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S.B. 213 Enrolled

             1     

COMPULSORY POOLING AMENDMENTS

             2     
2014 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Chief Sponsor: Ralph Okerlund

             5     
House Sponsor: Mike K. McKell

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill modifies the procedure for a compulsory pooling order in a drilling unit.
             10      Highlighted Provisions:
             11          This bill:
             12          .    authorizes the Board of Oil, Gas, and Mining to assess against a nonconsenting
             13      owner in a compulsory pooling order up to 400% of the nonconsenting owner's
             14      share of:
             15              .    the costs of staking a location, preparing a wellsite, rights-of-way, rigging up,
             16      drilling, reworking, recompleting, deepening or plugging back, testing, and
             17      completing; and
             18              .    the cost of equipment in the well;
             19          .    modifies the royalties paid to an unleased nonconsenting owner in a compulsory
             20      pooling order; and
             21          .    makes technical changes.
             22      Money Appropriated in this Bill:
             23          None
             24      Other Special Clauses:
             25          None
             26      Utah Code Sections Affected:
             27      AMENDS:
             28           40-6-6.5 , as last amended by Laws of Utah 2010, Chapter 324
             29     


             30      Be it enacted by the Legislature of the state of Utah:
             31          Section 1. Section 40-6-6.5 is amended to read:
             32           40-6-6.5. Pooling of interests for the development and operation of a drilling unit
             33      -- Board may order pooling of interests -- Payment of costs and royalty interests --
             34      Monthly accounting.
             35          (1) Two or more owners within a drilling unit may bring together their interests for the
             36      development and operation of the drilling unit.
             37          (2) (a) In the absence of a written agreement for pooling, the board may enter an order
             38      pooling all interests in the drilling unit for the development and operation of the drilling unit.
             39          (b) The order shall be made upon terms and conditions that are just and reasonable.
             40          (c) The board may adopt terms appearing in an operating agreement:
             41          (i) for the drilling unit that is in effect between the consenting owners;
             42          (ii) submitted by any party to the proceeding; or
             43          (iii) submitted by its own motion.
             44          (3) (a) Operations incident to the drilling of a well upon any portion of a drilling unit
             45      covered by a pooling order shall be deemed for all purposes to be the conduct of the operations
             46      upon each separately owned tract in the drilling unit by the several owners.
             47          (b) The portion of the production allocated or applicable to a separately owned tract
             48      included in a drilling unit covered by a pooling order shall, when produced, be deemed for all
             49      purposes to have been produced from that tract by a well drilled on it.
             50          (4) (a) (i) Each pooling order shall provide for the payment of just and reasonable costs
             51      incurred in the drilling and operating of the drilling unit, including[, but not limited to]:
             52          (A) the costs of drilling, completing, equipping, producing, gathering, transporting,
             53      processing, marketing, and storage facilities;
             54          (B) reasonable charges for the administration and supervision of operations; and
             55          (C) other costs customarily incurred in the industry.
             56          (ii) An owner is not liable under a pooling order for costs or losses resulting from the
             57      gross negligence or willful misconduct of the operator.


             58          (b) Each pooling order shall provide for reimbursement to the consenting owners for
             59      any nonconsenting owner's share of the costs out of production from the drilling unit
             60      attributable to [his] the nonconsenting owner's tract.
             61          (c) Each pooling order shall provide that each consenting owner shall own and be
             62      entitled to receive, subject to royalty or similar obligations:
             63          (i) the share of the production of the well applicable to [his] the consenting owner's
             64      interest in the drilling unit; and
             65          (ii) unless [he] the consenting owner has agreed otherwise, [his] the consenting owner's
             66      proportionate part of the nonconsenting owner's share of the production until costs are
             67      recovered as provided in Subsection (4)(d).
             68          (d) (i) Each pooling order shall provide that each nonconsenting owner shall be entitled
             69      to receive, subject to royalty or similar obligations, the share of the production of the well
             70      applicable to [his] the nonconsenting owner's interest in the drilling unit after the consenting
             71      owners have recovered from the nonconsenting owner's share of production the following
             72      amounts less any cash contributions made by the nonconsenting owner:
             73          (A) 100% of the nonconsenting owner's share of the cost of surface equipment beyond
             74      the wellhead connections, including stock tanks, separators, treaters, pumping equipment, and
             75      piping;
             76          (B) 100% of the nonconsenting owner's share of the estimated cost to plug and
             77      abandon the well as determined by the board;
             78          (C) 100% of the nonconsenting owner's share of the cost of operation of the well
             79      commencing with first production and continuing until the consenting owners have recovered
             80      all costs; and
             81          (D) an amount to be determined by the board but not less than 150% nor greater than
             82      [300%] 400% of the nonconsenting owner's share of the costs of staking the location, wellsite
             83      preparation, rights-of-way, rigging up, drilling, reworking, recompleting, deepening or
             84      plugging back, testing, and completing, and the cost of equipment in the well to and including
             85      the wellhead connections.


