Texas 2015 - 84th Regular

Texas House Bill HB1392 Compare Versions

Only one version of the bill is available at this time.

Old	New	Differences
1	1	84R6076 SMH-F
2	2	By: Bell H.B. No. 1392
3	3
4	4
5	5	A BILL TO BE ENTITLED
6	6	AN ACT
7	7	relating to the recovery of stranded oil, gas, or oil and gas from
8	8	depleting Cenozoic Era reservoirs.
9	9	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
10	10	SECTION 1. Subtitle C, Title 3, Natural Resources Code, is
11	11	amended by adding Chapter 104 to read as follows:
12	12	CHAPTER 104. UNITIZATION
13	13	SUBCHAPTER A. GENERAL PROVISIONS
14	14	Sec. 104.001. SHORT TITLE. This chapter may be cited as the
15	15	Texas Tertiary Recovery Unitization Act.
16	16	Sec. 104.002. DEFINITIONS. In this chapter:
17	17	(1) "Commission" means the Railroad Commission of
18	18	Texas.
19	19	(2) "Common source of supply" means:
20	20	(A) a common reservoir as defined by Section
21	21	86.002; or
22	22	(B) separate multiple stratigraphic or
23	23	lenticular accumulations of oil, gas, or oil and gas that have been
24	24	recognized and regulated as a common reservoir by the commission
25	25	under Section 86.081(b).
26	26	(3) "Extraneous substances" are substances, including
27	27	carbon dioxide and other nonhydrocarbon substances, purchased or
28	28	otherwise obtained from outside a common source of supply for
29	29	injection into the common source of supply during unit operations
30	30	using tertiary recovery methods.
31	31	(4) "Oil and gas" means "oil" and "gas" as defined by
32	32	Section 85.001.
33	33	(5) "Plan of unitization" means a plan or agreement
34	34	that is consistent with the requirements of this chapter between
35	35	working interest owners and royalty owners in a common source of
36	36	supply or part of a common source of supply in which unit operations
37	37	using tertiary recovery methods may be conducted to enhance the
38	38	production of oil, gas, or oil and gas from the common source of
39	39	supply or part of the common source of supply to greater volumes
40	40	than would be produced by recovery operations that do not use
41	41	tertiary recovery methods.
42	42	(6) "Royalty interest" means the right to, or an
43	43	interest in, oil and gas or proceeds of oil and gas production free
44	44	of costs, other than a working interest. The term includes a
45	45	royalty interest attributable to the interest of an unleased
46	46	mineral interest owner under Section 104.057(1).
47	47	(7) "Royalty owner" means the owner of a royalty
48	48	interest.
49	49	(8) "Tract" means a parcel of land lying within the
50	50	unit area that is under uniform royalty and working interest
51	51	ownership.
52	52	(9) "Tract participation" means the percentage shown
53	53	in the plan of unitization participation formula for allocating
54	54	unit production to a tract, which is measured by the value
55	55	calculated for each tract for oil, gas, or oil and gas purposes
56	56	based on its contributing value to the unit in relation to like
57	57	values of other tracts in the unit, the sum of which is 100 percent.
58	58	(10) "Unit area" includes the surface area inside the
59	59	boundaries of the unit and the common source of supply or the part
60	60	of the common source of supply underlying the surface area that may
61	61	be reasonably required for the conduct of unit operations using
62	62	tertiary recovery methods, including the monitoring of the unit
63	63	operations.
64	64	(11) "Unit cost" or "unit expense" includes any cost
65	65	or expense incurred in the conduct of unit operations using
66	66	tertiary recovery methods.
67	67	(12) "Unit operations using tertiary recovery
68	68	methods" means:
69	69	(A) operations using tertiary recovery methods
70	70	intended to increase the ultimate recovery of oil, gas, or oil and
71	71	gas from a common source of supply related to the production of oil,
72	72	gas, or oil and gas from the unit area, including:
73	73	(i) thermal recovery;
74	74	(ii) in situ combustion;
75	75	(iii) carbon dioxide or nitrogen miscible
76	76	fluid displacement;
77	77	(iv) carbon dioxide augmented
78	78	waterflooding;
79	79	(v) immiscible carbon dioxide
80	80	displacement;
81	81	(vi) immiscible nonhydrocarbon gas
82	82	displacement; or
83	83	(vii) operations using any other method
84	84	defined as a tertiary recovery method in former Section 4993 of the
85	85	former Internal Revenue Code of 1954; or
86	86	(B) the establishment and operation of the
87	87	necessary facilities for the operations listed in Paragraph (A).
88	88	(13) "Unit operator" means the person designated under
89	89	the plan of unitization to conduct unit operations using tertiary
90	90	recovery methods, acting as operator and not merely as a working
91	91	interest owner.
92	92	(14) "Unit participation of a royalty owner" means the
93	93	percentage equal to the sum of the products obtained by multiplying
94	94	the royalty interest of each royalty owner in each tract in which
95	95	the owner owns a royalty interest by the tract participation of that
96	96	tract in the unit.
97	97	(15) "Unit participation of a working interest owner"
98	98	means the percentage equal to the sum of the products obtained by
99	99	multiplying the working interest of each working interest owner in
100	100	each tract in which the owner owns a working interest by the tract
101	101	participation of that tract in the unit.
