September 9, 2008, Introduced by Senator KUIPERS and referred to the Committee on Natural Resources and Environmental Affairs.
A bill to amend 1994 PA 451, entitled
"Natural resources and environmental protection act,"
by amending sections 61701, 61703, 61704, 61705, 61706, 61707,
61718, and 61727 (MCL 324.61701, 324.61703, 324.61704, 324.61705,
324.61706, 324.61707, 324.61718, and 324.61727), as added by 1995
PA 57.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 61701. As used in this part, unless the context otherwise
requires:
(a) "Field" means an underground reservoir or reservoirs
containing oil or gas, or both. Field also includes the same
general surface area that is underlaid or appears to be underlaid
by at least 1 pool. Field and pool have the same meaning if only 1
underground reservoir is involved. However, field, unlike pool, may
relate to 2 or more pools.
(b) "Lessee" means lessees under oil and gas leases and also
the owners of unleased lands or mineral rights having the right to
develop them for oil and gas.
(c) "Oil and gas" means oil and gas as such in combination one
with the other and also means oil, gas, casinghead gas, casinghead
gasoline, gas distillate, or other hydrocarbons, or any combination
or combinations of these substances, which may be found in or
produced from a common source of supply of oil, gas, oil and gas,
or gas distillate.
(d) "Pool" or "common source of supply" means a natural
underground reservoir containing or appearing to contain a common
accumulation of oil and gas. Each productive zone of a general
structure that is completely separate from any other zone in the
structure, or that may for the purposes of this part be declared by
the
supervisor to be completely separate, is included in the term a
pool or common source of supply. Any reference to a separately
owned tract, although in general terms broad enough to include the
surface and all underlying common sources of supply of oil and gas,
shall have reference thereto only in relation to the common source
of supply or portion thereof included within the unit area of a
particular unit.
(e) "Supervisor" or "supervisor of wells" means the department
as provided in part 615.
(f) "Unit area" means the formation or formations that are
unitized and surface acreage that is a part of the unitized lands,
as described in the plan for unit operations that is the subject of
the
supervisor's order as provided in section 61706 61704.
(g) "Unit expense" means any and all cost, expense, or
indebtedness incurred by the unit in the establishment of its
organization or incurred in the conduct and management of its
affairs or the operations conducted by it.
(h) "Unit production" means all indigenous oil and gas
produced and saved from a unit area after the effective date of the
order of the supervisor creating the unit, regardless of the well
or tract within the unit area from which that oil and gas is
produced.
(i) "Waste", in addition to its ordinary meaning, means
physical waste as that term is generally understood in the oil and
gas industry. Waste includes all of the following:
(i) The inefficient, excessive, or improper use or dissipation
of reservoir energy and the locating, spacing, drilling, equipping,
operating, producing, or plugging of any oil and gas well or wells
in a manner that results or tends to result in reducing the
quantity
of oil and gas ultimately recoverable from any pool in the
this state under good oil and gas field practice.
(ii) The inefficient production of oil and gas in a manner that
causes or tends to cause unnecessary or excessive surface loss or
destruction of oil and gas.
(iii) The locating, spacing, drilling, equipping, operating,
producing, or plugging of a well or wells in a manner that causes
or tends to cause unnecessary or excessive loss or destruction of
oil and gas.
Sec. 61703. Any interested lessee may file a verified petition
with the supervisor requesting an order for the unit operation of a
pool, pools, or parts of 1 or more pools. The petition shall
contain all of the following:
(a) A description of the pool, pools, or parts of 1 or more
pools
to be so operated , termed the as a unit area.
(b) The names of all persons owning or having an interest in
oil and gas in the proposed unit area and the names of all surface
owners in the proposed unit area, as disclosed by the records in
the office of the register of deeds for the county in which the
proposed unit area is situated, and their addresses, if known. If
the address of any person is unknown, the petition shall so
indicate.
