353.645 Operation and development as a unit of oil and gas interests in a pool or
1,147 words·~5 min read·
/ky/353-645A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
pools -- Application for unit -- Hearing -- Unitization order -- Review under
KRS 353.700. This section applies to any lessee or owner of an oil and gas interest in a proposed unit.
(1)The department, at its own discretion 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 lessees or owners of an oil and gas interest in a pool or pools of a proposed unit,
issue an order 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. 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 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
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.
(4)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.
(5)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.
(6)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.
(7)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.
(8)An order establishing a unit may be modified, altered, extended, vacated, or
otherwise amended by the department after notice 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.
(9)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.
(10)Any order or final determination of the department under this section shall be
subject to review in accordance with KRS 353.700 and any administrative
regulations promulgated thereunder.