By: Haywood S.B. No. 1821
Line and page numbers may not match official copy.
Bill not drafted by TLC or Senate E&E.
A BILL TO BE ENTITLED
AN ACT
1-1 relating to authorizing plans for unit operations for oil or oil
1-2 and gas production.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Subtitle C, Title 3, Natural Resources Code, is
1-5 amended by adding Chapter 104 to read as follows:
1-6 CHAPTER 104. UNITIZATION
1-7 SUBCHAPTER A. GENERAL PROVISIONS
1-8 Sec. 104.001. SHORT TITLE. This chapter may be cited as the
1-9 Texas Enhanced Recovery Unitization Act.
1-10 Sec. 104.002. DEFINITIONS. In this chapter:
1-11 (1) "Affiliate" means a corporation, partnership, or
1-12 other legal entity that owns, is owned by, or is under common
1-13 ownership with another corporation, partnership, or legal entity to
1-14 the extent of 50 percent or more or that otherwise controls or is
1-15 controlled by another corporation, partnership, or other legal
1-16 entity. Affiliates of a common entity are also affiliates of each
1-17 other.
1-18 (2) "Commission" means the Railroad Commission of
1-19 Texas.
1-20 (3) "Common source of supply" means:
1-21 (A) a common reservoir as defined by Section
1-22 86.002; or
2-1 (B) separate multiple stratigraphic or
2-2 lenticular accumulations of oil or gas or oil and gas that have
2-3 been recognized and regulated as a common reservoir by the
2-4 commission under Section 86.081(b).
2-5 (4) "Extraneous substances" are hydrocarbon or other
2-6 substances purchased or otherwise obtained from outside a unit area
2-7 for injection into the common source of supply during unit
2-8 operations.
2-9 (5) "Marketing" includes sales of production and
2-10 associated gathering, storage, treatment, and compression.
2-11 (6) "Oil and gas" means "oil" and "gas" as defined by
2-12 Section 85.001.
2-13 (7) "Plan of unitization" means a plan or agreement
2-14 that is consistent with the requirements of this chapter between
2-15 working interest owners and royalty owners in a common reservoir in
2-16 which unit operations may be conducted to enhance the production of
2-17 oil or oil and gas from the common reservoir above the volumes that
2-18 would otherwise be produced by primary recovery operations only.
2-19 (8) "Primary recovery" means the displacement of oil
2-20 or oil and gas from the earth into the well bore by means of the
2-21 natural pressure of the reservoir, including artificial lift.
2-22 (9) "Royalty interest" means the right to, or interest
2-23 in, oil and gas or proceeds of oil and gas production, other than a
2-24 working interest.
2-25 (10) "Royalty owner" means the owner of a royalty
2-26 interest.
3-1 (11) "Tract" means a parcel of land lying within the
3-2 unit area that is under uniform royalty and working interest
3-3 ownership.
3-4 (12) "Tract participation" means the percentage shown
3-5 in the plan of unitization for allocating unit production to a
3-6 tract.
3-7 (13) "Unit area" includes the surface area inside the
3-8 boundaries of the unit and the common source of supply or the part
3-9 of the common source underlying the surface area that may be
3-10 reasonably required for conduct of unit operations.
3-11 (14) "Unit cost" or "unit expense" includes any cost
3-12 or expense incurred in the conduct of unit operations.
3-13 (15) "Unit operations" means:
3-14 (A) operations, other than operations involving
3-15 experimental or unproven enhanced recovery techniques, related to
3-16 the production of oil and gas from the unit area, including:
3-17 (i) repressuring;
3-18 (ii) waterflooding;
3-19 (iii) pressure maintenance;
3-20 (iv) tertiary recovery operations; or
3-21 (v) any other similar operations that are
3-22 incidental or necessary to increase the ultimate recovery of oil or
3-23 gas, oil and gas, or other hydrocarbons from the proposed unit
3-24 area; or
3-25 (B) the establishment and operation of the
3-26 necessary facilities for the operations listed in Paragraph (A).
4-1 (16) "Unit operator" means the person designated under
4-2 the plan of unitization to conduct unit operations, acting as
4-3 operator and not merely as a working interest owner.
4-4 (17) "Unit participation of a royalty owner" means the
4-5 percentage equal to the sum of the products obtained by multiplying
4-6 the royalty interest of each royalty owner in each tract by the
4-7 tract participation of that tract.
4-8 (18) "Unit participation of a working interest owner
4-9 or unleased mineral interest owner" means the percentage equal to
4-10 the sum of the products obtained by multiplying the working
4-11 interest of the working interest owner in each tract or, if the
4-12 working interest owner is an unleased mineral interest owner, the
4-13 mineral interest of that owner in each tract, by the tract
4-14 participation of that tract.
4-15 (19) "Unit production" includes all oil and gas or oil
4-16 or gas produced and saved from a unit area after the effective date
4-17 of the unit regardless of the well or tract in the unit area from
4-18 which the oil and gas are produced. The term does not include the
4-19 following substances if the working interest owners under a lease,
4-20 contract, agreement, or unit plan have excluded the substances from
4-21 unit production:
4-22 (A) recoverable extraneous substances
4-23 injected into the common source of supply or used in well treatment
4-24 or pressure maintenance;
4-25 (B) any production that is reinjected into
4-26 the unit area, unless the reinjected production is later removed
5-1 from the unit area for nonunit purposes or sold, in which case it
5-2 will be considered to be unit production; or
5-3 (C) any production used or consumed in
5-4 unit operations.
5-5 (20) "Working interest" means an interest in oil and
5-6 gas by virtue of a lease, operating agreement, fee title, or
5-7 otherwise, including a carried interest, the owner of which is
5-8 obligated to pay, in cash, out of production, or otherwise, the
5-9 owner's share of the unit expense under the proposed or approved
5-10 plan of unitization.
5-11 (21) "Working interest owner" means the owner of
5-12 working interest.
5-13 Sec. 104.003. POWER AND AUTHORITY OF COMMISSION. (a) The
5-14 commission shall adopt any necessary rule, issue and enforce any
5-15 necessary order, and perform all required acts necessary to carry
5-16 out the purposes of this chapter.
