2013 Kentucky Revised Statutes CHAPTER 353 - MINERAL CONSERVATION AND DEVELOPMENT 353.645 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
(4)
(5)
(6)
(7)
(8)
within the unit, or to protect 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
separately-owned 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
(9)
otherwise amended by the department after notice and hearing as prescribed
in this 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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