102	102	(16) "Unit production" includes all oil, gas, or oil
103	103	and gas produced and saved from a unit area after the effective date
104	104	of the unit regardless of the well or tract in the unit area from
105	105	which the oil, gas, or oil and gas are produced. The term does not
106	106	include the following substances if the working interest owners
107	107	under a lease, contract, agreement, or unit plan have excluded the
108	108	substances from unit production:
109	109	(A) recoverable extraneous substances injected
110	110	into the common source of supply or used in well treatment or
111	111	pressure maintenance;
112	112	(B) any production that is reinjected into the
113	113	unit area, unless the reinjected production is later removed from
114	114	the unit area for nonunit purposes or sold, in which case it will be
115	115	considered to be unit production; or
116	116	(C) any production used or consumed in unit
117	117	operations.
118	118	(17) "Working interest" means an interest in oil and
119	119	gas by virtue of a lease, operating agreement, fee title, or
120	120	otherwise, including a carried interest, the owner of which is
121	121	obligated to pay, in cash, out of production, or otherwise, the
122	122	owner's share of the unit expense under the proposed or approved
123	123	plan of unitization. The term includes a working interest
124	124	attributable to the interest of an unleased mineral interest owner
125	125	under Section 104.057(2).
126	126	(18) "Working interest owner" means the owner of a
127	127	working interest.
128	128	Sec. 104.003. POWER AND AUTHORITY OF COMMISSION. (a) The
129	129	commission shall adopt any necessary rule, issue and enforce any
130	130	necessary order, and perform all required acts necessary to carry
131	131	out the purposes of this chapter.
132	132	(b) The commission in accordance with this chapter shall
133	133	determine whether a plan of unitization, including the
134	134	participation formula, proposed under this chapter for all or part
135	135	of a common source of supply is fair, reasonable, and equitable for
136	136	all interests concerned and necessary to carry out the purposes of
137	137	this chapter.
138	138	Sec. 104.004. APPLICABILITY TO VOLUNTARY COOPERATIVE
139	139	AGREEMENTS IN SECONDARY RECOVERY OPERATIONS. This chapter does not
140	140	affect or apply to a voluntary cooperative agreement in secondary
141	141	recovery operations as provided by Subchapter B, Chapter 101,
142	142	unless application is made under this chapter for unit operations
143	143	using tertiary recovery methods.
144	144	Sec. 104.005. APPLICABILITY TO PUBLIC LAND. (a) This
145	145	chapter does not apply to land owned by the state or land in which
146	146	the state has a direct or indirect interest.
147	147	(b) Except as provided by Subsection (c), this chapter does
148	148	not amend, repeal, change, alter, or affect in any manner the
149	149	authority or jurisdiction of the state, the commissioner of the
150	150	General Land Office, or any board or agency of the state with
151	151	respect to any land or interest in land in which the state, the
152	152	commissioner of the General Land Office, or any board or agency of
153	153	the state has jurisdiction or the unitization of such land.
154	154	(c) Land in which the state has an interest as described in
155	155	this chapter may be unitized under this chapter only:
156	156	(1) at the instance of the commissioner of the General
157	157	Land Office; or
158	158	(2) with the approval of or consent to a plan of
159	159	unitization by the state, the commissioner of the General Land
160	160	Office, or the board or agency having jurisdiction.
161	161	(d) If land in which the state has an interest is to be
162	162	unitized as provided for by Subsection (c), the plan of unitization
163	163	and unit operating agreement is subject to and must incorporate by
164	164	reference all statutes and rules that apply to the land in which the
165	165	state has an interest.
166	166	Sec. 104.006. RESTRICTION ON COMMON SOURCES OF SUPPLY TO
167	167	WHICH APPLICABLE. This chapter applies only to unit operations for
168	168	the tertiary recovery of oil, gas, or oil and gas from a Cenozoic
169	169	Era common source of supply.
170	170	Sec. 104.007. CONFLICT WITH ANTITRUST ACTS. (a) A plan of
171	171	unitization and operation using tertiary recovery methods under an
172	172	agreement that complies with this chapter, is approved by
173	173	commission order, and is found by the commission to be necessary to
174	174	prevent waste and conserve the natural resources of this state may
175	175	not be construed to be in violation of Chapter 15, Business &
176	176	Commerce Code.
177	177	(b) If a court finds a conflict between this chapter and
178	178	Chapter 15, Business & Commerce Code, this chapter is intended as a
179	179	reasonable exception to that law that is necessary for the public
180	180	interest of preventing waste and conserving the natural resources
181	181	of this state.
182	182	(c) If a court finds a conflict between this chapter and
183	183	Chapter 15, Business & Commerce Code, and finds that this chapter is
184	184	not a reasonable exception to Chapter 15, Business & Commerce Code,
185	185	the legislature intends that this chapter, or any conflicting part
186	186	of this chapter, be declared invalid rather than that Chapter 15,
187	187	Business & Commerce Code, or any portion of that chapter, be
188	188	declared invalid.
189	189	Sec. 104.008. APPEALS. A person affected by an order of the
190	190	commission issued under this chapter is entitled to judicial review
191	191	of that order in accordance with Subchapter G, Chapter 85. The
192	192	petition for review must be filed in Travis County.
193	193	SUBCHAPTER B. APPLICATION PROCEDURES; CONSIDERATION
194	194	AND APPROVAL OF PLAN
195	195	Sec. 104.051. APPLICATION FOR UNITIZATION. (a) A working
196	196	interest owner or proposed unit operator may file an application
197	197	with the commission requesting an order under this chapter for the
198	198	unit operation using tertiary recovery methods of a common source
199	199	of supply or a part of that common source of supply.
