Kansas Statutes

Chapter 55: Oil And Gas

Article 13: Unitization

Statutes:

• 55-1301: Additional powers and duties of the state corporation commission.
• 55-1302: Definitions.
• 55-1303: Requisites of application; hearings.
• 55-1304: Matters to be found by the commission precedent to issuance of unitization order; hearings.
• 55-1305: Commission orders.
• 55-1306: Unit operations.
• 55-1307: Enlargement of area and creation of new units.
• 55-1308: Existing rights, rights in unleased land, and royalties and lease burdens.
• 55-1309: Employment of consultant to advise commission.
• 55-1310: Procedures on unit operation plans; application of laws; notices; hearings, place of; publication of notice of applications and hearings; cost.
• 55-1311: Agreements not violative of laws governing monopolies or restraint of trade.
• 55-1312: Rendition for taxation of property used by unit; assessment and taxation.
• 55-1313: Certificates to be recorded.
• 55-1314: Act supplemental.
• 55-1315: Invalidity of part.
• 55-1316: Definition of "pool"; legislative intent.
• 55-1317: Unitization without KCC order, when.

• 55-1301: Additional powers and duties of the state corporation commission. In addition to the jurisdiction, powers and duties conferred or imposed upon the state corporation commission, herein called "commission," by articles 6 and 7 of chapter 55 of the Kansas Statutes Annotated, with respect to the prevention of waste and the conservation of oil and gas and the protection of the correlative rights of persons entitled to share in the production thereof, the commission shall for said purposes have, and it shall be its duty to exercise, the further jurisdiction, powers and duties conferred or imposed upon it by this act.

        History:   L. 1967, ch. 299, § 1; July 1.

• 55-1302: Definitions. As used in this act:

        (a)   Except where the context otherwise requires, the terms used or defined in articles 6 and 7 of chapter 55 of the Kansas Statutes Annotated, and amendments thereto, shall have the same meaning when used in this act.

        (b)   "Pool" means an underground accumulation of oil and gas in one or more natural reservoirs in communication so as to constitute a single pressure system so that production from one part of the pool affects the pressure throughout its extent.

        (c)   "Oil and gas" means crude oil, natural gas, casinghead gas, condensate, or any combination thereof.

        (d)   "Waste," in addition to its meaning as used in articles 6 and 7 of chapter 55 of the Kansas Statutes Annotated, and amendments thereto, includes both economic and physical waste resulting from the development and operation separately of tracts that can best be operated as a unit.

        (e)   "Working interest owner" means the owner of tracts or interests who, in the absence of a unitization order, would have the right to drill and operate a well or wells on the separately owned tracts comprising a unit.

        History:   L. 1967, ch. 299, § 2; L. 2004, ch. 115, § 1; July 1.

• 55-1303: Requisites of application; hearings. Any working interest owner may file an application with the commission requesting an order for the unit operation of a pool or part thereof. The application shall contain: (a) A description of the land and pool or part thereof to be so operated, termed the unit area;

        (b)   a statement of the type of operations contemplated for the unit area;

        (c)   a copy of a proposed plan of unitization which the applicant considers fair, reasonable and equitable;

        (d)   a copy of a proposed operating plan covering the manner in which the unit will be supervised and managed and costs allocated and paid;

        (e)   an allegation of the facts required to be found by the commission under K.S.A. 55-1304 and amendments thereto.

        Upon filing of an application for an order providing for the unit operation of a pool or part thereof, the commission shall conduct a hearing in accordance with the provisions of the Kansas administrative procedure act.

        History:   L. 1967, ch. 299, § 3; L. 1988, ch. 356, § 174; July 1, 1989.

• 55-1304: Matters to be found by the commission precedent to issuance of unitization order; hearings. The commission may make an order providing for the unitization and unit operation of such pool or part thereof sought to be unitized, if, upon application of any working interest owner and after notice and hearing in accordance with the provisions of the Kansas administrative procedure act, the commission finds all of the following conditions exist:

        (a) (1)   The primary production from a pool or a part thereof sought to be unitized has reached a low economic level and, without introduction of artificial energy, abandonment of oil or gas wells is imminent; or (2) the unitized management, operation and further development of the pool or the part thereof sought to be unitized is economically feasible and reasonably necessary to prevent waste within the reservoir and thereby increase substantially the ultimate recovery of oil or gas;

        (b)   the value of the estimated additional recovery of oil or gas substantially exceeds the estimated additional cost incident to conducting such operations; and

        (c)   the proposed operation is fair and equitable to all interest owners.