5-17 (b) The commission in accordance with this chapter shall
5-18 determine whether a plan of unitization, including the
5-19 participation formula, proposed under this chapter for all or part
5-20 of a common reservoir is fair, reasonable, and equitable for all
5-21 interests concerned and necessary to carry out the purposes of this
5-22 chapter.
5-23 Sec. 104.004. APPLICABILITY. (a) This chapter does not
5-24 apply to:
5-25 (1) any common source of supply that has produced over
5-26 five billion barrels of oil;
6-1 (2) a gas field that produces primarily dry gas or
6-2 natural gas and condensate; or
6-3 (3) land that has been excluded from unitization under
6-4 Section 104.027.
6-5 (b) This chapter does not affect or apply to a voluntary
6-6 cooperative agreement in secondary recovery operations as provided
6-7 by Subchapter B, Chapter 101.
6-8 Sec. 104.005. APPLICATION TO PUBLIC LAND. (a) This chapter
6-9 does not apply to land owned by the state or land in which the
6-10 state has a direct or indirect interest.
6-11 (b) Except as provided by Subsection (c), this chapter does
6-12 not amend, repeal, change, alter, or affect in any manner the
6-13 authority or jurisdiction of the state, the commissioner of the
6-14 General Land Office, or any board or agency of the state with
6-15 respect to any land or interest in land in which the state, the
6-16 commissioner of the General Land Office, or any board or agency of
6-17 the state has jurisdiction or the unitization of such land.
6-18 (c) With the approval or consent, such approval or consent
6-19 not to be unreasonably withheld, of the state, the commissioner of
6-20 the General Land Office, or any board or agency of the state to a
6-21 plan of unitization first obtained, or at the instance of the
6-22 commissioner of the General Land Office, or with the consent of the
6-23 board or agency having jurisdiction, the land in which the state
6-24 has an interest as described in this chapter may be unitized under
6-25 this chapter. In the event of such approval or consent of a plan
6-26 of unitization, the plan of unitization and unit operating
7-1 agreement shall be subject to and incorporate by reference all
7-2 applicable statutes, rules, and regulations as they pertain to land
7-3 in which the state has an interest.
7-4 Sec. 104.006. CONFLICT WITH ANTITRUST ACTS. (a) A plan of
7-5 unitization and operation under an agreement that complies with
7-6 this chapter, is approved by commission order, and is found by the
7-7 commission to be necessary to prevent waste and conserve the
7-8 natural resources of this state may not be construed to be in
7-9 violation of Chapter 15, Business & Commerce Code.
7-10 (b) If a court finds a conflict between this chapter and
7-11 Chapter 15, Business & Commerce Code, this chapter is intended as a
7-12 reasonable exception to that law that is necessary for the public
7-13 interest described by Subsection (a).
7-14 (c) If a court finds a conflict between this chapter and
7-15 Chapter 15, Business & Commerce Code, and finds that this chapter
7-16 is not a reasonable exception to Chapter 15, Business & Commerce
7-17 Code, the legislature intends that this chapter, or any conflicting
7-18 part of this chapter, be declared invalid rather than that Chapter
7-19 15, Business & Commerce Code, or any portion of that chapter, be
7-20 declared invalid.
7-21 Sec. 104.007. APPEALS. A person affected by an order of the
7-22 commission issued under this chapter is entitled to judicial review
7-23 of that order in accordance with Chapter 2001, Government Code.
7-24 The petition for review shall be filed in Travis County or in any
7-25 county in which the affected tract is located.
7-26 (Sections 104.008-104.020 reserved for expansion)
8-1 SUBCHAPTER B. APPLICATION PROCEDURES; CONSIDERATION
8-2 AND APPROVAL OF PLAN
8-3 Sec. 104.021. APPLICATION FOR UNITIZATION. (a) Any working
8-4 interest owner or proposed unit operator may file an application
8-5 with the commission requesting an order under this chapter for the
8-6 unit operation of a common source of supply or a part of that
8-7 common source of supply.
8-8 (b) The application shall contain:
8-9 (1) a description of the proposed unit area and the
8-10 vertical limits and producing horizons to be included in that unit
8-11 area with a map or plat attached;
8-12 (2) a statement of the type of operations contemplated
8-13 for the unit area;
8-14 (3) a copy of a proposed plan of unitization and all
8-15 agreements related to that plan that the applicant considers fair,
8-16 reasonable, and equitable, including a unit operating agreement
8-17 that contains provisions dealing with:
8-18 (A) overhead rates, interest charges, costs
8-19 directly associated with marketing of unit production, or any other
8-20 profit or benefit that may accrue solely or in unequal shares to
8-21 the unit operator;
8-22 (B) voting procedures;
8-23 (C) removal or replacement of the unit operator;
8-24 (D) allocation of unit expense;
8-25 (E) audit periods and rights to review all
8-26 records pertaining to unit operations;
9-1 (F) dissolution of the unit; and
9-2 (G) disclosure regarding any use by the unit
9-3 operator of any affiliate of the operator for marketing production
9-4 or for products or services costing more than $100,000 in the
9-5 aggregate for each particular product or service;
9-6 (4) an allegation of the facts required to be found by
9-7 the commission under Section 104.024;
9-8 (5) an allegation that the applicant has obtained at
9-9 least the minimum required approval of the plan of unitization as
9-10 required by Section 104.026; and
9-11 (6) an allegation that:
9-12 (A) each owner of an interest in the oil and gas
9-13 under each tract in the proposed unit area has been given an
9-14 opportunity to enter into the unit on the same basis; and
9-15 (B) the applicant or proposed unit operator has
9-16 made a good faith effort to voluntarily unitize all interests in
9-17 the proposed unit area.
9-18 (c) The applicant shall submit with the application a list
9-19 including:
9-20 (1) the name of each person owning or having a working
9-21 or royalty interest in the proposed unit area and each offset
9-22 operator adjacent to the proposed unit area; and
9-23 (2) an address for each person listed or a statement
9-24 that the person's address is unknown.
