82R12609 SMH-F
 
  By: Taylor of Collin H.B. No. 3586
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to unit operations for oil, gas, or oil and gas production
  or carbon dioxide storage.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Subtitle C, Title 3, Natural Resources Code, is
  amended by adding Chapter 104 to read as follows:
  CHAPTER 104. UNITIZATION
  SUBCHAPTER A.  GENERAL PROVISIONS
         Sec. 104.001.  SHORT TITLE.  This chapter may be cited as the
  Texas Enhanced Recovery Unitization Act.
         Sec. 104.002.  DEFINITIONS.  In this chapter:
               (1)  "Commission" means the Railroad Commission of
  Texas.
               (2)  "Common source of supply" means:
                     (A)  a common reservoir as defined by Section
  86.002; or
                     (B)  separate multiple stratigraphic or
  lenticular accumulations of oil, gas, or oil and gas that have been
  recognized and regulated as a common reservoir by the commission
  under Section 86.081(b).
               (3)  "Extraneous substances" are substances, including
  hydrocarbons or carbon dioxide, purchased or otherwise obtained
  from outside a common source of supply for injection into the common
  source of supply during unit operations.
               (4)  "Oil and gas" means "oil" and "gas" as defined by
  Section 85.001.
               (5)  "Plan of unitization" means a plan or agreement
  that is consistent with the requirements of this chapter between
  working interest owners and royalty owners in a common source of
  supply or part of a common source of supply in which unit operations
  may be conducted to enhance the production of oil, gas, or oil and
  gas from the common source of supply or part of the common source of
  supply to greater volumes than would otherwise be produced by
  primary recovery operations only.
               (6)  "Primary recovery" means the displacement of oil,
  gas, or oil and gas from a common source of supply or part of a
  common source of supply in a unit area by means of the natural
  pressure of the reservoir, including artificial lift, but in the
  absence of unit operations.
               (7)  "Royalty interest" means the right to, or an
  interest in, oil and gas or proceeds of oil and gas production free
  of costs, other than a working interest. The term includes a
  royalty interest attributable to the interest of an unleased
  mineral interest owner under Section 104.057(1).
               (8)  "Royalty owner" means the owner of a royalty
  interest.
               (9)  "Tract" means a parcel of land lying within the
  unit area that is under uniform royalty and working interest
  ownership.
               (10)  "Tract participation" means the percentage shown
  in the plan of unitization participation formula for allocating
  unit production to a tract, which is measured by the value
  calculated for each tract for oil, gas, or oil and gas purposes
  based on its contributing value to the unit in relation to like
  values of other tracts in the unit, the sum of which is 100 percent.
               (11)  "Unit area" includes the surface area inside the
  boundaries of the unit and the common source of supply or the part
  of the common source of supply underlying the surface area that may
  be reasonably required for the conduct of unit operations.
               (12)  "Unit cost" or "unit expense" includes any cost
  or expense incurred in the conduct of unit operations.
               (13)  "Unit operations" means:
                     (A)  operations intended to increase the ultimate
  recovery of oil, gas, or oil and gas from a common source of supply
  related to the production of oil, gas, or oil and gas from the unit
  area, including:
                           (i)  repressuring;
                           (ii)  waterflooding;
                           (iii)  pressure maintenance;
                           (iv)  tertiary recovery operations; or
                           (v)  any other similar operations that are
  incidental or necessary to increase the ultimate recovery of oil,
  gas, oil and gas, or other hydrocarbons from the proposed unit area;
  or
                     (B)  the establishment and operation of the
  necessary facilities for the operations listed in Paragraph (A).
               (14)  "Unit operator" means the person designated under
  the plan of unitization to conduct unit operations, acting as
  operator and not merely as a working interest owner.
               (15)  "Unit participation of a royalty owner" means the
  percentage equal to the sum of the products obtained by multiplying
  the royalty interest of each royalty owner in each tract in which
  the owner owns a royalty interest by the tract participation of that
  tract in the unit.
               (16)  "Unit participation of a working interest owner"
  means the percentage equal to the sum of the products obtained by
  multiplying the working interest of each working interest owner in
  each tract in which the owner owns a working interest by the tract
  participation of that tract in the unit.
               (17)  "Unit production" includes all oil, gas, or oil
  and gas produced and saved from a unit area after the effective date
  of the unit regardless of the well or tract in the unit area from
  which the oil, gas, or oil and gas are produced. The term does not
  include the following substances if the working interest owners
  under a lease, contract, agreement, or unit plan have excluded the
  substances from unit production:
                     (A)  recoverable extraneous substances injected
  into the common source of supply or used in well treatment or
  pressure maintenance;
                     (B)  any production that is reinjected into the
  unit area, unless the reinjected production is later removed from
  the unit area for nonunit purposes or sold, in which case it will be
  considered to be unit production; or
                     (C)  any production used or consumed in unit
  operations.
               (18)  "Working interest" means an interest in oil and
  gas by virtue of a lease, operating agreement, fee title, or
  otherwise, including a carried interest, the owner of which is
  obligated to pay, in cash, out of production, or otherwise, the
  owner's share of the unit expense under the proposed or approved
  plan of unitization. The term includes a working interest
  attributable to the interest of an unleased mineral interest owner
  under Section 104.057(2).
               (19)  "Working interest owner" means the owner of a
  working interest.
         Sec. 104.003.  POWER AND AUTHORITY OF COMMISSION.  (a)  The
  commission shall adopt any necessary rule, issue and enforce any
  necessary order, and perform all required acts necessary to carry
  out the purposes of this chapter.