        History:   L. 1967, ch. 299, § 4; L. 1988, ch. 356, § 175; L. 2000, ch. 15, § 1; Mar. 30.

• 55-1305: Commission orders. The order providing for the unitization and unit operation of a pool or a part thereof shall be upon terms and conditions that are just and reasonable and shall prescribe a plan for unit operations that shall include:

        (a)   A legal description in terms of surface area of the pool or a part thereof to be so operated, termed "the unit area";

        (b)   a statement of the nature of the operations contemplated;

        (c)   an allocation to the separately owned tracts in the unit area of all the oil and gas that is produced from the unit area and is saved, being the production that is not used in the conduct of operations on the unit area or not unavoidably lost. The allocation shall be in accord with the agreement, if any, of all interest owners. If there is no such agreement as to the allocation, the commission shall determine the relative value of the separately owned tracts in the unit area, exclusive of physical equipment, for development of oil and gas by unit operations, and the production allocated to each tract shall be the proportion that the value of each tract so determined bears to the total value of all tracts in the unit area;

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

        (e)   a provision providing how the costs of unit operations, including capital investments, shall be determined and charged to the separately owned tracts and how such costs shall be paid, including a provision providing when, how and by whom the unit production allocated to a working interest owner who does not pay the share of the cost of unit operations charged to such owner, or to the interest of such owner, may be sold and the proceeds applied to the payment of such costs;

        (f)   a provision whereby a nonoperating working interest owner shall be furnished, but not more often than once a month, reasonably detailed information regarding the nature and amount of the various items of costs and expenses, including capital investments, chargeable against the interest of the nonoperating working interest owners;

        (g)   a provision for carrying any nonoperating working interest owner on a limited, carried or net-profits basis, payable out of production, upon terms and conditions determined by the commission to be just and reasonable, or otherwise financing any nonoperating working interest owner who elects to be carried or otherwise financed or who does not meet the owner's financial obligations with the unit and a provision for establishing a reasonable rate of interest and a penalty on all unpaid expenses, in amounts established by rules and regulations adopted by the commission, not to exceed:

        (1)   One hundred percent of the unpaid portion of the owner's share of the cost of aboveground surface equipment beyond the wellhead connection, including, but not limited to, stock tanks, separators, treaters, pumping equipment and piping, plus 100% of the unpaid portion of the owner's share of the cost of operation of the unit, all subject to the rate of interest established;

        (2)   three hundred percent of the unpaid portion of the owner's share of the costs and expenses of drilling wells in the unitized area, including staking, well site preparation, rigging up, or drilling, and reworking, deepening or plugging back, testing and completing wells; and

        (3)   three hundred percent of the unpaid portion of the owner's share of the costs and expenses of underground pipeline systems, expenses for injected substances and any other nonrecoupable expenses incurred. All interest and penalties prescribed under this subsection shall be paid from the nonpaying interest owner's share of production;

        (h)   a provision for the supervision and conduct of the unit operations, including the selection, removal or substitution of an operator from among the working interest owners to conduct the unit operations;

        (i)   a provision for a voting procedure for the decision of matters to be decided by the working interest owners in respect to which each working interest owner shall have a vote with a value corresponding to the percentage of the costs of unit operations chargeable against the interest of such owner;

        (j)   the time when the unit operations shall commence and the manner in which, and the circumstances under which, the unit operations shall terminate and for the settlement of accounts upon such termination;

        (k)   a provision specifying the particular records the unit operator shall keep and the detailed accounting procedure that the unit operator shall follow. A plan of unitization shall not be considered fair and reasonable if it contains a provision for operating charges which include any part of district or central office expense other than reasonable overhead charges; and

