27-557

27-557. Unit operations; unit
agreements

A. Each lease issued under the provisions of this article shall provide that the
lessee, insofar as its interest in the lease is affected, may join in cooperative or unit
plans for the exploration, development and operation of oil and gas pools with the United
States, its agencies and its or their lessees and permittees, or with private owners and
persons holding oil and gas leases on private lands or on state lands.

B. Lessees under oil and gas leases issued by the department may, with the consent
of the department, commit the state lands to unit, cooperative or other plans of
exploration, development and operation with other state, federal, private or Indian
lands.

C. The state land commissioner shall, not later than ten days after the date a
proposed cooperative or unit plan for the exploration, development or operation of oil
and gas pools is filed with the department, give notice in writing of such proposal to
the oil and gas conservation commission, the bureau of geology and mineral technology and
all holders of oil and gas leases on state lands to be included in the proposed
cooperative or unit plan. Any interested person may, within ten days after the date of
such notice, file a written protest with the department. Upon receipt of such a protest,
the state land commissioner shall, not later than thirty days after receipt of the
protest, hold a public hearing at the county seat of the county in which the state lands
to be included in the proposed cooperative or unit plan are located. Notice of the
public hearing shall be published three times in a newspaper of general circulation in
the county, the last publication to be not less than ten days prior to the date of the
hearing. The state land commissioner shall, not later than sixty days after the date the
proposed cooperative or unit plan is filed with the department or, in the event of a
protest and public hearing, not later than thirty days after the date of such public
hearing, determine whether it is in the best interests of the state to commit state lands
to the cooperative or unit plan as proposed or as modified. A proposed cooperative or
unit plan may be modified in a manner agreeable to the state land commissioner and the
proponent of the plan after such notice and public hearing as may be required by this
subsection. Upon determination by the state land commissioner that it is in the best
interests of the state to commit state lands to such cooperative or unit plan, the state
land commissioner shall consent to and approve the cooperative or unit plan.

D. The execution by the authorized state officer of a cooperative plan or unit
agreement is deemed to be an amendment of state leases committed to such plan or unit and
has the effect of extending the term of the state leases included in the plan or
agreement for the full period of time such plan or unit may remain in effect and of
modifying such leases so as to conform the terms and conditions of the leases to the
terms and conditions of the plan or unit but otherwise to remain in effect.

E. The agreements shall provide for the equitable division on an agreed basis of
the oil and gas produced from the unit and for the extension of leases covering any part
of the unit as long as drilling, completion or reworking operations are conducted
anywhere on the unit or as long as oil or gas in paying quantities is produced from any
part of the unit, but no such agreement shall relieve any operator from the obligation to
develop reasonably the lands and leases as a whole committed thereto. When the agreements
provide for returning gas to a formation underlying the unit, they may provide that no
royalties are required to be paid on the gas returned.

F. Any lease issued under this article which is committed to a unit agreement
embracing lands that are in part within and in part outside of the area covered by any
such agreement shall be segregated into separate leases as to the lands committed and the
lands not committed as of the effective date of unitization. Any such lease, as to the
nonunitized portion, shall continue in force and effect for a period of time equal to the
greater of the remainder of the original term of the lease or two years from the date of
such segregation and as long thereafter as oil or gas is produced in paying quantities.

G. Any lease issued under this article which is in effect at the termination of any
unit agreement to which such lease is committed, unless relinquished, shall continue in
effect for a period of time equal to the greater of the remainder of the original term of
the lease or two years from the termination of the unit agreement and as long thereafter
as oil or gas is produced in paying quantities.

H. Notwithstanding any of the foregoing, no lease issued or amended pursuant to
this article shall be extended for any term longer than as provided in article X, section
3 of the constitution of the state of Arizona.