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Form a Business

Conservation and Regulation of Production.

Ala. Code tit. 9, ch. 17, art. 1
in effect

Ala. Code § 9-17-1 Definitions.

9-17-1. Definitions. Unless the context otherwise requires, the following terms shall have the following meanings: (1) BOARD. The State Oil and Gas Board created by this article. (2) DEVELOPED AREA or DEVELOPED UNIT. A drainage unit having a well completed thereon which is capable of producing oil or gas in paying quantities; however, in the event it is shown and the board finds that a part of any unit is nonproductive, then the developed part of the unit shall include only that part found to be productive. (3) DRAINAGE OR PRODUCTION UNIT. The area in a pool which may be drained efficiently and economically by one well. (4) DRILLING UNIT. An administrative unit established by the board to provide and allow for the drilling of a well. Prior to establishment of a field and drainage or production unit within the field, the board may establish a drilling unit to allow for the drilling of a well in search of oil and gas. (5) FIELD. The general area which is underlain or appears to be underlain by at least one pool, and such term shall include the underground reservoir or reservoirs containing crude oil or natural gas or both. The words “field” and “pool” have the same meaning when only one underground reservoir is involved; however, the word “field,” unlike “pool,” may relate to two or more pools. (6) GAS. All natural gas, including casinghead gas, and all other hydrocarbons not defined as oil in subdivision (10). (7) HORIZONTAL WELL. A well initially drilled vertically and then turned and drilled at an angle of 75 degrees or greater from vertical. (8) ILLEGAL GAS. Gas which has been produced within the State of Alabama from any well or wells in excess of the amount allowed by any rule, regulation, or order of the board, as distinguished from gas produced within the State of Alabama not in excess of the amount so allowed, which is “legal gas.” (9) ILLEGAL OIL. Oil which has been produced within the State of Alabama from any well or wells in excess of the amount allowed by any rule, regulation, or order of the board, as distinguished from oil produced within the State of Alabama not in excess of the amount so allowed, which is “legal oil.” (10) ILLEGAL PRODUCT. Any product of oil or gas, any part of which was processed or derived in whole or in part from illegal oil or illegal gas or from any product thereof, as distinguished from “legal product,” which is a product processed or derived to no extent from illegal oil or illegal gas. (11) OIL. Crude petroleum oil and other hydrocarbons, regardless of gravity, which are produced at the well in liquid form by ordinary production methods and which are not the result of a condensation of gas after it leaves the pool. (12) OPERATOR. The person who is authorized by the board to operate an oil, gas, or Class II injection well, or production facility, or processing facility, or engages in the transportation of hydrocarbons by pipeline, including the handling and disposal of wastes that may be generated during operation of a well, or production facility, or processing facility. (13) OWNER. The person who has the right to drill into and to produce from any pool and to appropriate the production either for himself or herself or for himself or herself and another or others. (14) PERSONS. Any natural person, firm, corporation, association, partnership, joint venture, receiver, trustee, guardian, executor, administrator, fiduciary, representative of any kind, or any other group acting as a unit. (15) POOL. An underground reservoir containing a common accumulation of crude petroleum oil or natural gas or both and each zone of a general structure which is completely separated from any other zone in the structure. (16) PRODUCER. The owner of a well or wells capable of producing oil or gas or both; provided, however, that the word “producer” as used in Section 9-17-25 shall also include any person receiving money or other valuable consideration as royalty or rental for oil or gas produced or because of oil or gas produced, whether produced by him or her or by some other person on his or her behalf, either by lease, contract, or otherwise, and whether the royalty consists of a portion of the oil or gas produced being run to his or her account or a payment in money or other valuable consideration. (17) PRODUCT. Any commodity made from oil or gas and shall include refined crude oil, crude tops, topped crude, processed crude petroleum, residue from crude petroleum, cracking stock, uncracked fuel oil, fuel oil, treated crude oil, residuum, gas oil, casinghead gasoline, natural gas gasoline, naphtha, distillate, gasoline, kerosene, benzine, wash oil, waste oil, blended gasoline, lubricating oil, blends or mixtures of oil with one or more liquid products or byproducts derived from oil or gas and blends or mixtures of two or more liquid products or byproducts derived from oil or gas, whether hereinabove enumerated or not. (18) REASONABLE MARKET DEMAND. As to oil, the amount of oil reasonably needed for current consumption and use, together with a reasonable amount of oil for storage and working stock and, as to gas, the amount of gas of any type reasonably needed to supply the current consumption and use of such type of gas. (19) TENDER. A permit or certificate of clearance, approved and issued or registered under the authority of the board, for the transportation of oil, gas, or products. (20) WASTE. In addition to its ordinary meaning, such term shall mean “physical waste” as that term is generally understood in the oil and gas industry. It shall include any of the following: a. The inefficient, excessive, or improper use or dissipation of reservoir energy and the locating, spacing, drilling, equipping, operating, or producing of any oil or gas well or wells in a manner which results or tends to result in reducing the quantity of oil or gas ultimately to be recovered from any pool in this state. b. The inefficient storing of oil and the locating, spacing, drilling, equipping, operating, or producing of any oil or gas well or wells in a manner causing or tending to cause unnecessary or excessive surface loss or destruction of oil or gas. c. Abuse of the correlative rights and opportunities of each owner of oil and gas in a common reservoir due to nonuniform, disproportionate, and unratable withdrawals causing undue drainage between tracts of land. d. Producing oil or gas in such manner as to cause unnecessary water channeling or coning. e. The operation of any oil well or wells with an inefficient gas-oil ratio. f. The drowning with water of any stratum or part thereof capable of producing oil or gas. g. Underground waste however caused and whether or not defined. h. The creation of unnecessary fire hazards. i. The escape into the open air, from a well producing both oil and gas, of gas in excess of the amount which is necessary in the efficient drilling or operation of the well. j. The use of gas, except sour gas, for the manufacture of carbon black. k. The escape of gas into the open air, from a well producing gas, in excess of the amount which is necessary for safety reasons or for the efficient drilling, testing, and operation of the well. l. Production of oil and gas in excess of reasonable market demand. (Acts 1945, No. 1, p. 1, §2; Acts 1979, No. 79-475, p. 875, §1; Act 2000-714, p. 1517, §1; Act 2008-450, p. 853, §1; Act 2014-281, p. 890, §1.)

