2023 Code of Alabama › Title 9 - Conservation and Natural Resources. › Chapter 17 - Oil and Gas. › Article 1 - Conservation and Regulation of Production. › Section 9-17-13 - Integration of Interests; Cycling Operations; Orders of Board; Procedures.

Section 9-17-13
Integration of interests; cycling operations; orders of board; procedures.
(a) When any mineral or other related interests deriving from two or more separately owned tracts of land are embraced within an established or a proposed drilling or production unit, or when there are separately owned interests in all or a part of an established or proposed drilling or production unit, or any combination of such, the persons owning the interests therein may validly agree to integrate or pool the interests and to develop the interests and associated lands as a drilling or production unit. Where, however, the owners have not agreed to so integrate or pool the interests, the board shall, for the prevention of waste or to avoid the drilling of unnecessary wells, require the persons owning such interests to do so and to develop their interests and the associated lands as a drilling or production unit.
(b) The board, in order to prevent waste and avoid the drilling of unnecessary wells, may permit or require the cycling of gas in any pool or portion thereof and is also authorized to permit or require the introduction of gas or other substance into an oil or gas reservoir for the purpose of repressuring the reservoir, maintaining pressure or carrying on enhanced recovery operations. The board may require pooling or integration of all the interests in or associated with the tracts, when reasonably necessary in connection with cycling operations.
(c) All orders requiring integration, pooling, cycling, repressuring, pressure maintenance or enhanced recovery operations shall be made after notice and hearing and shall be upon terms and conditions that are just and reasonable and which will afford to the person owning each such interest associated with each tract the opportunity to recover or receive his or her just and equitable share of the oil and gas in the pool without unnecessary expense and will prevent or minimize reasonably avoidable drainage from each developed unit which is not equalized by counterdrainage. The portion of the production allocated to each tract or interest included in an integrated or pooled unit formed by an integration or pooling order shall, when produced, be considered as if it had been produced from the tract or interest by a well drilled thereon; and any operations conducted within or with respect to the pooled or integrated unit pursuant to the pooling or integration order shall be deemed for all purposes to be the conduct of operations for the production of oil or gas or both from each tract or interest within the unit. All orders requiring pooling or integration shall, among other things, provide all of the following:
(1) That the actual and reasonable costs of developing and operating the pooled integrated unit (including a reasonable charge for supervision) and, if applicable, a risk compensation fee (as hereinafter provided) shall be charged to the separately owned tracts or interests in the unit in the same proportion that such tracts or interests share in production from the unit.
(2) That such costs and fee (if any) chargeable to a tract or interest shall be paid by the person or persons not entitled to share in production free of development and operating costs and who, in the absence of the pooling or integration order, would be responsible for the expense of developing and operating the tract or interest and that person's or persons' interest in the separately owned tract or interest shall be primarily responsible therefor.
(3) That, if any nonconsenting owner shall fail or refuse to pay the costs and/or fee (if any) chargeable to his or her tract or interest, the costs and/or fee shall be recoverable solely out of the production allocable to the tract or interest, provided, however, that this limitation shall not apply to a nonconsenting owner who has furnished the operator with a notarized statement agreeing to pay his or her proportionate share of the drilling and completion costs for a unit well as hereinafter provided.
(4) That, when the full amount of any charge made against a separately owned tract or interest is not paid when due by the person or persons primarily responsible therefor, as provided above, then 13/16ths (or if the tract or interest is leased, the working interest fraction or percent if it is greater) of the oil and gas production allocated to the separately owned tract or interest may be appropriated by the operator and marketed and sold for the payment of the charge, but that a 3/16ths part (or the actual landowner royalty if it is less) of the unit production allocated to each separately owned tract or interest shall in all events be regarded as royalty and shall, if there be no reasonable question as to good and merchantable title, be distributed to and among, or the proceeds thereof paid to, the person or persons owning royalty or unleased mineral interests (as the case may be) in the tract or interest free and clear of the development and operating costs and of any risk compensation fee and free and clear of any lien for the payment of the costs and fee.
(5) That any person owning any overriding royalty, oil and gas payment, royalty in excess of 3/16ths of production, or other interests, who is not primarily responsible for payment of the development and operating costs or risk compensation fee (if any), shall, to the extent of any payment or deduction therefor from his or her share, be subrogated to all the rights of the operator with respect to the interest or interests primarily responsible for the payment.