(c) A statement of the type of the operations contemplated in
order to effectuate the purposes of this part. If the petition
requests approval of unit operations by carbon dioxide injection,
the petition shall do both of the following:
(i) Describe petitioner's proposed operations, including the
source of carbon dioxide and the current use or disposition of the
carbon dioxide.
(ii) State whether 75% or more of the oil recoverable using
primary production operations has been produced.
(d) A recommended plan of unitization applicable to the
proposed unit area which the petitioner considers fair, reasonable,
and equitable.
(e) A verified statement indicating in detail what action the
petitioner has taken to contact and obtain the approval of all
persons of record owning or having an interest in oil and gas in
the proposed unit area who have not approved the proposed plan of
unitization. If the question of whether the plan for unit
operations has been approved as set forth in section 61706 is to be
considered at a supplemental hearing pursuant to section 61707,
this verified statement need not be part of the petition and may be
filed
separately prior to before
the supplemental hearing.
Sec. 61704. (1) Upon the filing of a petition as provided in
section 61703, the petitioner shall give notice to interested
persons as set forth in section 61727. A person protesting the
petition
shall have 15 days after the completion of the publication
of
notice as provided in section 61726 to provide the supervisor
and the petitioner with written notice of the protest and the
reason or reasons for the protest not less than 15 days before the
date scheduled for hearing.
(2) The notice to interested persons required by subsection
(1)
shall set forth the procedure required to file a protest, and
the name, address, and phone number of a representative of the
petitioner
who is available to discuss the petition, and shall the
time, date, and location of a hearing on the petition. The notice
shall also state that the supervisor may cancel the hearing and
issue an order approving the petition without a hearing if no
protests are received in the time period provided in subsection
(1). The notice to all mineral owners who have not approved the
plan of unitization shall include a copy of the petition provided
for in section 61703, except that the petitioner may omit from the
notice those parts of the petition referred to in section 61703(b)
and (e).
(3) If no protests are filed, the supervisor may issue an
order as provided in subsection (4) without holding a hearing.
(4) The supervisor shall issue an order providing for the unit
operation of a unit area if he or she finds all of the following:
(a) That the unitization requested is reasonably necessary to
substantially increase the ultimate recovery of oil and gas from
the unit area.
(b)
That the type of operations contemplated by the plan are
is feasible, will prevent waste, and will protect correlative
rights.
(c) That the estimated additional cost of conducting such
operations will not exceed the value of the additional oil and gas
so recovered.
(d) If unit operations by carbon dioxide injection have been
proposed, all of the following, which shall be set forth in the
order:
(i) That a source of carbon dioxide is reasonably available.
(ii) That the source of carbon dioxide is another pool or that
the carbon dioxide would otherwise be vented to the atmosphere if
not used in unit operations by carbon dioxide injection in the unit
area as proposed in the petition.
(iii) That, after termination of unit operations, the carbon
dioxide used in unit operations will not be vented to the
atmosphere.
(5) If unit operations by carbon dioxide injection have been
proposed, unless the order includes a finding that the plan for
unit operations has been approved under section 61706(1)(a), (b),
or (c), the order under subsection (4) shall state whether 75% or
more of the oil recoverable using primary production operations has
been produced through such operations. For purposes of making the
finding, primary production operations shall be considered to be
operations of the same type as had been and were being conducted in
the pool within the proposed unit area as of the date of the
petition under section 61703. If less than 75% of the oil
recoverable using primary production operations has been produced
through such operations, the findings in subsection (4)(a) to (c)
in the order providing for unit operations shall be considered
conclusively determined for a period of 2 years after the date of
the order. This subsection does not apply if, as of the date of the
petition, operations were already being conducted pursuant to
supervisor approval under this part or section 61506(i).
Sec. 61705. The order of the supervisor under section 61704
shall be upon terms and conditions that are fair, reasonable, and
equitable and shall prescribe a plan for unit operations that
includes all of the following:
(a) A description of the unit area.
