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[Utah Code Table of Contents]
[TITLE 40. Table of Contents]
40-6-1 Declaration of public interest.
It is declared to be in the public interest to foster,
encourage, and promote the development, production, and utilization
of natural resources of oil and gas in the state of Utah
in such a manner as will prevent waste; to authorize and
to provide for the operation and development of oil and gas
properties in such a manner that a greater ultimate recovery
of oil and gas may be obtained and that the correlative rights
of all owners may be fully protected; to provide exclusive
state authority over oil and gas exploration and development
as regulated under the provisions of this chapter; to encourage,
authorize, and provide for voluntary agreements for cycling,
recycling, pressure maintenance, and secondary recovery operations
in order that the greatest possible economic recovery of
oil and gas may be obtained within the state to the end that
the land owners, the royalty owners, the producers, and the
general public may realize and enjoy the greatest possible
good from these vital natural resources.
1983
40-6-2 Definitions.
For the purpose of this chapter:
(1) "Board" means the Board of Oil, Gas and Mining.
(2) "Correlative rights" means the opportunity of each owner in a pool to produce his just and equitable share of the oil and gas in the pool without waste.
(3) "Condensate" means hydrocarbons, regardless of gravity, that:
(a) occur naturally in the gaseous phase in the reservoir; and
(b) are separated from the natural gas as liquids through the process of condensation either in the reservoir, in the wellbore, or at the surface in field separators.
(4) "Consenting owner" means an owner who consents in advance to the drilling and operation of a well and agrees to bear his proportionate share of the costs of the drilling and operation of the well.
(5) "Crude oil" means hydrocarbons, regardless of gravity, that:
(a) occur naturally in the liquid phase in the reservoir; and
(b) are produced and recovered at the wellhead in liquid form.
(6) (a) "Gas" means natural gas, as defined in Subsection (9), natural gas liquids, as defined in Subsection (10), other gas, as defined in Subsection (14), or any mixture of them.
(b) "Gas" does not include any gaseous or liquid substance processed from coal, oil shale, or tar sands.
(7) "Illegal oil" or "illegal gas" means oil or gas that has been produced from any well within the state in violation of this chapter or any rule or order of the board.
(8) "Illegal product" means any product derived in whole or in part from illegal oil or illegal gas.
(9) (a) "Natural gas" means hydrocarbons that occur naturally in the gaseous phase in the reservoir and are produced and recovered at the wellhead in gaseous form, except natural gas liquids as defined in Subsection (10) and condensate as defined in Subsection (3).
(b) "Natural gas" includes coalbed methane gas.
(10) "Natural gas liquids" means hydrocarbons, regardless of gravity, that are separated from natural gas as liquids in gas processing plants through the process of condensation, absorption, adsorption, or other methods.
(11) "Nonconsenting owner" means an owner who after written notice does not consent in advance to the drilling and operation of a well or agree to bear his proportionate share of the costs.
(12) (a) "Oil" means crude oil, as defined in Subsection (5), condensate, as defined in Subsection (3), or any mixture of them.
(b) "Oil" does not include any gaseous or liquid substance processed from coal, oil shale, or tar sands.
(13) (a) "Oil and gas proceeds" means any payment that:
(i) derives from oil and gas production from any well located in the state;
(ii) is expressed as a right to a specified interest in the:
(A) cash proceeds received from the sale of the oil and gas; or
(B) the cash value of the oil and gas; and
(iii) is subject to any tax withheld from the payment pursuant to law.
(b) "Oil and gas proceeds" includes a royalty interest, overriding royalty interest, production payment interest, or working interest.
(c) "Oil and gas proceeds" does not include a net profits interest or other interest the extent of which cannot be determined with reference to a specified share of:
(i) the cash proceeds received from the sale of the oil and gas; or
(ii) the cash value of the oil and gas.
(14) (a) "Other gas" means nonhydrocarbon gases that:
(i) occur naturally in the gaseous phase in the reservoir; or
(ii) are injected into the reservoir in connection with pressure maintenance, gas cycling, or other secondary or enhanced recovery projects.
(b) "Other gas" includes hydrogen sulfide, carbon dioxide, helium, and nitrogen.
(15) "Owner" means the person who has the right:
(a) to drill into and produce from a reservoir; and
(b) appropriate the oil and gas produced for himself or for himself and others.
(16) "Operator" means the person who has been designated by the owners or the board to operate a well or unit.
(17) "Payor" means the person who undertakes to distribute oil and gas proceeds to the persons entitled to them, whether as the first purchaser of that production, as operator of the well from which the production was obtained, or as lessee under the lease on which royalty is due.
(18) "Pool" means an underground reservoir containing a common accumulation of oil or gas or both. Each zone of a general structure that is completely separated from any other zone in the structure is a separate pool. "Common source of supply" and "reservoir" are synonymous with "pool."
(19) "Pooling" means the bringing together of separately owned interests for the common development and operation of a drilling unit.
(20) "Producer" means the owner or operator of a well capable of producing oil and gas.
(21) "Product" means any commodity made from oil and gas.
(22) "Waste" means:
(a) the inefficient, excessive, or improper use or the unnecessary dissipation of oil or gas or reservoir energy;
(b) the inefficient storing of oil or gas;
(c) the locating, drilling, equipping, operating, or producing of any oil or gas well in a manner that causes:
(i) a reduction in the quantity of oil or gas ultimately recoverable from a reservoir under prudent and economical operations;
(ii) unnecessary wells to be drilled; or
(iii) the loss or destruction of oil or gas either at the surface or subsurface; or
(d) the production of oil or gas in excess of:
(i) transportation or storage facilities; or
(ii) the amount reasonably required to be produced as
a result of the proper drilling, completing, testing, or
operating of a well or otherwise utilized on the lease from
which it is produced.
1992
40-6-3
Waste prohibited.
The waste of oil or gas is prohibited.
1985
40-6-4 Board of Oil, Gas and Mining created - Functions - Appointment of members - Terms - Chair - Quorum - Expenses.
