CCLME.ORG - PRC 6826
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State
California
PRC Sec 6826-6836 Provisions Relating to Oil and Gas Leases Generally OIL AND GAS AND MINERAL LEASES (PUBLIC LANDS)


PUBLIC RESOURCES CODE
SECTION 6826-6836





6826. (a) The commission may permit geological or geophysical
surveys on state lands and may grant permits therefor, but the permit
shall not give the permittee any preferential right to an oil and
gas lease. The taking of cores and other samples may be conducted on
and under state lands; provided, that the commission shall require
that a permit first be obtained covering such types of drilling
operations for the purpose of obtaining geological samples as the
commission may determine by regulation, and upon such terms and
conditions as the commission may specify by regulation, but the
permit shall not give the permittee any preferential right to an oil
and gas lease.
(b) The commission shall require, as a condition to the issuance
of any permit for the conduct of geological or geophysical surveys on
tide and submerged lands under this section, that the permittee make
available to the commission, upon request, all factual and physical
exploration results, logs, and records resulting from the operations
under the permit. Any factual or physical exploration results, logs,
or records which the permittee is required to make available to the
commission shall be for the confidential use of the commission and
shall not be open to inspection by any person or agency. The
commission may, however, make the exploration results, logs, and
records available to those governmental agencies which need the
information in order to evaluate or regulate those tide and submerged
lands and adjacent lands; provided, however, that the commission
shall enter into a contractual agreement with those governmental
agencies specifying the purposes for which the exploration results,
logs, and records may be used and requiring the exploration results,
logs, and records to be maintained in confidence. The contractual
agreements shall specify the person who will examine and be
responsible for the confidentiality of the information. The
information shall not be open to inspection by any other person or
agency without the written consent of the permittee.
(c) It is a misdemeanor for any member of the commission, any
officer or employee of the commission, or any person performing any
function or work assigned to him or her by the commission, or any
governmental agency or employee utilizing data pursuant to an
agreement of confidentiality provided for in subdivision (b), to
disclose to any person who is not a member, officer, employee of the
commission, or authorized person pursuant to subdivision (b), or to
any person who is not performing any function or work assigned to him
or her by the commission, any information obtained from the
inspection of factual or physical exploration results, logs, or
records, or to use the information for purposes other than those
authorized by the commission or for the administration of the
functions, responsibilities, and duties vested in the commission by
law, except upon the written consent of the permittee making the
information available to the commission.



6826.1. The State Lands Commission shall not permit the taking of
cores or other samples by means of drilling operations on or under
the tide and submerged lands described in subdivision (c), (d), or
(f) of Section 6871.2 or on tide or submerged lands of the state
along the coast of the Pacific Ocean extending from the southerly
boundary of the state to the northerly boundary of the City of
Newport Beach in Orange County for the purpose of exploring for, or
exploiting, oil and gas resources.