(b) A statement in reasonable detail 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, excepting except
that production that is used in the
conduct of operations on the unit area or unavoidably lost. A
separately owned tract's fair, reasonable, and equitable share of
production shall be measured by the value of the tract for oil and
gas purposes and its contributing value to the unit in relation to
like values of all tracts in the unit.
(d) The manner in which the unit and the further development
and operation of the unit area shall or may be financed and the
basis, terms, and conditions on which the cost and expense shall be
apportioned among and assessed against the tracts and interests
made chargeable therewith, including a detailed accounting
procedure governing all charges and credits incident to the
operations.
(e)
Provisions for carrying or otherwise financing a person
lessee who elects to be carried or otherwise financed, allowing a
reasonable
interest and service charge payable out of the person's
lessee's share of production. If the order authorizes unit
operations by carbon dioxide injection, then all of the following
apply:
(i) The reasonable interest charge shall be not less than the
prime interest rate for commercial banks as reported by the federal
reserve system plus 5.00%, compounded daily.
(ii) The service charge shall be not less than 350% of the
lessee's proportionate share of the actual cost of unit operations.
(f) The procedure and basis upon which wells, equipment, and
other
properties property of the several lessees within the unit
area are to be taken over and used for unit operations, including
the
method of arriving at the compensation therefor for the
property.
(g) Provisions for supervision and conduct of the unit
operations, in respect to which each person shall have a vote with
a value corresponding to the percentage of the costs of unit
operations chargeable against the interest of the person as of the
date of the vote.
(h) The time when the plan of unitization becomes effective
and when unit operations commence.
(i) The time when, conditions under which, and method by which
the unit shall be dissolved and its affairs wound up.
(j) Additional provisions that are found to be appropriate for
carrying on the unit operations and for the protection and
adjustment of correlative rights.
Sec. 61706. (1) An order of the supervisor providing for unit
operations
shall not be declared or become effective take effect
until
the supervisor makes a finding, either in the order providing
for
addressing unit operations or in a supplemental order as
provided in section 61707, that the plan for unit operations has
been approved in writing in 1 of the following ways:
(a) By those persons who under the supervisor's order will be
required
to pay at least 75% of the costs of unit operation
operations, and also by those persons who under the supervisor's
order will be entitled to at least 75% of the production from the
unit area or the proceeds of that production that will be credited
to interests that are free of cost, including, but not limited to,
royalties, overriding royalties, and production payments.
(b) By those persons who under the supervisor's order will be
entitled to at least 75% of all production from the unit area or
the proceeds of that production, provided that among those persons
there must be persons who under the supervisor's order will be
entitled to at least 50% of the production from the unit area or
the proceeds of that production that will be credited to interests
that are free of cost, including, but not limited to, royalties,
overriding royalties, and production payments.
(c) By those persons who under the supervisor's order will be
entitled to at least 90% of all production from the unit area or
the proceeds of that production.
(d) By the petitioner and also by those persons who under the
supervisor's order will be entitled to at least 51% of the
production from the unit area or the proceeds of that production
that will be credited to interests that are free of cost,
including, but not limited to, royalties, overriding royalties, and
production payments. This subdivision applies only if all of the
following requirements are met:
(i) The approved method of unit operations is by carbon dioxide
injection.
(ii) The supervisor determines that 75% or more of the oil
recoverable using primary production operations has been produced
through such operations.
(iii) The petitioner agrees to act as operator, to conduct unit
operations by injected carbon dioxide, and that, after the
termination of unit operations, the carbon dioxide used for unit
operations will not be vented to the atmosphere.
(iv) The supervisor determines that the petitioner is qualified
by training or experience to act as unit operator. If the
supervisor makes such findings regarding the petitioner, then the
petitioner shall be appointed unit operator.
(2) For the purposes of this section, an unleased owner's
interest shall be treated as if subject to a 1/8 royalty interest.
Sec.