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

        No order of the commission providing for unit operations upon a finding pursuant to subsection (a)(1) of K.S.A. 55-1304, and amendments thereto, shall become effective unless and until the plan for unit operations prescribed by the commission has been approved in writing by those persons who, under the commission's order, will be required to pay at least 63% of the costs of the unit operation, and also by the owners of at least 63% of the production or proceeds thereof that will be credited to royalties, excluding overriding royalties or other like interests which are carved out of the leasehold estate, and the commission has made a finding, either in the order providing for unit operations or in a supplemental order, that the plan for unit operations has been so approved. No order of the commission providing for unit operations upon a finding pursuant to subsection (a)(2) of K.S.A. 55-1304, and amendments thereto, shall become effective unless and until the plan for unit operations prescribed by the commission has been approved in writing by those persons who, under the commission's order, will be required to pay at least 63% of the costs of the unit operation, and also by the owners of at least 75% of the production or proceeds thereof that will be credited to royalties, excluding overriding royalties or other like interests which are carved out of the leasehold estate, and the commission has made a finding, either in the order providing for unit operations or in a supplemental order, that the plan for unit operations has been so approved. If the plan for unit operations has not been so approved at the time the order providing for unit operations is made, the commission shall upon application and notice hold such supplemental hearings as may be required to determine if and when the plan for unit operations has been so approved. If the persons owning the required percentage of interest in the unit area do not approve the plan for unit operations within a period of six months from the date on which the order providing for unit operations is made, such order shall cease to be of further force and effect and shall be revoked by the commission, except that the commission may extend the six-month period not to exceed 60 days for good cause shown.

        An order providing for unit operations may be amended by the commission in the same manner and subject to the same conditions as are necessary or required for an original order providing for unit operations, except that: (a) If such an amendment affects only the rights and interest of the working interest owners, the approval of the amendment by the royalty owners shall not be required; and (b) no such order of amendment shall change the percentage for the allocation of oil and gas as established for any separately owned tract by the original order, except with the consent of all persons owning oil and gas rights in such tract; no such order shall change the percentage for the allocation of cost as established for any separately owned tract by the original order, except with the consent of all working interest owners in such tract.

        The commission by an order may provide for the unit operation of a pool or a part thereof that embraces a unit area previously established either by voluntary agreement or order of the commission. Such order, in providing for the allocation of unit production, shall first treat the unit area previously established as a single tract, and the part of the unit production so allocated thereto shall then be allocated among the separately owned tracts included in such previously established unit area in the same proportions as those specified in the previous agreement or order.

        An order may provide for the unit operation of less than the whole of a pool where the unit area is of such size and shape as may be reasonably required for that purpose, and the conduct thereof will have no material adverse effect upon other parts of the pool.

        History:   L. 1967, ch. 299, § 5; L. 1995, ch. 148, § 1; L. 2000, ch. 15, § 2; Mar. 30.

• 55-1306: Unit operations. All operations, including, but not limited to, the commencement, drilling, or operation of a well upon any part of the unit area shall be deemed for all purposes the conduct of such operations upon each separately owned tract in the unit area by the several owners thereof. The portion of the unit production allocated to a separately owned tract in a unit area shall, when produced, be deemed, for all purposes, to have been actually produced from such tract by a well drilled thereon. Operations conducted pursuant to an order of the commission providing for unit operations shall constitute a fulfillment of all the express or implied obligations of each lease or contract covering lands in the unit area to the extent that compliance with such obligations cannot be had because of the order of the commission.

        The portion of the unit production allocated to any tract, and the proceeds from the sale thereof, shall be the property and income of the several persons to whom, or to whose credit, the same are allocated or payable under the order providing for unit operations.

        No division order or other contract relating to the sale or purchase of production from a separately owned tract shall be terminated by the order providing for unit operations, but shall remain in force and apply to oil and gas allocated to such tract until terminated in accordance with the provisions of such division order or contract.

        Except to the extent that the parties affected so agree no order providing for unit operations shall be construed to result in a transfer of all or any part of the title of any person to the oil and gas rights in any tract in the unit area. All property, whether real or personal, that may be acquired in the conduct of unit operations hereunder shall be acquired for the account of the working interest owners within the unit area, and shall be the property of such owners in the proportion that the expenses of unit operations are charged.

        The obligation or liability of each working interest owner, both nonoperator and operator, in the several separately owned tracts in the unit for the payment of unit expense at all times shall be several and not joint or collective, and a working interest owner of the oil or gas rights in the separately owned tract shall not be chargeable with, obligated or liable, directly or indirectly, for more than the amount apportioned, assessed or otherwise charged to his or her interest in the separately owned tract pursuant to the order of unitization.

        History:   L. 1967, ch. 299, § 6; July 1.