Ala. Code § 9-17-2 Declaration of Public Policy; Purpose of Article.

9-17-2. Declaration of Public Policy; Purpose of Article. The prevention of waste of oil and gas and the protection of correlative rights are declared to be in the public interest. The purpose of this article is to prevent such waste and to protect correlative rights. (Acts 1945, No. 1, p. 1, §1; Acts 1969, No. 1033, p. 1916, §1.)

Ala. Code § 9-17-3 Oil and Gas Board - Created; Composition; Compensation and Members Emeritus.

9-17-3. Oil and Gas Board - Created; Composition; Compensation and Members Emeritus. (a) There is created and established a board, to be known as the State Oil and Gas Board, to be composed of three members to be appointed by the Governor for terms of the following duration: One member for a term of two years; one member for a term of four years; and one member for a term of six years. At the expiration of the term for which each of the original appointments is made, each successor member shall be appointed for a term of six years; and, in the event of a vacancy, the Governor shall by appointment fill such unexpired term. Each member shall be eligible for reappointment at the discretion of the Governor. The membership of the board shall be inclusive and reflect the racial, gender, geographic, urban/rural, and economic diversity of the state. The board shall annually report to the Legislature by the second legislative day of each regular session the extent to which the board has complied with the diversity provisions of this subsection. Each member of the board shall be a resident and citizen of the State of Alabama and shall be a qualified voter therein. Each member shall qualify by taking an oath of office and shall hold office until his or her successor is appointed and qualified. The board shall elect from its number a chairman. The board shall meet or hold hearings at such times and places as may be found by the board to be necessary to carry out its duties. Each member of the board shall receive as compensation for his or her services an annual salary of three thousand six hundred dollars ($3,600) and, in addition thereto, each member shall be entitled to a travel and office expense allowance of five hundred dollars ($500) per month. The compensation and travel and office expense allowance as above set forth shall be paid from the Oil and Gas Fund. (b) Any person who has served 19 or more years continuously on the board shall be a nonvoting member emeritus of the board. A member emeritus shall receive no compensation, salary, or travel or expense allowance or reimbursement for his or her service on the board. (Acts 1945, No. 1, p. 1, §3; Acts 1965, 2nd Ex. Sess., No. 82, p. 112, §1; Acts 1967, No. 219, p. 584, §1; Acts 1990, No. 90-104, p. 114, §3; Acts 1994, No. 94-593, p. 1100, §3; Act 2010-276, p. 499, §3.)

Ala. Code § 9-17-3.1 Oil and Gas Board — Exemption from Sunset Law.