(1) There is created within the Department of Natural Resources the Board of Oil, Gas and Mining. The board shall be the policy making body for the Division of Oil, Gas and Mining.
(2) The board shall consist of seven members appointed by the governor with the consent of the Senate. No more than four members shall be from the same political party. The members shall have the following qualifications:
(a) two members knowledgeable in mining matters;
(b) two members knowledgeable in oil and gas matters;
(c) one member knowledgeable in ecological and environmental matters;
(d) one member who is a private land owner, owns a mineral or royalty interest and is knowledgeable in those interests; and
(e) one member who is knowledgeable in geological matters.
(3) (a) Except as required by Subsection (3)(b), as terms of current board members expire, the governor shall appoint each new member or reappointed member to a four-year term.
(b) Notwithstanding the requirements of Subsection (3)(a), the governor shall, at the time of appointment or reappointment, adjust the length of terms to ensure that the terms of board members are staggered so that approximately half of the board is appointed every two years.
(4) (a) When a vacancy occurs in the membership for any reason, the replacement shall be appointed for the unexpired term by the governor with the consent of the Senate.
(b) The person appointed shall have the same qualifications as his predecessor.
(5) The board shall appoint its chair from the membership. Four members of the board shall constitute a quorum for the transaction of business and the holding of hearings.
(6) (a) (i) Members who are not government employees shall receive no compensation or benefits for their services, but may receive per diem and expenses incurred in the performance of the member's official duties at the rates established by the Division of Finance under Sections 63A-3-106 and 63A-3-107 .
(ii) Members may decline to receive per diem and expenses for their service.
(b) (i) State government officer and employee members who do not receive salary, per diem, or expenses from their agency for their service may receive per diem and expenses incurred in the performance of their official duties from the board at the rates established by the Division of Finance under Sections 63A-3-106 and 63A-3-107 .
(ii) State government officer and employee members may
decline to receive per diem and expenses for their service.
2002
40-6-5 Jurisdiction of board - Rules.
(1) The board has jurisdiction over all persons and property necessary to enforce this chapter. The board shall enact rules in accordance with the Utah Administrative Rulemaking Act.
(2) The board shall adopt rules and make orders as necessary to administer the following provisions:
(a) Ownership of all facilities for the production, storage, treatment, transportation, refining, or processing of oil and gas shall be identified.
(b) Well logs, directional surveys, and reports on well location, drilling, and production shall be made and filed with the division. Logs of wells marked "confidential" shall be kept confidential for one year after the date on which the log is required to be filed, unless the operator gives written permission to release the log at an earlier date. Production reports shall be:
(i) filed monthly;
(ii) accurate; and
(iii) in a form that reasonably serves the needs of state agencies and private fee owners.
(c) Monthly reports from gas processing plants shall be filed with the division.
(d) Wells shall be drilled, cased, operated, and plugged in such manner as to prevent:
(i) the escape of oil, gas, or water out of the reservoir in which they are found into another formation;
(ii) the detrimental intrusion of water into an oil or gas reservoir;
(iii) the pollution of fresh water supplies by oil, gas, or salt water;
(iv) blowouts;
(v) cavings;
(vi) seepages; and
(vii) fires.
(e) The drilling of wells shall not commence without an adequate and approved supply of water as required by Title 73, Chapter 3. This provision is not intended to impose any additional legal requirements, but to assure that existing legal requirements concerning the use of water have been met prior to the commencement of drilling.
(f) The operator shall furnish a reasonable performance bond or other good and sufficient surety, conditioned for the performance of the duty to:
(i) plug each dry or abandoned well;
(ii) repair each well causing waste or pollution; and
(iii) maintain and restore the well site.
(g) Production from wells shall be separated into oil and gas and measured by means and upon standards that will be prescribed by the board and will reflect current industry standards.
(h) Crude oil obtained from any reserve pit, disposal pond or pit, or similar facility, and any accumulation of nonmerchantable waste crude oil shall be treated and processed, as prescribed by the board.
(i) Any person who produces, sells, purchases, acquires, stores, transports, refines, or processes oil or gas or injects fluids for cycling, pressure maintenance, secondary or enhanced recovery, or salt water disposal in this state shall maintain complete and accurate records of the quantities produced, sold, purchased, acquired, stored, transported, refined, processed, or injected for a period of at least six years. The records shall be available for examination by the board or its agents at any reasonable time. Rules enacted to administer this subsection shall be consistent with applicable federal requirements.
(j) Any person with an interest in a lease shall be notified when all or part of that interest in the lease is sold or transferred.
(3) The board has the authority to regulate:
(a) all operations for and related to the production of oil or gas including:
(i) drilling, testing, equipping, completing, operating, producing, and plugging of wells; and
(ii) reclamation of sites;
(b) the spacing and location of wells;
(c) operations to increase ultimate recovery, such as:
(i) cycling of gas;
(ii) the maintenance of pressure; and
(iii) the introduction of gas, water, or other substances into a reservoir;
(d) the disposal of salt water and oil-field wastes;
(e) the underground and surface storage of oil, gas, or products; and
(f) the flaring of gas from an oil well.
(4) For the purposes of administering this chapter, the board may designate:
(a) wells as:
(i) oil wells; or
(ii) gas wells; and
(b) pools as:
(i) oil pools; or
(ii) gas pools.
(5) The board has exclusive jurisdiction over:
(a) class II injection wells, as defined by the federal Environmental Protection Agency or any successor agency; and
(b) pits and ponds in relation to these injection wells.
(6) The board has jurisdiction:
(a) to hear any questions regarding multiple mineral development conflicts with oil and gas operations if there:
(i) is potential injury to other mineral deposits on the same lands; or
(ii) are simultaneous or concurrent operations conducted by other mineral owners or lessees affecting the same lands; and
(b) to enter its order or rule with respect to those questions.