200	200	(b) The application must contain:
201	201	(1) a description of the proposed unit area and the
202	202	vertical limits and producing horizons to be included in that unit
203	203	area with a map or plat attached;
204	204	(2) a statement of the type of operations using
205	205	tertiary recovery methods contemplated for the unit area;
206	206	(3) a copy of a proposed plan of unitization and all
207	207	agreements related to that plan that the applicant considers fair,
208	208	reasonable, and equitable, including a unit operating agreement
209	209	that contains provisions dealing with:
210	210	(A) the manner in which the costs and expenses of
211	211	unit operations using tertiary recovery methods are to be
212	212	apportioned among and assessed against the tracts and interests
213	213	chargeable with those costs and expenses, including a detailed
214	214	accounting procedure governing all charges and credits incident to
215	215	unit operations and providing for audits of those charges and
216	216	credits;
217	217	(B) voting and approval procedures;
218	218	(C) the designation, removal, or replacement of
219	219	the unit operator;
220	220	(D) the division of interest or formula for
221	221	allocation of unit production, payment of interests free of costs,
222	222	and allocation of unit expenses;
223	223	(E) the time when the plan of unitization takes
224	224	effect; and
225	225	(F) the time when, conditions under which, and
226	226	method by which the unit shall or may be dissolved and its affairs
227	227	wound up;
228	228	(4) an allegation of the facts required to be found by
229	229	the commission under Section 104.054;
230	230	(5) an allegation that the applicant has obtained at
231	231	least the minimum required approval of the plan of unitization as
232	232	required by Section 104.056; and
233	233	(6) an allegation that:
234	234	(A) each owner of an interest in the oil and gas
235	235	under each tract in the proposed unit area has been given an
236	236	opportunity to enter into the unit on the same basis; and
237	237	(B) the applicant or proposed unit operator has
238	238	made a good faith effort to voluntarily unitize all interests in the
239	239	proposed unit area.
240	240	(c) The applicant shall submit with the application a list
241	241	including:
242	242	(1) the name of each person owning or having a working
243	243	interest, royalty interest, or unleased mineral interest in the
244	244	proposed unit area and each offset operator and unleased mineral
245	245	interest owner adjacent to the proposed unit area; and
246	246	(2) for each person listed:
247	247	(A) an address; or
248	248	(B) a statement that the person's address is
249	249	unknown.
250	250	Sec. 104.052. HEARING REQUIRED. (a) On receipt of an
251	251	application, the commission promptly shall set the matter for
252	252	hearing and cause notice of the hearing to be given as provided by
253	253	Section 104.053.
254	254	(b) At the hearing, an affected person is entitled to be
255	255	heard, to introduce evidence, and to introduce and cross-examine
256	256	witnesses.
257	257	(c) The applicant shall pay to the commission an amount
258	258	equal to the costs the commission incurs to hold the hearing, as
259	259	determined by the commission.
260	260	Sec. 104.053. NOTICE. (a) Notice of the application and
261	261	the time and place of the hearing on the application must be mailed,
262	262	postage prepaid, not later than the 31st day before the hearing date
263	263	to each working interest owner, operator, unleased mineral interest
264	264	owner, and royalty owner in the unit area and to each offset
265	265	operator and unleased mineral interest owner whose name and address
266	266	is shown on the list provided under Section 104.051.
267	267	(b) Notice of the application and the time and place of
268	268	hearing must be published once a week for four consecutive weeks in
269	269	a newspaper of general circulation authorized by law to publish
270	270	legal notices in the county or counties in which the land involved
271	271	is located, or in another newspaper or publication designated by
272	272	the commission. The first publication must be made not later than
273	273	the 31st day before the hearing date.
274	274	(c) Typographical errors in a notice that are not material
275	275	to the purpose of the notice do not affect the validity of the
276	276	notice.
277	277	Sec. 104.054. COMMISSION FINDINGS. After notice and a
278	278	hearing, the commission shall determine whether:
279	279	(1) the unitized operation using tertiary recovery
280	280	methods of the common source of supply or the part of the common
281	281	source of supply involved in the plan of unitization is reasonably
282	282	necessary to conduct unit operations and the plan of unitization is
283	283	reasonably necessary to prevent waste, protect correlative rights,
284	284	and promote the conservation of oil, gas, or oil and gas;
285	285	(2) the estimated incremental recovery of oil, gas, or
286	286	oil and gas from the common source of supply or the part of the
287	287	common source of supply proposed for unitization is reasonably
288	288	anticipated to exceed the estimated incremental expenses incident
289	289	to conducting unit operations using tertiary recovery methods;
290	290	(3) the productive limits of the common source of
291	291	supply or the part of the common source of supply proposed for
292	292	unitization have been reasonably defined by exploration,
293	293	development, or other definable means so as to establish that the
294	294	area proposed for unitization is reasonably necessary and
295	295	sufficient for unit operations, including the monitoring at the
296	296	boundaries of the unit of the use of an injectant;
297	297	(4) if only a portion of the common source of supply is
298	298	proposed for unitization, unit operations using tertiary recovery
299	299	methods will not have a material adverse effect on the remainder of
300	300	the common source of supply;
301	301	(5) the unsigned owners of interests in the oil and gas
302	302	under each tract of land in the proposed unit area have been given a
303	303	reasonable opportunity to enter into the unit on the same basis as
304	304	the owners of interests in the oil and gas under the other tracts in
305	305	the unit area and the applicant or proposed unit operator has made a
306	306	good faith effort to voluntarily unitize all interests within the
307	307	proposed unit area;
308	308	(6) the applicant has obtained approval for the plan
309	309	of unitization using tertiary recovery methods from at least the
310	310	minimum number of working interest and royalty interest owners
311	311	required by Section 104.056;
312	312	(7) the expense of establishing the unit and unit
313	313	expenses that are to be charged as unit expenses are reasonable and
314	314	necessary;
315	315	(8) the expenses relating to unit operations using
316	316	tertiary recovery methods will:
317	317	(A) be for the common benefit of all persons with
318	318	interests in the unit;
319	319	(B) be allocated on a fair and equitable basis;
320	320	and
321	321	(C) not result in a profit or other benefit that
322	322	favors the unit operator over other unitized interest owners;
323	323	(9) a working interest owner has a reasonable right to
324	324	review all records pertaining to unit operations and a reasonable
325	325	amount of time to audit unit expenses;
326	326	(10) the plan of unitization meets the requirements of
327	327	Subchapter C and reasonably conforms to the requirements of this
328	328	chapter; and
329	329	(11) the plan of unitization, including the tract
330	330	participation formula and percentages, is in all respects fair,
331	331	reasonable, and equitable.