             86          (ii) The nonconsenting owner's share of the costs specified in Subsection (4)(d)(i) is
             87      that interest which would have been chargeable to the nonconsenting owner had [he] the
             88      nonconsenting owner initially agreed to pay [his] the nonconsenting owner's share of the costs
             89      of the well from commencement of the operation.
             90          (iii) A reasonable interest charge may be included if the board finds it appropriate.
             91          (e) If there is any dispute about costs, the board shall determine the proper costs.
             92          (5) If a nonconsenting owner's tract in the drilling unit is subject to a lease or other
             93      contract for the development of oil and gas, the pooling order shall provide that the consenting
             94      owners shall pay any royalty interest or other interest in the tract not subject to the deduction of
             95      the costs of production from the production attributable to that tract.
             96          (6) (a) If a nonconsenting owner's tract in the drilling unit is not subject to a lease or
             97      other contract for the development of oil and gas, the pooling order shall provide that the
             98      nonconsenting owner shall receive as a royalty:
             99          (i) the acreage weighted average landowner's royalty [attributable to each] based on
             100      each leased fee and privately owned tract within the drilling unit, proportionately reduced by
             101      the percentage of the nonconsenting owner's interest in the drilling unit; or
             102          (ii) if there is no leased fee or privately owned tract within the drilling unit other than
             103      the one owned by the nonconsenting owner, 16-2/3% proportionately reduced by the
             104      percentage of the nonconsenting owner's interest in the drilling unit.
             105          (b) The royalty shall be:
             106          (i) determined prior to the commencement of drilling; and
             107          (ii) paid from production attributable to each tract until the consenting owners have
             108      recovered the costs specified in Subsection (4)(d).
             109          (7) Once the consenting owners have recovered the costs, as described in Subsection
             110      (6)(b)(ii), the royalty shall be merged back into the nonconsenting owner's working interest and
             111      shall be terminated.
             112          [(7)] (8) The operator of a well under a pooling order in which there [are] is a
             113      nonconsenting [owners] owner shall furnish the nonconsenting [owners] owner with monthly


             114      statements specifying:
             115          (a) costs incurred;
             116          (b) the quantity of oil or gas produced; and
             117          (c) the amount of oil and gas proceeds realized from the sale of the production during
             118      the preceding month.
             119          [(8)] (9) Each pooling order shall provide that when the consenting owners recover
             120      from a nonconsenting owner's relinquished interest the amounts provided for in Subsection
             121      (4)(d):
             122          (a) the relinquished interest of the nonconsenting owner shall automatically revert to
             123      him;
             124          (b) the nonconsenting owner shall from that time:
             125          (i) own the same interest in the well and the production from it; and
             126          (ii) be liable for the further costs of the operation as if he had participated in the initial
             127      drilling and operation; and
             128          (c) costs are payable out of production unless otherwise agreed between the
             129      nonconsenting owner and the operator.
             130          [(9)] (10) Each pooling order shall provide that in any circumstance where the
             131      nonconsenting owner has relinquished his share of production to consenting owners or at any
             132      time fails to take his share of production in-kind when he is entitled to do so, the
             133      nonconsenting owner is entitled to:
             134          (a) an accounting of the oil and gas proceeds applicable to his relinquished share of
             135      production; and
             136          (b) payment of the oil and gas proceeds applicable to that share of production not taken
             137      in-kind, net of costs.


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