         (b)  The commission in accordance with this chapter shall
  determine whether a plan of unitization, including the
  participation formula, proposed under this chapter for all or part
  of a common source of supply is fair, reasonable, and equitable for
  all interests concerned and necessary to carry out the purposes of
  this chapter.
         Sec. 104.004.  APPLICABILITY TO VOLUNTARY COOPERATIVE
  AGREEMENTS IN SECONDARY RECOVERY OPERATIONS.  This chapter does not
  affect or apply to a voluntary cooperative agreement in secondary
  recovery operations as provided by Subchapter B, Chapter 101,
  unless application is made under this chapter for unit operations.
         Sec. 104.005.  APPLICABILITY TO PUBLIC LAND.  (a) This
  chapter does not apply to land owned by the state or land in which
  the state has a direct or indirect interest.
         (b)  Except as provided by Subsection (c), this chapter does
  not amend, repeal, change, alter, or affect in any manner the
  authority or jurisdiction of the state, the commissioner of the
  General Land Office, or any board or agency of the state with
  respect to any land or interest in land in which the state, the
  commissioner of the General Land Office, or any board or agency of
  the state has jurisdiction or the unitization of such land.
         (c)  Land in which the state has an interest as described in
  this chapter may be unitized under this chapter only:
               (1)  at the instance of the commissioner of the General
  Land Office; or
               (2)  with the approval of or consent to a plan of
  unitization by the state, the commissioner of the General Land
  Office, or the board or agency having jurisdiction.
         (d)  If land in which the state has an interest is to be
  unitized as provided for by Subsection (c), the plan of unitization
  and unit operating agreement is subject to and must incorporate by
  reference all statutes and rules that apply to the land in which the
  state has an interest.
         Sec. 104.006.  CONFLICT WITH ANTITRUST ACTS.  (a) A plan of
  unitization and operation under an agreement that complies with
  this chapter, is approved by commission order, and is found by the
  commission to be necessary to prevent waste and conserve the
  natural resources of this state may not be construed to be in
  violation of Chapter 15, Business & Commerce Code.
         (b)  If a court finds a conflict between this chapter and
  Chapter 15, Business & Commerce Code, this chapter is intended as a
  reasonable exception to that law that is necessary for the public
  interest of preventing waste and conserving the natural resources
  of this state.
         (c)  If a court finds a conflict between this chapter and
  Chapter 15, Business & Commerce Code, and finds that this chapter is
  not a reasonable exception to Chapter 15, Business & Commerce Code,
  the legislature intends that this chapter, or any conflicting part
  of this chapter, be declared invalid rather than that Chapter 15,
  Business & Commerce Code, or any portion of that chapter, be
  declared invalid.
         Sec. 104.007.  APPEALS.  A person affected by an order of the
  commission issued under this chapter is entitled to judicial review
  of that order in accordance with Subchapter G, Chapter 85. The
  petition for review must be filed in Travis County.
  [Sections 104.008-104.050 reserved for expansion]
  SUBCHAPTER B. APPLICATION PROCEDURES; CONSIDERATION
  AND APPROVAL OF PLAN
         Sec. 104.051.  APPLICATION FOR UNITIZATION. (a) A working
  interest owner or proposed unit operator may file an application
  with the commission requesting an order under this chapter for the
  unit operation of a common source of supply or a part of that common
  source of supply.
         (b)  The application must contain:
               (1)  a description of the proposed unit area and the
  vertical limits and producing horizons to be included in that unit
  area with a map or plat attached;
               (2)  a statement of the type of operations contemplated
  for the unit area;
               (3)  a copy of a proposed plan of unitization and all
  agreements related to that plan that the applicant considers fair,
  reasonable, and equitable, including a unit operating agreement
  that contains provisions dealing with:
                     (A)  the manner in which the costs and expenses of
  unit operations are to be apportioned among and assessed against
  the tracts and interests chargeable with those costs and expenses,
  including a detailed accounting procedure governing all charges and
  credits incident to unit operations and providing for audits of
  those charges and credits;
                     (B)  voting and approval procedures;
                     (C)  the designation, removal, or replacement of
  the unit operator;
                     (D)  the division of interest or formula for
  allocation of unit production, payment of interests free of costs,
  and allocation of unit expenses;
                     (E)  the time when the plan of unitization takes
  effect; and
                     (F)  the time when, conditions under which, and
  method by which the unit shall or may be dissolved and its affairs
  wound up;
               (4)  an allegation of the facts required to be found by
  the commission under Section 104.054;
               (5)  an allegation that the applicant has obtained at
  least the minimum required approval of the plan of unitization as
  required by Section 104.056; and
               (6)  an allegation that:
                     (A)  each owner of an interest in the oil and gas
  under each tract in the proposed unit area has been given an
  opportunity to enter into the unit on the same basis; and
                     (B)  the applicant or proposed unit operator has
  made a good faith effort to voluntarily unitize all interests in the
  proposed unit area.
         (c)  The applicant shall submit with the application a list
  including:
               (1)  the name of each person owning or having a working
  interest, royalty interest, or unleased mineral interest in the
  proposed unit area and each offset operator and unleased mineral
  interest owner adjacent to the proposed unit area; and
               (2)  for each person listed:
                     (A)  an address; or
                     (B)  a statement that the person's address is
  unknown.
         Sec. 104.052.  HEARING REQUIRED.  (a) On receipt of an
  application, the commission promptly shall set the matter for
  hearing and cause notice of the hearing to be given as provided by
  Section 104.053.
