2023 Code of Alabama › Title 9 - Conservation and Natural Resources. › Chapter 17 - Oil and Gas. › Article 1 - Conservation and Regulation of Production. › Section 9-17-12 - Limitations on Regulations; Drilling or Production Units; Producers' Shares.

Section 9-17-12
Limitations on regulations; drilling or production units; producers' shares.
(a) Whether or not the total production from a pool is limited or prorated, no rule, regulation, or order of the board shall be such in terms or effect that it will do the following:
(1) That it shall be necessary at any time for the producer from or the owner of, a tract of land in the pool, or an interest associated therewith or derived therefrom, in order that he or she may obtain the tract's just and equitable share or the just and equitable share of the interest of the production of such pool, as the share is set forth in this section, to drill and operate any well or wells on such tract in addition to the well or wells as can without waste produce the share.
(2) As to occasion net drainage from a tract or any interest associated therewith or derived therefrom, unless there is drilled and operated upon the tract a well or wells in addition to such well or wells thereon as can without waste produce the tract's just and equitable share or the just and equitable share of interest, as set forth in this section, of the production of the pool.
(b)(1) In order to prevent the waste of oil and gas resources, to protect and enforce the correlative rights of the owners and producers in a pool and to avoid the drilling of an excessive and unnecessary number of wells, the board shall, after notice and hearing, establish drainage or production units for each pool. Furthermore, the board shall, after notice and hearing, establish special field rules for each pool, and the special field rules established by the board shall designate, among other things, the drainage or production units for the field and production allowables for each drainage or production unit. A drainage or production unit, means the maximum area which may be efficiently and economically drained by one well. With respect to wells drilled and completed in shale natural gas reservoirs as defined by the board, when a party affirmatively demonstrates to the board after notice and hearing, with substantial evidence based on geologic and engineering evidence and production information derived from wells in an established field, that one well will not efficiently and economically drain the entire drainage or production units provided for in the special field rules, then the board may amend the special field rules to allow more than one well to be drilled and produced within the drainage or production units in the field. In no case, however, may the board establish a spacing unit in a shale natural gas reservoir larger than 320 acres for a vertical well or wells and 640 acres for a horizontal well or wells. With respect to wells drilled and completed in coalbed methane reservoirs as defined by the board, when a party affirmatively demonstrates to the board after notice and hearing with substantial evidence based on geologic and engineering evidence and production information derived from wells in an established field providing for 80-acre drainage and production units, that one well will not efficiently and economically drain the entire 80-acre drainage and production units provided for in the special field rules, then the board may amend the special field rules to allow a second well to be drilled and produced within the 80-acre drainage or production units in the field. In determining whether a well will efficiently and economically drain the 80-acre drainage or production unit, the board shall consider, among other things, whether the well will significantly increase production from the unit, will extend the duration of production from the unit, and whether the second well is an unnecessary well. Any drainage or production unit established by the board shall constitute a developed unit as long as a well is located thereon, which is capable of producing oil or gas in paying quantities, or until the board shall determine and order otherwise after notice and hearing. It is provided, however, that the board shall have no authority to establish a drainage or production unit in excess of either 160 acres or one governmental quarter section plus 10 percent tolerance for any pool deemed by the board to be an oil reservoir or in excess of either 640 acres or one governmental section plus 10 percent tolerance, for any pool, deemed by the board to be a gas reservoir, the 10 percent tolerance provided for so as to allow for irregular sections; provided, however, that the board may, after notice and hearing, establish drainage or production units for oil and gas in excess of the limitations when it is affirmatively demonstrated that one well can efficiently and economically drain the proposed area and that a larger unit is justified because of technical, economic, environmental or safety considerations, or other reasons deemed valid by the board. To insure protection of coequal and correlative rights, the board may, after notice and hearing, establish drainage or production units for oil and gas pools by a quantum not to exceed 50 percent greater than the limitation provided such action is justified by sufficient technical evidence, indicating that the acreage or land in excess of the maximum limitations is being drained or is in imminent danger of being drained and that the owners of the excess acreage or lands that the persons owning any interest or combination of interests in the excess acreage or lands cannot otherwise receive their just and equitable share of production from the pool being so drained; provided, however, in the event the excess lands or interests are integrated or pooled by order of the board, then the provisions of Section 9-17-13 shall be applicable to the owners of tracts or interests in the acreage or land in excess of the maximum limitations so that the operator of the drainage or production unit in which the tracts or interests are included shall have the right to charge against the interest of each other owner in the production from the wells drilled by the designated operator the actual expenditures required for that purpose, not in excess of what are reasonable, including a reasonable charge for supervision; and the operator shall have the right to receive the first production from the wells drilled thereon which otherwise would be delivered or paid to the other parties jointly interested in the drilling of the well so that the amount due by each of them for his or her share of the expense of drilling, equipping, and operating the well may be paid to the operator of the well out of production, with the value of production calculated at the market price in the field at the time production is received by the operator or placed to his or her credit.
