82-11-206. Terms and conditions of plan for unit operations. The order under 82-11-205 must be upon terms and conditions that are just and reasonable and must prescribe a plan for unit operations that includes:

(1) a description of the pool or pools or parts of a pool or pools to be operated, termed the unit area, but only so much of a pool as has reasonably been defined and determined by drilling operations to be productive of oil or gas may be included within the unit area. If the unit is formed solely for production of gas, a spacing unit on which is located a well producing or capable of producing gas on March 1, 1971, may not be included in the unit area without the written consent of the majority in interest of the working interest owners of the spacing unit and well.

(2) a statement of the nature and purpose of the plan and operations contemplated, together with a copy of the proposed unit agreement and unit operating agreement;

(3) a plan for allocating to each tract in the unit area its fair share of the oil and gas produced from the unit area and not required or consumed in the conduct of the operation of the unit area or unavoidably lost. A plan may not be approved by the board until it has considered the relative value that the share of production bears to the relative value of all of the separately owned tracts in the unit area, exclusive of physical equipment utilized in unit operations. In considering this relative value, the board shall weigh the economic value of the gas to all persons affected as compared to the economic value of the oil to all persons affected.

(4) a provision for the credits and charges to be made in the adjustment among the owners in the unit area for their respective investments in wells, tanks, pumps, machinery, materials, and equipment contributed to the unit operations;

(5) a provision providing how the costs of unit operations, including overhead and capital investments, must be determined and charged to the separately owned tracts, including a provision for carrying or otherwise financing any owner who has not executed the proposed unit operating agreement and who elects to be carried or otherwise financed, allowing an interest charge of the then-current prime rate plus 2% for the service. Recovery of the money advanced plus interest must be limited to and only be recoverable from the owners' share of production. The recovery must be as follows:

(a) (i) in the case of a field producing oil or oil and gas, during the period of depletion of the remaining estimated primary reserves from the unit, only from the production that is in excess of the owners' average actual rate of production during the 18 months immediately preceding the effective date of the unit;

(ii) during the period subsequent to the depletion of the remaining estimated primary reserves from the unit, from 100% of the owners' share of production;

(iii) for purposes of this subsection (5)(a), the term "primary reserves" means the oil or gas that would be produced from the unitized pool or pools as a result of the natural energy in the pool or pools and without the introduction of an enhanced recovery program;

(b) in the case of a field producing only gas, from 100% of the owners' share of production;

(c) in the case of any enhanced recovery program that is initiated subsequent to a secondary recovery program, the recovery must be from 75% of the owners' increased share of production from the subsequent program;

(6) a provision for the supervision and conduct of the unit operations, in respect to which each owner has a vote with a value corresponding to the percentage of the costs of unit operations chargeable against the interest of the owner;

(7) a provision by which the unit operator, after having operated for a minimum period of 2 years, may be challenged by any other owner in the unit, and the challenging owner may succeed to the unit operations upon a showing that:

(a) the challenging owner can operate more efficiently and economically than the present operator;

(b) the challenging owner is qualified and financially responsible;

(c) a majority of the other owners, both in number and in percentage and exclusive of the challenged operator, approved the challenging owner becoming unit operator; and

(d) the challenged operator does not initiate the conditions of operations of the challenging owner within 60 days of the challenged operator's receipt of the conditions of operations;

(8) the time when the unit operations must commence and the manner in which and the circumstances under which the unit operations must terminate; and

(9) additional provisions that are found to be appropriate for carrying on unit operations and for the protection and adjustment of correlative rights.

History: En. Sec. 3, Ch. 33, L. 1969; amd. Sec. 3, Ch. 150, L. 1971; amd. Sec. 63, Ch. 253, L. 1974; amd. Sec. 3, Ch. 336, L. 1977; R.C.M. 1947, 60-131.3; amd. Sec. 2745, Ch. 56, L. 2009.