(7) The board has enforcement powers with respect to operators
of minerals other than oil and gas as are set forth in Section
40-6-11
, for the sole purpose of enforcing multiple
mineral development issues.
1988
40-6-6 Drilling units - Establishment by board - Modifications - Prohibitions.
(1) The board may order the establishment of drilling units for any pool.
(2) Within each drilling unit, only one well may be drilled for production from the common source of supply, except as provided in Subsection (6).
(3) A drilling unit may not be smaller than the maximum area that can be efficiently and economically drained by one well.
(4) (a) Each drilling unit within a pool shall be of uniform size and shape, unless the board finds that it must make an exception due to geologic, geographic, or other factors.
(b) If the board finds it necessary to divide a pool into zones and establish drilling units for each zone, drilling units may differ in size and shape for each zone.
(5) An order of the board that establishes drilling units for a pool shall:
(a) be made upon terms and conditions that are just and reasonable;
(b) include all lands determined by the board to overlay the pool;
(c) specify the acreage and shape of each drilling unit as determined by the board; and
(d) specify the location of the well in terms of distance from drilling unit boundaries and other wells.
(6) The board may modify an order that establishes drilling units for a pool to provide for:
(a) an exception to the authorized location of a well;
(b) the inclusion of additional areas which the board determines overlays the pool;
(c) the increase or decrease of the size of drilling units; or
(d) the drilling of additional wells within drilling units.
(7) (a) After an order establishing drilling units has been entered by the board, the drilling of any well into the pool at a location other than that authorized by the order is prohibited.
(b) The operation of any well drilled in violation of
an order fixing drilling units is prohibited.
1992
40-6-6.5 Pooling of interests for the development and operation of a drilling unit - Board may order pooling of interests - Payment of costs and royalty interests - Monthly accounting.
(1) Two or more owners within a drilling unit may bring together their interests for the development and operation of the drilling unit.
(2) (a) In the absence of a written agreement for pooling, the board may enter an order pooling all interests in the drilling unit for the development and operation of the drilling unit.
(b) The order shall be made upon terms and conditions that are just and reasonable.
(c) The board may adopt terms appearing in an operating agreement:
(i) for the drilling unit that is in effect between the consenting owners;
(ii) submitted by any party to the proceeding; or
(iii) submitted by its own motion.
(3) (a) Operations incident to the drilling of a well upon any portion of a drilling unit covered by a pooling order shall be deemed for all purposes to be the conduct of the operations upon each separately owned tract in the drilling unit by the several owners.
(b) The portion of the production allocated or applicable to a separately owned tract included in a drilling unit covered by a pooling order shall, when produced, be deemed for all purposes to have been produced from that tract by a well drilled on it.
(4) (a) (i) Each pooling order shall provide for the payment of just and reasonable costs incurred in the drilling and operating of the drilling unit including, but not limited to:
(A) the costs of drilling, completing, equipping, producing, gathering, transporting, processing, marketing, and storage facilities;
(B) reasonable charges for the administration and supervision of operations; and
(C) other costs customarily incurred in the industry.
(ii) An owner is not liable under a pooling order for costs or losses resulting from the gross negligence or willful misconduct of the operator.
(b) Each pooling order shall provide for reimbursement to the consenting owners for any nonconsenting owner's share of the costs out of production from the drilling unit attributable to his tract.
(c) Each pooling order shall provide that each consenting owner shall own and be entitled to receive, subject to royalty or similar obligations:
(i) the share of the production of the well applicable to his interest in the drilling unit; and
(ii) unless he has agreed otherwise, his proportionate part of the nonconsenting owner's share of the production until costs are recovered as provided in Subsection (d).
(d) (i) Each pooling order shall provide that each nonconsenting owner shall be entitled to receive, subject to royalty or similar obligations, the share of the production of the well applicable to his interest in the drilling unit after the consenting owners have recovered from the nonconsenting owner's share of production the following amounts less any cash contributions made by the nonconsenting owner:
(A) 100% of the nonconsenting owner's share of the cost of surface equipment beyond the wellhead connections, including stock tanks, separators, treaters, pumping equipment, and piping;
(B) 100% of the nonconsenting owner's share of the estimated cost to plug and abandon the well as determined by the board;
(C) 100% of the nonconsenting owner's share of the cost of operation of the well commencing with first production and continuing until the consenting owners have recovered all costs; and
(D) an amount to be determined by the board but not less than 150% nor greater than 300% of the nonconsenting owner's share of the costs of staking the location, wellsite preparation, rights-of-way, rigging up, drilling, reworking, recompleting, deepening or plugging back, testing, and completing, and the cost of equipment in the well to and including the wellhead connections.
(ii) The nonconsenting owner's share of the costs specified in Subsection (i) is that interest which would have been chargeable to the nonconsenting owner had he initially agreed to pay his share of the costs of the well from commencement of the operation.
(iii) A reasonable interest charge may be included if the board finds it appropriate.
(e) If there is any dispute about costs, the board shall determine the proper costs.
(5) If a nonconsenting owner's tract in the drilling unit is subject to a lease or other contract for the development of oil and gas, the pooling order shall provide that the consenting owners shall pay any royalty interest or other interest in the tract not subject to the deduction of the costs of production from the production attributable to that tract.
(6) (a) If a nonconsenting owner's tract in the drilling unit is not subject to a lease or other contract for the development of oil and gas, the pooling order shall provide that the nonconsenting owner shall receive as a royalty the average landowner's royalty attributable to each tract within the drilling unit.
(b) The royalty shall be:
(i) determined prior to the commencement of drilling; and
(ii) paid from production attributable to each tract until the consenting owners have recovered the costs specified in Subsection (4)(d).
(7) The operator of a well under a pooling order in which there are nonconsenting owners shall furnish the nonconsenting owners with monthly statements specifying:
(a) costs incurred;
(b) the quantity of oil or gas produced; and
(c) the amount of oil and gas proceeds realized from the sale of the production during the preceding month.