332	332	Sec. 104.055. UNITIZATION ORDER; EFFECT OF OPERATIONS. (a)
333	333	If the commission finds that all the requirements of Section
334	334	104.054 are met, the commission shall issue an order providing for:
335	335	(1) the unitized operation of the unit area in the
336	336	common source of supply as set forth in the plan of unitization; and
337	337	(2) unitization of all working interests and royalty
338	338	interests in the unit area.
339	339	(b) The order must:
340	340	(1) unitize all interests of all owners in the area
341	341	covered by the plan of unitization with the same effect as if those
342	342	owners had executed the plan of unitization and had been parties to
343	343	the unit agreement;
344	344	(2) approve the area of the common source of supply or
345	345	the part of the common source of supply to be included in the unit
346	346	area, including any necessary buffer area, and the vertical limits
347	347	of the common source of supply as defined in the plan of
348	348	unitization;
349	349	(3) approve the plan of unitization, including the
350	350	allocation of production and costs among tracts; and
351	351	(4) approve the designation of the initial unit
352	352	operator as named in the plan of unitization.
353	353	(c) Unit operations using tertiary recovery methods on and
354	354	production from any lease in the unit area for which a unitization
355	355	order has been entered are considered for all purposes the conduct
356	356	of unit operations on and production from each separately owned
357	357	lease and tract in the unit.
358	358	(d) If only a part of a lease is included in the unit, unit
359	359	operations on or production from the unit maintains an oil and gas
360	360	lease as to the part excluded from the unit only if the excluded
361	361	part of the lease otherwise would have been maintained under the
362	362	terms of the lease by the unit production attributable to the
363	363	included tract or tracts.
364	364	Sec. 104.056. APPROVAL OF PROPOSED PLAN OF UNITIZATION BY
365	365	WORKING INTEREST AND ROYALTY OWNERS. (a) An order of the
366	366	commission creating a unit and prescribing the plan of unitization
367	367	takes effect only when the proposed plan of unitization has been
368	368	approved in writing by:
369	369	(1) the owners, on a unit participation basis, of at
370	370	least 70 percent of the aggregate unit working interests; and
371	371	(2) at least 70 percent of the owners, on a unit
372	372	participation basis, of the aggregate unit royalty interests that
373	373	complete and return an approval or ratification together with the
374	374	ballot distributed under Subsection (b).
375	375	(b) A ballot distributed to the owners of royalty interests
376	376	must:
377	377	(1) state that the applicant will confirm by mail that
378	378	the ballot has been received and whether it has been counted as a
379	379	vote for or against the proposed plan;
380	380	(2) be sent by certified mail, return receipt
381	381	requested, to each owner of a royalty interest in the proposed unit
382	382	area, including the interest attributable to each owner of an
383	383	unleased mineral interest;
384	384	(3) be sent a second time by certified mail, return
385	385	receipt requested, to any interest owner for whom a receipt from the
386	386	first mailing is not returned after a reasonable effort has been
387	387	made between the first and the second mailings to correct any
388	388	address that appears to be inaccurate; and
389	389	(4) be accompanied by:
390	390	(A) a copy of the proposed plan of unitization;
391	391	(B) an objective summary of the proposed plan
392	392	that is reasonably calculated to provide an ordinary royalty owner
393	393	with an adequate understanding of how the royalty owner's property
394	394	interest would be affected by a favorable vote and how that interest
395	395	would be affected by an unfavorable vote; and
396	396	(C) a postage-paid reply envelope.
397	397	(c) A royalty owner may not be required to return a ballot
398	398	earlier than the 14th day after the date the owner receives the
399	399	ballot and other information required by Subsection (b).
400	400	(d) The applicant shall:
401	401	(1) confirm the receipt of each ballot; and
402	402	(2) indicate to the royalty owner returning the ballot
403	403	whether the ballot has been counted as a vote for or a vote against
404	404	the proposed plan.
405	405	(e) The commission shall dismiss the application if the
406	406	commission finds that the applicant has not reasonably complied
407	407	with Subsection (b), (c), or (d).
