3640-3659
PUBLIC RESOURCES CODE
SECTION 3640-3659
3640. Tracts of land may be unitized as provided in this article to provide for the management, development, and operation thereof as a unit to prevent, or to assist in preventing, waste and to increase the ultimate recovery of oil and gas. 3641. An agreement for the management, development, and operation of two or more tracts of land in the same field or in the same producing or prospective pool as a unit without regard to separate ownerships, and for the allocation of benefits and costs on a basis set forth in such agreement, shall be valid and binding upon those who consent thereto and may be filed with the supervisor for approval. However, unless and until the agreement qualifies for approval, and is approved, by the supervisor persons who do not consent thereto shall not be bound thereby, nor shall their rights be affected thereby. 3642. Any proposed agreement for unit operation of tracts of land which has been consented to by persons who own title to working interests which aggregate at least an undivided three-fourths of the total working interests in the area proposed to be unitized, and by persons who own title to the royalty interest which aggregates at least an undivided three-fourths of the total royalty interest in the area proposed to be unitized, may be filed with the supervisor by the owner of any such working interest in conjunction with a petition requesting approval thereof. 3643. The unit agreement shall be approved, if, after a public hearing, the supervisor finds all of the following: (a) The unit area of the proposed agreement for unit operation takes in all tracts which, consistent with good oilfield practice, should be considered a part of and related to the field or pool or pools, or portions thereof, proposed for unit operation but does not include tracts which, consistent with good oilfield practice, should not be considered a part of or related to the field or pool or pools, or portions thereof, proposed for unit operation. (b) As of the date of filing of the petition, the proposed unit agreement was consented to by persons owning at least three-fourths of the working interests and three-fourths of the lessors' royalty interests as described in Section 3642. (c) The unitized management and operation of the pool or pools, or portions thereof, proposed to be unitized is reasonably necessary in order to carry on pressure maintenance or pressure replenishment operations, cycling or recycling operations, gas injection operations, water flooding operations, reduction of oil viscosity operations, or any combination thereof, or any other form of joint effort calculated to increase the ultimate recovery of oil and gas from the proposed unit area. (d) The value of the estimated recovery of additional oil or gas, or the increased present worth value due to accelerated recovery of oil or gas, as a result of the unit operations will exceed the estimated additional cost incident to conducting such operations. (e) The proposed unit agreement provides for an allocation of the unit production among and to the separately owned tracts in the area proposed to be unitized such as will reasonably permit persons otherwise entitled to share in or benefit by the production from such separately owned tracts to produce or receive, in lieu thereof, their fair, equitable, and reasonable pro rata share of the unit production or other benefits thereof. (f) The proposed unit agreement provides, to the full extent practical, for the organization and consolidation of surface facilities, including oil production, storage, treatment, and transportation facilities, in such a manner as will eliminate wasteful and excessive use of land surface areas, freeing such areas for other productive use and development, and provides a fair procedure for the waiver, from time to time, of the working interest owners' right of entry on surface areas which in the future become unneeded for the conduct of unit operations. (g) The proposed unit agreement is fair and reasonable under all the circumstances in other material respects. (h) If state-owned lands under the jurisdiction of the State Lands Commission are included in the proposed unit agreement, such agreement has been reviewed and approved by the commission as to such lands. 3644. A tract of land's fair, equitable, and reasonable share of the unit production shall be measured by the value of such tract for oil and gas purposes and its contributing value to the unit in relation to like values of other tracts in the unit area, taking into account, among other things, the following: (a) The primary tract value based upon the projected future value of hydrocarbon substances that would be produced by primary means from such tract after the date of unitization, if no secondary recovery operation were undertaken. (b) The secondary tract value based upon consideration of the following factors: (1) The volume in acre-feet of porous, permeable sand originally saturated with hydrocarbon substances within a zone to be unitized, and underlying such tract. (2) The hydrocarbon substances per acre-foot of such zone recoverable by means of secondary recovery operations. (3) The value of the hydrocarbon substances so recoverable from such tract from such zones to be unitized. (4) In the event the necessary data is not available as listed in paragraphs (1), (2), and (3), the value may be assigned using a prudent engineering method, depending on the data available. (c) All other factors which significantly bear upon the value of the committed properties for primary and secondary recovery. 