(8) Each pooling order shall provide that when the consenting owners recover from a nonconsenting owner's relinquished interest the amounts provided for in Subsection (4)(d):
(a) the relinquished interest of the nonconsenting owner shall automatically revert to him;
(b) the nonconsenting owner shall from that time:
(i) own the same interest in the well and the production from it; and
(ii) be liable for the further costs of the operation as if he had participated in the initial drilling and operation; and
(c) costs are payable out of production unless otherwise agreed between the nonconsenting owner and the operator.
(9) Each pooling order shall provide that in any circumstance where the nonconsenting owner has relinquished his share of production to consenting owners or at any time fails to take his share of production in-kind when he is entitled to do so, the nonconsenting owner is entitled to:
(a) an accounting of the oil and gas proceeds applicable to his relinquished share of production; and
(b) payment of the oil and gas proceeds applicable to
that share of production not taken in-kind, net of costs.
1992
40-6-7 Agreements for repressuring or pressure maintenance or cycling or recycling operations - Plan for development and operation of pool or field.
(1) An agreement for repressuring or pressure maintenance operations, cycling or recycling operations, including the extraction and separation of liquid hydrocarbons from natural gas, or for carrying on any other methods of unit or cooperative development or operation of a field or pool or a part of either, is authorized and may be performed, and shall not be held or construed to violate any statutes relating to trusts, monopolies, or contracts and combinations in restraint of trade, if the agreement is approved by the board as being in the public interest and promotes conservation, increases ultimate recovery and prevents waste of oil or gas provided the agreement protects the correlative rights of each owner or producer.
(2) A plan for the development and operation of a pool
or field shall be presented to the board and may be approved
after notice and hearing.
1983
40-6-8 Field or pool units - Procedure for establishment - Operation.
(1) The board may hold a hearing to consider the need for the operation as a unit of one or more pools or parts of them in a field.
(2) The board shall make an order providing for the unit operation of a pool or part of it, if the board finds that:
(a) Such operation is reasonably necessary for the purposes of this chapter; and
(b) The value of the estimated additional recovery of oil or gas substantially exceeds the estimated additional cost incident to conducting such operations.
(3) The order shall prescribe a plan for unit operations that shall include:
(a) a description of the lands and of the pool or pools or parts of them to be so operated, termed the unit area;
(b) a statement of the nature of the operations contemplated;
(c) an allocation to the separately owned tracts in the unit area of all the oil and gas that is produced from the unit area and is saved, being the production that is not used in the conduct of operations on the unit area or not unavoidably lost. The allocation shall be in accord with the agreement, if any, of the interested parties. If there is no such agreement, the board shall determine the relative value, from evidence introduced at the hearing of the separately owned tracts in the unit area, exclusive of physical equipment, for development of oil and gas by unit operations, and the production allocated to each tract shall be the proportion that the relative value of each tract so determined bears to the relative value of all tracts in the unit area;
(d) a provision for adjustment among the owners of the unit area (not including royalty owners) of their respective investment in wells, tanks, pumps, machinery, materials, equipment, and other things and services of value attributable to the unit operations. The amount to be charged unit operations for any such item shall be determined by the owners of the unit area (not including royalty owners); but if the owners of the unit area are unable to agree upon the amount or correctness, the board shall determine them. The net amount charged against the owner of an interest in a separately owned tract shall be considered expense of unit operation chargeable against his interest in the tract. The adjustments provided for may be treated separately and handled by agreements separate from the unitization agreement;
(e) a provision providing how the costs of unit operations, including capital investments, shall be determined and charged to the separately owned tracts and how these costs shall be paid, including a provision providing a procedure for the unit production allocated to an owner who does not pay the share of the cost of unit operations charged to such owner, or the interest of such owner, to be sold and the proceeds applied to the payment of such costs. The operator of the unit shall have a first and prior lien for costs incurred pursuant to the plan of unitization upon each owner's oil and gas rights and his share of unitized production to secure the payment of such owner's proportionate part of the cost of developing and operating the unit area. This lien may be established and enforced in the same manner as provided by Sections 38-1-8 to 38-1-26 inclusive. For such purposes any nonconsenting owner shall be deemed to have contracted with the unit operator for his proportionate part of the cost of developing and operating the unit area. A transfer or conversion of any owner's interest or any portion of it, however accomplished, after the effective date of the order creating the unit, shall not relieve the transferred interest of the operator's lien on said interest for the cost and expense of unit operations;
(f) a provision, if necessary, for carrying or otherwise financing any owner who elects to be carried or otherwise financed, allowing a reasonable interest charge for such service payable out of such owner's share of the production;
(g) a provision for the supervision and conduct of the unit operations, in respect to which each owner shall have a percentage vote corresponding to the percentage of the costs of unit operations chargeable against the interest of the owner;
(h) the time when the unit operations shall commence, and the manner in which, and the circumstances under which, the unit operations shall terminate;
(i) such additional provisions that are found to be appropriate for carrying on the unit operations, and for the protection of correlative rights; and
(j) the designation of a unit operator.
(4) No order of the board providing for unit operations of a pool or pools shall become effective unless and until the plan for unit operations prescribed by the division has been approved in writing by those owners who, under the board's order, will be required to pay 70% of the costs of the unit operation, and also by the owners of 70% of the production or proceeds that will be credited to interests which are free of cost, such as royalties, overriding royalties, and production payments, and the board has made a finding, either in the order providing for unit operations or in a supplemental order, that the plan for unit operations has been so approved. If the persons owning required percentage of interest in that unit area do not approve the plan for unit operations within a period of six months from the date on which the order providing for unit operations is made, the order shall be ineffective and shall be revoked by the board unless for good cause shown the board extends this time.
(5) An order providing for unit operations may be amended by an order made by the board in the same manner and subject to the same conditions as an original order providing for unit operations, provided:
(a) If such an amendment affects only the rights and interests of the owners, the approval of the amendment by the owners of royalty, overriding royalty, production payments and other such interests which are free of costs shall not be required.