9-25 Sec. 104.022. HEARING REQUIRED. (a) On receipt of an
9-26 application, the commission shall promptly set the matter for
10-1 hearing and cause notice of the hearing to be given as provided by
10-2 Section 104.023.
10-3 (b) At the hearing an affected person is entitled to be
10-4 heard, to introduce evidence, and to introduce and cross-examine
10-5 witnesses.
10-6 Sec. 104.023. NOTICE. (a) Notice of the application and
10-7 the time and place of the hearing on the application shall be
10-8 mailed, postage prepaid, not later than the 31st day before the
10-9 hearing date to each working interest owner, operator, and royalty
10-10 owner in the unit area and to each offset operator whose name and
10-11 address is shown on the list provided by the applicant under
10-12 Section 104.021.
10-13 (b) Notice of an application and the time and place of
10-14 hearing shall be published once a week for four consecutive weeks
10-15 in a newspaper of general circulation authorized by law to publish
10-16 legal notices in the county or counties in which the land involved
10-17 is located, or in another newspaper or publication designated by
10-18 the commission, not later than the 31st day before the hearing
10-19 date.
10-20 (c) Typographical errors in a notice that are not material
10-21 do not affect the validity of the notice.
10-22 Sec. 104.024. FINDINGS OF COMMISSION. After notice and a
10-23 hearing as provided by Sections 104.022 and 104.023, the commission
10-24 shall determine whether:
10-25 (1) the unitized operation of the common source of
10-26 supply or the part of the common source of supply involved in the
11-1 plan of unitization is reasonably necessary to conduct unit
11-2 operations and the plan of unitization is reasonably necessary to
11-3 prevent waste, protect correlative rights, and promote the
11-4 conservation of oil or oil and gas;
11-5 (2) the present value of the estimated incremental
11-6 recovery of oil or oil and gas from the common source of supply is
11-7 reasonably anticipated to exceed the present value of all estimated
11-8 incremental expenses incident to conducting unit operations;
11-9 (3) the productive limits of the common source of
11-10 supply or the part of the common source of supply proposed for
11-11 unitization have been reasonably defined by development and the
11-12 area proposed for unitization is reasonably necessary and
11-13 sufficient for unit operations;
11-14 (4) the unsigned owners of interests in the oil and
11-15 gas under each tract of land in the proposed unit area have been
11-16 given a reasonable opportunity to enter into the unit on the same
11-17 basis as the owners of interests in the oil and gas under the other
11-18 tracts in the unit area and the applicant or proposed unit operator
11-19 has made a good faith effort to voluntarily unitize all interests
11-20 within the proposed unit area;
11-21 (5) the applicant has obtained approval for the plan
11-22 of unitization from at least the minimum number of working interest
11-23 and royalty interest owners required by Section 104.026;
11-24 (6) the expense of establishing the unit and unit
11-25 expenses that are to be charged as unit expenses are reasonable and
11-26 necessary;
12-1 (7) the expenses relating to unit operations will:
12-2 (A) be for the common benefit of all persons
12-3 with interests in the unit;
12-4 (B) be allocated on a fair and equitable basis;
12-5 and
12-6 (C) result in a profit or other benefit that
12-7 accrues solely or in unequal shares to the unit operator or an
12-8 affiliate of the operator only if authorized by the plan of
12-9 unitization;
12-10 (8) a working interest owner has a reasonable right to
12-11 review all records pertaining to unit operations and a reasonable
12-12 amount of time to audit unit expenses;
12-13 (9) the plan of unitization meets the requirements of
12-14 Subchapter C and reasonably conforms to the requirements of this
12-15 chapter; and
12-16 (10) the proposed plan of unitization, including the
12-17 tract participation formula and percentages, is in all respects
12-18 fair, reasonable, and equitable.
12-19 Sec. 104.025. UNITIZATION ORDER; EFFECT OF OPERATIONS.
12-20 (a) If the commission finds that all the requirements of Section
12-21 104.024 are met, the commission shall order:
12-22 (1) the unitized operation of the unit area; and
12-23 (2) unitization of all working interests and royalty
12-24 interests in the unit area.
12-25 (b) The order shall:
12-26 (1) unitize all interests of all owners in the area
13-1 covered by the plan of unitization with the same effect as if those
13-2 owners had executed the plan of unitization and had been parties to
13-3 the unit agreement;
13-4 (2) approve the area of the common source of supply or
13-5 the part of the common source of supply to be included in the unit
13-6 area and the vertical limits of the common source of supply;
13-7 (3) approve the plan of unitization, including the
13-8 allocation of production and costs among tracts; and
13-9 (4) designate the initial unit operator named in the
13-10 plan of unitization.
13-11 (c) Unit operations on and production from any lease in the
13-12 unit area for which a unitization order has been entered shall be
13-13 considered for all purposes the conduct of unit operations on and
13-14 production from each separately owned lease in the unit.
13-15 (d) If only a part of a lease is included in the unit, unit
13-16 operations on or production from the unit maintains an oil and gas
13-17 lease as to the part excluded from the unit only if the excluded
13-18 part of the lease would have been maintained under the lease.
13-19 Sec. 104.026. APPROVAL OF PROPOSED PLAN OF UNITIZATION BY
13-20 WORKING INTEREST AND ROYALTY OWNERS. (a) A proposed plan of
13-21 unitization must be approved in writing by:
13-22 (1) the owners, on a unit participation basis, of at
13-23 least 80 percent of the aggregate unit working interests; and
13-24 (2) at least 80 percent of the owners, on a unit
13-25 participation basis, of the aggregate unit royalty interests that
13-26 complete and return the ballot provided for in Subsection (b).