Additionally, if the operator, or the operator together with the consenting owners, shall own a majority in interest of the drilling and operating rights in the integrated or pooled unit, and the operator has made a good faith effort to a. negotiate with each nonconsenting owner to have the owner's interest voluntarily integrated or pooled into the unit, b. notify each nonconsenting owner of record of the names of all owners of drilling rights who have agreed to integrate or pool any interests in the unit, c. ascertain the address of each nonconsenting owner, d. give each nonconsenting owner written notice of the proposed operation, specifying the work to be performed, the proposed location, proposed depth, objective formation and the estimated cost of the proposed operation, and e. to offer each nonconsenting owner the opportunity to lease or farm out on reasonable terms or participate in the cost and risk of developing and operating the unit well involved on reasonable terms, then the pooling or integration order shall, if the operator so requests, also provide that, if any nonconsenting owner 1. does not pay his or her proportionate share of the drilling and completion costs for any unit well within 30 days after commencement of actual drilling operations, or prior to reaching total depth, whichever is earlier, or at such other time as may be contracted between the parties, or, alternatively, 2. does not, on or before commencement of actual drilling operations, provide the operator with a notarized statement agreeing to pay the costs, then there shall be charged to the tract or interest of the nonconsenting owner a risk compensation fee equal to 150 percent of the tract's or interest's share of the actual and reasonable costs of drilling, reworking (prior to initial commercial production), testing, plugging back, deepening (but not below that depth specified in the permit for the well), and completing (through the wellhead) the well; provided, however, that no risk compensation fee shall be chargeable against the tract or interest of any nonconsenting owner who owned of record a tract or interest in the unit prior to the time notice was given unless, at the pooling or integration hearing, it is shown, by a United States mail certified mail return receipt card or by other evidence deemed sufficient by the board, that the nonconsenting owner was given actual notice of the pooling or integration hearing and unless it is also shown that the notice given to the owner specifically stated that the operator was requesting that the board impose a risk compensation fee in accordance with the provisions of this section. Provided, further, that, if after diligent search and inquiry, the operator is unable to locate and give the required notice to any nonconsenting owner, the risk compensation fee shall not be imposed as to the interest of that nonconsenting owner, however, the operator may request that a risk compensation fee be imposed as to the interests of all other nonconsenting owners in the unit who received the required notice in accordance with the provisions of this section. In the event that a nonconsenting owner who has provided the operator with a notarized statement agreeing to pay his or her proportionate share of the drilling and completion costs for a unit well does not fully pay the costs within 30 days after commencement of actual drilling operations or prior to reaching total depth, whichever is earlier, or on or before such other time as may be contracted between the parties, then any unpaid balance of the costs shall bear interest at the rate of one and one-half percent per month, and the nonconsenting owner shall be personally liable for the unpaid balance together with interest thereon and also for any attorney's fees, court costs, or other expenses incurred by the operator in attempting to collect the unpaid balance and interest thereon; and, additionally, the operator shall have the right, if the well is a producer, to appropriate, market, and sell the nonconsenting owner's share of production for the payment of the amounts due by that owner. The value of any production appropriated by the operator under the authority of any integration or pooling order shall be calculated at the market price in the field (after deduction for taxes and for cleansing, transportation, compression, and processing costs) at the time such production is received by the operator or placed to his or her credit. Unless the pooling or integration order (or an amendment thereto) shall specify otherwise or unless the affected parties shall agree otherwise, production from any pooled or integrated unit formed by a pooling or integration order shall be allocated to each separately owned tract or interest in the unit in the proportion that the acreage of each tract or interest bears to the total acreage of the unit; and under the circumstances allocation of production on this basis shall be considered as a just and reasonable allocation which will afford to each person owning each tract or interest within the unit the opportunity to recover or receive his or her just and equitable share of the oil and gas produced from the unit. Nothing herein or in any order issued pursuant hereto shall be construed to subject any nonconsenting owner who is subject to a risk compensation fee, as hereinabove provided, to any personal liability for any damages caused by or resulting from any negligent act or other tort committed by the operator or by any consenting owner in the course of developing and operating a pooled or integrated unit; nor shall anything herein or in any order issued pursuant hereto prevent the operator and any other owner or owners in the unit from entering into any agreement that contains provisions respecting the pooling, integration, or development of their tracts or interests in the pooled or integrated unit that differ from the above provisions or from the provisions contained in any pooling or integration order. As used herein, the term operator shall mean the person designated by the board to be in charge of developing and operating a drilling or production unit; the term nonconsenting owner shall mean an owner who owns a tract or interest in a drilling or production unit and who has not, on or before the date a pooling or integration order is entered with respect to such unit, reached an agreement with the operator relative to the terms and conditions which will govern the manner in which his or her tract or interest shall be developed and operated; the term consenting owner shall mean an owner who has so reached such an agreement with the operator; the term owner shall mean a person who, if a pooling or integration order had not been entered, would be an owner as that term is defined elsewhere in this article; the terms costs of developing and development costs shall include, among other things, the costs of drilling, equipping, reworking, testing, plugging back, deepening, and completing the initial unit well and any subsequent unit well but shall not include any costs incurred in connection with the acquisition of any oil and gas leases covering tracts or interests in the unit; and the term actual and reasonable costs means actual expenditures not in excess of what are reasonable.
Subsection (c) shall apply only to unitization of interests within a drilling unit and shall not apply to fieldwide or poolwide units, which are authorized and governed under the provisions of Article 3 of this chapter.
(d) Should the owners of separate tracts or interests embraced within a drilling or production unit fail to agree upon the integration or pooling of the tracts or interests associated with the tracts and the drilling of a well on that unit, and should it be established that the board is without authority to require integration or pooling as provided for in this section, then subject to all other applicable provisions of this article, the owner of the interest or interests associated with each tract embraced within the drilling or production unit may drill on his or her tract; but the allowable production from that tract or interest shall be such proportion of the allowable production for the full drilling or production unit as the area of the separately owned tract associated with the separately owned interest bears to the full drilling or production unit.
(e) Agreements made in the interest of conservation of oil or gas, or both, or for the prevention of waste, between and among owners or operators, or both, owning separate interests in the same oil or gas pool, or in any area that appears from geological or other data to be underlain by a common accumulation of oil or gas, or both, and agreements between and among the owners or operators, or both, and royalty owners therein of the pool or area or any part thereof as a unit for establishing and carrying out a plan for the cooperative development and operation thereof, when the agreements are approved by the board, are hereby authorized and shall not be held or construed to violate any of the statutes of this state relating to trusts, monopolies, or contracts and combinations in restraint of trade.
(Acts 1945, No. 1, p. 1, §13; Acts 1979, No. 79-621, p. 1101, § 1; Acts 1989, No. 89-916, p. 1810; Acts 1990, No. 90-104, p. 114, §3; Act 2000-714, p. 1517, §1; Act 2017-297, §1.)