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RULE §9.35Producing the State Lease

(a) General provisions applicable to producing oil and/or gas on state leases.

  (1) The GLO will treat a well as non-producing if no RRC production reports are filed for that well or if reports showing zero production are filed with the RRC for that well.

  (2) All wells producing natural gas and water or natural gas and surface hydrocarbon liquids or natural gas, water and surface hydrocarbon liquids must be produced through oil and gas separators of ample capacity and in good working order. All separators shall be of conventional type (or other equipment at least as efficient) to provide for separation and measurement of all lease or pooled unit gas and liquid hydrocarbon production before sale or surface commingling with production from any other lease and/or pooled unit. All measurement shall be in accordance with the American Gas Association (AGA) standards and all applicable chapters of the American Petroleum Institute (API) Manual of Petroleum Measurement Standards (MPMS) subject to the following: (i) gross lease or pooled unit gas and liquid hydrocarbon production must be measured by, at the option of the lessee, either (A) continuous measurement, or (B) utilization of periodic production well tests as described in MPMS Chapter 20.5 with each lease or pooled unit being tested at least once per month; and (ii) all lessees shall perform both gas and oil sampling with compositional analyses at the outlet of the initial stage of separation for each lease and/or pooled unit with (A) the gas sampling occurring within fifteen (15) days of the expiration of each six (6) month interval, and (B) the oil sampling occurring initially within thirty (30) days after completion of the well, and again between 24 to 36 months after such initial sampling. Industry standard laboratory analysis shall be performed on such samples in compliance with ASTM, API, and GPA standards for gas and oil. Lessees shall retain the foregoing required oil and gas analysis data and make such data available to the GLO as directed per the authority retained under §9.32(c)(3)(D) of this title, upon request. Requests submitted by the lessee shall be sent to the Texas General Land Office, Attention: Mineral Leasing, 1700 N. Congress Ave., Austin, TX 78701-1495.

  (3) Lessee shall obtain written permission from GLO before surface commingling state lease or state pooled-unit production with private lease production or before surface commingling oil and/or gas from two separate state leases and/or pooled state units. Lessee shall obtain written permission from GLO staff before down-hole commingling production from two or more intervals where the state's royalty interests differ between the proposed commingled intervals. Send commingling requests to the Texas General Land Office, Attention: Mineral Leasing, 1700 North Congress Avenue, Austin, TX 78701-1495. The requirement to obtain GLO staff approval applies to all commingle exception applications including new permits and amendments to existing permits.

  (4) If, within a group of properties comprised of surface commingled leases, tracts, and/or pooled units (Commingled Properties):

    (A) all state leases pertaining to the Commingled Properties were executed prior to January 7, 1999; or

    (B) the State's largest revenue interest among the Commingled Properties is less than 5.000%; or

    (C) the State has a net revenue interest in each and all of the Commingled Properties and those net revenue interests are identical to a tolerance of 0.001, then upon written certification by Lessee to the GLO that one or more of these conditions has been met, such Commingled Properties are deemed to have obtained permission from the GLO as required under §9.35(a)(3) of this title until and unless additional, non-qualifying surface commingling occurs in conjunction with the Commingled Properties, at which time written permission from the GLO shall be required.

(b) Effect of production during or after the primary term. If production in paying quantities is established during the primary term, lessee shall be exempt from paying further delay rentals so long as such production continues through the primary term. Thereafter, subject to other lease requirements, terms and conditions, a lease shall remain in effect so long as oil and/or gas is being produced in paying quantities from the lease.

(c) Cessation of production.

  (1) If production ceases within 60 days of a lease anniversary date during the primary term, the lease is maintained until the next anniversary date without payment of delay rentals. If production ceases more than 60 days before a lease anniversary date during the primary term, a delay rental must be timely paid on or before such anniversary date to maintain the lease by delay rentals.

  (2) If production ceases during the last year of the primary term or within the 60 days immediately preceding that last year, the lease will be maintained to the end of the primary term. To maintain a lease after such cessation of production, lessee may conduct drilling or reworking operations in compliance with §9.34(d) of this title, (relating to Drilling and Reworking Operations), treating the last day of the primary term as the date of cessation of production under such paragraph.

  (3) If production ceases after the primary term has expired, lessee may maintain its lease by conducting drilling or reworking operations under §9.34(d) or as otherwise authorized by the lease.

(d) No ratification or revivor. If a lease ceases to produce and is not otherwise maintained in force and effect, no action by the state or an owner of the soil on Relinquishment Act property, may ratify, re-grant or revive the terminated lease or may estop the state from asserting lease termination.

Source Note: The provisions of this §9.35 adopted to be effective January 7, 1999, 24 TexReg 146; amended to be effective August 9, 2009, 34 TexReg 5379; amended to be effective July 12, 2020, 45 TexReg 4526

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