New Mexico § 70-2-17 - Equitable allocation of allowable production; pooling; spacing

§ 70-2-17. Equitable allocation of allowable production; pooling; spacing

A. The rules, regulations or orders of the division shall, so far as it is practicable

to do so, afford to the owner of each property in a pool the opportunity to produce

his just and equitable share of the oil or gas, or both, in the pool, being an amount,

so far as can be practically determined, and so far as such can be practicably obtained

without waste, substantially in the proportion that the quantity of the recoverable

oil or gas, or both, under such property bears to the total recoverable oil or gas,

or both, in the pool, and for this purpose to use his just and equitable share of

the reservoir energy. B. The division may establish a proration unit for each pool, such being the area

that can be efficiently and economically drained and developed by one well, and in

so doing the division shall consider the economic loss caused by the drilling of unnecessary

wells, the protection of correlative rights, including those of royalty owners, the

prevention of waste, the avoidance of the augmentation of risks arising from the drilling

of an excessive number of wells, and the prevention of reduced recovery which might

result from the drilling of too few wells. C. When two or more separately owned tracts of land are embraced within a spacing

or proration unit, or where there are owners of royalty interests or undivided interests

in oil and gas minerals which are separately owned or any combination thereof, embraced

within such spacing or proration unit, the owner or owners thereof may validly pool

their interests and develop their lands as a unit. Where, however, such owner or owners have not agreed to pool their interests, and

where one such separate owner, or owners, who has the right to drill has drilled or

proposes to drill a well on said unit to a common source of supply, the division,

to avoid the drilling of unnecessary wells or to protect correlative rights, or to

prevent waste, shall pool all or any part of such lands or interests or both in the

spacing or proration unit as a unit. All orders effecting such pooling shall be made after notice and hearing, and shall

be upon such terms and conditions as are just and reasonable and will afford to the

owner or owners of each tract or interest in the unit the opportunity to recover or

receive without unnecessary expense his just and fair share of the oil or gas, or

both. Each order shall describe the lands included in the unit designated thereby, identify

the pool or pools to which it applies and designate an operator for the unit. All operations for the pooled oil or gas, or both, which are conducted on any portion

of the unit shall be deemed for all purposes to have been conducted upon each tract

within the unit by the owner or owners of such tract. For the purpose of determining the portions of production owned by the persons owning

interests in the pooled oil or gas, or both, such production shall be allocated to

the respective tracts within the unit in the proportion that the number of surface

acres included within each tract bears to the number of surface acres included in

the entire unit. The portion of the production allocated to the owner or owners of each tract or

interest included in a well spacing or proration unit formed by a pooling order shall,

when produced, be considered as if produced from the separately owned tract or interest

by a well drilled thereon. Such pooling order of the division shall make definite provision as to any owner,

or owners, who elects not to pay his proportionate share in advance for the prorata

reimbursement solely out of production to the parties advancing the costs of the development

and operation, which shall be limited to the actual expenditures required for such

purpose not in excess of what are reasonable, but which shall include a reasonable

charge for supervision and may include a charge for the risk involved in the drilling

of such well, which charge for risk shall not exceed two hundred percent of the nonconsenting

working interest owner's or owners' prorata share of the cost of drilling and completing

the well. In the event of any dispute relative to such costs, the division shall determine the

proper costs after due notice to interested parties and a hearing thereon. The division is specifically authorized to provide that the owner or owners drilling,

or paying for the drilling, or for the operation of a well for the benefit of all

shall be entitled to all production from such well which would be received by the

owner, or owners, for whose benefit the well was drilled or operated, after payment

of royalty as provided in the lease, if any, applicable to each tract or interest,

and obligations payable out of production, until the owner or owners drilling or operating

the well or both have been paid the amount due under the terms of the pooling order

or order settling such dispute. No part of the production or proceeds accruing to any owner or owners of a separate

interest in such unit shall be applied toward the payment of any cost properly chargeable

to any other interest in said unit. If the interest of any owner or owners of any unleased mineral interest is pooled

by virtue of this act, seven-eighths of such interest shall be considered as a working

interest and one-eighth shall be considered a royalty interest, and he shall in all

events be paid one-eighth of all production from the unit and creditable to his interest. D. Minimum allowable for some wells may be advisable from time to time, especially

with respect to wells already drilled when this act takes effect, to the end that

the production will repay reasonable lifting cost and thus prevent premature abandonment

and resulting waste. E. Whenever it appears that the owners in any pool have agreed upon a plan for the

spacing of wells, or upon a plan or method of distribution of any allowable fixed

by the division for the pool, or upon any other plan for the development or operation

of such pool, which plan, in the judgment of the division, has the effect of preventing

waste as prohibited by this act and is fair to the royalty owners in such pool, then

such plan shall be adopted by the division with respect to such pool; however, the

division, upon hearing and after notice, may subsequently modify any such plan to

the extent necessary to prevent waste as prohibited by this act. F. After the effective date of any rule, regulation or order fixing the allowable

production, no person shall produce more than the allowable production applicable

to him, his wells, leases or properties determined as in this act provided, and the

allowable production shall be produced in accordance with the applicable rules, regulations

or orders.