         (b)  At the hearing, an affected person is entitled to be
  heard, to introduce evidence, and to introduce and cross-examine
  witnesses.
         (c)  The applicant shall pay to the commission an amount
  equal to the costs the commission incurs to hold the hearing, as
  determined by the commission.
         Sec. 104.053.  NOTICE.  (a) Notice of the application and
  the time and place of the hearing on the application must be mailed,
  postage prepaid, not later than the 31st day before the hearing date
  to each working interest owner, operator, unleased mineral interest
  owner, and royalty owner in the unit area and to each offset
  operator and unleased mineral interest owner whose name and address
  is shown on the list provided under Section 104.051.
         (b)  Notice of the application and the time and place of
  hearing must be published once a week for four consecutive weeks in
  a newspaper of general circulation authorized by law to publish
  legal notices in the county or counties in which the land involved
  is located, or in another newspaper or publication designated by
  the commission.  The first publication must be made not later than
  the 31st day before the hearing date.
         (c)  Typographical errors in a notice that are not material
  to the purpose of the notice do not affect the validity of the
  notice.
         Sec. 104.054.  COMMISSION FINDINGS.  After notice and a
  hearing, the commission shall determine whether:
               (1)  the unitized operation of the common source of
  supply or the part of the common source of supply involved in the
  plan of unitization is reasonably necessary to conduct unit
  operations and the plan of unitization is reasonably necessary to
  prevent waste, protect correlative rights, and promote the
  conservation of oil, gas, or oil and gas;
               (2)  the estimated incremental recovery of oil, gas, or
  oil and gas from the common source of supply is reasonably
  anticipated to exceed the estimated incremental expenses incident
  to conducting unit operations;
               (3)  the productive limits of the common source of
  supply or the part of the common source of supply proposed for
  unitization have been reasonably defined by exploration,
  development, or other definable means so as to establish that the
  area proposed for unitization is reasonably necessary and
  sufficient for unit operations;
               (4)  if only a portion of the common source of supply is
  proposed for unitization, unit operations will have a material
  adverse effect on the remainder of the common source of supply;
               (5)  the unsigned owners of interests in the oil and gas
  under each tract of land in the proposed unit area have been given a
  reasonable opportunity to enter into the unit on the same basis as
  the owners of interests in the oil and gas under the other tracts in
  the unit area and the applicant or proposed unit operator has made a
  good faith effort to voluntarily unitize all interests within the
  proposed unit area;
               (6)  the applicant has obtained approval for the plan
  of unitization from at least the minimum number of working interest
  and royalty interest owners required by Section 104.056;
               (7)  the expense of establishing the unit and unit
  expenses that are to be charged as unit expenses are reasonable and
  necessary;
               (8)  the expenses relating to unit operations will:
                     (A)  be for the common benefit of all persons with
  interests in the unit;
                     (B)  be allocated on a fair and equitable basis;
  and
                     (C)  not result in a profit or other benefit that
  favors the unit operator over other unitized interest owners;
               (9)  a working interest owner has a reasonable right to
  review all records pertaining to unit operations and a reasonable
  amount of time to audit unit expenses;
               (10)  the plan of unitization meets the requirements of
  Subchapter C and reasonably conforms to the requirements of this
  chapter; and
               (11)  the plan of unitization, including the tract
  participation formula and percentages, is in all respects fair,
  reasonable, and equitable.
         Sec. 104.055.  UNITIZATION ORDER; EFFECT OF OPERATIONS.  (a)
  If the commission finds that all the requirements of Section
  104.054 are met, the commission shall issue an order providing for:
               (1)  the unitized operation of the unit area in the
  common source of supply as set forth in the plan of unitization; and
               (2)  unitization of all working interests and royalty
  interests in the unit area.
         (b)  The order must:
               (1)  unitize all interests of all owners in the area
  covered by the plan of unitization with the same effect as if those
  owners had executed the plan of unitization and had been parties to
  the unit agreement;
               (2)  approve the area of the common source of supply or
  the part of the common source of supply to be included in the unit
  area and the vertical limits of the common source of supply as
  defined in the plan of unitization;
               (3)  approve the plan of unitization, including the
  allocation of production and costs among tracts; and
               (4)  approve the designation of the initial unit
  operator as named in the plan of unitization.
         (c)  Unit operations on and production from any lease in the
  unit area for which a unitization order has been entered are
  considered for all purposes the conduct of unit operations on and
  production from each separately owned lease and tract in the unit.
         (d)  If only a part of a lease is included in the unit, unit
  operations on or production from the unit maintains an oil and gas
  lease as to the part excluded from the unit only if the excluded
  part of the lease otherwise would have been maintained under the
  terms of the lease by the unit production attributable to the
  included tract or tracts.
         Sec. 104.056.  APPROVAL OF PROPOSED PLAN OF UNITIZATION BY
  WORKING INTEREST AND ROYALTY OWNERS.  (a) An order of the
  commission creating a unit and prescribing the plan of unitization
  takes effect only when the proposed plan of unitization has been
  approved in writing by:
               (1)  the owners, on a unit participation basis, of at
  least 70 percent of the aggregate unit working interests; and
               (2)  at least 70 percent of the owners, on a unit
  participation basis, of the aggregate unit royalty interests that
  complete and return an approval or ratification together with the
  ballot distributed under Subsection (b).