61707. If, a finding is not made as set forth in section
61706
at the time the order for unit operations is made, when the
order for unit operations is issued, the supervisor does not find
that the plan for unit operations has been approved under section
61706, the supervisor on the supervisor's motion or the motion of
any interested person after notice shall hold supplemental hearings
to
determine if the plan for unit operations has been approved. If
the
written approval is found, then review
the applicable issue or
issues. Whether 75% of the oil recoverable using primary production
operations has been produced is an applicable issue if approval of
the plan for unit operations is sought under section 61706(1)(d)
and there was a finding under section 61704(5) that less than 75%
of the oil recoverable using primary production operations had been
produced. If the supervisor determines that the plan has been
approved under section 61706, the supervisor shall make a
supplemental order stating that fact and declaring the plan
effective and setting forth the date for the commencement of unit
operations.
If, the written approval is not found within a period
of
6 months from 2 years after the date on which the order
providing for unit operations is made, the supervisor does not
determine that the plan has been approved, the order shall be
ineffective and shall be revoked by the supervisor, unless for good
cause shown the supervisor extends the time for an additional
period not to exceed 1 year.
Sec. 61718. (1) Subject to reasonable limitations as set out
in the plan of unitization, the unit shall have a first and prior
lien for costs incurred pursuant to the plan of unitization upon
the leasehold estate and other oil and gas rights, exclusive of a
1/8 share of gross production that is attributable to a lessor's
royalty interest, in and to each separately owned tract, and the
interest of the owners thereof in and to the unit production and
equipment in possession of the unit, in the form and manner as
provided
in Act No. 146 of the Public Acts of 1937, being sections
1937
PA 146, MCL 570.251 to 570.266. of
the Michigan Compiled Laws.
The interest of the person who by lease, contract, or otherwise is
responsible for the cost of developing and operating a given
portion of the unit area in the absence of unitization is primarily
responsible for costs as allocated by the plan of unitization, and
resort may be had to the entire 7/8 of gross production, including,
but not limited to, overriding royalties, oil and gas payments, and
royalty interests in excess of 1/8 of gross production but which
would not otherwise be responsible for allocated costs, only if the
person primarily responsible fails to pay the allocated costs
pursuant to the unit plan. Persons whose allowable share of
production is made secondarily responsible under this section to
the extent that their interest is foreclosed are subrogated to all
of the rights of the unit to the interest or interests primarily
responsible.
(2) For the purposes of this section, an unleased owner's
interest shall be treated as if subject to a 1/8 royalty interest.
Sec.
61727. (1) Service of the notice Notice described in
section
61704(2) , which is
provided as a matter of public policy
and
not as a requirement of jurisdiction.
, before Before the
date
of
the first publication of notice provided for in under section
61726, the notice described in section 61704(2) shall be given by
personal
service or by certified first-class
mail , with return
receipts
requested, shall be provided to the last known address to
each of the following interested persons at his or her last known
address:
(a) The last owner of record of the oil and gas mineral
interests underlying the lands or areas directly affected by the
proposed
action , and of
the surface owners.
(b) The last owner of record of the oil and gas mineral
interests underlying the lands or areas immediately adjacent to,
and contiguous to, the lands or areas directly affected by the
proposed
action , and of
the surface owners.
(c) The last owner of record of oil and gas leases from 1 or
more owners described in subdivision (a) or (b).
(2)
Receipts returned following delivery by certified mail If
notice is given by mail, an affidavit of proof of mailing by first-
class mail shall be filed with the supervisor on or before the date
of
the hearing , or
before the supervisor's order is issued if
there is no hearing.
(3) Undelivered notices that are returned to the petitioner
shall be filed with the supervisor on or before the date of the
hearing , or before the supervisor's order is issued if there
is no
hearing.
(4) If notice is given by personal service, an affidavit of
service shall be filed with the supervisor on or before the date of
the
hearing , or
before the supervisor's order is issued if there
is no hearing.