Nevada Mines, Minerals, Oil and Gas
Establishment of drilling units for pools.
For the prevention of waste, to protect and enforce the correlative rights of lessees in a pool, and to avoid the augmentation and accumulation of risks arising from the drilling of an excessive number of wells, or the reduced recovery which might result from too small a number of wells, the Division shall, after a hearing, establish a drilling unit or units for each pool. The establishment of a unit for gas must be limited to the production of gas.
Each well permitted on a drilling unit must be drilled under such regulations and in accordance with such a spacing pattern as the Division prescribes for the pool in which the well is located. Exceptions to the regulations and spacing pattern may be granted where it is shown, after notice and hearing, that the unit is partly outside the pool, or for some other reason a well so located on the unit would be nonproductive, or topographical conditions are such as to make the drilling at such a location unduly burdensome. If an exception is granted, the Division shall offset any advantage which the person securing the exception may have over other producers and shall prevent or minimize drainage from developed units to the tract to which the exception is granted. The producer of the well drilled as an exception must be allowed to produce no more than a just and equitable share of the oil and gas in the pool.
When two or more separately owned tracts of land are within an established drilling unit, persons owning the drilling rights therein and the right to share in the production therefrom may agree to pool their interests and develop their lands as a drilling unit. If those persons do not agree to pool their interests, the Division may, for the prevention of waste, for the protection of correlative rights, or to avoid the drilling of unnecessary wells, enter an order pooling and integrating their interests for the development of their lands as a drilling unit. Orders effectuating such pooling must be made after notice and hearing, and must be upon terms and conditions which will afford to the owner of each tract the opportunity to recover or receive the owners just and equitable share of the oil and gas in the pool without unnecessary expense. Operations incident to the drilling of a well upon any portion of a unit covered by a pooling order shall be deemed for all purposes to be the conduct of the operation upon each separately owned tract in the unit by the several lessees thereof. The portion of the production allocated to the lessee of each tract included in a drilling unit formed by a pooling order shall, when produced, be considered as if it had been produced from the tract by a well drilled thereon.
If the pooling is effectuated, the cost of development and operation of the pooled unit chargeable by the operator to the other interested lessees is limited to the actual and reasonable expenditures required for that purpose, including a reasonable charge for supervision. As to lessees who refuse to agree upon pooling, the order must provide for reimbursement for 300 percent of the costs chargeable to each lessee out of, and only out of, production from the unit belonging to the lessee. In the event of a dispute relative to those costs, the Division shall, upon notice to all interested parties and hearing thereon, determine the proper costs. Appeals may be taken from the determination as from any other order of the Division. If one or more of the lessees drill and operate, or pay the expense of drilling and operating, the well for the benefit of others, then in addition to any other right conferred by the pooling order, the lessee or lessees so drilling or operating have a lien on the share of production from the unit accruing to the interest of each of the other lessees for the payment of his or her proportionate share of the expenses. All the oil and gas subject to the lien, or so much thereof as is necessary, must be marketed and sold by the creditor, and the proceeds applied in payment of the expenses secured by the lien, with the balance, if any, payable to the debtor.
The Division shall, in all instances where a unit has been formed out of lands or areas of more than one ownership, require the operator, upon request of a lessee, but subject to the right of the operator to market production and collect the proceeds with respect to a lessee in default, as provided in subsection 4, to deliver to the lessee or the lessees assigns his or her proportionate share of the production from the well common to the drilling unit. The lessee receiving his or her share shall provide at the lessees own expense proper receptacles for the receipt and storage thereof.
If the persons owning the drilling or other rights in separate tracts embraced within a drilling unit fail to agree upon the pooling of the tracts and the drilling of a well on the unit, and if the Division is without authority to require pooling as provided by this section, then subject to all other applicable provisions of this chapter, the lessee of each tract embraced within the drilling unit may drill on the lessees tract, but the allowable production from the tract is such a proportion of the allowable production for the full drilling unit as the area of the separately owned tract bears to the full drilling unit.