Nevada § 522.060 - Establishment of drilling units for pools

§ 522.060. Establishment of drilling units for pools

1. 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. 2. 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. 3. 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 owner’s 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. 4. 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. 5. 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 lessee’s 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 lessee’s own expense proper

receptacles for the receipt and storage thereof. 6. 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

lessee’s 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.