(b) No such order of amendment shall change the percentage for the allocation of oil and gas as established for any separately owned tract by the original order, or change the percentage for allocation of cost as established for any separately owned tract by the original order.
(6) The board, by an order, may provide for the unit operation of a pool or pools or parts thereof that embrace a unit area established by a previous order of the division. The order, in providing for the allocation of unit production, shall first treat the unit area previously established as a single tract, and the portion of the unit production allocated shall then be allocated among the separately owned tracts included in the previously established unit area in the same proportions of those specified in the previous order.
(7) An order may provide for unit operations on less than the whole of a pool where the unit area is of such size and shape as may be reasonably required for that purpose, and the conduct will have no adverse effect upon other portions of the pool.
(8) All operations, including, but not limited to, the commencement, drilling, or operation of a well upon any portion of the unit area shall be deemed for all purposes the conduct of such operations upon each separately owned tract in the unit area by the several owners. The portions of the unit production allocated to a separately owned tract in a unit area shall, when produced, be deemed, for all purposes, to have been actually produced from such tract by a well drilled. Operations conducted pursuant to an order of the board providing for unit operations shall constitute a fulfillment of all the express or implied obligations for each lease or contract covering lands in the unit area to the extent that compliance with such obligations cannot be had because of the order of the board.
(9) The portion of the unit production allocated to any tract, and the proceeds from the sale, shall be the property and income of the several owners, subject to the rights of royalty owners, to whom, or to whose credit, they are allocated or payable under the order providing for unit operations.
(10) No division order or other contract relating to the sale or purchase of production from a separately owned tract shall be terminated by the order providing for unit operations but shall remain in force and apply to oil and gas allocated to such tract until terminated in accordance with the provisions thereof.
(11) Except to the extent that the parties affected agree and as provided in (e) of Subsection (3) of this section, no order providing for unit operations shall be construed to result in a transfer of all or any part of the title of any person to the oil and gas rights in any tract in the unit area. All property, whether real or personal, that may be acquired in the conduct of unit operations hereunder shall be acquired for the account of the owners within the unit area and shall be the property of the owners in the proportion that the expenses of unit operations are charged, unless otherwise provided in the plan of unit operation.
(12) This section shall apply only to field or pool units
and shall not apply to the unitization of interests within
a drilling unit as may be authorized and governed under the
provisions of Section
40-6-6
.
1983
40-6-9 Proceeds from sale of production - Payment of proceeds - Requirements - Proceeding on petition to determine cause of nonpayment - Remedies - Penalties.
(1) (a) The oil and gas proceeds derived from the sale of production from any well producing oil or gas in the state shall be paid to any person legally entitled to the payment of the proceeds not later than 180 days after the first day of the month following the date of the first sale and thereafter not later than 30 days after the end of the calendar month within which payment is received by the payor for production, unless other periods or arrangements are provided for in a valid contract with the person entitled to the proceeds.
(b) The payment shall be made directly to the person entitled to the payment by the payor.
(c) The payment is considered to have been made upon deposit in the United States mail.
(2) Payments shall be remitted to any person entitled to oil and gas proceeds annually for the aggregate of up to 12 months accumulation of proceeds, if the total amount owed is $100 or less.
(3) (a) Any delay in determining whether a person is legally entitled to an interest in the oil and gas proceeds does not affect payments to other persons entitled to payment.
(b) (i) If accrued payments cannot be made within the time limits specified in Subsection (1) or (2), the payor shall deposit all oil and gas proceeds credited to the eventual oil and gas proceeds owner to an escrow account in a federally insured bank or savings and loan institution using a standard escrow document form.
(ii) The deposit shall earn interest at the highest rate being offered by that institution for the amount and term of similar demand deposits.
(iii) The escrow agent may commingle money received into escrow from any one lessee or operator, purchaser, or other person legally responsible for payment.
(iv) Payment of principal and accrued interest from the escrow account shall be made by the escrow agent to the person legally entitled to them within 30 days from the date of receipt by the escrow agent of final legal determination of entitlement to the payment.
(v) Applicable escrow fees shall be deducted from the payments.
(4) Any person entitled to oil and gas proceeds may file a petition with the board to conduct a hearing to determine why the proceeds have not been paid.
(5) Upon receipt of the petition, the board shall set the matter for investigation and negotiation by the division within 60 days.
(6) (a) If the matter cannot be resolved by negotiation as of that date, the board may set a hearing within 30 days.
(b) If the board does not set a hearing, any information gathered during the investigation and negotiation shall be given to the petitioner who may then seek a remedy in a court of competent jurisdiction.
(7) (a) If, after a hearing, the board finds the proceeds have not been deposited in an interest bearing escrow account in accordance with Subsection (3), the board may order that:
(i) a complete accounting be made; and
(ii) the proceeds be subject to an interest rate of 1-1/2% per month, as a substitute for an escrow account interest rate, accruing from the date the payment should have been suspended in accordance with Subsection (3).
(b) If, after a hearing, the board finds the delay of payment is without reasonable justification, the board may:
(i) if the proceeds have been deposited in an interest bearing escrow account in accordance with Subsection (3):
(A) order a complete accounting;
(B) require the proceeds and accruing interest to remain in the escrow account; and
(C) assess a penalty of up to 25% of the total proceeds and interest in the escrow account; or
(ii) if the proceeds have not been deposited in an interest bearing escrow account in accordance with Subsection (3), assess a penalty of up to 25% of the total proceeds and interest as determined under Subsection (a).
(c) (i) Upon finding that the delay of payment is without reasonable justification, the board shall set a date not later than 90 days from the hearing for final distribution of the total sum.
(ii) If payment is not made by the required date, the total proceeds, interest, and any penalty as provided in Subsection (b) shall be subject to interest at a rate of 1-1/2% per month until paid.
