-7 the nonsigning working interest owner who is offering to sell may
23-8 withdraw the offer to sell not later than the 30th day after the
23-9 date of the offer to sell or may elect to be carried or otherwise
23-10 financed under Section 104.048 and may submit the issue to binding
23-11 arbitration or to qualified impartial appraisers to set the price
23-12 of the nonsigning working interest owner's interest in the unit.
23-13 If the nonsigning working interest owner who is offering to sell
23-14 chooses the use of impartial appraisers, that person and the unit
23-15 operator each shall select a qualified impartial appraiser and the
23-16 two selected appraisers together shall select a third qualified
23-17 impartial appraiser. The arbitrator, arbitrators, or selected
23-18 appraisers shall establish a price that is equal to the higher of
23-19 the fair market value of the interest and the fair market value the
23-20 interest would have in the absence of the proposed unitized
23-21 operations. The nonsigning working interest owner who is offering
23-22 to sell shall pay one-half of the appraisal or arbitration costs.
23-23 Each acquiring interest owner shall pay a part of the remainder of
23-24 the appraisal or arbitration costs in proportion to the owner's
23-25 working interest ownership.
23-26 (e) The nonsigning working interest owner who is offering to
23-27 sell shall sell for the price set by the procedure described by
24-1 Subsection (d), and the unit operator shall purchase that interest
24-2 for that price, subject to the participation of other signing
24-3 working interest owners as provided by Subsection (c).
24-4 Sec. 104.050. INVESTMENT ADJUSTMENTS AND PROPERTY TAKEN
24-5 OVER. The plan of unitization shall provide for the procedure and
24-6 basis for adjustment among the working interest owners in the unit
24-7 area of their respective investment in wells, tanks, pumps,
24-8 machinery, materials, equipment, facilities, and other items of
24-9 value taken over and used in unit operations. Investment
24-10 adjustments and credits for property taken over may not be used as
24-11 a factor in setting participation percentages and allocations of
24-12 unit production under Section 104.043.
24-13 Sec. 104.051. ADDITIONAL PLAN PROVISIONS. The plan of
24-14 unitization may include any additional provisions approved by the
24-15 commission that are consistent with the findings required by
24-16 Section 104.024.
24-17 (Sections 104.052-104.070 reserved for expansion
24-18 SUBCHAPTER D. AMENDMENT OF PLAN OR
24-19 ORDER OF UNITIZATION; EXPANSION OF
24-20 UNIT AREA
24-21 Sec. 104.071. AMENDMENT OF PLAN OR ORDER FOR UNITIZATION.
24-22 (a) A commission order approving unitization may be amended in the
24-23 same manner and subject to the same conditions as are required for
24-24 an original order providing for unitized operations.
24-25 (b) Approval of an amendment by royalty owners is not
24-26 required if the amendment affects only the rights and interests of
24-27 working interest owners.
25-1 (c) An amendment to an order may not, without the aggregate
25-2 approval of at least the minimum percentage of the working interest
25-3 and royalty interest ownership required under Section 104.026 for
25-4 approval of unitization and compliance with Section 104.005,
25-5 change:
25-6 (1) the percentage of unit oil and gas production
25-7 allocated to each tract in the plan approved by the original or
25-8 amended order approving the existing unit;
25-9 (2) the percentage of unit expenses allocated to each
25-10 tract in the plan of unitization approved by the original or
25-11 amended order for the existing unit; or
25-12 (3) the unit operations from secondary recovery
25-13 operations to tertiary recovery operations.
25-14 (d) An amendment to an order may not, without the aggregate
25-15 approval of at least the minimum percentage of the working interest
25-16 ownership required under Section 104.026 for approval of
25-17 unitization, change a provision of the operating agreement dealing
25-18 with:
25-19 (1) overhead rates or any other profit or benefit that
25-20 may accrue solely or in unequal shares to the unit operator;
25-21 (2) voting procedures;
25-22 (3) change of operator procedures;
25-23 (4) dissolution of the unit; or
25-24 (5) disclosure provisions regarding the use of
25-25 affiliates of the operator.
25-26 (e) This section does not apply to an order:
25-27 (1) expanding an existing unit area under Section
26-1 104.072; or
26-2 (2) creating a new unit area under Section 104.073.