         (b)  A ballot distributed to the owners of royalty interests
  must:
               (1)  state that the applicant will confirm by mail that
  the ballot has been received and whether it has been counted as a
  vote for or against the proposed plan;
               (2)  be sent by certified mail, return receipt
  requested, to each owner of a royalty interest in the proposed unit
  area, including the interest attributable to each owner of an
  unleased mineral interest;
               (3)  be sent a second time by certified mail, return
  receipt requested, to any interest owner for whom a receipt from the
  first mailing is not returned after a reasonable effort has been
  made between the first and the second mailings to correct any
  address that appears to be inaccurate; and
               (4)  be accompanied by:
                     (A)  a copy of the proposed plan of unitization;
                     (B)  an objective summary of the proposed plan
  that is reasonably calculated to provide an ordinary royalty owner
  with an adequate understanding of how the royalty owner's property
  interest would be affected by a favorable vote and how that interest
  would be affected by an unfavorable vote; and
                     (C)  a postage-paid reply envelope.
         (c)  A royalty owner may not be required to return a ballot
  earlier than the 14th day after the date the owner receives the
  ballot and other information required by Subsection (b).
         (d)  The applicant shall:
               (1)  confirm the receipt of each ballot; and
               (2)  indicate to the royalty owner returning the ballot
  whether the ballot has been counted as a vote for or a vote against
  the proposed plan.
         (e)  The commission shall dismiss the application if the
  commission finds that the applicant has not reasonably complied
  with Subsection (b), (c), or (d).
         (f)  Notwithstanding Sections 104.054 and 104.055, the
  commission may issue an order approving the plan of unitization
  before the requirements of Subsection (a)(2) of this section have
  been met. If the commission issues an order approving the plan of
  unitization under that circumstance, the requirements of
  Subsection (a)(2) must be met not later than six months after the
  date the commission issues the order. If after an additional notice
  and hearing as provided by Sections 104.052 and 104.053 the
  commission determines that the requirements of Subsection (a)(2) of
  this section have been met before the expiration of the required
  period, the order takes effect. If after the additional notice and
  hearing the commission determines that the requirements of
  Subsection (a)(2) have not been met before the expiration of the
  required period, the order has no effect, and the commission shall
  revoke the order.
         Sec. 104.057.  STATUS OF UNLEASED MINERAL INTERESTS.  Any
  mineral interest in the unit area that is unleased on the effective
  date of unitization is considered for purposes of unit
  participation:
               (1)  to have a royalty interest of one-sixth of that
  interest, free and clear of all unit expenses; and
               (2)  to be a working interest to the extent of
  five-sixths of that interest, with all the rights and obligations
  of a lessee as if the mineral rights were leased.
  [Sections 104.058-104.100 reserved for expansion]
  SUBCHAPTER C. PLAN OF UNITIZATION
         Sec. 104.101.  AUTHORIZED PLANS.  (a) A plan of unitization
  may be proposed under this chapter only to establish units and
  cooperative facilities necessary for unit operations that are
  reasonably anticipated to substantially increase the ultimate
  recovery of oil, gas, or oil and gas to greater volumes than would
  be recovered by primary recovery alone.
         (b)  The proposed plan of unitization and the commission
  order approving the plan may provide for unit operation of less than
  the whole of a common source of supply if:
               (1)  the unit area is of a size and shape that is
  reasonably required for successful and efficient conduct of the
  type of unit operations proposed; and
               (2)  the type of unit operations proposed will not have
  a material adverse effect on the part of the common source of supply
  that is not included in the plan of unitization.
         Sec. 104.102.  SINGLE OR MULTIPLE AGREEMENTS.  The plan of
  unitization may consist of one or more agreements that the
  applicant considers to be fair, reasonable, and equitable if the
  applicant submits each agreement to the commission as required by
  Section 104.051(b)(3).
         Sec. 104.103.  PARTICIPATION; ALLOCATION OF UNIT
  PRODUCTION.  (a) The proposed plan must provide for the
  apportionment and allocation of the unit production among the
  tracts in the unit area in order to reasonably permit a person
  entitled to share in, or benefit by, the production from a tract in
  the unit to receive a fair share of the unit production or other
  benefits.
         (b)  A tract's fair share of the unit production must be
  measured by the value of each tract and its contributing value to
  the unit in relation to like values of other tracts in the unit,
  taking into account acreage, the quantity of oil, gas, or oil and
  gas recoverable from the tract, the tract's location on the
  geological structure, the tract's probable productivity of oil,
  gas, or oil and gas in the absence of unit operations, or as many
  other factors, including other pertinent engineering, geological,
  or operating factors, as are reasonably susceptible of
  determination.
         Sec. 104.104.  VOTING BY WORKING INTEREST OWNERS.  The
  proposed plan of unitization must establish a voting procedure for
  decisions by the working interest owners. The voting procedure
  need not be the same for each type of decision that may be made by
  the working interest owners.  However, each voting procedure must
  provide that each working interest owner has a voting interest
  equal to that owner's unit participation.
         Sec. 104.105.  OPERATING AGREEMENT.  The proposed plan of
  unitization must include a proposed operating agreement
  establishing:
               (1)  the manner in which the unit will be operated,
  supervised, and managed by the unit operator in the conduct of unit
  operations;
               (2)  the grounds on which a unit operator may be
  replaced for cause;
               (3)  a procedure by which a unit operator may be
  replaced without cause;
               (4)  allocation of and provision for payment of unit
  costs; and
               (5)  the other matters required by Section
  104.051(b)(3).
