312 IAC 29-19-5 - Determination of reasonable terms and equitable share of the proceeds of production
Authority: IC 14-10-2-4; IC 14-37-3
Affected: IC 14-37
Sec. 5.
(a)
Reasonable terms include establishing a percentage share of ownership of
production revenues derived from producing wells that is to be allocated to any
nonconsenting owner. The ownership interest may consist of one (1) of the
following:
(1) Royalty interest that shall not
bear any of the cost of exploration, drilling, producing, operating, marketing,
or any other expense associated with drilling and producing a well or operation
of the unit. This amount shall be at a rate of the greater of:
(A) twelve and one-half percent (12.5%) of
the proceeds from production; or
(B) an acreage-weighted average royalty
interest of the leased tracts within the unit.
(2) Working interest in an oil and gas lease
granting its owner the right to explore, drill, and produce oil and gas from a
tract of property. Working interest may consist of one (1) or more of the
following:
(A) A full participating interest
where the owner is obligated to pay a corresponding percentage of the cost of
leasing, drilling, completing, producing, and operating a well or
unit.
(B) A carried working
interest where the well or unit operator is entitled to receive the first
production from a well or unit that would otherwise be credited to the carried
working interest owner so that the carried owner's proportionate share of
actual expenditures incurred by the operator for the cost of leasing, drilling,
completing, producing, operating, and abandoning the well or unit is paid to
the operator from the production.
(C) Any other type of working interest
including, but not limited to, a net profits interest where the specific facts
presented during the informal hearing would suggest that such an interest may
be considered reasonable overhead and supervision charges, and any other costs
associated with the well or unit and other terms governing joint operations
according to normal industry standards.
(b) The following will be considered
equitable methods for sharing production proceeds among multiple parcels:
(1) By acreage. This method establishes
participation factors for each property within a drilling or production unit. A
decimal participation factor is established based on the percentage of acreage
each parcel bears to the acreage of the drilling or production unit. The sum of
all participation factors for all parcels in the unit shall be one
(1.0).
(2) By net recoverable
reserves. This method is generally used for secondary or enhanced recovery
operations and establishes participation factors for each property within a
drilling or production unit using generally accepted petroleum industry
practices to determine a reasonable estimate of remaining economically
recoverable reserves of oil beneath each property. In determining remaining
economically recoverable reserves, the following factors may be considered:
(A) Historic production.
(B) Net pay thickness.
(C) Net hydrocarbon pore volume.
(D) The size, shape, and position of the
producing structure.
(E) Net
floodable acreage.
The sum of all participation factors for all parcels in the unit shall be one (1.0). The owner or operator must demonstrate that the factors used in establishing the participation factors for each property are reasonable.
Notes
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