14-1 (b) A ballot distributed to the owners of royalty interests
14-2 must:
14-3 (1) state that the applicant will confirm by mail that
14-4 the ballot has been received and whether it has been counted as a
14-5 vote for or against the proposed plan;
14-6 (2) be sent by certified mail, return receipt
14-7 requested, to each owner of a royalty interest in the proposed unit
14-8 area, including each owner of an unleased mineral interest;
14-9 (3) be sent a second time by certified mail, return
14-10 receipt requested, to any interest owner for whom a receipt from
14-11 the first mailing is not returned after a reasonable effort has
14-12 been made between the first and the second mailings to correct any
14-13 address that appears to be inaccurate; and
14-14 (4) be accompanied by:
14-15 (A) a copy of the proposed plan of unitization;
14-16 (B) an objective summary of the proposed plan
14-17 that is reasonably calculated to provide an ordinary royalty owner
14-18 with an adequate understanding of how the royalty owner's property
14-19 interest would be affected by a favorable vote and how that
14-20 interest would be affected by an unfavorable vote; and
14-21 (C) a postage-paid reply envelope.
14-22 (c) A royalty owner may not be required to return a ballot
14-23 earlier than the 14th day after the date the owner receives the
14-24 ballot and other information required by Subsection (b).
14-25 (d) The applicant shall confirm the receipt of each ballot
14-26 and indicate to the royalty owner returning the ballot whether it
15-1 has been counted as a vote for or a vote against the proposed plan.
15-2 (e) The commission shall dismiss the application if the
15-3 commission finds that the applicant has not reasonably complied
15-4 with Subsection (b), (c), or (d).
15-5 Sec. 104.027. EXCLUSION OF LAND. (a) Land may be excluded
15-6 from a unitization plan if, on the date the application for
15-7 unitization is filed with the commission under Section 104.021:
15-8 (1) the land is not under current lease or agreement
15-9 providing for permitting the exploration for or production of oil
15-10 or oil and gas;
15-11 (2) the fee surface ownership has not been severed
15-12 from the fee mineral ownership; and
15-13 (3) all the owners owning present possessory or future
15-14 possessory interests in the land have elected to exclude the land
15-15 from the proposed plan of unitization.
15-16 (b) Such owners shall be accorded an opportunity, but not be
15-17 required, to make an election at least 30 days before balloting as
15-18 provided for in Section 104.026.
15-19 (c) If land is excluded from unitization under this section,
15-20 and unless the owners who elected to exclude the land and the unit
15-21 owners subsequently otherwise agree, the owners who have elected to
15-22 exclude land forfeit:
15-23 (1) any right to present and future production of oil
15-24 or oil and gas from the unitized formation established under the
15-25 plan of unitization; and
15-26 (2) any right to proceeds or other money arising from
16-1 or associated with the production described by Subdivision (1).
16-2 Sec. 104.028. PARTIAL FIELD UNITIZATIONS. (a) Any party
16-3 who claims that the exclusion of a tract from a proposed unit area
16-4 will have an unreasonable adverse effect on the excluded tract has
16-5 the burden of proving that claim by clear and convincing evidence.
16-6 (b) The commission may not deny an application for
16-7 unitization under this chapter solely because the commission finds
16-8 that exclusion of a tract from a proposed unit area will have an
16-9 unreasonable adverse effect on the excluded tract. In that
16-10 instance the commission shall issue an order under Section 104.025
16-11 approving the application on the condition that the applicant or
16-12 unit operator offer participation in the approved unit under the
16-13 unit expansion provisions of Section 104.072 or under the approved
16-14 unit agreement.
16-15 Sec. 104.029. STATUS OF UNLEASED MINERAL INTERESTS. Any
16-16 mineral interest in the unit area that is unleased on the effective
16-17 date of unitization is considered for purposes of unit
16-18 participation:
16-19 (1) to have a royalty interest of one-fifth (1/5) of
16-20 that interest, unless the commission determines that a different
16-21 royalty interest is reasonable under the circumstances; and
16-22 (2) to be a working interest to the extent of
16-23 four-fifths (4/5) of that interest, unless the commission
16-24 determines that a different working interest is reasonable under
16-25 the circumstances in order to consider the unleased interest or
16-26 right to have a different royalty interest as provided by
17-1 Subdivision (1), with all the rights and obligations of a lessee as
17-2 if the mineral rights were leased.
17-3 (Sections 104.030-104.040 reserved for expansion)
17-4 SUBCHAPTER C. PLAN OF UNITIZATION
17-5 Sec. 104.041. AUTHORIZED PLANS. (a) A plan of unitization
17-6 may be proposed under this chapter only to establish units and
17-7 cooperative facilities necessary for unit operations that are
17-8 reasonably anticipated to substantially increase the recovery of
17-9 oil above that which would be recovered by primary recovery alone.
17-10 (b) The proposed plan of unitization and the commission
17-11 order approving the plan may provide for unit operation of less
17-12 than the whole of a common source of supply if:
17-13 (1) the unit area is of a size and shape that is
17-14 reasonably suitable for unit operations; and
17-15 (2) that operation will not have an unreasonable
17-16 adverse effect on the other parts of the common source of supply
17-17 that are not included in the plan of unitization.
17-18 Sec. 104.042. SINGLE OR MULTIPLE AGREEMENTS. The plan of
17-19 unitization may consist of one or more agreements that the
17-20 applicant considers to be fair, reasonable, and equitable if the
17-21 applicant submits each agreement to the commission as required by
17-22 Section 104.021(b)(3).
17-23 Sec. 104.043. PARTICIPATION; ALLOCATION OF UNIT PRODUCTION.
17-24 (a) The proposed plan shall provide for the apportionment and
17-25 allocation of the unit production among the tracts in the unit area
17-26 in order to reasonably permit a person entitled to share in, or
18-1 benefit by, the production from a tract in the unit to receive a
18-2 fair share of the unit production or other benefits.
18-3 (b) A tract's fair share of the unit production shall be
18-4 measured by the value of each tract and its contributing value to
18-5 the unit in relation to like values of other tracts in the unit,
18-6 taking into account the amount of acreage, the quantity of oil and
18-7 gas recoverable from the tract, the tract's location on the
18-8 geological structure, the tract's probable productivity of oil and
18-9 gas in the absence of unit operations, or as many other factors,
18-10 including other pertinent engineering, geological, or operating
18-11 factors, as are reasonable.
