Arizona § 27-505 - Pooling of interests

§ 27-505. Pooling of interests

A. When two or more separately owned tracts of land are embraced 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 the persons do not agree to pool their interests, the commissioner may, for prevention of waste, for protection of correlative rights, or to avoid 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 shall be made after notice and hearing, and shall be upon terms and conditions which will afford the owner of each tract the opportunity to recover or receive his just and equitable share of the oil and gas in the pool without unnecessary expense. Operations incident to drilling a well upon any portion of a unit covered by a pooling order shall be deemed for all purposes to be the conduct of such operations upon each separately owned tract in the unit by the several owners thereof. The portion of the production allocated to the owner 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 such pooling is effectuated, the cost of development and operation of the pooled unit chargeable by the operator to other interested owners shall be limited to the actual and reasonable expenditures required for that purpose, including a reasonable charge for supervision. As to owners who refuse to agree upon pooling, the order shall provide for reimbursement for costs chargeable to each such owner out of, and only out of, production from the unit belonging to such owner. In event of dispute relative to such costs, the commissioner 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 commissioner. If one or more of the owners drills and operates, or pays the expense of drilling and operating the well for the benefit of others, then, in addition to any other rights conferred by the pooling order, the owner or owners so drilling or operating shall have a lien on the share of production from the unit accruing to the interest of each of the other owners for the payment of his proportionate share of the expenses. All the oil and gas subject to the lien, or so much thereof as necessary, shall 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.

B. The commissioner shall, in all instances where a unit has been formed from lands or areas of more than one ownership, require the operator, upon request of an owner, but subject to the right of the operator to market production and collect the proceeds with respect to an owner in default, as provided in subsection A, to deliver to the owner or his assigns his proportionate share of the production from the well common to the drilling unit. The owner receiving his share shall provide at his own expense proper receptacles for the receipt and storage thereof.

C. If the persons owning and drilling or exercising other rights in separate tracts embraced within a drilling unit fail to agree upon the pooling of the tracts and drilling of a well on the unit, and if the commissioner is without authority to require pooling as provided by this section, then, subject to all other applicable provisions of this article, the owner of each tract embraced within the drilling unit may drill on his tract, but the allowable production from the tract shall be the proportion of the allowable production for the full drilling unit as the area of such separately owned tract bears to the full drilling unit.

D. An agreement for repressuring or pressure-maintenance operations, cycling or recycling operations, including extraction and separation of liquid hydrocarbons from natural gas in connection therewith, or for carrying on any other method 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 of this state relating to trusts, monopolies or contracts and combinations in restraint of trade, if, after notice and a public hearing, the agreement is approved by the commissioner as being in the public interest, protective of correlative rights, and reasonably necessary to increase ultimate recovery or to prevent waste of oil or gas. The agreements shall bind only the persons who execute them, and their heirs, successors, assigns, and legal representatives.