(d) If, after a hearing, the board finds the delay of payment is with reasonable justification and the proceeds have been deposited in an interest bearing escrow account in accordance with Subsection (3), the payor may not be required to make an accounting or payment of appropriately suspended proceeds until the condition which justified suspension has been satisfied.
(8) The circumstances under which the board may find the suspension of payment of proceeds is made with reasonable justification, such that the penalty provisions of Subsections (7)(b) and (7)(c)(ii) do not apply, include, but are not limited to, the following:
(a) the payor:
(i) fails to make the payment in good faith reliance upon a title opinion by a licensed Utah attorney objecting to the lack of good and marketable title of record of the person claiming entitlement to payment; and
(ii) furnishes a copy of the relevant portions of the opinion to the person for necessary curative action;
(b) the payor receives information which:
(i) in the payor's good faith judgment, brings into question the entitlement of the person claiming the right to the payment to receive that payment;
(ii) has rendered the title unmarketable; or
(iii) may expose the payor to the risk of liability to third parties if the payment is made;
(c) the total amount of oil and gas proceeds in possession of the payor owed to the person making claim to payment is less than $100 at the end of any month; or
(d) the person entitled to payment has failed or refused to execute a division or transfer order acknowledging the proper interest to which the person claims to be entitled and setting forth the mailing address to which payment may be directed, provided the division or transfer order does not alter or amend the terms of the lease.
(9) If the circumstances described in Subsection (8)(a) or (b) arise, the payor may:
(a) suspend and escrow the payments in accordance with Subsection (3); or
(b) at the request and expense of the person claiming
entitlement to the payment, make the payment into court on
an interpleader action to resolve the claim and avoid liability
under this chapter.
1993
40-6-9.1 Payment information to royalty owners.
(1) When payment is made to an owner of a royalty interest for the sale of oil or gas produced from that royalty interest pursuant to the requirements of Section 40-6-9 , the following information shall be included on the payor's check stub or on an attachment to the form of payment:
(a) the lease, property, or well name, and any lease, property, or well identification number from which production is attributed;
(b) the month and year of the sales included in the payment;
(c) the total volume of oil or gas sold, as measured by the means and upon the standards prescribed by the board pursuant to Subsection 40-6-5 (2)(g);
(d) the average price per unit of oil or gas sold;
(e) the total amount of state severance, ad valorem, and other production taxes;
(f) a list of any other deductions or adjustments;
(g) the net value of total sales after taxes are deducted;
(h) the royalty owner's interest, expressed as a decimal number, in sales from the lease, property, or well;
(i) the royalty owner's share of the total value of sales prior to any deductions;
(j) the royalty owner's proportionate share of the sales value less the royalty owner's proportionate share of the deductions, as applicable; and
(k) an address at which additional information pertaining to the royalty owner's interest in production may be obtained and questions may be answered.
(2) (a) A royalty owner who fails to receive the information required by this section may notify the board by certified mail of the problem and request that the division conduct an investigation.
(b) The division shall conduct the investigation and report to the board concerning:
(i) whether the matter has been resolved; or
(ii) whether further action is necessary and its recommendations for resolution of the matter.
(c) The board may take any action it considers necessary to resolve the matter pursuant to the provisions of this chapter.
(3) A royalty owner damaged by a violation of this section
may proceed as provided in Subsection
40-6-11
(7).
1995
40-6-9.5 Permits for crude oil production - Application - Bond requirement - Closure of facilities - Availability of records.
(1) The division may issue permits authorizing construction, operation, maintenance, and cessation of treating facilities and operations covered by Subsection 40-6-5 (2)(h) and to approve, as part of that permit, post-cessation reclamation of the site.
(2) Each owner and operator of any facility described in Subsection 40-6-5 (2)(h) or planning to construct, operate, or maintain a facility described in Subsection 40-6-5 (2)(h) shall submit to the division an application stating in detail the location, type, and capacity of the facility contemplated; the extent and location of area disturbed or to be disturbed including, but not limited to, any pits, ponds, or lands, associated with the facility; a plan for reclamation of the site; and other materials required by the division. All existing facilities described in Subsection 40-6-5 (2)(h) shall submit plans by July 28, 1985. Application for all planned facilities must be approved and a permit issued before any ground clearing or construction may occur.
(3) As a condition for approval of any permit, the owner and operator shall post a bond in an amount determined by the division to cover reclamation costs for the site. Approval of any permit is also conditioned upon compliance with all laws, rules, and orders of the board. Failure to post the bond is considered sufficient grounds to deny a permit.
(4) The board may order the closure of any facility described in Subsection 40-6-5 (2) (h) if an application is not forthcoming in the time allowed in Subsection (2), a bond is not posted, a violation of the rules and regulations of other state or federal agencies exists, or for other material and substantial cause.
(5) The owner and operator are subject to all applicable state, federal, and local rules and regulations.
(6) The records required to be kept by Subsection
40-6-5
(2)(i) shall be available for inspection and
audit by the board or its agents during reasonable working
hours.
1989
40-6-10 Procedures - Adjudicative proceedings - Emergency orders - Hearing examiners.
(1) (a) The Board of Oil, Gas, and Mining and the Division of Oil, Gas, and Mining shall comply with the procedures and requirements of Title 63, Chapter 46b, in their adjudicative proceedings.
(b) The board shall enact rules governing its practice and procedure that are not inconsistent with Title 63, Chapter 46b.
(2) When an emergency requiring immediate action is found by the division director or any board member to exist, he may issue an emergency order according to the requirements and procedures of Title 63, Chapter 46b.
(3) Any notice required by this chapter, except as otherwise provided, shall be given at the election of the board either by personal service or by one publication in a daily newspaper of general circulation in the city of Salt Lake and county of Salt Lake, Utah, and in all newspapers of general circulation published in the county where the land is affected, or some part of the land is situated.
(4) (a) Any order made by the board is effective on issuance.
(b) All rules and orders issued by the board shall be:
(i) in writing;
(ii) entered in full in books to be kept by the board for that purpose;
(iii) indexed; and
(iv) public records open for inspection at all times during reasonable office hours.