6827. Leases for the extraction and removal of oil and gas deposits
may be made by the commission to the highest qualified bidder, or
joint bidders, as provided in this chapter. Such a lease shall
include all oil and gas deposits in the leased land and be for a term
of 20 years and for so long thereafter as gas or oil is produced in
paying quantities from the leased land, or lessee shall be diligently
conducting production, drilling, deepening, repairing, redrilling or
other necessary lease or well maintenance operations on the leased
land. Any lease heretofore issued under this chapter for a term of
20 years, or any renewal or extension thereof, may at any time or
times prior to its expiration be extended upon such terms and
conditions and for such period of time as the commission deems for
the best interests of the state or as the Legislature may provide;
provided further, that upon the lessee's timely application therefor
the commission may issue a new lease in exchange for any lease issued
for a term of 20 years, or any renewal or extension thereof; such
new lease shall be issued at the same royalty and upon the same terms
and conditions as the lease for which it is exchanged, unless the
commission and the lessee shall otherwise agree, except that the term
of such exchange lease shall be for a term of five years and for so
long thereafter as oil or gas is produced in paying quantities or
lessee shall be conducting production, drilling, deepening,
repairing, redrilling or other necessary lease or well maintenance
operations on the leased land.
When state lands, including tide and submerged lands, are offered
for lease by the commission, the commission shall specify a sliding
scale royalty on oil commencing at not less than 162/3 percent up to
a maximum percentage specified in the invitation to bid to be paid on
the average production of oil per well per day under such lease, and
a royalty of not less than 162/3 percent as specified in the
invitation to bid on dry gas, natural gasoline, and other products
extracted and saved from the gas produced under such lease, except
gas used for lease use or reinjection into the leased lands. Such
royalties shall be paid in kind or as a percentage of the current
market price at the well of, and of any premium or bonus paid on, the
production removed or sold from the leased land, subject to an
annual rental payable in advance of not less than one dollar ($1) for
each acre of land subject to the lease at the rental date. Unless
the commission decides to reject all bids pursuant to Section 6836,
the lease of the parcel or tract which is the subject of the bid
shall be awarded to the qualified bidder who undertakes to pay the
highest cash bonus in addition to satisfying all other provisions of
the lease.
As alternatives to the procedures set forth in the preceding
paragraph, the commission, if it so provides in the invitation to
bid, may: (1) specify a sliding scale royalty on oil commencing at
162/3 percent up to a maximum percentage specified in the invitation
to bid, to be paid on the average production of oil per well per day
under such lease, and a royalty of not less than 162/3 percent as
specified in the invitation to bid on dry gas, natural gasoline, and
other products extracted and saved from the gas produced under such
lease, except gas used for lease use or reinjection into the leased
lands, and award the lease of the parcel or tract which is the
subject of the bid to the qualified bidder who bids the highest
factor to be applied to the scale of oil royalties specified in the
offer to bid, in addition to satisfying all other provisions of the
lease, unless the commission decides to reject all bids pursuant to
Section 6836; or (2) specify that bidding shall be on the basis of a
flat rate of royalty and award the lease of the parcel or tract which
is the subject of the bid to the qualified bidder who undertakes to
pay the highest flat rate of royalty, but not less than 162/3
percent, on oil, to be paid on the production of oil under such
lease, and a royalty of not less than 162/3 percent as specified in
the invitation to bid on dry gas, natural gasoline, and other
products extracted and saved from the gas produced under such lease,
except gas used for lease use or reinjection into the leased lands,
unless the commission decides to reject all bids pursuant to Section
6836; or (3) specify, with respect to a proposed lease for the
extraction of gas, that bidding shall be on the basis of a flat rate
or royalty, and award the lease of the parcel or tract which is the
subject of the bid to the qualified bidder who undertakes to pay the
highest flat rate of royalty, but not less than 162/3 percent, on dry
gas, natural gasoline, and other products extracted and saved from
the gas produced under such lease, except gas used for lease use or
reinjection into the leased lands, unless the commission decides to
reject all bids pursuant to Section 6836; or (4) as an additional
alternative, the commission, if it so provides in the invitation to
bid, may award the lease of the parcel or tract which is the subject
of the bid to the qualified bidder who undertakes to pay the highest
percentage of net profits derived from oil, dry gas, and other
products extracted under the lease, in addition to satisfying all
other provisions of the lease, unless the commission decides to
reject all bids pursuant to Section 6836, and under such alternative,
an annual rental of not less than one dollar ($1) for each acre of
land subject to the lease shall be payable in advance on the rental
date. Under alternatives (1), (2), and (3), the royalties shall be
paid in kind or as a percentage of the current market price at the
well of the production removed or sold from the leased lands, subject
to an annual rental payable in advance of not less than one dollar
($1) for each acre of the land subject to the lease at the rental
date.
Except in the case of net profits leases under alternative (4), no
allowance may be made for the cost of oil treatment, dehydration, or
transportation of royalty oil on leases let subsequent to January 1,
1977.
If, at any time or from time to time, before or after the
expiration of the primary term of such lease, the leased lands cease
to produce oil or gas, the lease shall; nevertheless, continue in
full force and effect if within six months after the cessation of
production, or such longer period of time as the commission may
authorize, lessee shall commence and thereafter prosecute with
reasonable diligence drilling, deepening, repairing, redrilling or
other operations for the purpose of restoring production of oil or
gas from the leased lands.



