55-1305. Commission orders.
55-1305
55-1305. Commission orders.The order providing for the unitization and unit operation of a pool ora part thereof shall be upon terms and conditions that are just andreasonable and shall prescribe a plan for unit operations that shallinclude:
(a) A legal description in terms of surface area of the pool or apart thereof to be so operated, termed "the unit area";
(b) a statement of the nature of the operations contemplated;
(c) an allocation to the separately owned tracts in the unit area of allthe oil and gas that is produced from the unit area and is saved, being theproduction that is not used in the conduct of operations on the unit areaor not unavoidably lost. The allocation shall be in accord with theagreement, if any, of all interest owners. If there is no such agreement asto the allocation,the commission shall determine the relative value of the separately ownedtracts in the unit area, exclusive of physical equipment, for developmentof oil and gas by unit operations, and the production allocated to eachtract shall be the proportion that the value of each tract so determinedbears to the total value of all tracts in the unit area;
(d) a provision for the credits and charges to be made in the adjustmentamong the working interest owners in the unit area for their respectiveinvestments inwells, tanks, pumps, machinery, materials and equipment contributed to theunit operations;
(e) a provision providing how the costs of unit operations, includingcapital investments, shall be determined and charged to the separatelyowned tracts and how such costs shall be paid, including aprovisionproviding when, how and by whom the unit production allocated toa workinginterest owner who does not pay the share of the cost of unit operationscharged to such owner, or to the interest of such owner, may be sold andthe proceeds applied to the payment of such costs;
(f) a provision whereby a nonoperating working interest owner shall befurnished, but not more often than once a month,reasonably detailed information regarding the nature and amount of thevarious items of costs and expenses, including capital investments,chargeable against the interest of the nonoperating working interestowners;
(g) a provision for carrying any nonoperating workinginterest owner ona limited, carried or net-profits basis, payable out of production, uponterms and conditions determined by the commission to be just andreasonable, or otherwise financing any nonoperating working interest ownerwho elects to be carried or otherwise financedor who does not meet the owner's financial obligations with the unitand a provision for establishing a reasonable rate of interest and a penalty onall unpaid expenses, in amounts established by rules and regulations adopted bythe commission, not to exceed:
(1) One hundred percent of the unpaid portion of the owner's share of thecost of aboveground surfaceequipment beyond the wellhead connection, including, but not limited to,stocktanks, separators, treaters, pumping equipment and piping, plus100% of the unpaid portion of the owner's share of the cost of operation of theunit, all subject to the rate of interestestablished;
(2) three hundred percent of the unpaid portion of the owner's share ofthe costs and expenses ofdrilling wells in the unitized area, including staking, well sitepreparation,rigging up, or drilling, and reworking, deepening or plugging back, testing andcompleting wells; and
(3) three hundred percent of the unpaid portion of the owner's share ofthe costs and expenses ofunderground pipeline systems, expenses for injected substances and any othernonrecoupable expenses incurred.All interest and penalties prescribed under this subsection shall be paid fromthenonpaying interest owner's share of production;
(h) a provision for the supervision and conduct of the unit operations,including the selection, removal or substitution of an operator fromamongthe working interest owners to conduct the unit operations;
(i) a provision for a voting procedure for the decision of matters to bedecided by the working interest owners in respect to which each workinginterest owner shall have a vote with a value corresponding to thepercentage of the costs of unit operations chargeable against the interestof such owner;
(j) the time when the unit operations shall commence and the manner inwhich, and the circumstances under which, the unit operations shallterminate and for the settlement of accounts upon such termination;
(k) a provision specifying the particular records the unit operatorshall keep and the detailed accounting procedure that the unit operatorshall follow. A plan of unitization shall not be considered fair andreasonable if it contains a provision for operating charges which includeany part of district or central office expense other than reasonableoverhead charges; and
(l) such additional provisions that are found to be appropriate forcarrying on the unit operations and for the protection of correlativerights.
No order of the commission providing for unit operations upon a findingpursuant to subsection (a)(1) of K.S.A. 55-1304, and amendments thereto,shall becomeeffective unless and until the plan for unit operations prescribed by thecommission has been approved in writing by those persons who, under thecommission's order, will be required to pay at least 63% ofthe costs of theunit operation, and also by the owners ofatleast 63% of the production or proceedsthereof thatwill be credited to royalties,excludingoverriding royalties or other like interestswhich are carved out of the leasehold estate, and the commission has made afinding, either in the order providing for unit operations or in asupplemental order, that the plan for unit operations has been so approved.Noorder of the commission providing for unit operations upon a finding pursuantto subsection (a)(2) of K.S.A. 55-1304, and amendments thereto, shall becomeeffectiveunless and until the plan for unit operations prescribed by the commission hasbeen approved in writing by those persons who, under the commission's order,will be required to pay at least 63% of the costs of the unit operation, andalso by the owners of at least 75% of the production or proceeds thereof thatwill be credited to royalties, excluding overriding royalties or other likeinterests which are carved out of the leasehold estate, and the commission hasmade a finding, either in the order providing for unit operations or in asupplemental order, that the plan for unit operations has been so approved.If the plan for unit operations has not been so approved at the time theorder providing for unit operations is made, the commission shall uponapplication and notice hold such supplemental hearings as may be requiredto determine if and when the plan for unit operations has been so approved.If the persons owning the required percentage of interest in the unit areado not approve the plan for unit operations within a period of sixmonths from the date on which the order providing for unit operations ismade, such order shall cease to be of further force and effect and shall berevoked by the commission, except thatthe commission mayextend the six-month period not to exceed 60 days for goodcause shown.
An order providing for unit operations may be amended by the commissionin the same manner and subject to the same conditions as are necessary orrequired for an original order providing for unit operations, except that: (a)If such an amendment affects only therights andinterest of the working interest owners, the approval of the amendment bythe royalty owners shall not be required; and (b) no such order ofamendment shall change the percentage for the allocation of oil and gas asestablished for any separately owned tract by the original order, exceptwith the consent of all persons owning oil and gas rights in such tract; nosuch order shall change the percentage for the allocation of cost asestablished for any separately owned tract by the original order, exceptwith the consent of all working interest owners in such tract.
The commission by an order may provide for the unit operation of a poolor a part thereof that embraces a unit area previously established eitherby voluntary agreement or order of the commission. Such order, in providingfor the allocation of unit production, shall first treat the unit areapreviously established as a single tract, and the part of the unitproduction so allocated thereto shall then be allocated among theseparately owned tracts included in such previously established unit areain the same proportions as those specified in the previous agreement ororder.
An order may provide for the unit operation of less than the whole of apool where the unit area is of such size and shape as may be reasonablyrequired for that purpose, and the conduct thereof will have no materialadverse effect upon other parts of the pool.
History: L. 1967, ch. 299, § 5;L. 1995, ch. 148, § 1;L. 2000, ch. 15, § 2; Mar. 30.