18-12 Sec. 104.044. VOTING BY WORKING INTEREST OWNERS. (a) The
18-13 proposed plan of unitization shall establish a voting procedure for
18-14 decisions by the working interest owners. The voting procedure
18-15 need not be the same for each type of decision that may be made by
18-16 the working interest owners if each working interest owner has a
18-17 voting interest equal to that owner's unit participation.
18-18 (b) Subject to reasonable limitations regarding voting
18-19 frequency and in addition to other appropriate provisions, the plan
18-20 must require an operator to submit the following matters to the
18-21 working interest owners for a decision in accordance with the plan
18-22 if petitioned to do so by the vote of at least 15 percent of the
18-23 nonoperating working interest owners:
18-24 (1) use of an affiliate of the operator to market
18-25 production;
18-26 (2) use of an affiliate of the operator for purposes
19-1 other than marketing production, including acquisition of
19-2 extraneous substances such as carbon dioxide for unit operation
19-3 purposes; or
19-4 (3) commencement of tertiary recovery operations.
19-5 Sec. 104.045. OPERATING AGREEMENT. The proposed plan of
19-6 unitization shall include a proposed operating agreement
19-7 establishing:
19-8 (1) the manner in which the unit will be operated,
19-9 supervised, and managed by the unit operator in the conduct of unit
19-10 operations;
19-11 (2) the grounds on which a unit operator may be
19-12 replaced for cause;
19-13 (3) a procedure by which a unit operator may be
19-14 replaced without cause;
19-15 (4) allocation of and provision for payment of unit
19-16 costs; and
19-17 (5) the other matters required by Section
19-18 104.021(b)(3).
19-19 Sec. 104.046. EFFECTIVE DATE AND TERMINATION DATE OF PLAN OF
19-20 UNITIZATION. (a) The proposed plan of unitization shall provide
19-21 for the date on which the plan takes effect, the manner in which
19-22 and the circumstances under which unit operations terminate, the
19-23 settlement of accounts on termination, and notice by the unit
19-24 operator to the public within 30 days after the effective date of
19-25 the unit. After the commission by order adopts the plan of
19-26 unitization, the unit operator shall give public notice by filing
20-1 for record, in the real property records of the county or counties
20-2 in which the unit area or any part of the unit area is located, a
20-3 certificate containing:
20-4 (1) the name of the unit;
20-5 (2) the legal description of each tract included in
20-6 the unit area and a description of the common source of supply or
20-7 the part of the common source of supply included in the unit area;
20-8 (3) the commission docket number;
20-9 (4) the date of the commission order, including any
20-10 supplemental orders, relating to approval of the plan of
20-11 unitization;
20-12 (5) the effective date of unit operations; and
20-13 (6) a survey plat setting out the unit boundaries.
20-14 (b) The plan of unitization shall require the unit operator,
20-15 not later than the 60th day after the date of termination of the
20-16 unit, to file for record in each county in which any part of the
20-17 unit area is located a certificate stating the date the unit
20-18 operations terminated.
20-19 Sec. 104.047. FINANCING UNIT OPERATIONS. (a) The plan of
20-20 unitization shall provide the manner in which unit costs, including
20-21 overhead and interest, are determined, allocated, and charged to
20-22 the separately owned tracts or interests and shall include a
20-23 detailed accounting procedure for all charges and credits incident
20-24 to unit operations. The unit costs chargeable to a tract or
20-25 interest shall be paid by the working interest owners who, in the
20-26 absence of unit operations, would be responsible for the costs and
21-1 expenses of developing and operating the tract or interest.
21-2 (b) The plan shall also:
21-3 (1) provide for the auditing of all records of the
21-4 unit operator pertaining to unit operation;
21-5 (2) require the operator to maintain records
21-6 sufficient to show the reasonableness of any payments to affiliates
21-7 of the operator and of other unit costs;
21-8 (3) provide for disclosure so that working interest
21-9 owners will be informed in a timely manner whether particular costs
21-10 and expenses relate to activities undertaken by an affiliate of the
21-11 operator; and
21-12 (4) include provisions that disallow or govern
21-13 situations in which a profit or other benefit accrues solely or in
21-14 unequal shares to the operator.
21-15 Sec. 104.048. ATTACHMENT OF PROCEEDS OF PRODUCTION TO COVER
21-16 DEBTS OF NONPAYING WORKING INTEREST OWNERS. (a) The plan of
21-17 unitization shall allow the attachment of proceeds of production
21-18 due any owner who is not paying the owner's share of the costs of
21-19 unit operations as compensation to each paying owner. The
21-20 compensation amount may not exceed 175 percent of the nonpaying
21-21 owner's share of unit costs, which shall be considered to include
21-22 all interest, with the maximum compensation amount to be set by the
21-23 commission in each case.
21-24 (b) The plan of unitization shall provide that all of the
21-25 unit production allocated to a nonpaying working interest owner
21-26 that does not pay the share of the unit expenses charged and any
22-1 additional compensation amounts applied to that nonpaying owner
22-2 under Subsection (a) may be appropriated by the unit operator and
22-3 marketed and sold for the payment of unit expenses and additional
22-4 compensation amounts. Any sale proceeds remaining after payment of
22-5 unit expenses and additional compensation amounts shall be remitted
22-6 to the nonpaying working interest owner.
22-7 (c) As to an interest located in the unit that is not leased
22-8 by the effective date of unitization, one-fifth (1/5) of the
22-9 production attributable to the unleased interest, or a different
22-10 amount determined by the commission under Section 104.097(b), is
22-11 considered as royalty interest and shall be free and clear of all
22-12 unit expenses and additional compensation amounts. Four-fifths
22-13 (4/5) of the unleased interest, or a different amount determined by
22-14 the commission under Section 104.097(b), is considered as working
22-15 interest and is subject to being financed or carried under this
22-16 section.
22-17 Sec. 104.049. SALE BY NONSIGNING WORKING INTEREST OWNER.