6827.1. Nothing contained in this chapter or any other law shall
prevent or prohibit two or more persons who are individually eligible
to hold a lease under this chapter from making a joint bid for any
lease or leases offered under this chapter.



6827.2. In order to prevent the premature abandonment of a lease,
notwithstanding any other provision in this chapter, if, after the
holding of a public hearing, the commission finds that continued
production from a lease is in the best interests of the people of
California and that such production is economically unfeasible under
the terms set forth in the lease, the commission may renegotiate the
lease to reduce the minimum royalty rate or to substitute such other
consideration as would be in the best interests of the state.



6828. All leases of lands containing oil or gas made or issued
under this chapter shall be subject to the condition that the lessee
will use all reasonable precautions to prevent waste of oil or gas
developed in the land, or the entrance of water through wells drilled
to the oil-bearing strata, to the destruction or injury of the oil
deposits. All leases shall further provide that the lessee therein
shall comply with all valid laws of the United States and of the
State of California and with all valid ordinances of cities and
counties applicable to the lessee's operations, including, without
limitation by reason of the specification thereof, the lessee's
compliance with Division 3 of this code.



6829. Every oil and gas lease executed under this chapter shall
include the following:
(a) Such terms, conditions, and provisions as will protect the
interests of the State with reference to securing the payment to the
State of the proper amount or value of production.
(b) Such terms, conditions and provisions as will protect the
interests of the State with reference to the spacing of wells for the
purpose of properly offsetting the drainage of oil and gas from
state lands by wells drilled and operated on and within privately
owned lands; diligence on the part of the lessee in drilling wells to
the oil sands and requirements as to depth of such wells for the
purpose of reaching the oil sands and producing oil and gas therefrom
in commercial quantities.
(c) Provisions specifying methods of operation and standard
requirements for carrying on operations in proper and workmanlike
manner; the prevention of waste; the protection of the safety and
health of workmen; and the liability of the lessee for personal
injuries and property damage.
(d) Security for faithful performance by the lessee, including
provisions for the forfeiture of the lease, as set forth in Section
6805, and the requirement that the lessee shall, at the time of
execution of the lease, furnish and thereafter maintain a good and
sufficient bond in such sum as may be specified by the commission, in
favor of the State, guaranteeing faithful performance by the lessee
of the terms, covenants, and conditions of the lease and of the
provisions of this chapter.
(e) Such other covenants, conditions, requirements, and
reservations as may be deemed advisable by the commission in
effecting the purpose of this chapter and not inconsistent with any
of its provisions; provided, that any provision of an oil and gas
lease executed under this chapter which purports to deprive the State
or a lessee of any right or benefit secured by law, or is otherwise
inconsistent with the provisions of this chapter, shall be void, and
shall be deemed separable from and without effect upon the valid
provisions of such lease.



6829.1. Every oil and gas lease, including leases of tide and
submerged lands, executed under this chapter, shall specify a period
of not to exceed three (3) years, as specified by the commission in
the invitation for bids, subject to extension by the commission as
provided in this chapter, as the drilling term of the lease within
which the lessee may commence operations for the drilling of a well
for oil or gas, and, providing that, if lessee fails to commence such
operations and to thereafter diligently prosecute them, the lease
shall terminate.


6829.2. The commission, in the interest of increasing the ultimate
recovery of oil or gas, the protection of oil or gas from
unreasonable waste, the possible arresting or amelioration of land
subsidence, or protecting adjacent landowners, may include in any oil
and gas lease executed under this chapter a provision which may
require the lessee to enter into any unit or cooperative agreement
with respect to the leased lands when the commission gives notice of
intention to lease those lands. For any of those purposes, the
commission, on behalf of the state as lessor or prospective lessor,
may negotiate and enter into unit or cooperative agreements with
respect to lands owned by the state, or lands in which the oil and
gas deposits are reserved to the state, for the purpose of bringing
about the unitized or cooperative development and operation of all,
or a part or parts, of the oil and gas field in which the lands are
located. Subject to the provisions of this section and
notwithstanding any competitive bidding requirements or restrictions
on term contained in this code or any other statute, the commission
may negotiate and execute all agreements necessary to effectuate,
implement, or modify any such unit or cooperative agreement,
including the power to bind and commit lands, including tide and
submerged lands, or any interest in lands, to the cooperative or unit
agreement for the full term thereof, irrespective of whether the
term thereof is for a period extending over the life of the field or
for any other indefinite period. The power of the commission to
enter into unit or cooperative agreements includes the power to do
other acts or things, and to incur on behalf of the state other
commitments and obligations, that are customary in unit or
cooperative agreements. The commission may designate a
representative or representatives to attend unit meetings, vote, and
otherwise represent and bind the interest of the state in accordance
with the terms and conditions of any such unit or cooperative
agreement.