(c) A copy of any rule, finding of fact, or order, certified by the board or by the division director, shall be received in evidence in all courts of this state with the same effect as the original.
(5) The board may act upon its own motion or upon the petition of any interested person.
(6) (a) The board may appoint a hearing examiner to take evidence and to recommend findings of fact and conclusions of law to the board.
(b) Any member of the board, division staff, or any other person designated by the board may serve as a hearing examiner.
(c) The board may enter an order based on the recommendations
of the examiner.
1987
40-6-11 Power to summon witnesses, administer oaths and require production of records - Enforcement - Penalties for violation of chapter or rules - Illegal oil or gas - Civil liability.
(1) The board may summon witnesses, administer oaths, and require the production of records, books, and documents for examination at any hearing or investigation conducted by it.
(2) (a) If any person fails or refuses to comply with a subpoena issued by the board, or fails or refuses to testify about any matter, the board may apply to any district court in the state for an order compelling that person to comply with the subpoena, and to attend before the board and produce the subpoenaed records, books, and documents for examination, and to give his testimony.
(b) The court may punish the person for contempt as if he disobeyed a subpoena issued by the court, or if he refused to testify in a court.
(3) (a) Whenever it appears that any person is violating any provision of this chapter or any rule or order made under the authority of this chapter, the board may issue an order requiring compliance within a period not to exceed 30 days.
(b) The board may bring suit in the name of the state against any person violating this chapter, or rules or orders made under the authority of this chapter if:
(i) the violation continues after expiration of the time period granted in Subsection (3)(a);
(ii) the violation presents an immediate threat to public health, safety, or welfare; or
(iii) the violation would cause waste.
(4) (a) If the board determines, after an adjudicative proceeding, that any person has violated any provision of this chapter, or any permit, rule, or order made under the provisions of this chapter, that person is subject, in a civil proceeding, to a penalty not exceeding $5,000 per day for each day of violation.
(b) If the board determines that the violation is willful, that person may be fined not more than $10,000 for each day of violation.
(5) If ordered to do so by the board, the director of the division may order the immediate closure or shutdown of any well that is operating in violation of the provisions of this chapter, if the closure or shutdown will not cause waste or is necessary because of an immediate threat to public health, safety, or welfare.
(6) (a) No person may sell, purchase, acquire, transport, refine, process, or handle illegal oil, gas, or product, if the person knows or has reason to know that the oil, gas, or product is illegal.
(b) The court in the district where the illegal oil, gas, or product is found, shall, after notice and hearing in an action brought by the board, order the product to be seized and sold, and the proceeds returned or held for the legal owner.
(7) (a) Nothing in this chapter, and no suit by or against the board, and no violation charged or asserted against any person under any provisions of this chapter, or any rule or order issued under the authority of this chapter, shall impair, abridge, or delay any cause of action for damages that any person may have or assert against any person violating any provision of this chapter, or any rule or order issued under the authority of this chapter.
(b) Any person damaged by any violation may sue for and
recover whatever damages that he otherwise may be entitled
to receive.
1987
40-6-12 Evasion of chapter or rules - Penalties - Limitation of actions.
(1) (a) A person is guilty of a class A misdemeanor if, for the purpose of evading this chapter or any rule or order of the board, he is convicted of any of the following:
(i) making or causing to be made any false entry in any report, record, account, or memorandum required by this chapter or by any rule or order;
(ii) omitting or causing to be omitted from any report, record, account, or memorandum, full, true, and correct entries as required by this chapter or by any rule or order; or
(iii) removing from this state or destroying, mutilating, altering, or falsifying any record, account, or memorandum.
(b) Upon conviction, that person is subject to a fine of not more than $5,000 or imprisonment for a term not exceeding six months, or to both fine and imprisonment.
(2) No suit, action, or other proceeding based upon a
violation of this chapter or any rule or order of the board
may be commenced or maintained unless it is commenced within
one year from the date of the alleged violation.
1991
40-6-13 Restrictions of production not authorized.
This act shall never be construed to require, permit or
authorize the board or any court to make, enter or enforce
any order, rule, regulation, or judgment requiring restriction
of production of any pool or of any well (except a well drilled
in violation of Section
40-6-6
hereof) to an amount less than the well or
pool can produce unless such restriction is necessary to
prevent waste and protect correlative rights, or the operation
of a well without sufficient oil or gas production to cover
current operating costs and provide a reasonable return,
without regard to original drilling costs.
1983
40-6-14 Fee on oil and gas - Payment of fee - Collection - Penalty and interest on delinquencies - Payment when product taken in-kind - Interests exempt.
(1) (a) There is levied a fee as provided in Subsection (1)(b) for oil and gas:
(i) produced; and
(ii) (A) saved;
(B) sold; or
(C) transported from the field in Utah where the oil or gas is produced.
(b) The fee imposed under this Subsection (1) is equal to the product of:
(i) .002; and
(ii) the value of the oil or gas determined in accordance with Section 59-5-103.1 .
(2) (a) The State Tax Commission shall administer the collection of the fee, including any penalties and interest.
(b) The monies collected shall be deposited in the Oil and Gas Conservation Account created in Section 40-6-14.5 .
(c) Time periods for the State Tax Commission to allow a refund or assess the fee shall be determined in accordance with Section 59-5-114 .
(3) (a) Each person having an ownership interest in oil or gas at the time of production shall be liable for a proportionate share of the fee equivalent to that person's ownership interest.
(b) As used in this section "ownership interest" means any:
(i) working interest;
(ii) royalty interest;
(iii) interest in payments out of production; or
(iv) any other interest in the oil or gas, or in the proceeds of the oil or gas, subject to the fee.
(4) (a) The operator, on behalf of the operator and any person having an ownership interest in the oil or gas, shall pay the fee to the State Tax Commission:
(i) quarterly; and
(ii) as provided in Subsections (4)(b) and (c).