3645. Upon giving his approval to the unit agreement pursuant to Section 3643, the supervisor shall issue an order directing unit operations of the unit area in accordance with the unit agreement, directing the recordation of such agreement in the office of the county recorder in each county in which any part of the unit area is situated, and requiring that the interests of all persons in the unit area be thereafter subject to the unit agreement the same as if all such persons had expressly consented to the unit agreement. An order of the supervisor issued pursuant to this section shall become effective on the date provided for in the order, except that no such order shall become effective until all interests in the unit area for which timely offers of sale have been made pursuant to Section 3647 have been purchased as provided in that section, or until the termination of such offers of sale. 3646. The supervisor's order shall include fair and reasonable provisions for all of the following: (a) The date when all tracts of land not theretofore committed to the unit shall be subject to unit operation, which date shall not be earlier than the first day of the month following the effective date of the supervisor's order. (b) Provision for the carrying or otherwise financing of any persons who request the same and who the supervisor determines are unable to meet their financial obligations in connection with the unit operation, allowing a reasonable interest charge to those who carry or finance such obligations. (c) Such additional provisions which the supervisor determines to be appropriate for bringing into the unit area on a fair and reasonable basis tracts of land and interests not theretofore committed to the unit agreement. 3647. The owner of any working interest or royalty interest in a tract which is the subject of a unit agreement who did not consent to the proposed unit agreement shall, 60 days following the date upon which the supervisor issues his order under the provisions of Section 3645, be entitled to offer his interest for sale pursuant to this section. All working interest owners who consented to the proposed unit agreement shall be entitled to participate in purchasing such interest in proportion to their respective shares of unit production. Unless one or more working interest owners purchase such interest, the order of the supervisor shall not become effective. If a disagreement arises with respect to the price at which such an interest shall be purchased, then either party may request the supervisor to authorize the creation of an arbitration committee consisting of three members, one member appointed by the seller, one member appointed by the purchaser or purchasers and a third member selected by the other two members, to make an independent appraisal of the value of the interest as of the date the supervisor issued his order under Section 3645. Such committee shall consider all relevant data and information submitted by interested parties and may seek and consider such other information as it deems relevant. The arbitration committee shall determine the fair market value of the interest as of the date the supervisor issued his order under Section 3645 and fix the price at which the sale shall be consummated, and its determination shall be binding on the parties; except that, within 30 days after the determination of the arbitration committee has been mailed to the parties concerned, the seller or the purchaser or any one or more of the purchasers may have such price judicially determined by filing suit for a declaratory judgment as to the fair market value in the superior court for the county in which the tract involved, or the greater portion of it, lies. The compensation and expenses of the arbitration committee shall be subject to approval in amount by the supervisor and, if the unit becomes effective, shall be paid by the working interest owners who elected to participate in purchasing such interest in the proportion they share unit expenses. If the unit does not become effective within the time provided for in the order of the supervisor issued under Section 3645, the working interest owners who have consented to the unit agreement and have requested the independent appraisal shall pay such compensation and expenses in proportion to what would have been their share of unit expenses. 3648. Any unit agreement approved by the supervisor shall contain a provision under which a party whose surface land is being utilized for the benefit of the unit area shall be entitled to compensation for the reasonable value of the use of such surface. 