6830. All oil and gas leases issued by the commission for lands
under its jurisdiction as set forth in Chapters 3 and 4 of Part 1 and
in Chapter 3 of Part 2 of Division 6 of this code shall contain a
reservation to the commission of the right to determine the spacing
of wells and the rate of drilling and rate of production of such
wells so as to prevent the waste of oil and gas and promote the
maximum economic recovery of oil and gas from, and the conservation
of reservoir energy in, each zone or separate underground source of
supply of oil or gas covered in whole or in part by leases issued
under this chapter.


6830.1. It is hereby found and determined by the Legislature of the
State of California as follows:
(a) That the people of the State of California have a direct and
primary interest in assuring the production of the optimum quantities
of oil and gas from lands owned by the state, and that a minimum of
oil and gas be left wasted and unrecovered in such lands.
(b) That the state owns tide and submerged lands, which lands have
been developed under oil and gas leases issued by the state to such
extent that it is desirable that secondary operations be undertaken
within such lands in an effort to obtain the maximum economic
ultimate recovery of oil and gas from said lands; and that it is
desirable that the carrying on of secondary recovery operations in
such lands be encouraged, which operations the holders of such leases
may otherwise not undertake because certain of the leases covering
such lands provide for the payment of graduated royalties dependent
upon daily per well rates of oil production (which, in the case of
multiple completions, means the separately measured average daily
production from each zone produced through a separate string of
tubing or through casing which is not in communication with any other
zone), which graduated royalties were established without
contemplation of secondary recovery operations and the economics
respecting such operations.
The definition relating to multiple completions set forth herein
shall apply to leases executed on or after the effective date of the
amendments made to this section at the 1966 Second Extraordinary
Session of the Legislature and may, with the approval of the
commission, apply to oil produced from leased lands with respect to
which the commission and the holder of the lease shall, on or after
the effective date of such amendments, enter into an amendatory
agreement pursuant to Section 6830.2. It is not the intention of the
Legislature in enacting this paragraph to declare the law relating
to the computation of daily per well rates of oil production from
multiple completions before the effective date of such amendments or
in the absence of such an amendatory agreement.



6830.2. Whenever the holder of an oil and gas lease of state-owned
lands proposes to engage in secondary recovery operations within such
lease, the commission and the holder of the lease may mutually agree
to modifications of the lease in furtherance of such proposal and
with the object of obtaining the maximum economic ultimate recovery
of oil and gas from the lands included within such lease, so far as
such is reasonably practicable.
Any such amendatory agreement shall contain provisions to assure,
so far as reasonably practicable:
(a) That the total royalty production to which the state shall
thereafter be entitled shall be no less than the total royalty
production to which the state would thereafter have been entitled if
such lease had continued to be operated under primary recovery
methods, absent any secondary recovery operations, and (b) that the
royalty production accruing to the state from the additional oil
produced, if any, as a result of the conduct of secondary recovery
operations shall be calculated and determined in such manner as to be
at least as great in proportion to such additional oil as the
royalty production agreed upon in conformance with subdivision (a) of
this section is in proportion to the total remaining primary
production agreed upon in conformance with subdivision (a).
As a basis for making a determination that it is in the best
interests of the state that it enter into such an agreement, and
before authorizing the execution thereof, and to determine the
appropriate royalty rates on primary and on additional production,
the commission shall, using all information available to it, make a
calculated projection of the volume of primary royalty to which the
state would be entitled under the existing royalty provisions of the
lease for the zone or zones involved in the proposal, absent
secondary recovery operations, and shall compare its determinations
with those of the holder of the lease in an effort to arrive at a
mutual agreement.