408	408	(f) Notwithstanding Sections 104.054 and 104.055, the
409	409	commission may issue an order approving the plan of unitization
410	410	before the requirements of Subsection (a)(2) of this section have
411	411	been met. If the commission issues an order approving the plan of
412	412	unitization under that circumstance, the requirements of
413	413	Subsection (a)(2) must be met not later than six months after the
414	414	date the commission issues the order. If after an additional notice
415	415	and hearing as provided by Sections 104.052 and 104.053 the
416	416	commission determines that the requirements of Subsection (a)(2) of
417	417	this section have been met before the expiration of the required
418	418	period, the order takes effect. If after the additional notice and
419	419	hearing the commission determines that the requirements of
420	420	Subsection (a)(2) have not been met before the expiration of the
421	421	required period, the order has no effect, and the commission shall
422	422	revoke the order.
423	423	Sec. 104.057. STATUS OF UNLEASED MINERAL INTERESTS. Any
424	424	mineral interest in the unit area that is unleased on the effective
425	425	date of unitization is considered for purposes of unit
426	426	participation:
427	427	(1) to have a royalty interest of one-sixth of that
428	428	interest, free and clear of all unit expenses; and
429	429	(2) to be a working interest to the extent of
430	430	five-sixths of that interest, with all the rights and obligations
431	431	of a lessee as if the mineral rights were leased.
432	432	SUBCHAPTER C. PLAN OF UNITIZATION
433	433	Sec. 104.101. AUTHORIZED PLANS. (a) A plan of unitization
434	434	may be proposed under this chapter only to establish units and
435	435	cooperative facilities necessary for unit operations using
436	436	tertiary recovery methods that are reasonably anticipated to
437	437	substantially increase the ultimate recovery of oil, gas, or oil
438	438	and gas to greater volumes than would be recovered by primary or
439	439	secondary recovery alone.
440	440	(b) The proposed plan of unitization and the commission
441	441	order approving the plan may provide for unit operation using
442	442	tertiary recovery methods of less than the whole of a common source
443	443	of supply if:
444	444	(1) the unit area is of a size and shape that is
445	445	reasonably required for successful and efficient conduct of the
446	446	type of unit operations using tertiary recovery methods proposed
447	447	and containment of the reservoir fluids; and
448	448	(2) the type of unit operations using tertiary
449	449	recovery methods proposed will not have a material adverse effect
450	450	on the part of the common source of supply that is not included in
451	451	the plan of unitization.
452	452	Sec. 104.102. SINGLE OR MULTIPLE AGREEMENTS. The plan of
453	453	unitization may consist of one or more agreements that the
454	454	applicant considers to be fair, reasonable, and equitable if the
455	455	applicant submits each agreement to the commission as required by
456	456	Section 104.051(b)(3).
457	457	Sec. 104.103. PARTICIPATION; ALLOCATION OF UNIT
458	458	PRODUCTION. (a) The proposed plan must provide for the
459	459	apportionment and allocation of the unit production among the
460	460	tracts in the unit area in order to reasonably permit a person
461	461	entitled to share in, or benefit by, the production from a tract in
462	462	the unit to receive a fair share of the unit production or other
463	463	benefits.
464	464	(b) A tract's fair share of the unit production must be
465	465	measured by the value of each tract and its contributing value to
466	466	the unit in relation to like values of other tracts in the unit,
467	467	taking into account acreage, the quantity of oil, gas, or oil and
468	468	gas recoverable from the tract, the tract's location on the
469	469	geological structure, the tract's probable productivity of oil,
470	470	gas, or oil and gas in the absence of unit operations, or as many
471	471	other factors, including other pertinent engineering, geological,
472	472	or operating factors, as are reasonably susceptible of
473	473	determination.
474	474	Sec. 104.104. VOTING BY WORKING INTEREST OWNERS. The
475	475	proposed plan of unitization must establish a voting procedure for
476	476	decisions by the working interest owners. The voting procedure
477	477	need not be the same for each type of decision that may be made by
478	478	the working interest owners. However, each voting procedure must
479	479	provide that each working interest owner has a voting interest
480	480	equal to that owner's unit participation.
481	481	Sec. 104.105. OPERATING AGREEMENT. The proposed plan of
482	482	unitization must include a proposed operating agreement
483	483	establishing:
484	484	(1) the manner in which the unit will be operated,
485	485	supervised, and managed by the unit operator in the conduct of unit
486	486	operations using tertiary recovery methods;
487	487	(2) the grounds on which a unit operator may be
488	488	replaced for cause;
489	489	(3) a procedure by which a unit operator may be
490	490	replaced without cause;
491	491	(4) allocation of and provision for payment of unit
492	492	costs; and
493	493	(5) the other matters required by Section
494	494	104.051(b)(3).
495	495	Sec. 104.106. EFFECTIVE DATE AND TERMINATION DATE OF PLAN
496	496	OF UNITIZATION. (a) The proposed plan of unitization must provide
497	497	for the date on which the plan takes effect, the manner in which and
498	498	the circumstances under which unit operations using tertiary
499	499	recovery methods terminate, the settlement of accounts on
500	500	termination, and notice by the unit operator to the public within 30
501	501	days after the effective date of the unit. After the commission by
502	502	order adopts the plan of unitization and declares the unit
503	503	effective, the unit operator must give public notice by filing for
504	504	record, in the real property records of the county or counties in
505	505	which the unit area or any part of the unit area is located, a
506	506	certificate containing:
507	507	(1) the name of the unit;
508	508	(2) the legal description of each tract included in
509	509	the unit area and a description of the common source of supply or
510	510	the part of the common source of supply included in the unit area;
511	511	(3) the commission docket number;
512	512	(4) the date of the commission order, including any
513	513	supplemental orders, relating to approval of the plan of
514	514	unitization or the approval by the royalty owners;
515	515	(5) the effective date of unit operations using
516	516	tertiary recovery methods; and
517	517	(6) a survey plat setting out the unit boundaries.
