Code Section Group

Public Resources Code - PRC

DIVISION 6. PUBLIC LANDS [6001 - 8558]

  ( Division 6 added by Stats. 1941, Ch. 548. )

PART 2. LEASING OF PUBLIC LANDS [6501 - 7062]

  ( Part 2 added by Stats. 1941, Ch. 548. )

CHAPTER 3. Oil and Gas and Mineral Leases [6801 - 6932]

  ( Chapter 3 added by Stats. 1941, Ch. 548. )

ARTICLE 2. Provisions Relating to Oil and Gas Leases Generally [6826 - 6836]
  ( Article 2 added by Stats. 1941, Ch. 548. )

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.

(Amended by Stats. 1982, Ch. 1463, Sec. 4.)

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.

(Amended by Stats. 1978, Ch. 747.)

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.

(Amended by Stats. 1976, Ch. 834.)

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.

(Added by Stats. 1955, Ch. 1724.)

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.

(Added by Stats. 1975, Ch. 476.)

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.

(Added by Stats. 1941, Ch. 548.)

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.

(Amended by Stats. 1955, Ch. 1724.)

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.

(Amended by Stats. 1957, Ch. 2166.)

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.

(Amended by Stats. 1982, Ch. 1463, Sec. 5.)

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.

(Amended by Stats. 1957, Ch. 2166.)

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.

(Amended by Stats. 1966, 2nd Ex. Sess., Ch. 7.)

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.

(Amended by Stats. 1966, 2nd Ex. Sess., Ch. 7.)

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.

(Added by Stats. 1961, Ch. 979.)

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.

(Added by Stats. 1941, Ch. 548.)

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.

(Amended by Stats. 1955, Ch. 1724.)

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.

(Added by Stats. 1941, Ch. 548.)

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.

(Amended by Stats. 1957, Ch. 2166.)

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.

(Amended by Stats. 1941, Ch. 1241.)

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.

(Amended by Stats. 1955, Ch. 1724.)

PRCPublic Resources Code - PRC2.