6830.3. In satisfaction of the requirements of subdivisions (a) and
(b) of Section 6830.2, the commission may consider, use, apply or
adopt any means, methods, formulas or data available to it in order
to arrive, in accordance with generally recognized good engineering
practice, at any provisions to be included in any agreement
amendatory to the lease, mutually acceptable to the holder of the
lease, including the rate or rates of royalty to be applied, and
otherwise in conformity with the provisions of this section and
Section 6830.2.
The royalty rate or rates to be applied during secondary recovery
operations shall in no event be less than the minimum royalty
provided by the lease prior to any amendment thereof entered into
pursuant to this section and Section 6830.2, but nothing in this
section and Section 6830.2 is intended to require that the holder of
the lease shall account to the State for a guaranteed quantity of
royalty production, but neither shall it prohibit the holder of the
lease from guaranteeing to the State any given quantity of royalty
production.
Amendatory agreements entered into pursuant to and in conformity
with this section and Section 6830.2 may be made in conjunction with
agreements entered into for the purpose of effecting a co-operative
or unit plan of development pursuant to the provisions of this code,
including Section 6832 thereof.



6831. Rights of way through all State lands may be granted to any
lessee by the commission under such regulations as to survey,
location, application, and use as may be prescribed by the
commission.



6832. For the purpose of more properly conserving the natural
resources of any oil or gas pool or field, or any part thereof,
lessees hereunder and their representatives may unite with each other
jointly or separately, or jointly or separately with others owning
or operating lands not belonging to the State, including lands
belonging to the United States, in collectively adopting and
operating under a cooperative or unit plan of development or
operation of the pool or field, or any part thereof, whenever it is
determined by the commission to be necessary or advisable in the
public interest. The commission may, with the consent of the holders
of leases involved, establish, alter, change, and revoke any
drilling and production requirements of such leases, permit
apportionment of production and may make such regulations with
reference to such leases, with like consent on the part of such
lessees, in connection with the institution and operation of any such
co-operative or unit plan, as the commission deems necessary or
proper to secure the proper protection of the interests of the State.



6833. The commission, upon such conditions as the commission shall
prescribe, may approve operating, drilling or development contracts
made by one or more lessees holding oil or gas leases on State lands
with one or more persons, associations, or corporations, whenever in
the discretion of the commission the conservation of natural products
or the public convenience and necessity require it, or the interests
of the State may be best subserved thereby.



6834. Whenever the commission determines that lands shall be leased
for oil and gas as provided in this chapter and when the form of
lease therefor has been prepared by the commission, the commission
shall give notice of intention to lease such lands. The notice shall
be published in a newspaper of general circulation in the county in
which the lands or the greater portion thereof are situated and shall
state the time (which shall not be less than 14 days after the last
date of publication of the notice) and place for receiving and
opening bids, a description of the lands, either as a tract or by
parcels, and that the form of lease for the purpose of bidding may be
procured at the designated office of the commission.
If the notice is published in a weekly newspaper, it must appear
therein on at least two different days of publication and if in a
newspaper published oftener, there must be at least five days from
the first to the last day of publication, both days included.



6835. Each bid (which shall be in the form of a lease prepared in
accordance with this chapter) for an oil and gas lease shall be
accompanied by a certified or cashier's check of a responsible bank
in California payable to the State of California in an amount to be
fixed by the commission, which sum shall be deposited as evidence of
good faith and except in the case of the successful bidder shall be
returned to the bidder. Upon the execution of the lease the amount
shall be applied upon the annual rental for the first year and the
balance, if any, shall be returned to the lessee. If the successful
bidder fails or refuses to execute the lease within 15 days after the
award thereof, the amount of the check shall be forfeited to the
State.



6836. At the time and place specified in the notice, the commission
shall publicly open the sealed bids and shall award the lease for
each parcel to the highest qualified bidder, unless in the opinion of
the commission, the acceptance of the highest bid for any parcel or
parcels is not for the best interests of the State, in which event
the commission may reject all the bids for such parcel or parcels.
Thereupon new bids may be called for and the parcel or parcels for
which the bids were rejected may be leased as herein provided.