518	518	(b) The plan of unitization must require the unit operator,
519	519	not later than the 60th day after the date of termination of the
520	520	unit, to file for record in each county in which any part of the unit
521	521	area is located a certificate stating the date the unit operations
522	522	terminated.
523	523	Sec. 104.107. FINANCING UNIT OPERATIONS. (a) The plan of
524	524	unitization must provide the manner in which unit costs, including
525	525	overhead and interest, are determined, allocated, and charged to
526	526	the separately owned tracts or interests and must include a
527	527	detailed accounting procedure for all charges and credits incident
528	528	to unit operations. The unit costs chargeable to a tract or
529	529	interest must be paid by each working interest owner on a unit
530	530	participation basis.
531	531	(b) The plan also must:
532	532	(1) provide for the auditing of all records of the unit
533	533	operator pertaining to unit operation;
534	534	(2) require the operator to maintain records
535	535	sufficient to show the reasonableness of any payments to affiliates
536	536	of the operator and of other unit costs;
537	537	(3) provide for disclosure so that working interest
538	538	owners will be informed in a timely manner whether particular costs
539	539	and expenses relate to activities undertaken by an affiliate of the
540	540	operator; and
541	541	(4) include provisions that disallow situations in
542	542	which a profit or other benefit would accrue solely to the operator
543	543	as unit operator.
544	544	Sec. 104.108. ATTACHMENT OF OR LIEN ON PROCEEDS OF
545	545	PRODUCTION TO COVER DEBTS OF NONPAYING WORKING INTEREST OWNERS.
546	546	(a) The plan of unitization must provide for the attachment of or a
547	547	lien on proceeds of production due to any working interest owner who
548	548	is not paying the owner's share of the costs of unit operation as
549	549	compensation to the paying owner or owners. The compensation
550	550	amount may not exceed 300 percent of the nonpaying working interest
551	551	owner's share of unit costs, which is considered to include all
552	552	penalties and interest.
553	553	(b) The plan of unitization must provide that all of the
554	554	unit production allocated to a nonpaying working interest owner who
555	555	does not pay the share of the unit expenses charged and any
556	556	additional compensation amounts applied to that nonpaying owner
557	557	under Subsection (a) may be appropriated by the unit operator and
558	558	marketed and sold for the payment of unit expenses and additional
559	559	compensation amounts. Any sale proceeds remaining after payment of
560	560	unit expenses and additional compensation amounts must be remitted
561	561	to the nonpaying working interest owner.
562	562	(c) As to an interest located in the unit that is not leased
563	563	by the effective date of unitization, one-sixth of the production
564	564	attributable to the unleased interest is considered as royalty
565	565	interest and is free and clear of all unit expenses and additional
566	566	compensation amounts. Five-sixths of the unleased interest is
567	567	considered as working interest and is subject to being financed or
568	568	carried under this section.
569	569	Sec. 104.109. SALE BY NONSIGNING WORKING INTEREST OWNER.
570	570	The plan of unitization must provide that a nonsigning working
571	571	interest owner may elect to offer through the unit operator to sell
572	572	and assign all of that owner's working interest in the unit area to
573	573	the unit operator and to other working interest owners who desire to
574	574	acquire a portion of the interest.
575	575	Sec. 104.110. INVESTMENT ADJUSTMENTS AND PROPERTY TAKEN
576	576	OVER. The plan of unitization must provide for the procedure and
577	577	basis for adjustment among the working interest owners in the unit
578	578	area of their respective investment in wells, tanks, pumps,
579	579	machinery, materials, equipment, facilities, and other items of
580	580	value taken over and used in unit operations. Investment
581	581	adjustments and credits for property taken over may not be used as a
582	582	factor in setting participation percentages and allocations of unit
583	583	production under Section 104.103.
584	584	Sec. 104.111. ADDITIONAL PLAN PROVISIONS. The plan of
585	585	unitization may include any additional provisions approved by the
586	586	commission that are consistent with the findings required by
587	587	Section 104.054.
588	588	SUBCHAPTER D. AMENDMENT OF PLAN OR ORDER OF
589	589	UNITIZATION; EXPANSION OF UNIT AREA
590	590	Sec. 104.151. AMENDMENT OF PLAN OR ORDER OF UNITIZATION.
591	591	(a) A commission order approving unitization may be amended in the
592	592	same manner and subject to the same conditions as are required for
593	593	an original order providing for unitized operations.
594	594	(b) Approval of an amendment by royalty owners is not
595	595	required if the amendment affects only the rights and interests of
596	596	working interest owners.
597	597	(c) An amendment to an order may not, without the aggregate
598	598	approval of at least the minimum percentage of the working interest
599	599	and royalty interest ownership required under Section 104.056 for
600	600	approval of unitization and compliance with Section 104.005,
601	601	change:
602	602	(1) the percentage of unit oil, gas, or oil and gas
603	603	production allocated to each tract in the plan approved by the
604	604	original or amended order approving the existing unit; or
605	605	(2) the percentage of unit expenses allocated to each
606	606	tract in the plan of unitization approved by the original or amended
607	607	order for the existing unit.
608	608	(d) This section does not apply to an order:
609	609	(1) expanding an existing unit area under Section
610	610	104.152; or
611	611	(2) creating a new unit area under Section 104.153.