9-17-3.1. Oil and Gas Board — Exemption from Sunset Law. Commencing on February 8, 2018, the State Oil and Gas Board is not subject to review as an enumerated agency under the Alabama Sunset Law. (Act 2018-75, §3.)

Ala. Code § 9-17-4 Oil and Gas Board - Quorum; Votes Required for Promulgation of Rules, Regulations or Orders.

9-17-4. Oil and Gas Board - Quorum; Votes Required for Promulgation of Rules, Regulations or Orders. Two members of the board shall constitute a quorum, but two affirmative votes shall be necessary for the adoption or promulgation of any rule, regulation or order of the board. (Acts 1945, No. 1, p. 1, §6.)

Ala. Code § 9-17-5 Oil and Gas Board - Representation in Litigation; Administration of Oaths.

9-17-5. Oil and Gas Board - Representation in Litigation; Administration of Oaths. The Attorney General shall be attorney for the board; provided, that in cases of emergency the board may call upon the district attorney of the circuit where the action is to be brought or defended to represent the board until such time as the Attorney General may take charge of the litigation. Any member of the board, or the secretary thereof, shall have power to administer oaths to any witness in any hearing, investigation or proceeding contemplated by this article or by any other law of this state relating to the conservation of oil and gas. (Acts 1945, No. 1, p. 1, §7.)

Ala. Code § 9-17-6 Oil and Gas Board - Powers and Duties Generally.

9-17-6. Oil and Gas Board - Powers and Duties Generally. (a) The board shall have jurisdiction and authority over all persons and property necessary to administer and enforce effectively the provisions of this article and all other articles relating to the conservation of oil and gas. (b) The board shall have the authority and it shall be its duty to make such inquiries as it may think proper to determine whether or not waste, over which it has jurisdiction, exists or is imminent. In the exercise of such power the board shall have the authority to perform the following: (1) Collect data. (2) Make investigation and inspection. (3) Examine properties, leases, papers, books, and records, including drilling records, logs, and other geological and geophysical data. (4) Examine, check, test, and gauge oil and gas wells, tanks, plants, processing facilities, structures, natural gas pipelines and gathering lines, and storage and transportation equipment and facilities, and other modes of transportation. (5) Hold hearings. (6) Appoint a hearing officer for the purpose of conducting public hearings on behalf of the board and making recommendations to the board. (7) Require the keeping of records and making of reports. (8) Take such action as may be reasonably necessary to enforce this article. (c) The board shall have the authority to make, after hearing and notice as provided in this article, such reasonable rules, regulations, and orders as may be necessary from time to time in the proper administration and enforcement of this article, including rules, regulations, and orders for the following purposes: (1) To require the drilling, casing, and plugging of wells to be done in such a manner as to prevent the escape of oil or gas out of one stratum to another. (2) To prevent the intrusion of water into an oil or gas stratum from a separate stratum. (3) To prevent the pollution of fresh water supplies by oil, gas, salt water, or other contaminants resulting from oil and gas operations, including surface mining operations to recover oil from oil sands. (4) To require the making of reports showing the location of oil and gas wells and surface or underground operations for the recovery of oil from oil sands and to require the filing of logs, including electrical logs, and drilling records and the lodgment in the office of the State Oil and Gas Supervisor of typical drill cuttings or cores, if cores are taken, within six months from the time of the completion of any well or surface or underground operations for the recovery of oil from oil sands. (5) To require reasonable bond, with good and sufficient surety, or other financial security approved by the board, conditioned for the performance of the duties outlined in subdivisions (1), (2), (3), and (4) of this subsection, including the duty to plug each dry or abandoned well and to restore the well site for each dry or abandoned well and associated production and processing facility and plant upon the abandonment of such well, facility, or plant and to reclaim all surfaces disturbed during surface mining operations for the recovery of oil from oil sands. (6) To prevent wells from being drilled, operated, or produced in such a manner as to cause injury to neighboring leases or property and to protect neighboring leases or property from being damaged or injured by operations to recover oil from oil sands. (7) To prevent the drowning by water of any stratum or part thereof capable of producing oil or gas in paying quantities and to prevent the premature and irregular encroachment of water which reduces or tends to reduce the total ultimate recovery of oil or gas from any pool. (8) To require the operation of wells with efficient gas-oil ratios and to fix such ratios. (9) To prevent “blowouts,” “caving,” and “seepage” in the sense that conditions indicated by such terms are generally understood in the oil and gas business. (10) To prevent fires. (11) To identify the ownership of all oil and gas wells, surface mining operations to recover oil from oil sands, producing leases, tanks, plants, processing facilities, structures, natural gas pipelines and gathering lines, and storage and transportation equipment and facilities. (12) To regulate the “shooting,” perforating, and chemical treatment of wells. (13) To regulate enhanced recovery methods, which include Class II injection wells as defined in the Federal Safe Drinking Water Act, 42 U.S.C. § 300f et seq. (14) To establish drilling units, to determine the spacing of wells, to establish oil and gas fields for each oil and gas pool, including fields for operations to recover oil from oil sands, to establish the spacing of wells for each pool, and to establish drainage or production units. (15) To limit and prorate the production of oil or gas or both from any pool or field for the prevention of waste as defined in this article. (16) To require, either generally or in or from particular areas, certificates of clearance or tenders in connection with the transportation of oil, gas, or any product. (17) To prevent, so far as is practical, reasonably avoidable drainage from each developed unit which is not equalized by counterdrainage. (18) To require the placing of meters of a type approved by the board wherever the board may designate in plants and processing facilities on all pipelines, gathering systems, barge terminals, loading racks, or other places deemed necessary or proper to prevent waste and the transportation of illegally produced oil or gas. Such meters at all times shall be under the supervision and control of the board; and it shall be a violation of this article, subject to the penalties provided in this article, for any person to refuse to attach or install such meter when ordered to do so by the board or in any way to tamper with such meter so as to produce a false or inaccurate reading or to have any bypass at such a place where the oil or gas can be passed around such meter, unless expressly authorized by written permit of the board. (Acts 1945, No. 1, p. 1, §9; Acts 1988, No. 88-576, p. 893, §1; Act 2000-714, p. 1517, §1; Act 2008-450, p. 853, §1; Act 2013-203, p. 426, §1.)