22-18 (a) A nonsigning working interest owner may elect to offer through
22-19 the unit operator to sell and assign all of that owner's working
22-20 interest in the unit area to the unit operator and to other working
22-21 interest owners who desire to acquire a portion of the interest
22-22 under this section:
22-23 (1) at any time after a plan of unitization has been
22-24 filed and before the 60th day after the later of the first day on
22-25 which:
22-26 (A) the order approving the plan of unitization
23-1 is final; or
23-2 (B) all appeals are final;
23-3 (2) at any time after the commencement of tertiary
23-4 recovery operations and before the 120th day after the day of the
23-5 commencement of those operations; or
23-6 (3) at any time after an order is final that approves
23-7 an amendment referenced in Section 104.071(c) or (d) and before the
23-8 60th day after the first day on which that order is final.
23-9 (b) The unit operator shall consider the offer to sell the
23-10 interest and shall promptly negotiate any differences in value with
23-11 the nonsigning working interest owner who is offering to sell.
23-12 (c) If the unit operator and the nonsigning working interest
23-13 owner who is offering to sell agree on a price, payment shall be
23-14 made in accordance with the sales agreement. The interest to be
23-15 acquired shall be offered for a period of 21 days to all signing
23-16 working interest owners, including the operator, at cost in
23-17 proportion to each owner's working interest ownership unless the
23-18 signing working interest owners agree on a different proportion.
23-19 Any part of the interest not acquired or contracted for by the
23-20 signing working interest owners within the prescribed period shall
23-21 then be offered for a period of 15 days to those persons who
23-22 acquired or contracted for the other part of the interest in
23-23 proportion to each person's percentage of acquisition. The unit
23-24 operator shall purchase any part of the interest remaining after
23-25 the 15-day period expires.
23-26 (d) If the unit operator and the nonsigning working interest
24-1 owner who is offering to sell are unable to agree on a sales price,
24-2 the nonsigning working interest owner who is offering to sell may
24-3 withdraw the offer to sell not later than the 30th day after the
24-4 date of the offer to sell or may elect to be carried or otherwise
24-5 financed under Section 104.048 and may submit the issue to binding
24-6 arbitration or to qualified impartial appraisers to set the price
24-7 of the nonsigning working interest owner's interest in the unit.
24-8 If the nonsigning working interest owner who is offering to sell
24-9 chooses the use of impartial appraisers, that person and the unit
24-10 operator each shall select a qualified impartial appraiser and the
24-11 two selected appraisers together shall select a third qualified
24-12 impartial appraiser. The arbitrator, arbitrators, or selected
24-13 appraisers shall establish a price that is equal to the higher of
24-14 the fair market value of the interest and the fair market value the
24-15 interest would have in the absence of the proposed unitized
24-16 operations. The nonsigning working interest owner who is offering
24-17 to sell shall pay one-half of the appraisal or arbitration costs.
24-18 Each acquiring interest owner shall pay a part of the remainder of
24-19 the appraisal or arbitration costs in proportion to the owner's
24-20 working interest ownership.
24-21 (e) The nonsigning working interest owner who is offering to
24-22 sell shall sell for the price set by the procedure described by
24-23 Subsection (d), and the unit operator shall purchase that interest
24-24 for that price, subject to the participation of other signing
24-25 working interest owners as provided by Subsection (c).
24-26 Sec. 104.050. INVESTMENT ADJUSTMENTS AND PROPERTY TAKEN
25-1 OVER. The plan of unitization shall provide for the procedure and
25-2 basis for adjustment among the working interest owners in the unit
25-3 area of their respective investment in wells, tanks, pumps,
25-4 machinery, materials, equipment, facilities, and other items of
25-5 value taken over and used in unit operations. Investment
25-6 adjustments and credits for property taken over may not be used as
25-7 a factor in setting participation percentages and allocations of
25-8 unit production under Section 104.043.
25-9 Sec. 104.051. ADDITIONAL PLAN PROVISIONS. The plan of
25-10 unitization may include any additional provisions approved by the
25-11 commission that are consistent with the findings required by
25-12 Section 104.024.
25-13 (Sections 104.052-104.070 reserved for expansion)
25-14 SUBCHAPTER D. AMENDMENT OF PLAN OR ORDER OF
25-15 UNITIZATION; EXPANSION OF UNIT AREA
25-16 Sec. 104.071. AMENDMENT OF PLAN OR ORDER FOR UNITIZATION.
25-17 (a) A commission order approving unitization may be amended in the
25-18 same manner and subject to the same conditions as are required for
25-19 an original order providing for unitized operations.
25-20 (b) Approval of an amendment by royalty owners is not
25-21 required if the amendment affects only the rights and interests of
25-22 working interest owners.
25-23 (c) An amendment to an order may not, without the aggregate
25-24 approval of at least the minimum percentage of the working interest
25-25 and royalty interest ownership required under Section 104.026 for
25-26 approval of unitization and compliance with Section 104.005,
26-1 change:
26-2 (1) the percentage of unit oil and gas production
26-3 allocated to each tract in the plan approved by the original or
26-4 amended order approving the existing unit;
26-5 (2) the percentage of unit expenses allocated to each
26-6 tract in the plan of unitization approved by the original or
26-7 amended order for the existing unit; or
26-8 (3) the unit operations from secondary recovery
26-9 operations to tertiary recovery operations.
26-10 (d) An amendment to an order may not, without the aggregate
26-11 approval of at least the minimum percentage of the working interest
26-12 ownership required under Section 104.026 for approval of
26-13 unitization, change a provision of the operating agreement dealing
26-14 with:
26-15 (1) overhead rates or any other profit or benefit that
26-16 may accrue solely or in unequal shares to the unit operator;
26-17 (2) voting procedures;
26-18 (3) change of operator procedures;
26-19 (4) dissolution of the unit; or
26-20 (5) disclosure provisions regarding the use of
26-21 affiliates of the operator.
26-22 (e) This section does not apply to an order:
26-23 (1) expanding an existing unit area under Section
26-24 104.072; or
26-25 (2) creating a new unit area under Section 104.073.