3649. Any proposed modification of an approved unit agreement shall be submitted by the unit operator to the supervisor for his review and approval. No modification shall alter or change the basis for allocating production to tracts of land theretofore committed to the unit area without the express written consent of all persons who might be adversely affected thereby. The supervisor shall approve the proposed modification if, after a public hearing, he finds that the proposed unit agreement modification is consented to by persons who own title to working interests which aggregate at least an undivided three-fourths of the total working interests within the unit area and by persons who own title to the royalty interest which aggregate at least an undivided three-fourths of the total royalty interest in the unit area, that the proposed modification is in conformity with other provisions of the unit agreement, that it is consistent with the purpose of this chapter, and is fair and reasonable under all the circumstances. Upon approval, the unit agreement modification shall be recorded in the office of the county recorder in each county in which any part of the unit area is situated and thereafter shall be binding upon all persons having any interest in the pool or pools, or portions thereof, subject to the unit agreement the same as if all such persons had expressly agreed to the modification. Nothing in this section shall be construed as applying to any modification of a unit operating agreement entered into exclusively by the working interest owners. 3650. If at any time after the entry of an order of unitization issued pursuant to Section 3645, it develops that all or a portion of a further tract or tracts of land should be included within the unit area, persons who own any working interest in the pool or pools, or portions thereof, may file a petition with the supervisor requesting the addition of such tract or tracts of land to the unit area, insofar as they contain the pool or pools, or portions thereof. Upon the filing of such a petition, the supervisor shall hold a public hearing. 3651. The supervisor shall issue his order that such further tract or tracts of land insofar as they contain the pool or pools, or portions thereof, and the interests of all persons therein, upon recordation of such order in the office of the county recorder in each county in which any part of the original unit area or such additional tracts are situated, shall thereafter be subject to unit operations if he finds all of the following: (a) All or a portion of such further tract or tracts of land do contain the pool or pools, or portions thereof, previously ordered unitized by the supervisor. (b) The unit agreement has been consented to by persons who own title to working interests which aggregate at least an undivided three-fourths of the working interests in the total area proposed to be unitized, and by persons who own title to the royalty interest which aggregates at least an undivided three-fourths of the royalty interest in the total area proposed to be unitized. (c) The addition of such further tract or tracts of land insofar as they contain the pool or pools to the unit operations is reasonably necessary in order to prevent waste or to increase the ultimate recovery of oil and gas. 3652. The supervisor's order issued pursuant to Section 3651 shall contain a fair basis for allocating production to such further tract or tracts of land and make fair and reasonable provisions under the circumstances in other respects for bringing into the unit operation such tract or tracts of land. In providing for the allocation of unit production from the enlarged unit area, the order shall, however, first treat the unit area previously established as a single tract, and the portion of unit production so allocated thereto shall then be allocated among the separately owned tracts of land included in such previously established unit area in the same proportion as specified therefor in the previous order. The supervisor shall allocate production from the enlarged unit area between the previously established unit area and the additional tract or tracts of land, and if there be more than one such additional tract of land, shall allocate the production allotted the additional tracts of land as between such additional tracts of land, in such a manner as will reasonably permit persons otherwise entitled to share in or benefit by the production from such tracts of land to produce or receive, in lieu thereof, their fair, equitable, and reasonable pro rata share of the unit production or other benefits thereof. A tract's fair, equitable, and reasonable share of the unit production shall be measured by the value of each such tract of land for oil and gas purposes and its contributing value to the unit operation in relation to like values of other tracts in the unit, taking into account, among other things, the following: (a) The primary tract value based upon the projected future value of hydrocarbon substances that would be produced by primary means from such tract after the date of unitization, if no secondary recovery operation were undertaken. (b) The secondary tract value based upon consideration of the following factors: (1) The volume in acre-feet of porous, permeable sand originally saturated with hydrocarbon substances within a zone to be unitized, and underlying such tract. (2) The hydrocarbon substances per acre-foot of such zone recoverable by means of secondary recovery operations. (3) The value of the hydrocarbon substances so recoverable from such tract from such zones to be unitized. (4) In the event the necessary data is not available as listed in paragraphs (1), (2), and (3), the value may be assigned using a prudent engineering method, depending on the data available. (c) All other factors which significantly bear upon the value of the committed properties for primary and secondary recovery. 