§ 113-393. Development of lands as drilling unit by agreement or order of Department. - North Carolina Statutes

§ 113‑393. Development of lands as drilling unit by agreement or order of Department.

(a)        Integration of Interests and Shares in Drilling Unit. – Whentwo or more separately owned tracts of land are embraced within an establisheddrilling unit, the owners thereof may agree validly to integrate theirinterests and to develop their lands as a drilling unit. Where, however, suchowners have not agreed to integrate their interests, the Department shall, forthe prevention of waste or to avoid drilling of unnecessary wells, require suchowners to do so and to develop their lands as a drilling unit. All ordersrequiring such integration shall be made after notice and hearing, and shall beupon terms and conditions that are just and reasonable, and will afford to theowner of each tract the opportunity to recover or receive his just andequitable share of the oil and gas in the pool without unnecessary expense, andwill prevent or minimize reasonably avoidable drainage from each developed unitwhich is not equalized by counter‑drainage. The portion of the productionallocated to the owner of each tract included in a drilling unit formed by anintegration order shall, when produced, be considered as if it had beenproduced from such tract by a well drilled thereon.

In the event such integration is required, and provided also that afterdue notice to all the owners of tracts within such drilling unit of thecreation of such drilling unit, and provided further that the Department hasreceived no protest thereto, or request for hearing thereon, whether or not 10days have elapsed after notice has been given of the creation of the drillingunit, the operator designated by the Department to develop and operate theintegrated unit shall have the right to charge to each other interested ownerthe actual expenditures required for such purpose not in excess of what arereasonable, including a reasonable charge for supervision, and the operatorshall have the right to receive the first production from the well drilled byhim thereon, which otherwise would be delivered or paid to the other partiesjointly interested in the drilling of the well, so that the amount due by eachof them for his shares of the expense of drilling, equipping, and operating thewell may be paid to the operator of the well out of production; with the valueof the production calculated at the market price in the field at the time suchproduction is received by the operator or placed to his credit. After beingreimbursed for the actual expenditures for drilling and equipping and operatingexpenses incurred during the drilling operations and until the operator isreimbursed, the operator shall thereafter pay to the owner of each tract withinthe pool his ratable share of the production calculated at the market price inthe field at the time of such production less the reasonable expense ofoperating the well. In the event of any dispute relative to such costs, theDepartment shall determine the proper costs.

(b)        When Each Owner May Drill. – Should the owners of separatetracts embraced within a drilling unit fail to agree upon the integration ofthe tracts and the drilling of a well on the unit, and should it be establishedthat the Department is without authority to require integration as provided forin subsection (a) of this section, then, subject to all other applicableprovisions of this law, the owner of each tract embraced within the drillingunit may drill on his tract, but the allowable production from each tract shallbe such proportion of the allowable for the full drilling unit as the area ofsuch separately owned tract bears to the full drilling unit.

(c)        Cooperative Development Not in Restraint of Trade. –Agreements made in the interests of conservation of oil or gas, or both, or forthe prevention of waste, between and among owners or operators, or both, owningseparate holdings in the same oil or gas pool, or in any area that appears fromgeological or other data to be underlaid by a common accumulation of oil orgas, or both, or between and among such owners or operators, or both, androyalty owners therein, of a pool or area, or any part thereof, as a unit forestablishing and carrying out a plan for the cooperative development andoperation thereof, when such agreements are approved by the Department, arehereby authorized and shall not be held or construed to violate any of thestatutes of this State relating to trusts, monopolies, or contracts andcombinations in restraining of trade.

(d)        Variation from Vertical. – Whenever the Department fixes thelocation of any well or wells on the surface, the point at which the maximumpenetration of such wells into the producing formation is reached shall notunreasonably vary from the vertical drawn from the center of the hole at thesurface, provided, that the Department shall prescribe rules and ordersgoverning the reasonableness of such variation. (1945, c. 702, s. 13; 1973, c. 1262, s. 86; 1987, c.827, s. 112.)