         Sec. 104.106.  EFFECTIVE DATE AND TERMINATION DATE OF PLAN
  OF UNITIZATION.  (a) The proposed plan of unitization must provide
  for the date on which the plan takes effect, the manner in which and
  the circumstances under which unit operations terminate, the
  settlement of accounts on termination, and notice by the unit
  operator to the public within 30 days after the effective date of
  the unit. After the commission by order adopts the plan of
  unitization and declares the unit effective, the unit operator must
  give public notice by filing for record, in the real property
  records of the county or counties in which the unit area or any part
  of the unit area is located, a certificate containing:
               (1)  the name of the unit;
               (2)  the legal description of each tract included in
  the unit area and a description of the common source of supply or
  the part of the common source of supply included in the unit area;
               (3)  the commission docket number;
               (4)  the date of the commission order, including any
  supplemental orders, relating to approval of the plan of
  unitization or the approval by the royalty owners;
               (5)  the effective date of unit operations; and
               (6)  a survey plat setting out the unit boundaries.
         (b)  The plan of unitization must require the unit operator,
  not later than the 60th day after the date of termination of the
  unit, to file for record in each county in which any part of the unit
  area is located a certificate stating the date the unit operations
  terminated.
         Sec. 104.107.  FINANCING UNIT OPERATIONS.  (a)  The plan of
  unitization must provide the manner in which unit costs, including
  overhead and interest, are determined, allocated, and charged to
  the separately owned tracts or interests and must include a
  detailed accounting procedure for all charges and credits incident
  to unit operations. The unit costs chargeable to a tract or
  interest must be paid by each working interest owner on a unit
  participation basis.
         (b)  The plan also must:
               (1)  provide for the auditing of all records of the unit
  operator pertaining to unit operation;
               (2)  require the operator to maintain records
  sufficient to show the reasonableness of any payments to affiliates
  of the operator and of other unit costs;
               (3)  provide for disclosure so that working interest
  owners will be informed in a timely manner whether particular costs
  and expenses relate to activities undertaken by an affiliate of the
  operator; and
               (4)  include provisions that disallow situations in
  which a profit or other benefit would accrue solely to the operator
  as unit operator.
         Sec. 104.108.  ATTACHMENT OF OR LIEN ON PROCEEDS OF
  PRODUCTION TO COVER DEBTS OF NONPAYING WORKING INTEREST OWNERS.  
  (a) The plan of unitization must provide for the attachment of or a
  lien on proceeds of production due to any working interest owner who
  is not paying the owner's share of the costs of unit operation as
  compensation to the paying owner or owners. The compensation
  amount may not exceed 300 percent of the nonpaying working interest
  owner's share of unit costs, which is considered to include all
  penalties and interest.
         (b)  The plan of unitization must provide that all of the
  unit production allocated to a nonpaying working interest owner who
  does not pay the share of the unit expenses charged and any
  additional compensation amounts applied to that nonpaying owner
  under Subsection (a) may be appropriated by the unit operator and
  marketed and sold for the payment of unit expenses and additional
  compensation amounts. Any sale proceeds remaining after payment of
  unit expenses and additional compensation amounts must be remitted
  to the nonpaying working interest owner.
         (c)  As to an interest located in the unit that is not leased
  by the effective date of unitization, one-sixth of the production
  attributable to the unleased interest is considered as royalty
  interest and is free and clear of all unit expenses and additional
  compensation amounts. Five-sixths of the unleased interest is
  considered as working interest and is subject to being financed or
  carried under this section.
         Sec. 104.109.  SALE BY NONSIGNING WORKING INTEREST OWNER.  
  The plan of unitization must provide that a nonsigning working
  interest owner may elect to offer through the unit operator to sell
  and assign all of that owner's working interest in the unit area to
  the unit operator and to other working interest owners who desire to
  acquire a portion of the interest.
         Sec. 104.110.  INVESTMENT ADJUSTMENTS AND PROPERTY TAKEN
  OVER.  The plan of unitization must provide for the procedure and
  basis for adjustment among the working interest owners in the unit
  area of their respective investment in wells, tanks, pumps,
  machinery, materials, equipment, facilities, and other items of
  value taken over and used in unit operations. Investment
  adjustments and credits for property taken over may not be used as a
  factor in setting participation percentages and allocations of unit
  production under Section 104.103.
         Sec. 104.111.  ADDITIONAL PLAN PROVISIONS.  The plan of
  unitization may include any additional provisions approved by the
  commission that are consistent with the findings required by
  Section 104.054.
  [Sections 104.112-104.150 reserved for expansion]
  SUBCHAPTER D.  AMENDMENT OF PLAN OR ORDER OF
  UNITIZATION; EXPANSION OF UNIT AREA
         Sec. 104.151.  AMENDMENT OF PLAN OR ORDER OF UNITIZATION.  
  (a)  A commission order approving unitization may be amended in the
  same manner and subject to the same conditions as are required for
  an original order providing for unitized operations.
         (b)  Approval of an amendment by royalty owners is not
  required if the amendment affects only the rights and interests of
  working interest owners.
         (c)  An amendment to an order may not, without the aggregate
  approval of at least the minimum percentage of the working interest
  and royalty interest ownership required under Section 104.056 for
  approval of unitization and compliance with Section 104.005,
  change:
               (1)  the percentage of unit oil, gas, or oil and gas
  production allocated to each tract in the plan approved by the
  original or amended order approving the existing unit; or
               (2)  the percentage of unit expenses allocated to each
  tract in the plan of unitization approved by the original or amended
  order for the existing unit.