Ala. Code § 9-17-7 Oil and Gas Board - Rules of Procedure for Hearings, Etc.; Promulgation, Etc., of Rules, Regulations or Orders Generally; Promulgation, Etc., of Emergency Rules, Regulations or Orders.

9-17-7. Oil and Gas Board - Rules of Procedure for Hearings, Etc.; Promulgation, Etc., of Rules, Regulations or Orders Generally; Promulgation, Etc., of Emergency Rules, Regulations or Orders. (a) The board shall prescribe its rules of order or procedure in hearings or other proceedings before it under this article. (b) No rule, regulation or order, including any change, renewal or extension thereof, shall, in the absence of an emergency, be made by the board under the provisions of this article except after a public hearing upon at least 10 days notice, given in the manner and form as may be prescribed by the board. Such public hearing shall be held at such time and place and in such manner as may be prescribed by the board, and any person having any interest in the subject matter of the hearing shall be entitled to be heard. (c) In the event an emergency is found to exist by the board which in its judgment requires the making, changing, renewal or extension of a rule, regulation or order without first having a hearing, such emergency rule, regulation or order shall have the same validity as if a hearing with respect to the same had been held after due notice. The emergency rule, regulation or order permitted by this subsection shall remain in force no longer than 45 days from its effective date and, in any event, it shall expire when the rule, regulation or order made after due notice and hearing with respect to the subject matter of such emergency rule, regulation or order becomes effective. (d) Should the board elect to give notice by personal service, such service may be made by any officer authorized to serve process or by any agent of the board in the same manner as is provided by law for the service of summons in civil actions in the circuit courts of this state. Proof of the service by such agent shall be by the affidavit of the person making personal service. (e) All rules, regulations and orders made by the board shall be in writing and shall be entered in full by the secretary of the board in a book to be kept for such purpose by the board, which shall be a public record and open to inspection at all times during reasonable office hours. A copy of any rule, regulation or order, certified by the secretary of the board, shall be received in evidence in all courts of this state with the same effect as the original. (f) Any interested person shall have the right to have the board call a hearing for the purpose of taking action in respect to any matter within the jurisdiction of the board by making a request therefor in writing. Upon the receipt of any such request, the board promptly shall call a hearing thereon and, after such hearing and with all convenient speed and in any event within 30 days after the conclusion of such hearing, shall take such action with regard to the subject matter thereof as it may deem appropriate. (Acts 1945, No. 1, p. 1, §10; Acts 1965, 2nd Ex. Sess., No. 79, p. 109, §1.)

Ala. Code § 9-17-8 Oil and Gas Board - Powers as to Witnesses; Enforcement of Subpoenas Issued by Board.