3653. Any disagreement with respect to the unit operation between persons owning any interest in the pool or pools, or portions thereof, subject to the unit agreement may be submitted to the supervisor for his review and decision. 3653.5. A petition requesting approval of a unit agreement and each copy thereof shall contain or have attached to it: (a) A request that the supervisor approve the unit agreement. (b) A copy of the unit agreement. (c) A report with appropriate engineering, reservoir, and geologic data and maps outlining in detail how the unit agreement qualifies for approval pursuant to this chapter. (d) Evidence that the required number of working interest owners and royalty interest owners have consented to the unit agreement. Generally, such evidence shall consist of a certificate of the petitioner or unit operator that the requisite number of working interest owners and royalty interest owners have consented to the unit agreement; provided, however, that if the accuracy of the certificate is challenged by any person, additional evidence will be required. Additional evidence may be supplied by the petitioner or requested by the supervisor. 3654. Any and all decisions or determinations made by the supervisor under the provisions of this chapter shall be appealable to any court of competent jurisdiction by any person whose interests are affected by any such decision or determination. Except as otherwise provided in this article, such appeal must be made within 60 days from the date of such decision or determination. 3655. The three-fourths interests referred to in Sections 3642, 3649, and 3651 shall be determined as follows: (a) A total value, composed of the combined value of all of the primary tract assignment and secondary tract assignment, shall be assigned to all of the tracts of land which are the subject of the unit agreement or the proposed unit agreement. (b) The pro rata interest of each working interest owner shall be equal to a fraction, the numerator of which shall be the total value of the primary tract assignment and secondary tract assignment of the tract or tracts in which he has a working interest, in accordance with his fractional share of such interest, if any, and the denominator of which shall be the value determined under subdivision (a). (c) The pro rata interest of each royalty interest owner shall be equal to a fraction, the numerator of which shall be the total value of the primary tract assignment and secondary tract assignment of the tract or tracts in which he has a royalty interest, in accordance with his fractional share of such interest, if any, and the denominator of which shall be the value determined under subdivision (a). If there are no royalties outstanding with respect to a tract or tracts of land included within or proposed to be included within a unit area, then for the purpose of determining the three-fourths of royalty interests the working interest owners in any such tract of land shall be deemed to be the owners of a royalty with respect to such tract in the same proportion as their ownership of the working interest therein. 3656. No unit agreement approved by the supervisor pursuant to the provisions of this chapter shall effect or result in, or be construed to effect or result in, the alienation, transfer, or change of any title or ownership, legal or equitable, of any person or party in or to any tract of land or the mineral rights therein to any other person or party. 3657. Operations incident to the drilling, producing, or operating of a well or wells on any portion of a unit area under a unit agreement approved by the supervisor pursuant to the provisions of this chapter shall be deemed, for the purposes of determining compliance with lease and other contractual obligations, the conduct of such operations on each separately owned tract in the unit area by the several working interest owners thereof. That portion of the production allocated to each tract of land included in the unit area, when produced, shall be deemed for all purposes to have been produced from such tract by a well or wells drilled therein. 3658. Any order of the supervisor issued pursuant to this article shall, from and after its effective date, be effective as to, and be binding upon, each person owning an interest in the unit area covered thereby, or in the oil and gas produced therefrom, or the proceeds thereof. Each such person shall have the right to enforce the provisions of the unit agreement, including, but not limited to, the provisions for determining rates of production, whether or not such person expressly consented to the unit agreement. 3659. Prior to any public hearing held by the supervisor pursuant to this chapter, the supervisor shall give reasonable written notice of the hearing to all persons shown by the records of the tax assessor to have an interest in the land proposed for unit operation, and shall give written notice to any city within which the land lies and, with respect to land which lies in an unincorporated area, to the county in which the land lies. Such city or county or any other interested person may, on any matter relevant to the proposed agreement for operation, submit testimony and evidence for the consideration of the supervisor.