         (d)  An amendment to an order may not, without the aggregate
  approval of at least the minimum percentage of the working interest
  and royalty interest ownership required under Section 104.056 for
  approval of unitization, the aggregate approval of at least 70
  percent of the surface interest ownership in the unit area, and
  compliance with Section 104.005, change the unit operations from
  enhanced recovery operations to carbon dioxide storage operations.
         (e)  This section does not apply to an order:
               (1)  expanding an existing unit area under Section
  104.152;
               (2)  creating a new unit area under Section 104.153; or
               (3)  under Section 104.209 authorizing an operator of
  an enhanced recovery project to document geologic storage of carbon
  dioxide while the common source of supply is operated for the
  economic recovery of oil, gas, or oil and gas.
         (f)  For purposes of Subsection (e)(3), the common source of
  supply is considered to be operated for the economic recovery of
  oil, gas, or oil and gas if there is a reasonable expectation of
  more than insignificant future production volumes of oil, gas, or
  oil and gas.
         Sec. 104.152.  EXPANSION OF UNIT AREA.  (a)  In accordance
  with this section and subject to Section 104.153, an existing unit
  area may be expanded to include additional nonunitized tracts under
  the terms contained in the plan of unitization for the existing unit
  if the working interest owners and the royalty owners in each
  additional tract and in the existing unit area approve the
  expansion by the same percentages and in the same manner as required
  by Section 104.056 and Section 104.005(c), if applicable, for the
  creation of a unit. The requirements for creating a unit under this
  chapter apply to the expansion of the unit area under this section.
         (b)  Allocation of unit production from the expanded unit
  must be calculated first by allocating to the expansion area a
  portion of the total production of oil, gas, or oil and gas from the
  unit area as enlarged. That allocation must be based on the
  relative contribution to the total production of oil, gas, or oil
  and gas that the expansion area is expected to make during the
  remaining course of unit operations.  If the expansion area
  consists of separately owned tracts, the production allocated to
  the expansion area must be allocated to the separately owned tracts
  in proportion to the relative contribution of each of those tracts
  as provided by Section 104.103. The remaining portion of unit
  production must be allocated among the tracts in the existing unit
  area in the same proportions as those set out in the existing plan
  of unitization.
         Sec. 104.153.  ENLARGEMENT INCLUDING ALL OF PREVIOUSLY
  ESTABLISHED UNIT.  (a)  The commission may not combine two or more
  units created under this chapter unless the owners, on a unit
  participation basis, of at least 70 percent of the aggregate unit
  working interests and at least 70 percent of the aggregate unit
  royalty interests in each unit to be combined have agreed to the
  combination.
         (b)  A commission order combining units created under this
  chapter, in allocating unit production between the previously
  established units to be combined, must first treat each unit to be
  combined as a single tract for purposes of production allocation.
  The part of unit production that is allocated to each unit to be
  combined must then be allocated among the separately owned tracts
  included in the previously established units in the same proportion
  as provided in each previous commission order establishing a unit
  that is combined under this section.
  [Sections 104.154-104.200 reserved for expansion]
  SUBCHAPTER E.  UNIT OPERATIONS
         Sec. 104.201.  STATUS OF PRODUCTION PROCEEDS; STANDARD OF
  CARE; DISTRIBUTION.  (a)  Unit production, proceeds from the sale of
  production, or other receipts may not be treated or taxed as income
  or profit of the unit. All unit production and proceeds are income
  of the owners to whom or to whose credit the production or proceeds
  are payable under the plan of unitization.
         (b)  The unit operator does not become an agent or fiduciary
  of a working interest owner to whom production or proceeds are
  payable solely by reason of receiving or disbursing production or
  proceeds. When disposing of production for working interest
  owners, a unit operator who is not an agent or fiduciary shall act
  with the same standard of care as is required in the plan of
  unitization. In the absence of such a standard, the operator shall
  act in the same manner in which a reasonably prudent operator would
  act under the same or similar circumstances. A unit operator who is
  not an agent or a fiduciary who has acted according to these
  standards is not liable to any working interest owner who elects to
  have the owner's share of unit production disposed of by the unit
  operator for losses sustained or liability incurred as a result of
  the unit operator's actions under this section in selling or
  disposing of others' production.
         (c)  The unit operator shall make available, to any working
  interest owner, or to any royalty owner who has the preexisting
  right to take the owner's production in kind, to whom production or
  proceeds are payable, who makes adequate provision for receipt of
  the production, the owner's share of production in kind or for sale.
  The unit operator, at the request of an owner who elects to have the
  owner's production marketed by the unit operator, may market the
  production of the owner. A unit operator that markets the
  production of such an owner shall do so in such a manner that the
  owner receives the same price and proportionate share of premiums
  and other compensation as the unit operator receives for the unit
  operator's share of unit production, except to the extent that a
  previous contractual commitment or express specific term of a
  contract entered into in good faith prohibits such sharing or
  marketing of additional production. This subsection may not be
  construed to require that any profit, compensation, or other
  benefit received by the unit operator that is realized on a
  transaction occurring beyond the point of first sale at the unit or
  in the vicinity of the unit be shared with or distributed to any
  owner electing to have the owner's production marketed by the unit
  operator.
         Sec. 104.202.  LIABILITY OF WORKING INTEREST OWNER.  (a)  The
  liability of a working interest owner for payment of unit expense is
  several and not joint or collective.
