Bill Summary – FastDemocracy

Stricken language would be deleted from and underlined language would be added to present law.
 State of Arkansas
 94th General Assembly                        A Bill
 Regular Session, 2023                                                             SENATE BILL 521
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 By: Senator B. Davis
 By: Representative Beck
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                                   For An Act To Be Entitled
                AN ACT TO AMEND THE LAW REGARDING OIL AND GAS
                PRODUCTION AND CONSERVATION; TO AMEND THE LAW
                REGARDING THE ALLOCATION OF PRODUCTION AND COST
                FOLLOWING AN INTEGRATION ORDER; AND FOR OTHER
                PURPOSES.
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                                               Subtitle
                         TO AMEND THE LAW REGARDING OIL AND GAS
                         PRODUCTION AND CONSERVATION; AND TO AMEND
                         THE LAW REGARDING THE ALLOCATION OF
                         PRODUCTION AND COST FOLLOWING AN
                         INTEGRATION ORDER.
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 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS:
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        SECTION 1.        Arkansas Code § 15-72-305(a)(3), concerning the calculation
 and distribution of royalty gas sold from a drilling unit following an
 integration order and the procedure for distributions to royalty owners, is
 amended to read as follows:
                (3)      One-eighth (⅛) of all gas sold on or after the first day of
 the calendar month next ensuing after March 6, 1985, from any such unit shall
 be considered royalty gas, and the net proceeds, less federal and state taxes
 and assessments levied upon the production, received from the sale thereof
 shall be distributed to the owners of the marketable title in and to the
 leasehold royalty and royalty as defined described under § 15-72-304(d). This
 section does not prevent any royalty owner from being paid in conformance
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 with the provisions of the appropriate lease, agreement, or contract creating
 the royalty. Marketability of title shall be determined according to
 principles of real property law governing title to oil and gas interests.
 Unless all royalty owners within the drilling unit agree to a different
 method for distribution of the royalty, the distribution shall be coordinated
 by the operator of the well as follows:
                  (A)(i)     Within thirty (30) days of the receipt of the
 proceeds from gas sales, each working interest owner shall furnish to the
 working interest owner designated as operator, in a form acceptable to the
 operator, the following information:
                                   (a)   The names and addresses of all owners of
 royalty under the working interest owner's leasehold interests;
                                   (b)   Each royalty owner's tax identification or
 Social Security number and any other information needed to meet the
 requirements of the Internal Revenue Service or other governmental agencies;
 and
                                   (c)   The fractional or decimal interests in the
 unit of each tract in which interests are owned and each royalty owner's
 fractional or decimal interest therein.
                           (ii)    Thereafter, each working interest owner shall
 notify the operator of any changes of ownership and provide the necessary
 information to facilitate the necessary changes promptly upon receiving proof
 thereof.
                           (iii)    If any working interest owner should fail or
 refuse to discharge its obligation to provide the information outlined in
 subdivision (a)(3)(A)(i) of this section in a timely manner, to facilitate
 payments, the operator may, at its option, either:
                                   (a)   Notify the working interest owner by
 certified or registered mail of the name, address, and decimal interests of
 the royalty owner believed to be entitled to receive payments pursuant to the
 terms hereof under the working interest owner's leasehold on the basis of the
 best information then available to the operator. If the working interest
 owner fails to respond to the notification within thirty (30) days of the
 receipt thereof, the operator shall be entitled to pay royalty moneys in
 accordance with its prior notification and usual procedures. Further, the
 operator's payment in this manner shall constitute a complete defense to any
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 claim or in any legal proceeding or cause of action and the responsible
 working interest owner shall indemnify and hold the operator harmless from
 all liability and reimburse the operator for any and all costs and expenses,
 including attorney's fees, interest, or penalty incurred with respect to the
 proceeding or action; or
                                  (b)   File an application with the commission,
 setting forth sufficient facts to identify the well concerned and the
 responsible working interest owner, requesting that the commission issue an
 order requiring the working interest owner to appear at the next regularly
 scheduled hearing and show cause with respect to its failure to timely comply
 with the provisions of this section. Subsequent to the hearing, the
 commission shall impose upon a working interest owner who has failed to meet
 its obligations hereunder such sanctions as are reasonably calculated to
 enforce compliance with this section. These sanctions shall include, but not
 be limited to, a penalty under § 15-74-709. The commission shall have the
 authority to suspend the imposition of any sanction for a maximum period of
 sixty (60) days in order to allow the noncompliant owner the opportunity to
 furnish proof to the commission of his or her compliance with any commission
 order. All penalties levied by the commission as a result of this provision
 shall be collected by the commission and shall be deposited into the State
 Treasury to the credit of the Oil and Gas Commission Fund. The commission may
 promulgate such other rules as it deems appropriate and necessary to carry
 out the purposes of this section.