26-3 Sec. 104.072. EXPANSION OF UNIT AREA. (a) In accordance
26-4 with this section and subject to Section 104.073, an existing unit
26-5 area may be expanded to include additional nonunitized tracts under
26-6 the terms contained in the plan of unitization for the existing
26-7 unit if the working interest owners and the royalty interest owners
26-8 in each additional tract or tracts and in the existing unit area
26-9 approve the expansion by the same percentages and in the same
26-10 manner as required by Section 104.026 and the requirements of
26-11 Section 104.005, if applicable, for the creation of a unit. The
26-12 requirements for creating a unit under this chapter apply to the
26-13 expansion of the unit area under this section.
26-14 (b) Allocation of unit production from the expanded unit
26-15 shall be calculated first by allocating to the expansion area a
26-16 portion of the total production of oil or gas or both oil and gas
26-17 from the unit area as enlarged. That allocation shall be based on
26-18 the relative contribution to the total production of oil or gas or
26-19 both oil and gas that the expansion area is expected to make during
26-20 the remaining course of unit operations. If the expansion area
26-21 consists of separately owned tracts, the production allocated to
26-22 the expansion area shall be allocated to the separately owned
26-23 tracts in proportion to the relative contribution of each of those
26-24 tracts as provided by Section 104.043. The remaining portion of
26-25 unit production shall be allocated among the tracts in the existing
26-26 unit area in the same proportions as those set out in the existing
26-27 plan of unitization.
27-1 Sec. 104.073. ENLARGEMENT INCLUDING ALL OR PART OF
27-2 PREVIOUSLY ESTABLISHED UNIT. (a) The commission may not combine
27-3 two or more units created under this chapter or parts of units
27-4 created under this chapter unless each working interest or royalty
27-5 owner in each unit or part to be combined has agreed to the
27-6 combination.
27-7 (b) A commission order combining units or parts of units
27-8 created under this chapter, in allocating unit production between
27-9 the previously established units or parts of units to be combined,
27-10 shall first treat each unit or part to be combined as a single
27-11 tract for purposes of production allocation. The part of unit
27-12 production that is allocated to each unit or part to be combined
27-13 shall then be allocated among the separately owned tracts included
27-14 in the previously established units or parts in the same proportion
27-15 as provided in each previous commission order establishing a unit
27-16 all or part of which is combined under this section.
27-17 (Sections 104.074-104.090 reserved for expansion
27-18 SUBCHAPTER E. UNIT OPERATIONS
27-19 Sec. 104.091. STATUS OF PRODUCTION PROCEEDS; STANDARD OF
27-20 CARE; DISTRIBUTION. (a) Unit production, proceeds from the sale
27-21 of production, or other receipts may not be treated or taxed as
27-22 income or profit of the unit. All unit production and proceeds are
27-23 income of the owners to whom or to whose credit the production or
27-24 proceeds are payable under the plan of unitization.
27-25 (b) The unit operator does not become an agent or a
27-26 fiduciary of a working interest owner to whom production or
27-27 proceeds are payable solely by reason of receiving or disbursing
28-1 production or proceeds. When disposing of production for working
28-2 interest owners, a unit operator who is not an agent or a fiduciary
28-3 shall act with the same standard of duty and care as is required in
28-4 the plan of unitization. In the absence of such a standard, the
28-5 operator shall act as would a reasonably prudent operator under the
28-6 same or similar circumstances. The standards set forth in this
28-7 subsection shall apply throughout this section as this section
28-8 affects working interest owners. Provided that a unit operator who
28-9 is not an agent or a fiduciary has acted accordingly, the unit
28-10 operator shall not be liable to any working interest owner who
28-11 elects to have the owner's share of unit production disposed of by
28-12 the unit operator for losses sustained or liability incurred as a
28-13 result of the operator's actions in selling or disposing of others'
28-14 production.