612	612	Sec. 104.152. EXPANSION OF UNIT AREA. (a) In accordance
613	613	with this section and subject to Section 104.153, an existing unit
614	614	area may be expanded to include additional nonunitized tracts under
615	615	the terms contained in the plan of unitization for the existing unit
616	616	if the working interest owners and the royalty owners in each
617	617	additional tract and in the existing unit area approve the
618	618	expansion by the same percentages and in the same manner as required
619	619	by Section 104.056 and Section 104.005(c), if applicable, for the
620	620	creation of a unit. The requirements for creating a unit under this
621	621	chapter apply to the expansion of the unit area under this section.
622	622	(b) Allocation of unit production from the expanded unit
623	623	must be calculated first by allocating to the expansion area a
624	624	portion of the total production of oil, gas, or oil and gas from the
625	625	unit area as enlarged. That allocation must be based on the
626	626	relative contribution to the total production of oil, gas, or oil
627	627	and gas that the expansion area is expected to make during the
628	628	remaining course of unit operations. If the expansion area
629	629	consists of separately owned tracts, the production allocated to
630	630	the expansion area must be allocated to the separately owned tracts
631	631	in proportion to the relative contribution of each of those tracts
632	632	as provided by Section 104.103. The remaining portion of unit
633	633	production must be allocated among the tracts in the existing unit
634	634	area in the same proportions as those set out in the existing plan
635	635	of unitization.
636	636	Sec. 104.153. ENLARGEMENT INCLUDING ALL OF PREVIOUSLY
637	637	ESTABLISHED UNIT. (a) The commission may not combine two or more
638	638	units created under this chapter unless the owners, on a unit
639	639	participation basis, of at least 70 percent of the aggregate unit
640	640	working interests and at least 70 percent of the aggregate unit
641	641	royalty interests in each unit to be combined have agreed to the
642	642	combination.
643	643	(b) A commission order combining units created under this
644	644	chapter, in allocating unit production between the previously
645	645	established units to be combined, must first treat each unit to be
646	646	combined as a single tract for purposes of production allocation.
647	647	The part of unit production that is allocated to each unit to be
648	648	combined must then be allocated among the separately owned tracts
649	649	included in the previously established units in the same proportion
650	650	as provided in each previous commission order establishing a unit
651	651	that is combined under this section.
652	652	SUBCHAPTER E. UNIT OPERATIONS
653	653	Sec. 104.201. STATUS OF PRODUCTION PROCEEDS; STANDARD OF
654	654	CARE; DISTRIBUTION. (a) Unit production, proceeds from the sale of
655	655	production, or other receipts may not be treated or taxed as income
656	656	or profit of the unit. All unit production and proceeds are income
657	657	of the owners to whom or to whose credit the production or proceeds
658	658	are payable under the plan of unitization.
659	659	(b) The unit operator does not become an agent or fiduciary
660	660	of a working interest owner to whom production or proceeds are
661	661	payable solely by reason of receiving or disbursing production or
662	662	proceeds. When disposing of production for working interest
663	663	owners, a unit operator who is not an agent or fiduciary shall act
664	664	with the same standard of care as is required in the plan of
665	665	unitization. In the absence of such a standard, the operator shall
666	666	act in the same manner in which a reasonably prudent operator would
667	667	act under the same or similar circumstances. A unit operator who is
668	668	not an agent or fiduciary and who has acted according to these
669	669	standards is not liable to any working interest owner who elects to
670	670	have the owner's share of unit production disposed of by the unit
671	671	operator for losses sustained or liability incurred as a result of
672	672	the unit operator's actions under this section in selling or
673	673	disposing of others' production.
674	674	(c) The unit operator shall make available, to any working
675	675	interest owner, or to any royalty owner who has the preexisting
676	676	right to take the owner's production in kind, to whom production or
677	677	proceeds are payable and who makes adequate provision for receipt
678	678	of the production, the owner's share of production in kind or for
679	679	sale. The unit operator, at the request of an owner who elects to
680	680	have the owner's production marketed by the unit operator, may
681	681	market the production of the owner. A unit operator that markets
682	682	the production of such an owner shall do so in such a manner that the
683	683	owner receives the same price and proportionate share of premiums
684	684	and other compensation as the unit operator receives for the unit
685	685	operator's share of unit production, except to the extent that a
686	686	previous contractual commitment or express specific term of a
687	687	contract entered into in good faith prohibits such sharing or
688	688	marketing of additional production. This subsection may not be
689	689	construed to require that any profit, compensation, or other
690	690	benefit received by the unit operator that is realized on a
691	691	transaction occurring beyond the point of first sale at the unit or
692	692	in the vicinity of the unit be shared with or distributed to any
693	693	owner electing to have the owner's production marketed by the unit
694	694	operator.
695	695	Sec. 104.202. LIABILITY OF WORKING INTEREST OWNER. (a) The
696	696	liability of a working interest owner for payment of unit expense is
697	697	several and not joint or collective.
698	698	(b) Except as provided by this section and Section 104.108,
699	699	a working interest owner in a tract is not liable, directly or
700	700	indirectly, for more than the amount charged to that owner's
701	701	interest in the tract.
702	702	(c) Unless otherwise specifically agreed to by the parties
703	703	as part of a plan of unitization approved by the commission, any
704	704	environmental condition or liability existing before the effective
705	705	date of the commission order approving the unit remains the sole
706	706	responsibility of the party or parties responsible for that
707	707	environmental condition or liability before the effective date of
708	708	the commission order approving the unit.
