2016 Kentucky Revised Statutes CHAPTER 353 - MINERAL CONSERVATION AND DEVELOPMENT .645 Operation and development as a unit of oil and gas interests in a pool or pools -- Application for unit -- Hearing -- Unitization order.
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353.645 Operation and development as a unit of oil and gas interests in a pool or
pools -- Application for unit -- Hearing -- Unitization order.
This section applies to any lessee or owner of an oil and gas interest in a proposed unit.
(1) The department, upon its own motion or upon the application of any lessee or
owner of an oil and gas interest in a pool or pools of a proposed unit may, after
notice to all interested persons, conduct a hearing to consider the need for the
operation and development as a unit of any pool or pools, or any portion thereof, for
the production of oil and associated gas in order to increase their ultimate recovery
by unitized operation and development so that each owner in the pool or pools shall
have the opportunity to recover his fair and equitable share of the recoverable oil
and gas in the unit.
(a) The hearing shall be conducted in accordance with KRS Chapter 13B. Notice
of the hearings prescribed in this subsection shall be given to all persons
reasonably known to the department to be a lessee or owner of an oil and gas
interest in a pool or pools within a proposed unit.
(b) The department may require a reasonable application fee from a lessee or
owner of an oil and gas interest applying for a proposed unit.
(2) The application for a unit shall include the following:
(a) A description of the area to be included in the unit, with a map attached, and a
description of the pool or pools, or portions thereof, to be included within the
unit;
(b) A statement of the nature of the unit operations contemplated;
(c) A proposed allocation of production and reserves among the separately-owned
tracts and interests contributed to the unit. Reserves shall be calculated by
industry standard methods supported by geological and engineering data, as
determined to be appropriate by the department. The department may require
an independent third party to verify the calculations as to proposed allocation
of production or reserves;
(d) The procedure upon which wells and equipment of the separately-owned
tracts and interests are to be used and compensated for in unit operations; and
(e) Documentation that the application is approved by at least fifty-one percent
(51%) ownership in the interests proposed for inclusion in the unit.
(3) After notice and hearing in the manner established in this section, the department
shall issue a final order establishing a unit and requiring unit operation and
development if it finds that:
(a) 1.
The unitized operation and development of a pool or pools, or any
portion thereof, for the production of oil and associated gas is reasonably
necessary in order to effectively carry on operations for enhanced
recovery, including but not limited to, increased density drilling, or
secondary recovery operations by pressure-maintenance, repressuring,
cycling, water flooding, tertiary recovery operations, or any combination
of these, in order to substantially increase the ultimate recovery of oil
and associated gas from the pool or pools within the unit, or to protect
(4)
(5)
(6)
(7)
(8)
the correlative rights of affected mineral owners; and
2.
The value of the additional recovery of oil and associated gas exceeds
the estimated additional cost incident to conducting the operation; or
(b) The unitized operation of the pool or pools within the unit will prevent waste
and protect the correlative rights of the owners in the pool or pools within the
unit.
Each well permitted to be drilled, deepened, reopened, or converted to an injection
well and operated in a unit shall conform to either the spacing standards established
in KRS 353.610, or to other unit spacing that shall be established by the department
as a part of the hearing provided for in this section.
All unit operations and production shall be deemed, for all purposes, as the conduct
of operations and production upon each of the separately-owned tracts and interests
in the unit.
A unitization order issued in accordance with this section shall:
(a) Authorize the unit operation of a pool or pools, including drilling, deepening,
reopening, conversion to injection wells, and operation of all wells within the
unit for the production of oil and gas from the unit:
(b) Designate the unit operator of the operation;
(c) Approve a unit operating agreement;
(d) Provide for the allocation of production and reserves among all separatelyowned tracts and interests in the unit;
(e) Provide for the proportionate allocation of all reasonable costs and expenses
of unit operations as these costs and expenses are set out in the approved
operating agreement. Costs and expenses shall be allocated among all
participating owners of operating interests who elect to participate in the
proportion that the separately-owned tracts and interests share in the
production of the unit; and
(f) Establish the spacing approved for the unit.
Any unitization order shall provide just and equitable alternatives whereby an
owner of an operating interest who does not elect to participate in the risk and cost
of developing the unit may elect to surrender his interest, or a portion of it, to the
participating owners on a reasonable basis and for a reasonable consideration,
which if not agreed upon, shall be determined by the department; or elect to
participate in the development of the unit on a carried basis on terms and conditions
which, if not agreed upon, shall be determined by the department to be just and
reasonable. If a dispute arises as to the costs of operating and developing a unit,
then the department shall determine and apportion the costs within ninety (90) days
after the date of written notification to the department of the existence of the
dispute; however, any person disputing an actual or proposed expenditure shall file
notice of the disputed costs within one (1) year after notice of the actual or proposed
expenditure was received by the person filing the dispute.
An order establishing a unit may be modified, altered, extended, vacated, or
otherwise amended by the department after notice and hearing as prescribed in this
(9)
section and a demonstration by affected persons of a significant change of
circumstances supporting the amendment.
(a) An amendment to extend or enlarge the unit area shall be agreed upon in
writing by documented owners of at least a fifty-one percent (51%) ownership
in the interests in the pool or pools in the unit;
(b) An amendment of a unitization order enlarging a unit shall allocate to each
tract or interest in the unit, as amended, a portion of the total production of oil
or gas, or both, from the unit so enlarged, in proportion to the contribution of
the tract or interest to the unit during the remaining course of unit operations,
and shall supersede and be in lieu of the allocation of production provided for
in any previously-established unit and shall have an effective date provided
for in the order.
Wells drilled, deepened, or reopened for the injection of water, gas, or other fluids
into any subsurface formation shall be governed by applicable state and federal
statutes and regulations.
Effective: July 15, 1996
History: Amended 1996 Ky. Acts ch. 318, sec. 342, effective July 15, 1996. -- Created
1994 Ky. Acts ch. 431, sec. 2, effective July 15, 1994.
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