                           (iv)   The terms of this subdivision (a)(3)(A) shall
 not be applicable to any producing unit or well that produces liquid
 hydrocarbons only, or liquid hydrocarbons associated with the production of
 gas, or gas produced associated with the production of liquid hydrocarbons;
 and
                  (B)(i)     Commencing no later than six (6) months after the
 date of first sale, and thereafter no later than the earlier of thirty (30)
 days after first payment is received or thirty (30) days after the sixty-day
 period within which the first purchaser is to make payment pursuant to §§ 15-
 74-501 and 15-74-601 — 15-74-603, or a total of ninety (90) days after the
 end of the calendar month within which subsequent production is sold, each
 working interest owner or marketing party who has sold gas shall remit or
 cause to be remitted to the operator one-eighth (⅛) of the revenue realized
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                                                                                SB521
 or royalty moneys from gas sales computed at the mouth of the well, less all
 lawful deductions, including, but not limited to, all federal and state taxes
 levied upon the production or proceeds received and shall indemnify and hold
 the other working interest owner free from any liability therefor. However,
 if any portion of the price received by a marketing party is subject to
 possible refund to the gas purchaser pursuant to the regulations, rules, or
 orders of any governmental authority, the refundable portion need not be
 included in the amount remitted to the operator for distribution hereunder
 until the possibility of refund has terminated. The funds or amounts as so
 remitted shall be held in trust by the operator for the account of the
 royalty owner or owners entitled thereto until distributed and paid as
 provided in this section.
                        (ii)   If any operator should fail or refuse to
 discharge its obligation to remit revenues in a timely manner as provided in
 this section, the working interest owner whose royalty owner's obligations
 have not been paid may, to facilitate payment, either:
                               (a)   File an application with the commission,
 setting forth sufficient facts to identify the well concerned and the
 responsible operator, requesting that the commission issue an order requiring
 the operator to appear at the next regularly scheduled hearing and show cause
 with respect to its failure to timely comply with the provisions of this
 section. Subsequent to the hearing, the commission shall impose upon an
 operator who has failed to meet its obligations hereunder such sanctions as
 are reasonably calculated to enforce compliance with this section. The
 sanctions shall include, but not be limited to, a penalty under § 15-74-709.
 The commission shall have the authority to suspend the imposition of any
 sanction for a maximum period of sixty (60) days in order to allow the
 noncompliant the opportunity to furnish proof to the commission of his or her
 compliance with any commission order. All civil penalties levied by the
 commission as a result of this provision shall be collected by the commission
 and deposited into the State Treasury to the credit of the fund. The
 commission may promulgate such other rules as it deems appropriate and
 necessary to carry out the purposes of this section; or
                               (b)   File a legal proceeding or cause of action
 to compel the operator's compliance with the terms hereof. The operator shall
 reimburse the complaining working interest owner for any and all costs or
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 expenses, including attorney's fees, incurred with respect to the proceeding
 or action.
                            (iii)   The operator shall not be held liable for
 failure to distribute royalty hereunder where its failure is due to the
 failure of a working interest owner to timely provide or cause to be provided
 the information and royalty moneys described in subdivision (a)(3)(A) of this
 section and this subdivision (a)(3)(B). Each working interest owner shall
 indemnify and hold the operator harmless for all costs, including reasonable
 attorney's fees, incurred as a result of the failure.
                            (iv)    The terms of this subdivision (a)(3)(B) shall
 not be applicable to any producing unit or well that produces liquid
 hydrocarbons only, or liquid hydrocarbons associated with the production of
 gas, or gas produced associated with the production of liquid hydrocarbons.
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      SECTION 2.       Arkansas Code § 15-72-305(a)(6)(A), concerning the
 discharge of obligations of the operator and other working interest owners
 related to royalty, is amended to read as follows:
              (6)(A)    Payment of one-eighth (1/8) of the revenue proceeds
 realized received from the sale of gas as provided in this section shall
 fully discharge all obligations of the operator and other working interest
 owners with respect to the payment of one-eighth leasehold royalty or royalty
 as described under § 15-72-304(d).
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Statutes affected: 
SB 521: 15-72-305(a)