27-557. Unit operations; unit agreements

A. Each lease issued under the provisions of this article shall provide that the lessee, insofar as its interest in the lease is affected, may join in cooperative or unit plans for the exploration, development and operation of oil and gas pools with the United States, its agencies and its or their lessees and permittees, or with private owners and persons holding oil and gas leases on private lands or on state lands.

B. Lessees under oil and gas leases issued by the department may, with the consent of the department, commit the state lands to unit, cooperative or other plans of exploration, development and operation with other state, federal, private or Indian lands.

C. The state land commissioner shall, not later than ten days after the date a proposed cooperative or unit plan for the exploration, development or operation of oil and gas pools is filed with the department, give notice in writing of such proposal to the oil and gas conservation commission, the bureau of geology and mineral technology and all holders of oil and gas leases on state lands to be included in the proposed cooperative or unit plan. Any interested person may, within ten days after the date of such notice, file a written protest with the department. Upon receipt of such a protest, the state land commissioner shall, not later than thirty days after receipt of the protest, hold a public hearing at the county seat of the county in which the state lands to be included in the proposed cooperative or unit plan are located. Notice of the public hearing shall be published three times in a newspaper of general circulation in the county, the last publication to be not less than ten days prior to the date of the hearing. The state land commissioner shall, not later than sixty days after the date the proposed cooperative or unit plan is filed with the department or, in the event of a protest and public hearing, not later than thirty days after the date of such public hearing, determine whether it is in the best interests of the state to commit state lands to the cooperative or unit plan as proposed or as modified. A proposed cooperative or unit plan may be modified in a manner agreeable to the state land commissioner and the proponent of the plan after such notice and public hearing as may be required by this subsection. Upon determination by the state land commissioner that it is in the best interests of the state to commit state lands to such cooperative or unit plan, the state land commissioner shall consent to and approve the cooperative or unit plan.

D. The execution by the authorized state officer of a cooperative plan or unit agreement is deemed to be an amendment of state leases committed to such plan or unit and has the effect of extending the term of the state leases included in the plan or agreement for the full period of time such plan or unit may remain in effect and of modifying such leases so as to conform the terms and conditions of the leases to the terms and conditions of the plan or unit but otherwise to remain in effect.

E. The agreements shall provide for the equitable division on an agreed basis of the oil and gas produced from the unit and for the extension of leases covering any part of the unit as long as drilling, completion or reworking operations are conducted anywhere on the unit or as long as oil or gas in paying quantities is produced from any part of the unit, but no such agreement shall relieve any operator from the obligation to develop reasonably the lands and leases as a whole committed thereto. When the agreements provide for returning gas to a formation underlying the unit, they may provide that no royalties are required to be paid on the gas returned.

F. Any lease issued under this article which is committed to a unit agreement embracing lands that are in part within and in part outside of the area covered by any such agreement shall be segregated into separate leases as to the lands committed and the lands not committed as of the effective date of unitization. Any such lease, as to the nonunitized portion, shall continue in force and effect for a period of time equal to the greater of the remainder of the original term of the lease or two years from the date of such segregation and as long thereafter as oil or gas is produced in paying quantities.

G. Any lease issued under this article which is in effect at the termination of any unit agreement to which such lease is committed, unless relinquished, shall continue in effect for a period of time equal to the greater of the remainder of the original term of the lease or two years from the termination of the unit agreement and as long thereafter as oil or gas is produced in paying quantities.

H. Notwithstanding any of the foregoing, no lease issued or amended pursuant to this article shall be extended for any term longer than as provided in article X, section 3 of the Constitution of the state of Arizona.