40-6-8 - Field or pool units -- Procedure for establishment -- Operation. - Utah Statutes

40-6-8. Field or pool units -- Procedure for establishment -- Operation.
(1) The board may hold a hearing to consider the need for the operation as a unit of one ormore pools or parts of them in a field.
(2) The board shall make an order providing for the unit operation of a pool or part of it,if the board finds that:
(a) Such operation is reasonably necessary for the purposes of this chapter; and
(b) The value of the estimated additional recovery of oil or gas substantially exceeds theestimated additional cost incident to conducting such operations.
(3) The order shall prescribe a plan for unit operations that shall include:
(a) a description of the lands and of the pool or pools or parts of them 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 all the oil and gas that isproduced from the unit area and is saved, being the production that is not used in the conduct ofoperations on the unit area or not unavoidably lost. The allocation shall be in accord with theagreement, if any, of the interested parties. If there is no such agreement, the board shalldetermine the relative value, from evidence introduced at the hearing of the separately ownedtracts in the unit area, exclusive of physical equipment, for development of oil and gas by unitoperations, and the production allocated to each tract shall be the proportion that the relative valueof each tract so determined bears to the relative value of all tracts in the unit area;
(d) a provision for adjustment among the owners of the unit area (not including royaltyowners) of their respective investment in wells, tanks, pumps, machinery, materials, equipment,and other things and services of value attributable to the unit operations. The amount to becharged unit operations for any such item shall be determined by the owners of the unit area (notincluding royalty owners); but if the owners of the unit area are unable to agree upon the amountor correctness, the board shall determine them. The net amount charged against the owner of aninterest in a separately owned tract shall be considered expense of unit operation chargeableagainst his interest in the tract. The adjustments provided for may be treated separately andhandled by agreements separate from the unitization agreement;
(e) a provision providing how the costs of unit operations, including capital investments,shall be determined and charged to the separately owned tracts and how these costs shall be paid,including a provision providing a procedure for the unit production allocated to an owner whodoes not pay the share of the cost of unit operations charged to such owner, or the interest of suchowner, to be sold and the proceeds applied to the payment of such costs. The operator of the unitshall have a first and prior lien for costs incurred pursuant to the plan of unitization upon eachowner's oil and gas rights and his share of unitized production to secure the payment of suchowner's proportionate part of the cost of developing and operating the unit area. This lien may beestablished and enforced in the same manner as provided by Sections 38-1-8 to 38-1-26 inclusive.For such purposes any nonconsenting owner shall be deemed to have contracted with the unitoperator for his proportionate part of the cost of developing and operating the unit area. A transferor conversion of any owner's interest or any portion of it, however accomplished, after theeffective date of the order creating the unit, shall not relieve the transferred interest of theoperator's lien on said interest for the cost and expense of unit operations;
(f) a provision, if necessary, for carrying or otherwise financing any owner who elects tobe carried or otherwise financed, allowing a reasonable interest charge for such service payable

out of such owner's share of the production;
(g) a provision for the supervision and conduct of the unit operations, in respect to whicheach owner shall have a percentage vote corresponding to the percentage of the costs of unitoperations chargeable against the interest of the owner;
(h) the time when the unit operations shall commence, and the manner in which, and thecircumstances under which, the unit operations shall terminate;
(i) such additional provisions that are found to be appropriate for carrying on the unitoperations, and for the protection of correlative rights; and
(j) the designation of a unit operator.
(4) No order of the board providing for unit operations of a pool or pools shall becomeeffective unless and until the plan for unit operations prescribed by the division has been approvedin writing by those owners who, under the board's order, will be required to pay 70% of the costsof the unit operation, and also by the owners of 70% of the production or proceeds that will becredited to interests which are free of cost, such as royalties, overriding royalties, and productionpayments, and the board has made a finding, either in the order providing for unit operations or ina supplemental order, that the plan for unit operations has been so approved. If the personsowning required percentage of interest in that unit area do not approve the plan for unit operationswithin a period of six months from the date on which the order providing for unit operations ismade, the order shall be ineffective and shall be revoked by the board unless for good causeshown the board extends this time.
(5) An order providing for unit operations may be amended by an order made by theboard in the same manner and subject to the same conditions as an original order providing forunit operations, provided:
(a) If such an amendment affects only the rights and interests of the owners, the approvalof the amendment by the owners of royalty, overriding royalty, production payments and othersuch interests which are free of costs shall not be required.
(b) No such order of amendment shall change the percentage for the allocation of oil andgas as established for any separately owned tract by the original order, or change the percentagefor allocation of cost as established for any separately owned tract by the original order.
(6) The board, by an order, may provide for the unit operation of a pool or pools or partsthereof that embrace a unit area established by a previous order of the division. The order, inproviding for the allocation of unit production, shall first treat the unit area previously establishedas a single tract, and the portion of the unit production allocated shall then be allocated among theseparately owned tracts included in the previously established unit area in the same proportions ofthose specified in the previous order.
(7) An order may provide for unit operations on less than the whole of a pool where theunit area is of such size and shape as may be reasonably required for that purpose, and theconduct will have no adverse effect upon other portions of the pool.
(8) All operations, including, but not limited to, the commencement, drilling, or operationof a well upon any portion of the unit area shall be deemed for all purposes the conduct of suchoperations upon each separately owned tract in the unit area by the several owners. The portionsof the unit production allocated to a separately owned tract in a unit area shall, when produced, bedeemed, for all purposes, to have been actually produced from such tract by a well drilled.Operations conducted pursuant to an order of the board providing for unit operations shallconstitute a fulfillment of all the express or implied obligations for each lease or contract covering

lands in the unit area to the extent that compliance with such obligations cannot be had because ofthe order of the board.
(9) The portion of the unit production allocated to any tract, and the proceeds from thesale, shall be the property and income of the several owners, subject to the rights of royaltyowners, to whom, or to whose credit, they are allocated or payable under the order providing forunit operations.
(10) No division order or other contract relating to the sale or purchase of productionfrom a separately owned tract shall be terminated by the order providing for unit operations butshall remain in force and apply to oil and gas allocated to such tract until terminated inaccordance with the provisions thereof.
(11) Except to the extent that the parties affected agree and as provided in (e) ofSubsection (3) of this section, no order providing for unit operations shall be construed to result ina transfer of all or any part of the title of any person to the oil and gas rights in any tract in theunit area. All property, whether real or personal, that may be acquired in the conduct of unitoperations hereunder shall be acquired for the account of the owners within the unit area and shallbe the property of the owners in the proportion that the expenses of unit operations are charged,unless otherwise provided in the plan of unit operation.
(12) This section shall apply only to field or pool units and shall not apply to theunitization of interests within a drilling unit as may be authorized and governed under theprovisions of Section 40-6-6.

Enacted by Chapter 205, 1983 General Session