(b) For purposes of Subsection (4)(a), the quarterly fee payments are due as follows:
(i) for the quarter beginning on January 1 and ending on March 31, on or before June 1;
(ii) for the quarter beginning on April 1 and ending on June 30, on or before September 1;
(iii) for the quarter beginning on July 1 and ending on September 30, on or before December 1; and
(iv) for the quarter beginning on October 1 and ending on December 31, on or before March 1 of the next year.
(c) The fee required by this section shall be reported to the State Tax Commission on forms provided by the State Tax Commission.
(5) (a) Any fee not paid within the time specified shall:
(i) carry a penalty as provided in Section 59-1-401 ; and
(ii) bear interest at the rate and in the manner prescribed in Section 59-1-402 .
(b) (i) The fee, together with the interest, shall be a lien upon the oil or gas against which the fee and interest are levied.
(ii) The operator shall deduct from any amounts due to the persons owning an interest in the oil or gas, or in the proceeds at the time of production, a proportionate amount of the charge before making payment to the persons.
(6) (a) When product is taken in-kind by an interest owner who is not the operator and the operator cannot determine the value of the in-kind product, the operator shall:
(i) report 100% of the production;
(ii) deduct the product taken in-kind; and
(iii) pay the levy on the difference.
(b) The interest owner who takes the product in-kind shall file a report and pay the levy on the interest owner's share of production excluded from the operator's report.
(7) This section shall apply to any interest in oil or gas produced in the state except:
(a) any interest of the United States;
(b) any interest of the state or a political subdivision of the state in any oil or gas or in the proceeds of the oil or gas;
(c) any interest of any Indian or Indian tribe in any oil or gas or in the proceeds produced from land subject to the supervision of the United States; or
(d) oil or gas used in producing or drilling operations
or for repressuring or recycling purposes.
2004
40-6-14.5 Oil and Gas Conservation Account created - Contents - Use of account monies.
(1) There is created within the General Fund a restricted account known as the Oil and Gas Conservation Account.
(2) The contents of the account shall consist of:
(a) revenues from the fee levied under Section 40-6-14 , including any penalties or interest charged for delinquent payments; and
(b) interest and earnings on account monies.
(3) Account monies shall be used to pay for the:
(a) administration of this chapter; and
(b) plugging and reclamation of abandoned oil or gas wells or bore, core, or exploratory holes for which:
(i) there is no reclamation surety; or
(ii) the forfeited surety is insufficient for plugging and reclamation.
(4) Priority in the use of the monies shall be given to paying for the administration of this chapter.
(5) Appropriations for plugging and reclamation of abandoned oil or gas wells or bore, core, or exploratory holes shall be nonlapsing.
(6) The balance of the Oil and Gas Conservation Account at the end of a fiscal year may not exceed $750,000. Any excess monies shall be transferred to the General Fund.
(7) (a) As used in this Subsection (7), "excess fee revenue" means revenue collected in fiscal year 1999-2000 from the fee levied under Section 40-6-14 that exceeds the fee revenue appropriated to the Division of Oil, Gas, and Mining in fiscal year 1999-2000.
(b) If there is a General Fund surplus for fiscal year 1999-2000, the Division of Finance shall transfer General Fund surplus monies to the Oil and Gas Conservation Account in an amount up to the excess fee revenue.
(c) The transfer provided in Subsection (7)(b) shall be
made after General Fund surplus monies are transferred to
the General Fund Budget Reserve Account pursuant to Section
63-38-2.5
.
2003
40-6-15 Division created - Functions - Director of division - Qualifications of program administrators.
There is created within the Department of Natural Resources the Division of Oil, Gas and Mining. The division shall implement the policies and orders of the board and perform all other duties delegated by the board.
The director of the Division of Oil, Gas and Mining shall be appointed by the director of the Department of Natural Resources with the concurrence of the Board of Oil, Gas and Mining. The director shall be the executive and administrative head of the Division of Oil, Gas and Mining and shall be a person experienced in administration and knowledgeable in the extraction of oil, gas and minerals.
Within the division, the person administering the oil
and gas program shall have the technical background to efficiently
administer that program. The person administering the mining
program shall have the technical background to efficiently
administer that program.
1983
40-6-16 Duties of division.
In addition to the duties assigned by the board, the division shall:
(1) develop and implement an inspection program that will include but not be limited to production data, pre-drilling checks, and site security reviews;
(2) publish a monthly production report;
(3) publish a monthly gas processing plant report;
(4) review and evaluate, prior to a hearing, evidence submitted with the petition to be presented to the board;
(5) require adequate assurance of approved water rights in accordance with rules and orders enacted under Section 40-6-5 ; and
(6) notify the county executive of the county in which
the drilling will take place in writing of the issuance of
a drilling permit.
1993
40-6-17 Cooperative research and development projects.
The board and the Division of Oil, Gas and Mining are
authorized to enter into cooperative agreements with the
national, state or local governments, and with independent
organizations and institutions for the purpose of carrying
out research and development experiments involving energy
resources to the extent that the project is funded or partially
funded and approved by the Legislature.
1983
40-6-18 Lands subject to chapter.
This act shall apply to all lands in the State of Utah,
lawfully subject to its police power, and shall apply to
lands of the United States or the lands subject to the jurisdiction
of the United States.
1983
40-6-19 Bond and Surety Forfeiture Trust Fund created - Contents - Use of fund monies.
(1) There is created a private-purpose trust fund known as the "Bond and Surety Forfeiture Trust Fund."
(2) Monies collected by the Division of Oil, Gas and Mining as a result of bond or surety forfeitures shall be deposited in the fund.
(3) Interest earned on monies in the fund shall accrue to the fund.
(4) (a) Money from each forfeited bond or surety, together with interest, shall be used by the Division of Oil, Gas and Mining to accomplish the requisite performance standards under the program to which the forfeited bond or surety corresponds.
(b) Any money not used for a project shall be returned
to the rightful claimant.
2002