26-26 Sec. 104.072. EXPANSION OF UNIT AREA. (a) In accordance
27-1 with this section and subject to Section 104.073, an existing unit
27-2 area may be expanded to include additional nonunitized tracts under
27-3 the terms contained in the plan of unitization for the existing
27-4 unit if the working interest owners and the royalty interest owners
27-5 in each additional tract or tracts and in the existing unit area
27-6 approve the expansion by the same percentages and in the same
27-7 manner as required by Section 104.026 and the requirements of
27-8 Section 104.005, if applicable, for the creation of a unit. The
27-9 requirements for creating a unit under this chapter apply to the
27-10 expansion of the unit area under this section.
27-11 (b) Allocation of unit production from the expanded unit
27-12 shall be calculated first by allocating to the expansion area a
27-13 portion of the total production of oil or gas or both oil and gas
27-14 from the unit area as enlarged. That allocation shall be based on
27-15 the relative contribution to the total production of oil or gas or
27-16 both oil and gas that the expansion area is expected to make during
27-17 the remaining course of unit operations. If the expansion area
27-18 consists of separately owned tracts, the production allocated to
27-19 the expansion area shall be allocated to the separately owned
27-20 tracts in proportion to the relative contribution of each of those
27-21 tracts as provided by Section 104.043. The remaining portion of
27-22 unit production shall be allocated among the tracts in the existing
27-23 unit area in the same proportions as those set out in the existing
27-24 plan of unitization.
27-25 Sec. 104.073. ENLARGEMENT INCLUDING ALL OR PART OF
27-26 PREVIOUSLY ESTABLISHED UNIT. (a) The commission may not combine
28-1 two or more units created under this chapter or parts of units
28-2 created under this chapter unless each working interest or royalty
28-3 owner in each unit or part to be combined has agreed to the
28-4 combination.
28-5 (b) A commission order combining units or parts of units
28-6 created under this chapter, in allocating unit production between
28-7 the previously established units or parts of units to be combined,
28-8 shall first treat each unit or part to be combined as a single
28-9 tract for purposes of production allocation. The part of unit
28-10 production that is allocated to each unit or part to be combined
28-11 shall then be allocated among the separately owned tracts included
28-12 in the previously established units or parts in the same proportion
28-13 as provided in each previous commission order establishing a unit
28-14 all or part of which is combined under this section.
28-15 (Sections 104.074-104.090 reserved for expansion)
28-16 SUBCHAPTER E. UNIT OPERATIONS
28-17 Sec. 104.091. STATUS OF PRODUCTION PROCEEDS; STANDARD OF
28-18 CARE; DISTRIBUTION. (a) Unit production, proceeds from the sale
28-19 of production, or other receipts may not be treated or taxed as
28-20 income or profit of the unit. All unit production and proceeds are
28-21 income of the owners to whom or to whose credit the production or
28-22 proceeds are payable under the plan of unitization.
28-23 (b) The unit operator does not become an agent or a
28-24 fiduciary of a working interest owner to whom production or
28-25 proceeds are payable solely by reason of receiving or disbursing
28-26 production or proceeds. When disposing of production for working
29-1 interest owners, a unit operator who is not an agent or a fiduciary
29-2 shall act with the same standard of duty and care as is required in
29-3 the plan of unitization. In the absence of such a standard, the
29-4 operator shall act as would a reasonably prudent operator under the
29-5 same or similar circumstances. The standards set forth in this
29-6 subsection shall apply throughout this section as this section
29-7 affects working interest owners. Provided that a unit operator who
29-8 is not an agent or a fiduciary has acted accordingly, the unit
29-9 operator shall not be liable to any working interest owner who
29-10 elects to have the owner's share of unit production disposed of by
29-11 the unit operator for losses sustained or liability incurred as a
29-12 result of the operator's actions in selling or disposing of others'
29-13 production.
29-14 (c) The unit operator shall make available to any working
29-15 interest owner, or to any royalty interest owner who has the
29-16 preexisting right to take the owner's production in kind, to whom
29-17 production or proceeds are payable the opportunity to elect either
29-18 to have the owner's share of production marketed by the unit
29-19 operator or to market the owner's own production. The operator,
29-20 or any affiliate of the operator that markets production at or in
29-21 the vicinity of the unit, shall market such production of electing
29-22 owners, so that all electing owners receive the same price and
29-23 proportionate share of premiums and other compensation as the unit
29-24 operator, or an affiliate of the unit operator marketing at or in
29-25 the vicinity of the unit, receives for its share of unit production
29-26 except to the extent that prior contractual commitments or express
30-1 specific terms of a contract entered into in good faith disallow or
30-2 prohibit such sharing or marketing of additional production. This
30-3 subsection shall not be construed to require that profits,
30-4 compensation, or other benefits received by the operator or an
30-5 affiliate of the operator that are realized on transactions
30-6 occurring beyond the point of first sale at the unit or in the
30-7 vicinity of the unit shall be shared with or distributed to the
30-8 owners electing to have their production marketed by the operator.
30-9 (d) Unless otherwise provided in the plan of unitization,
30-10 any working interest owner, or any royalty interest owner who has
30-11 the preexisting right to take the owner's production in kind, to
30-12 whom production is allocable or proceeds are payable shall make an
30-13 initial election to either market the owner's own production or
30-14 have the owner's production marketed by the unit operator within 30
30-15 days of the effective date of the commission order approving the
30-16 unit. Unless otherwise provided in the plan of unitization, such
30-17 initial marketing election shall be effective as of 60 days
30-18 following the effective date of the commission order approving the
30-19 unit. Unless otherwise provided in the plan of unitization,
30-20 subsequent marketing elections shall be made on an annual basis
30-21 following the initial election by written notification to the unit
30-22 operator at least 45 business days before the expiration of each
30-23 interval. Failure of an owner to make any timely election under
30-24 this subsection shall be considered an election by that owner, for
30-25 the relevant period, to have the owner's production marketed by the
30-26 unit operator.
31-1 Sec. 104.092. LIABILITY OF WORKING INTEREST OWNER. (a) The
31-2 liability of a working interest owner for payment of unit expense
31-3 is several and not joint or collective.
31-4 (b) Except as provided by this subsection and Section
31-5 104.048, a working interest owner in a tract is not liable,
31-6 directly or indirectly, for more than the amount charged to that
31-7 owner's interest in the tract.