         (b)  Except as provided by this subsection and Section
  104.108, a working interest owner in a tract is not liable, directly
  or indirectly, for more than the amount charged to that owner's
  interest in the tract.
         (c)  Unless otherwise specifically agreed to by the parties
  as part of a plan of unitization approved by the commission, any
  environmental condition or liability existing before the effective
  date of the commission order approving the unit remains the sole
  responsibility of the party or parties responsible for that
  environmental condition or liability before the effective date of
  the commission order approving the unit.
         Sec. 104.203.  LIEN FOR COSTS.  (a) Subject to any
  reasonable limitations in the plan of unitization, a unit operator
  has a lien on the leasehold estate and other oil, gas, or oil and gas
  rights in each separately owned tract, the interest of the owners in
  the unit production, and all equipment in the possession of the unit
  to secure the payment of the amount of the unit expense and other
  additional compensation charges as provided for in Section 104.108
  charged to each separate working interest.
         (b)  The lien established under this section does not attach
  to the royalty interest under lease or the one-sixth royalty
  interest attributable to an unleased mineral interest or to any
  interest in land directly or indirectly owned by the state.
         Sec. 104.204.  EFFECT OF UNIT OPERATIONS ON EXPRESSED OR
  IMPLIED COVENANTS AND CONDITIONS.  (a) To the extent a lease,
  division order, or contract covering lands in the unit area relates
  to the common source of supply or the part of the common source of
  supply included in the unit area, all terms of the lease, division
  order, or contract, express or implied, must be construed by giving
  due regard to the plan of unitization approved by the commission.
  Operations conducted in accordance with a plan of unitization
  approved by the commission are presumed to comply with those terms
  unless there is an irreconcilable conflict between the lease,
  division order, or contract and the approved plan of unitization.
  If there is an irreconcilable conflict between the lease, division
  order, or contract and the approved plan of unitization, the plan
  controls, but the lease, division order, or contract terms must be
  regarded as modified only to the extent necessary to conform to the
  plan.
         (b)  Notwithstanding any other provision of this chapter,
  without a separate voluntary agreement supported by consideration,
  a plan of unitization may not:
               (1)  cause a royalty interest to become liable for any
  part of unit expense that the interest is not otherwise obligated to
  pay;
               (2)  reduce a royalty interest fraction; or
               (3)  alter a provision of a lease or contract providing
  for indemnification or similar compensation in the event the
  actions of one person cause another person to become liable for
  damages to the environment or for a violation of a statute, rule, or
  common-law standard that serves to protect the environment.
         (c)  Lease or surface use provisions that conflict with the
  use of the surface for unit operations in such a manner as to
  prevent or render uneconomical the implementation of the plan of
  unitization as approved by the commission must be amended by the
  unit order to the extent, and only to the extent, necessary to
  implement the plan in an economical and efficient manner.
         (d)  Section 104.201 may not be construed to diminish a
  working interest owner's duty to market production on behalf of a
  royalty owner.
         Sec. 104.205.  DISTRIBUTION OF UNIT PRODUCTION.  Except as
  authorized by this chapter or in a plan of unitization approved by
  the commission, the unit production must be distributed among, or
  the proceeds paid to, the owners entitled to share in the production
  from each tract in the same manner that those owners would have
  shared in the production or proceeds from the tract if the unit had
  not been established.
         Sec. 104.206.  MODIFICATION OF PROPERTY RIGHTS OR TITLES.  
  Except to the extent that the parties affected by the plan of
  unitization otherwise agree, a commission order entered under
  Section 104.055 does not alienate, convey, cross-convey, transfer,
  or change title or ownership, legal or equitable, of a person in a
  parcel of land or the oil and gas rights in that parcel.
         Sec. 104.207.  ROYALTY OBLIGATIONS; BURDENS; UNLEASED
  INTERESTS.  (a) Each working interest owner who is the owner of an
  interest in an oil and gas lease is responsible for the payment of
  all royalty, overriding royalty, or other lease burdens affecting
  the owner's leasehold estate unless the plan of unitization
  provides otherwise.
         (b)  One-sixth of the production or proceeds attributable to
  any unleased interest located in the unit area, free of all unit
  expense and free of any lien, must be allocated to that interest.  
  Five-sixths of any unleased interest in the production or proceeds
  must bear its pro rata share of all unit expense and is subject to
  any lien provided by this chapter or the plan of unitization.
         Sec. 104.208.  UNIT OWNERSHIP OF PRODUCTION, PROCEEDS, AND
  ACQUIRED PROPERTY.  (a) The part of the unit production allocated
  to any tract and the proceeds from the sale of that production are
  the property and income of the owners to whom or to whose credit the
  production and proceeds are allocated or payable under the order
  and the plan for unit operations.
         (b)  Any property that is acquired in the conduct of unit
  operations and charged as an item of unit expense is owned by the
  working interest owners in the unit area as provided in the plan of
  unitization.
         Sec. 104.209.  UNIT OPERATIONS FOR PERMANENT GEOLOGIC
  STORAGE OF CARBON DIOXIDE IN COMMON SOURCE OF SUPPLY FOR WHICH THERE
  IS POTENTIAL FOR FURTHER ECONOMIC RECOVERY OF OIL, GAS, OR OIL AND
  GAS. The commission, on application, by order shall authorize an
  operator of an enhanced recovery project to document geologic
  storage of anthropogenic carbon dioxide, including anthropogenic
  carbon dioxide stored in conjunction with the injection of
  naturally sourced carbon dioxide, while continuing to perform
  enhanced recovery operations for oil, gas, or oil and gas.