28-15 (c) The unit operator shall make available to any working
28-16 interest owner, or to any royalty interest owner who has the
28-17 preexisting right to take the owner's production in kind, to whom
28-18 production or proceeds are payable the opportunity to elect either
28-19 to have the owner's share of production marketed by the unit
28-20 operator or to market the owner's own production. The operator, or
28-21 any affiliate of the operator that markets production at or in the
28-22 vicinity of the unit, shall market such production of electing
28-23 owners, so that all electing owners receive the same price and
28-24 proportionate share of premiums and other compensation as the unit
28-25 operator, or an affiliate of the unit operator marketing at or in
28-26 the vicinity of the unit, receives for its share of unit production
28-27 except to the extent that prior contractual commitments or express
29-1 specific terms of a contract entered into in good faith disallow or
29-2 prohibit such sharing or marketing of additional production. This
29-3 subsection shall not be construed to require that profits,
29-4 compensation, or other benefits received by the operator or an
29-5 affiliate of the operator that are realized on transactions
29-6 occurring beyond the point of first sale at the unit or in the
29-7 vicinity of the unit shall be shared with or distributed to the
29-8 owners electing to have their production marketed by the operator.
29-9 (d) Unless otherwise provided in the plan of unitization,
29-10 any working interest owner, or any royalty interest owner who has
29-11 the preexisting right to take the owner's production in kind, to
29-12 whom production is allocable or proceeds are payable shall make an
29-13 initial election to either market the owner's own production or
29-14 have the owner's production marketed by the unit operator within 30
29-15 days of the effective date of the commission order approving the
29-16 unit. Unless otherwise provided in the plan of unitization, such
29-17 initial marketing election shall be effective as of 60 days
29-18 following the effective date of the commission order approving the
29-19 unit. Unless otherwise provided in the plan of unitization,
29-20 subsequent marketing elections shall be made on an annual basis
29-21 following the initial election by written notification to the unit
29-22 operator at least 45 business days before the expiration of each
29-23 interval. Failure of an owner to make any timely election under
29-24 this subsection shall be considered an election by that owner, for
29-25 the relevant period, to have the owner's production marketed by the
29-26 unit operator.
29-27 Sec. 104.092. LIABILITY OF WORKING INTEREST OWNER. (a) The
30-1 liability of a working interest owner for payment of unit expense
30-2 is several and not joint or collective.
30-3 (b) Except as provided by this subsection and Section
30-4 104.048, a working interest owner in a tract is not liable,
30-5 directly or indirectly, for more than the amount charged to that
30-6 owner's interest in the tract.
30-7 (c) Unless otherwise specifically agreed to by the parties
30-8 as part of a plan of unitization approved by the commission, any
30-9 environmental condition or liability existing before the effective
30-10 date of the commission order approving the unit remains the sole
30-11 responsibility of the party or parties responsible for that
30-12 environmental condition or liability before the effective date of
30-13 the commission order approving the unit.
30-14 Sec. 104.093. LIEN FOR COSTS. (a) Subject to any
30-15 reasonable limitations in the plan of unitization, a unit operator
30-16 has a lien on the leasehold estate and other oil and gas rights in
30-17 each separately owned tract, the interest of the owners in the unit
30-18 production, and all equipment in the possession of the unit to
30-19 secure the payment of the amount of the unit expense and other
30-20 additional compensation charges as provided for in Section 104.048
30-21 charged to each separate working interest.
30-22 (b) The lien established under this section does not attach
30-23 to the royalty interest under lease or the one-fifth (1/5) royalty
30-24 interest assigned to an unleased mineral interest or to any
30-25 interest in land directly or indirectly owned by the state.
30-26 Sec. 104.094. EFFECT OF UNIT OPERATIONS ON EXPRESSED OR
30-27 IMPLIED COVENANTS AND CONDITIONS. (a) To the extent a lease,
31-1 division order, or contract covering lands in the unit area relates
31-2 to the common source of supply or the part of the common source of
31-3 supply included in the unit area, all terms of the lease, division
31-4 order, or contract, express or implied, shall be construed by
31-5 giving due regard to the plan of unitization approved by the
31-6 commission. Operations conducted in accordance with a plan of
31-7 unitization approved by the commission are presumed to comply with
31-8 those terms unless there is an irreconcilable conflict between the
31-9 lease, division order, or contract and the approved plan of
31-10 unitization. If there is an irreconcilable conflict between the
31-11 lease, division order, or contract and the approved plan of
31-12 unitization, the plan controls, but the lease, division order, or
31-13 contract terms shall be regarded as modified only to the extent
31-14 necessary to conform to the plan.