31-8 (c) Unless otherwise specifically agreed to by the parties
31-9 as part of a plan of unitization approved by the commission, any
31-10 environmental condition or liability existing before the effective
31-11 date of the commission order approving the unit remains the sole
31-12 responsibility of the party or parties responsible for that
31-13 environmental condition or liability before the effective date of
31-14 the commission order approving the unit.
31-15 Sec. 104.093. LIEN FOR COSTS. (a) Subject to any
31-16 reasonable limitations in the plan of unitization, a unit operator
31-17 has a lien on the leasehold estate and other oil and gas rights in
31-18 each separately owned tract, the interest of the owners in the unit
31-19 production, and all equipment in the possession of the unit to
31-20 secure the payment of the amount of the unit expense and other
31-21 additional compensation charges as provided for in Section 104.048
31-22 charged to each separate working interest.
31-23 (b) The lien established under this section does not attach
31-24 to the royalty interest under lease or the one-fifth (1/5) royalty
31-25 interest assigned to an unleased mineral interest or to any
31-26 interest in land directly or indirectly owned by the state.
32-1 Sec. 104.094. EFFECT OF UNIT OPERATIONS ON EXPRESSED OR
32-2 IMPLIED COVENANTS AND CONDITIONS. (a) To the extent a lease,
32-3 division order, or contract covering lands in the unit area relates
32-4 to the common source of supply or the part of the common source of
32-5 supply included in the unit area, all terms of the lease, division
32-6 order, or contract, express or implied, shall be construed by
32-7 giving due regard to the plan of unitization approved by the
32-8 commission. Operations conducted in accordance with a plan of
32-9 unitization approved by the commission are presumed to comply with
32-10 those terms unless there is an irreconcilable conflict between the
32-11 lease, division order, or contract and the approved plan of
32-12 unitization. If there is an irreconcilable conflict between the
32-13 lease, division order, or contract and the approved plan of
32-14 unitization, the plan controls, but the lease, division order, or
32-15 contract terms shall be regarded as modified only to the extent
32-16 necessary to conform to the plan.
32-17 (b) Notwithstanding any other provision of this chapter,
32-18 without a separate voluntary agreement supported by consideration,
32-19 a plan of unitization may not:
32-20 (1) cause a royalty interest to become liable for any
32-21 part of unit expense that the interest is not otherwise obligated
32-22 to pay;
32-23 (2) reduce a royalty interest fraction;
32-24 (3) alter an express surface use restriction,
32-25 including a restriction on the use of freshwater, that exists in a
32-26 lease or contract on the date the application authorized by Section
33-1 104.021 is filed; or
33-2 (4) alter a provision of a lease or contract providing
33-3 for indemnification or similar compensation in the event the
33-4 actions of one person cause another person to become liable for
33-5 damages to the environment or for a violation of a statute, rule,
33-6 or common-law standard that serves to protect the environment.
33-7 (c) A surface use conflict that is not governed by express
33-8 lease or contract terms shall be accommodated or otherwise resolved
33-9 after giving due regard to the plan of unitization as provided by
33-10 this section.
33-11 (d) Section 104.091 shall not be construed to diminish an
33-12 operator's duty to market production on behalf of a royalty
33-13 interest owner.
33-14 Sec. 104.095. DISTRIBUTION OF UNIT PRODUCTION. Except as
33-15 authorized by this chapter or in a plan of unitization approved by
33-16 the commission, the unit production shall be distributed among, or
33-17 the proceeds paid to, the owners entitled to share in the
33-18 production from each tract in the same manner that those owners
33-19 would have shared in the production or proceeds from the tract if
33-20 the unit had not been established.
33-21 Sec. 104.096. MODIFICATION OF PROPERTY RIGHTS OR TITLES.
33-22 Except to the extent that the parties affected by the plan of
33-23 unitization otherwise agree, a commission order entered under
33-24 Section 104.025 does not alienate, convey, cross-convey, transfer,
33-25 or change title or ownership, legal or equitable, of a person in a
33-26 parcel of land or the oil and gas rights in that parcel.
34-1 Sec. 104.097. ROYALTY OBLIGATIONS; BURDENS; UNLEASED
34-2 INTERESTS. (a) Each working interest owner who is the owner of an
34-3 interest in an oil and gas lease responsible for the payment of all
34-4 royalty, overriding royalty, or other lease burdens affecting the
34-5 owner's leasehold estate unless the plan of unitization provides
34-6 otherwise.
34-7 (b) One-fifth (1/5) of the production or proceeds
34-8 attributable to any unleased interest located in the unit area,
34-9 free of all unit expense and free of any lien, shall be allocated
34-10 to that interest unless the commission determines that a different
34-11 allocation is reasonable under the circumstances. Four-fifths
34-12 (4/5) of any unleased interests in the production or proceeds shall
34-13 bear its pro rata share of all unit expense and is subject to any
34-14 lien provided by this chapter or the plan of unitization. If the
34-15 commission allocates more than one-fifth (1/5) of the production or
34-16 proceeds free of all unit expense and free of any lien, the
34-17 commission shall make an equal, opposite adjustment in the part of
34-18 production or proceeds allocated to the interest that is to bear
34-19 expense and be subject to liens.
34-20 Sec. 104.098. UNIT OWNERSHIP OF PRODUCTION, PROCEEDS, AND
34-21 ACQUIRED PROPERTY. (a) The part of the unit production allocated
34-22 to any tract and the proceeds from the sale of that production are
34-23 the property and income of the owners to whom or to whose credit
34-24 the production and proceeds are allocated or payable under the
34-25 order for unit operations.
34-26 (b) Any property that is acquired in the conduct of unit
35-1 operations and charged as an item of unit expense is owned by the
35-2 working interest owners in the unit area as provided in the plan of
35-3 unitization.
35-4 SECTION 2. The importance of this legislation and the
35-5 crowded condition of the calendars in both houses create an
35-6 emergency and an imperative public necessity that the
35-7 constitutional rule requiring bills to be read on three several
35-8 days in each house be suspended, and this rule is hereby suspended,
35-9 and that this Act take effect and be in force from and after its
35-10 passage, and it is so enacted.