9-17-8. Oil and Gas Board - Powers as to Witnesses; Enforcement of Subpoenas Issued by Board. (a) The board or any member thereof is hereby empowered to issue subpoenas for witnesses, to require their attendance and the giving of testimony before it and to require the production of such books, papers and records in any proceeding before the board as may be material upon questions lawfully before the board. Such subpoenas shall be served by the sheriff or any other officer authorized by law to serve process in this state. No person shall be excused from attending and testifying or from producing books, papers and records before the board or a court or from obedience to the subpoena of the board or a court on the ground or for the reason that the testimony or evidence, documentary or otherwise, required of him may tend to incriminate him or subject him to a penalty or forfeiture; provided, that nothing contained in this section shall be construed as requiring any person to produce any books, papers or records or to testify in response to any inquiry not pertinent to some question lawfully before such board or court for determination. No natural person shall be subjected to criminal prosecution or to any penalty or forfeiture for or on account of any transaction, matter or thing concerning which he may be required to testify or produce evidence, documentary or otherwise, before the board or court or in obedience to its subpoena; provided, that no person testifying shall be exempt from prosecution and punishment for perjury committed in so testifying. (b) In case of failure or refusal on the part of any person to comply with any subpoena issued by the board or any member thereof or in case of the refusal of any witness to testify or answer to any matter regarding which he may be lawfully interrogated, any circuit court in this state, on application of the board, may, in term time or vacation, issue an attachment for such person and compel him to comply with such subpoena and to attend before the board and produce such documents and give his testimony upon such matters as may be lawfully required, and such court have the power to punish for contempt as in case of disobedience of like subpoenas issued by or from such court or for a refusal to testify therein. (Acts 1945, No. 1, p. 1, §11.)

Ala. Code § 9-17-9 State Oil and Gas Supervisor.

9-17-9. State Oil and Gas Supervisor. The State Geologist shall be, ex officio, the State Oil and Gas Supervisor and shall perform all of the duties of and is hereby vested with all the powers imposed upon and vested in the State Oil and Gas Supervisor under and by the terms and provisions of this article. The State Oil and Gas Supervisor shall be charged with the duty of enforcing this article and all rules, regulations and orders promulgated by the board. The State Oil and Gas Supervisor shall be, ex officio, secretary of the board and shall keep all minutes and records of the board. He shall, as secretary, give bond in such sum as the board may direct with corporate surety to be approved by the board, conditioned that he will well and truly account for any funds coming into his hands. The State Geologist shall receive $3,600.00 per annum for the performance of his duty under this article. (Acts 1945, No. 1, p. 1, §4; Acts 1949, No. 671, p. 1033, §1; Acts 1969, No. 1033, p. 1916, §2.)

Ala. Code § 9-17-10 Employment of Personnel.

9-17-10. Employment of Personnel. (a) The Oil and Gas Supervisor, with the concurrence of the board, shall have the authority and it shall be his duty to employ all personnel necessary to carry out the provisions of this article. Such personnel shall be employed under and shall be subject to the provisions of the Merit System Act. (b) The State Oil and Gas Board is prohibited from discriminating against blacks in its employment practices. (Acts 1945, No. 1, p. 1, §5; Act 2002-425, p. 1092, §3.)

Ala. Code § 9-17-11 Waste Prohibited.

9-17-11. Waste Prohibited. Waste of oil or gas as defined in this article is hereby prohibited. (Acts 1945, No. 1, p. 1, §8.)

Ala. Code § 9-17-12 Limitations on Regulations; Drilling or Production Units; Producers’ Shares.