• 55-1307: Enlargement of area and creation of new units. The unit area of a unit may be enlarged to include adjoining portions of the same common source of supply, including the unit area of another unit, and a new unit created for the unitized management, operation and further development of such enlarged unit area, or the plan of unitization may be otherwise amended, all in the same manner, upon the same conditions and subject to the same limitations as herein provided with respect to the creation of a unit in the first instance, except, that where an amendment to a plan of unitization relates only to the rights and obligations as between working interest owners, the requirement that the same be approved by the owners of at least seventy-five percent (75%) of the production or proceeds thereof that will be credited to interests which are free of costs, such as royalties, overriding royalties and production payments of the unit area shall have no application.

        History:   L. 1967, ch. 299, § 7; July 1.

• 55-1308: Existing rights, rights in unleased land, and royalties and lease burdens. Property rights, leases, contracts, and other rights or obligations shall be regarded as amended and modified only to the extent necessary to conform to the provisions and requirements of this act and to any valid order of the commission providing for the unit operation of a pool or a part thereof, but otherwise shall remain in full force and effect. For the purpose of this act the owner, or owners, of oil and gas rights in and under an unleased tract of land shall be regarded as a working interest owner to the extent of a 7/8 interest in and to such rights and a royalty owner to the extent of the remaining 1/8 interest therein, except that, if the commission finds that, under the prevailing industry practice in the area where the unit is located, oil and gas leases contain a higher amount of royalty than 1/8 royalty interest, then the owner or owners shall be regarded as a royalty interest owner to the extent of the royalty interest determined by the commission to be in accordance with prevailing industry practice and a working interest owner as to the remainder of the owner's or owners' interest in such tract of land.

        A 1/8 part of the production allocated to each tract under an order providing for the unit operation of a pool or a part thereof, shall in all events be and remain free and clear of any cost or expense of developing or operating the unit and of any lien therefor as an unencumbered source from which to pay the royalties or other cost free obligations due or payable with respect to the production from such tract. If a lease or other contract pertaining to a tract or interest stipulates a royalty, overriding royalty, production payment or other obligation in excess of 1/8 of the production or proceeds therefrom, then the working interest owner subject to such excess payment or other obligation shall bear and pay the same.

        History:   L. 1967, ch. 299, § 8; L. 2000, ch. 15, § 3; Mar. 30.

• 55-1309: Employment of consultant to advise commission. Whenever in any contested proceeding before the commission for the unitization and unit operation of a pool or a part of a pool, the commission determines that the engineering, geological, or other technical issues are such that it is in need of additional engineering, geological or other technical evidence as an aid to a proper understanding and appraisal of the issues and evidence, it may employ a qualified disinterested technical consultant for that purpose. All opinions, conclusions, evidence and testimony of such consultant shall be presented in an open hearing subject to examination by any interested party as well as the commission. The cost and expense of the employment of such a consultant shall be payable out of the funds of the commission.

        History:   L. 1967, ch. 299, § 9; July 1.

• 55-1310: Procedures on unit operation plans; application of laws; notices; hearings, place of; publication of notice of applications and hearings; cost. All of the provisions and requirements of K.S.A. 55-605, 55-606, 55-607, 55-608, 55-609 and 55-611, and amendments thereto, with reference to the institution of proceedings, notices, hearings, subpoenaing of witnesses, oaths, orders, contempt, enforcement, injunctions, penalties for violation of the act or orders of the commission, costs and other procedure and procedural requirements shall apply to and govern action by the commission and the interested persons under this act the same as such provisions and requirements of the sections apply to and govern the action by the commission and the interested persons under the provisions of articles 6 and 7 of chapter 55 of the Kansas Statutes Annotated. The place of hearing on the application shall be as designated by the commission.

        In addition to the notice provided for by K.S.A. 55-605, and amendments thereto, or such additional notice as the commission may require, notice of the filing of applications and hearings held pursuant to this act shall be given as follows: Upon the filing of an application for the unit operation of a pool or a part of a pool, the applicant shall file with the commission a list showing the names and addresses of all oil and gas lessees and other oil and gas interest owners owning interests in the pool or the part of the pool underlying the lands described in the application and whose names and addresses applicant has been able to discover after diligent search and inquiry, which list shall also include lessors, mineral owners and mortgagees of oil and gas interests of record. Notice of the application and the time and place of the hearing shall be properly mailed by the applicant, postage prepaid, at least 10 days prior to the date set for the hearing, to all persons whose names and addresses are shown on the list. In addition notices of all applications filed pursuant to this act and the time and the place of the hearing shall be published in at least one issue of a newspaper authorized by law to publish legal notices in the county or counties in which the lands involved are located and in such other newspaper as the commission may designate at least 10 days prior to the date set for the hearing.

