SECTIONS 3640-3659 - California Statutes

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.