31-15 (b) Notwithstanding any other provision of this chapter,
31-16 without a separate voluntary agreement supported by consideration,
31-17 a plan of unitization may not:
31-18 (1) cause a royalty interest to become liable for any
31-19 part of unit expense that the interest is not otherwise obligated
31-20 to pay;
31-21 (2) reduce a royalty interest fraction;
31-22 (3) alter an express surface use restriction,
31-23 including a restriction on the use of freshwater, that exists in a
31-24 lease or contract on the date the application authorized by Section
31-25 104.021 is filed; or
31-26 (4) alter a provision of a lease or contract providing
31-27 for indemnification or similar compensation in the event the
32-1 actions of one person cause another person to become liable for
32-2 damages to the environment or for a violation of a statute, rule,
32-3 or common-law standard that serves to protect the environment.
32-4 (c) A surface use conflict that is not governed by express
32-5 lease or contract terms shall be accommodated or otherwise resolved
32-6 after giving due regard to the plan of unitization as provided by
32-7 this section.
32-8 (d) Section 104.091 shall not be construed to diminish an
32-9 operator's duty to market production on behalf of a royalty
32-10 interest owner.
32-11 Sec. 104.095. DISTRIBUTION OF UNIT PRODUCTION. Except as
32-12 authorized by this chapter or in a plan of unitization approved by
32-13 the commission, the unit production shall be distributed among, or
32-14 the proceeds paid to, the owners entitled to share in the
32-15 production from each tract in the same manner that those owners
32-16 would have shared in the production or proceeds from the tract if
32-17 the unit had not been established.
32-18 Sec. 104.096. MODIFICATION OF PROPERTY RIGHTS OR TITLES.
32-19 Except to the extent that the parties affected by the plan of
32-20 unitization otherwise agree, a commission order entered under
32-21 Section 104.025 does not alienate, convey, cross-convey, transfer,
32-22 or change title or ownership, legal or equitable, of a person in a
32-23 parcel of land or the oil and gas rights in that parcel.
32-24 Sec. 104.097. ROYALTY OBLIGATIONS; BURDENS; UNLEASED
32-25 INTERESTS. (a) Each working interest owner who is the owner of an
32-26 interest in an oil and gas lease is responsible for the payment of
32-27 all royalty, overriding royalty, or other lease burdens affecting
33-1 the owner's leasehold estate unless the plan of unitization
33-2 provides otherwise.
33-3 (b) One-fifth (1/5) of the production or proceeds
33-4 attributable to any unleased interest located in the unit area,
33-5 free of all unit expense and free of any lien, shall be allocated
33-6 to that interest unless the commission determines that a different
33-7 allocation is reasonable under the circumstances. Four-fifths
33-8 (4/5) of any unleased interests in the production or proceeds shall
33-9 bear its pro rata share of all unit expense and is subject to any
33-10 lien provided by this chapter or the plan of unitization. If the
33-11 commission allocates more than one-fifth (1/5) of the production or
33-12 proceeds free of all unit expense and free of any lien, the
33-13 commission shall make an equal, opposite adjustment in the part of
33-14 production or proceeds allocated to the interest that is to bear
33-15 expense and be subject to liens.
33-16 Sec. 104.098. UNIT OWNERSHIP OF PRODUCTION, PROCEEDS, AND
33-17 ACQUIRED PROPERTY. (a) The part of the unit production allocated
33-18 to any tract and the proceeds from the sale of that production are
33-19 the property and income of the owners to whom or to whose credit
33-20 the production and proceeds are allocated or payable under the
33-21 order for unit operations.
33-22 (b) Any property that is acquired in the conduct of unit
33-23 operations and charged as an item of unit expense is owned by the
33-24 working interest owners in the unit area as provided in the plan of
33-25 unitization.
33-26 SECTION 2. The importance of this legislation and the
33-27 crowded condition of the calendars in both houses create an
34-1 emergency and an imperative public necessity that the
34-2 constitutional rule requiring bills to be read on three several
34-3 days in each house be suspended, and this rule is hereby suspended,
34-4 and that this Act take effect and be in force from and after its
34-5 passage, and it is so enacted.