         Sec. 104.210.  UNIT OPERATIONS FOR PERMANENT GEOLOGIC
  STORAGE OF CARBON DIOXIDE IN COMMON SOURCE OF SUPPLY FOR WHICH THERE
  IS NO POTENTIAL FOR FURTHER ECONOMIC RECOVERY OF OIL, GAS, OR OIL
  AND GAS. (a)  The commission shall adopt rules as necessary to
  regulate unit operations for the geologic storage of carbon dioxide
  for the purpose of enhancing the public welfare and protecting the
  natural resources of this state.
         (b)  Unit operations for the geologic storage of carbon
  dioxide may be conducted in a common source of supply previously
  included in a plan of unitization approved by the commission for the
  enhanced recovery of oil, gas, or oil and gas under the other
  provisions of this chapter if the commission amends the order
  approving the plan of unitization in the manner provided by Section
  104.151 to authorize operations for carbon dioxide storage. The
  commission may amend the order as provided by this subsection only
  if:
               (1)  the unit area is not being revised;
               (2)  the applicant submits a plan of unitization that
  includes operations for carbon dioxide storage and meets the
  requirements for commission approval; and
               (3)  the commission determines, following notice,
  hearing, and presentation of evidence, that the ultimate recovery
  of oil, gas, or oil and gas from the common source of supply has
  reached the economic limit for continued enhanced recovery
  operations.
         (c)  Unit operations for the geologic storage of carbon
  dioxide may be conducted in a common source of supply that has not
  previously been unitized under the other provisions of this chapter
  if the commission adopts a storage unitization order authorizing
  the operations. The commission may adopt the order only on
  application and after notice and hearing as required by Sections
  104.052 and 104.053, except that notice must also be mailed in the
  manner provided by Section 104.053 to each surface owner in the unit
  area. The application must contain:
               (1)  a description of the proposed unit area and the
  vertical limits and the formerly productive horizons to be included
  in that unit area with a map or plat attached that meets the
  requirements of Section 104.054(3);
               (2)  a statement that the common source of supply has no
  further economic utility for the production of oil, gas, or oil and
  gas and that uncontroverted evidence to that effect will be
  provided at the hearing;
               (3)  a statement that:
                     (A)  the applicant or proposed unit operator has
  made a good faith effort to:
                           (i)  voluntarily unitize all interests in
  the proposed unit area; or
                           (ii)  acquire by option, lease, conveyance,
  or other negotiated means the interests of at least 70 percent of
  the group of persons consisting of the owners of working interests,
  royalty interests, unleased mineral interests, and surface
  interests in the proposed unit area; and
                     (B)  the number of owners of interests in the
  proposed unit area who have voluntarily agreed to unitize their
  interests, when combined with the number of owners of working
  interests, royalty interests, unleased mineral interests, and
  surface interests in the proposed unit area whose interests the
  applicant or proposed unit operator has acquired by option, lease,
  conveyance, or other negotiated means, equals at least 70 percent
  of the group of persons consisting of the owners of working
  interests, royalty interests, unleased mineral interests, and
  surface interests in the proposed unit area;
               (4)  the name of each person owning or having a working
  interest, royalty interest, unleased mineral interest, or surface
  interest in the proposed unit area and each offset operator or
  unleased mineral interest owner adjacent to the proposed unit area;
               (5)  for each person listed:
                     (A)  an address; or
                     (B)  a statement that the person's address is
  unknown; and
               (6)  a plan of unitization that includes operations for
  the injection of carbon dioxide for carbon dioxide storage,
  including the proposed division of interests for working interest,
  royalty interest, unleased mineral interest, and surface interest
  owners for purposes of sharing of expenses and payment of storage
  fees.
         (d)  Royalty interests and surface interests must be free of
  costs of the storage operations. Unleased mineral interests are
  considered to have the royalty interests and working interests
  specified by Section 104.057.
         (e)  The commission may not approve a proposed unitization
  plan for carbon dioxide storage unless the requirements of
  Subsection (c)(3)(B) have been satisfied.
         (f)  Rules adopted by the commission under this section must:
               (1)  provide for mailing notice of the application and
  the time and place of the hearing on the application in the manner
  provided by Section 104.053;
               (2)  require a fair and equitable division of interest
  between the owners of working interests, royalty interests,
  unleased mineral interests, and surface interests in the proposed
  unit area;
               (3)  require that the unit operations cover the entire
  common source of supply, taking into consideration the necessity,
  if any, for buffer acreage for monitoring of the carbon dioxide
  storage site and any attendant storage facilities unique to the
  storage operations; and
               (4)  incorporate the provisions of this chapter
  relating to enhanced oil, gas, or oil and gas recovery to the extent
  the commission considers those provisions to be applicable to the
  regulation of unit operations for the geologic storage of carbon
  dioxide in a common source of supply under the jurisdiction of this
  state.
         (g)  Unit operations for the geologic storage of carbon
  dioxide in the common source of supply may not begin until the
  commission determines that the unit operations will comply with
  state and federal law.
         SECTION 2.  Not later than January 1, 2012, the Railroad
  Commission of Texas shall adopt rules as necessary to implement
  Chapter 104, Natural Resources Code, as added by this Act.
         SECTION 3.   This Act takes effect immediately if it receives
  a vote of two-thirds of all the members elected to each house, as
  provided by Section 39, Article III, Texas Constitution. If this
  Act does not receive the vote necessary for immediate effect, this
  Act takes effect September 1, 2011.