        History:   L. 1967, ch. 299, § 10; L. 1974, ch. 231, § 1; L. 1992, ch. 43, § 1; July 1.

• 55-1311: Agreements not violative of laws governing monopolies or restraint of trade. No agreement between or among lessees or other owners of oil and gas rights in oil and gas properties entered into pursuant hereto or with a view or for the purpose of bringing about the unitized development or operation of such properties, shall be held to violate any of the statutes of this state prohibiting monopolies or acts, arrangements, agreements, contracts, combinations, or conspiracies in restraint of trade or commerce.

        History:   L. 1967, ch. 299, § 11; July 1.

• 55-1312: Rendition for taxation of property used by unit; assessment and taxation. It shall be the duty of the unit operator to make and file all necessary ad valorem tax renditions and returns with the proper taxing authorities covering all property of each working interest owner used or held by the operator in the unit operations. All such property of the several working interest owners shall be assessed and taxed together as a single unit. If such property is not reported for taxation by the unit operator, assessment and taxation of the working interest owners' property of the unit shall be made as a unit by the county assessor. All such ad valorem taxes shall be paid by the unit operator initially as a part of the costs of unit operations with each working interest owner's share thereof to be the same as other costs of unit operations. Each working interest owner shall pay or cause to be paid all production, severance and other taxes that may be imposed upon or in respect of the production of that owner's share of the unitized substances.

        History:   L. 1967, ch. 299, § 12; L. 2000, ch. 15, § 4; Mar. 30.

• 55-1313: Certificates to be recorded. Upon a unitization order becoming effective the commission shall file for recording in the office of the register of deeds in the county or counties in which the lands are located a certificate in such form as the commission may prescribe, which certificate must include the following information: (1) Date of order and date approved by required percentage of owners;

        (2)   docket number;

        (3)   name of unit;

        (4)   producing formations unitized;

        (5)   the time unit operations shall commence;

        (6)   legal description of each tract of land in the unit;

        (7)   the allocation of the production of the unit among the owners.

        When unit operations have terminated, the commission shall likewise file for recording a similar certificate showing such termination.

        History:   L. 1967, ch. 299, § 13; July 1.

• 55-1314: Act supplemental. The provisions of this act shall be supplemental to and a part of articles 6 and 7 of chapter 55 of the Kansas Statutes Annotated.

        History:   L. 1967, ch. 299, § 14; July 1.

• 55-1315: Invalidity of part. If any clause, sentence, section, provision, or part of this act shall be adjudged to be unconstitutional or invalid for any reason by any court of competent jurisdiction, such judgment shall not invalidate, impair, or affect the remainder of this act, which shall remain in full force and effect.

        History:   L. 1967, ch. 299, § 15; July 1.

• 55-1316: Definition of "pool"; legislative intent. The amendment by this act of the definition of "pool" shall not be considered a statement of legislative intent for the purpose of interpretation of the definition of "pool" prior to its amendments by this act.

        History:   L. 2004, ch. 115, § 2; July 1.

• 55-1317: Unitization without KCC order, when. (a) As used in this section, terms have the meanings provided by K.S.A. 55-1302, and amendments thereto.

        (b)   Subject to the provisions of subsection (c), if all mineral and royalty owners and not less than 90% of the working interest owners approve, in writing, a contract for the unit operation of a pool or part thereof, such unit operations shall become effective without application to or order by the state corporation commission.

        (c)   Before a contract for the unit operation of a pool or part thereof shall become effective pursuant to subsection (b), the person or persons wishing to provide for the unit operation shall file a copy of the contract with the state corporation commission and shall notify all working interest owners of the intention to conduct the unit operation. Such notice shall be in the manner provided by law for notice of an application requesting an order for the unit operation of a pool or part thereof. The notice shall inform the working interest owner of the right to institute proceedings within 30 days after receipt of the notice to have the matter determined by the state corporation commission. Any working interest owner, within 30 days after receipt of the notice, may institute proceedings before the state corporation commission to determine the matter in accordance with the provisions of K.S.A. 55-1301 et seq., and amendments thereto. If no such proceedings are instituted, the contract shall become effective upon expiration of the 30-day period.

        (d)   This section shall be part of and supplemental to the provisions of article 13 of chapter 55 of the Kansas Statutes Annotated, and amendments thereto.

        History:   L. 2004, ch. 115, § 3; July 1.