709	709	Sec. 104.203. LIEN FOR COSTS. (a) Subject to any
710	710	reasonable limitations in the plan of unitization, a unit operator
711	711	has a lien on the leasehold estate and other oil, gas, or oil and gas
712	712	rights in each separately owned tract, the interest of the owners in
713	713	the unit production, and all equipment in the possession of the unit
714	714	to secure the payment of the amount of the unit expense and other
715	715	additional compensation charges as provided for in Section 104.108
716	716	charged to each separate working interest.
717	717	(b) The lien established under this section does not attach
718	718	to the royalty interest under lease or the one-sixth royalty
719	719	interest attributable to an unleased mineral interest or to any
720	720	interest in land directly or indirectly owned by the state.
721	721	Sec. 104.204. EFFECT OF UNIT OPERATIONS ON EXPRESSED OR
722	722	IMPLIED COVENANTS AND CONDITIONS. (a) To the extent a lease,
723	723	division order, or contract covering lands in the unit area relates
724	724	to the common source of supply or the part of the common source of
725	725	supply included in the unit area, all terms of the lease, division
726	726	order, or contract, express or implied, must be construed by giving
727	727	due regard to the plan of unitization approved by the commission.
728	728	Operations conducted in accordance with a plan of unitization
729	729	approved by the commission are presumed to comply with those terms
730	730	unless there is an irreconcilable conflict between the lease,
731	731	division order, or contract and the approved plan of unitization.
732	732	If there is an irreconcilable conflict between the lease, division
733	733	order, or contract and the approved plan of unitization, the plan
734	734	controls, but the lease, division order, or contract terms must be
735	735	regarded as modified only to the extent necessary to conform to the
736	736	plan.
737	737	(b) Notwithstanding any other provision of this chapter,
738	738	without a separate voluntary agreement supported by consideration,
739	739	a plan of unitization may not:
740	740	(1) cause a royalty interest to become liable for any
741	741	part of unit expense that the interest is not otherwise obligated to
742	742	pay;
743	743	(2) reduce a royalty interest fraction; or
744	744	(3) alter a provision of a lease or contract providing
745	745	for indemnification or similar compensation in the event the
746	746	actions of one person cause another person to become liable for
747	747	damages to the environment or for a violation of a statute, rule, or
748	748	common-law standard that serves to protect the environment.
749	749	(c) Lease or surface use provisions that conflict with the
750	750	use of the surface for unit operations in such a manner as to
751	751	prevent or render uneconomical the implementation of the plan of
752	752	unitization as approved by the commission must be amended by the
753	753	unit order to the extent, and only to the extent, necessary to
754	754	implement the plan in an economical and efficient manner.
755	755	(d) Section 104.201 may not be construed to diminish a
756	756	working interest owner's duty to market production on behalf of a
757	757	royalty owner.
758	758	Sec. 104.205. DISTRIBUTION OF UNIT PRODUCTION. Except as
759	759	authorized by this chapter or in a plan of unitization approved by
760	760	the commission, the unit production must be distributed among, or
761	761	the proceeds paid to, the owners entitled to share in the production
762	762	from each tract in the same manner that those owners would have
763	763	shared in the production or proceeds from the tract if the unit had
764	764	not been established.
765	765	Sec. 104.206. MODIFICATION OF PROPERTY RIGHTS OR TITLES.
766	766	Except to the extent that the parties affected by the plan of
767	767	unitization otherwise agree, a commission order entered under
768	768	Section 104.055 does not alienate, convey, cross-convey, transfer,
769	769	or change title or ownership, legal or equitable, of a person in a
770	770	parcel of land or the oil and gas rights in that parcel.
771	771	Sec. 104.207. ROYALTY OBLIGATIONS; BURDENS; UNLEASED
772	772	INTERESTS. (a) Each working interest owner who is the owner of an
773	773	interest in an oil and gas lease is responsible for the payment of
774	774	all royalty, overriding royalty, or other lease burdens affecting
775	775	the owner's leasehold estate unless the plan of unitization
776	776	provides otherwise.
777	777	(b) One-sixth of the production or proceeds attributable to
778	778	any unleased interest located in the unit area, free of all unit
779	779	expense and free of any lien, must be allocated to that interest.
780	780	Five-sixths of any unleased interest in the production or proceeds
781	781	must bear its pro rata share of all unit expense and is subject to
782	782	any lien provided by this chapter or the plan of unitization.
783	783	Sec. 104.208. UNIT OWNERSHIP OF PRODUCTION, PROCEEDS, AND
784	784	ACQUIRED PROPERTY. (a) The part of the unit production allocated
785	785	to any tract and the proceeds from the sale of that production are
786	786	the property and income of the owners to whom or to whose credit the
787	787	production and proceeds are allocated or payable under the order
788	788	and the plan for unit operations.
789	789	(b) Any property that is acquired in the conduct of unit
790	790	operations and charged as an item of unit expense is owned by the
791	791	working interest owners in the unit area as provided in the plan of
792	792	unitization.
793	793	SECTION 2. Not later than January 1, 2016, the Railroad
794	794	Commission of Texas shall adopt rules as necessary to implement
795	795	Chapter 104, Natural Resources Code, as added by this Act.
796	796	SECTION 3. This Act takes effect immediately if it receives
797	797	a vote of two-thirds of all the members elected to each house, as
798	798	provided by Section 39, Article III, Texas Constitution. If this
799	799	Act does not receive the vote necessary for immediate effect, this
800	800	Act takes effect September 1, 2015.