Notwithstanding the provisions of this section, all persons entitled to share in the production of oil or gas from a tract or interest or tracts or interests in land may voluntarily agree to the creation or establishment of a drainage or production unit, or may authorize one or more of the persons entitled to share in such production to create or establish a drainage or production unit, containing as much or more acreage or land than drainage or production units established by the board for the same pool, but not in excess of 160 acres or one governmental quarter section, plus 10 percent tolerance, in the case of oil and 640 acres or one governmental section, plus 10 percent tolerance, in the case of gas; subject to the qualifications in this section and up to 50 percent greater, as provided hereinabove; a drainage or production unit so created or established shall, subject to the approval of the board, be valid and binding for all purposes even though the drainage or production unit contains more acreage or land than the board has included, or is authorized by this section to include in a drainage or production unit established by it for the same pool.
(2) The acreage limitations set forth in this section for drainage or production units for oil reservoirs shall not apply to horizontal wells drilled into oil reservoirs. The board shall determine the size and configuration of drilling units and drainage or production units for horizontal oil wells. Notwithstanding the foregoing, the board shall not have authority to establish a drilling unit or a drainage or production unit in excess of either 640 acres or one governmental section or two contiguous half sections, plus 10 percent tolerance for any horizontal well drilled in any oil reservoirs, the 10 percent tolerance provided to allow for irregular sections.
(3) The acreage limitations set forth in this section for drainage or production units for oil reservoirs and for gas reservoirs shall not apply to offshore wells, and the board shall determine the size and configuration of drilling units and drainage or production units of offshore wells.
(c) Each well permitted to be drilled upon any drilling or production unit to a pool in a field with respect to which the board has promulgated special rules shall be drilled at a location on the unit authorized by the special rules, and each well permitted to be drilled upon any drilling or production unit where the location thereof is not prescribed by special rules shall be drilled at a location on the unit authorized by rules of statewide application promulgated by the board, with the exceptions as may be reasonably necessary, where it is shown, after notice and hearing, and the board finds, that the unit is partly outside the pool, or, for some other reason, that a well located in accordance with applicable rules would be nonproductive, would not be at the optimum position in the drilling or production unit for the most efficient and economic drainage of the unit, or where topographical conditions are such as to make the drilling at an authorized location on the unit unduly burdensome or where an exception is necessary to prevent the confiscation of property. Whenever an exception is granted, the board shall take such action as will offset any advantage which the person securing the exception may have over other producers by reason of the drilling of the well as an exception, and so that drainage from developed units to the tract with respect to which the exception is granted will be prevented or minimized and the producer of the well drilled as an exception will be allowed to produce no more than his or her just and equitable share of the oil and gas in the pool, as such share is set forth in this section.
(d) Subject to the reasonable requirements for prevention of waste and to the reasonable adjustment because of structural position, a producer's just and equitable share of the oil and gas in the pool (also sometimes referred to as a tract's just and equitable share) is that part of the authorized production for the pool (whether it be the total which could be produced without any restriction on the amount of production or whether it be an amount less than that which the pool could produce if no restriction on amount were imposed) which is substantially in the proportion that the quantity of recoverable oil and gas in the developed area of his or her tract or interest or tracts or interests in the pool bear or bears to the recoverable oil and gas in the total developed area of the pool, insofar as these amounts can be practically ascertained; and to that end, the rules, regulations, permits, and orders of the board shall be such as will prevent or minimize reasonably avoidable net drainage from each developed unit (that is, drainage which is not equalized by counterdrainage), and will give to each producer the opportunity to use his or her just and equitable share of the reservoir energy. In determining each producer's just and equitable share of the authorized production for the pool, the board is authorized to give due consideration to the productivity of the well or wells located thereon, as determined by flow tests, bottom hole pressure tests, or any other practical method of testing wells and producing structures, and to consider such other factors and geological or engineering tests and data as may be determined by the supervisor to be pertinent or relevant to ascertaining each producer's just and equitable share of the production and reservoir energy of the field or pool.
(Acts 1945, No. 1, p. 1, §12; Acts 1956, 2nd Ex. Sess., No. 83, p. 374, §1; Acts 1979, No. 79-760, p. 1356, §1; Acts 1990, No. 90-104, p. 114, §3; Act 2000-714, p. 1517, §1; Act 2008-450, p. 853, §1; Act 2014-281, p. 890, §1.)