9-17-12. Limitations on Regulations; Drilling or Production Units; Producers’ Shares. (a) Whether or not the total production from a pool is limited or prorated, no rule, regulation, or order of the board shall be such in terms or effect that it will do the following: (1) That it shall be necessary at any time for the producer from or the owner of, a tract of land in the pool, or an interest associated therewith or derived therefrom, in order that he or she may obtain the tract’s just and equitable share or the just and equitable share of the interest of the production of such pool, as the share is set forth in this section, to drill and operate any well or wells on such tract in addition to the well or wells as can without waste produce the share. (2) As to occasion net drainage from a tract or any interest associated therewith or derived therefrom, unless there is drilled and operated upon the tract a well or wells in addition to such well or wells thereon as can without waste produce the tract’s just and equitable share or the just and equitable share of interest, as set forth in this section, of the production of the pool. (b)(1) In order to prevent the waste of oil and gas resources, to protect and enforce the correlative rights of the owners and producers in a pool and to avoid the drilling of an excessive and unnecessary number of wells, the board shall, after notice and hearing, establish drainage or production units for each pool. Furthermore, the board shall, after notice and hearing, establish special field rules for each pool, and the special field rules established by the board shall designate, among other things, the drainage or production units for the field and production allowables for each drainage or production unit. A drainage or production unit, means the maximum area which may be efficiently and economically drained by one well. With respect to wells drilled and completed in shale natural gas reservoirs as defined by the board, when a party affirmatively demonstrates to the board after notice and hearing, with substantial evidence based on geologic and engineering evidence and production information derived from wells in an established field, that one well will not efficiently and economically drain the entire drainage or production units provided for in the special field rules, then the board may amend the special field rules to allow more than one well to be drilled and produced within the drainage or production units in the field. In no case, however, may the board establish a spacing unit in a shale natural gas reservoir larger than 320 acres for a vertical well or wells and 640 acres for a horizontal well or wells. With respect to wells drilled and completed in coalbed methane reservoirs as defined by the board, when a party affirmatively demonstrates to the board after notice and hearing with substantial evidence based on geologic and engineering evidence and production information derived from wells in an established field providing for 80-acre drainage and production units, that one well will not efficiently and economically drain the entire 80-acre drainage and production units provided for in the special field rules, then the board may amend the special field rules to allow a second well to be drilled and produced within the 80-acre drainage or production units in the field. In determining whether a well will efficiently and economically drain the 80-acre drainage or production unit, the board shall consider, among other things, whether the well will significantly increase production from the unit, will extend the duration of production from the unit, and whether the second well is an unnecessary well. Any drainage or production unit established by the board shall constitute a developed unit as long as a well is located thereon, which is capable of producing oil or gas in paying quantities, or until the board shall determine and order otherwise after notice and hearing. It is provided, however, that the board shall have no authority to establish a drainage or production unit in excess of either 160 acres or one governmental quarter section plus 10 percent tolerance for any pool deemed by the board to be an oil reservoir or in excess of either 640 acres or one governmental section plus 10 percent tolerance, for any pool, deemed by the board to be a gas reservoir, the 10 percent tolerance provided for so as to allow for irregular sections; provided, however, that the board may, after notice and hearing, establish drainage or production units for oil and gas in excess of the limitations when it is affirmatively demonstrated that one well can efficiently and economically drain the proposed area and that a larger unit is justified because of technical, economic, environmental or safety considerations, or other reasons deemed valid by the board. To insure protection of coequal and correlative rights, the board may, after notice and hearing, establish drainage or production units for oil and gas pools by a quantum not to exceed 50 percent greater than the limitation provided such action is justified by sufficient technical evidence, indicating that the acreage or land in excess of the maximum limitations is being drained or is in imminent danger of being drained and that the owners of the excess acreage or lands that the persons owning any interest or combination of interests in the excess acreage or lands cannot otherwise receive their just and equitable share of production from the pool being so drained; provided, however, in the event the excess lands or interests are integrated or pooled by order of the board, then the provisions of Section 9-17-13 shall be applicable to the owners of tracts or interests in the acreage or land in excess of the maximum limitations so that the operator of the drainage or production unit in which the tracts or interests are included shall have the right to charge against the interest of each other owner in the production from the wells drilled by the designated operator the actual expenditures required for that purpose, not in excess of what are reasonable, including a reasonable charge for supervision; and the operator shall have the right to receive the first production from the wells drilled thereon which otherwise would be delivered or paid to the other parties jointly interested in the drilling of the well so that the amount due by each of them for his or her share of the expense of drilling, equipping, and operating the well may be paid to the operator of the well out of production, with the value of production calculated at the market price in the field at the time production is received by the operator or placed to his or her credit. Notwithstanding the provisions of this section, all persons entitled to share in the production of oil or gas from a tract or interest or tracts or interests in land may voluntarily agree to the creation or establishment of a drainage or production unit, or may authorize one or more of the persons entitled to share in such production to create or establish a drainage or production unit, containing as much or more acreage or land than drainage or production units established by the board for the same pool, but not in excess of 160 acres or one governmental quarter section, plus 10 percent tolerance, in the case of oil and 640 acres or one governmental section, plus 10 percent tolerance, in the case of gas; subject to the qualifications in this section and up to 50 percent greater, as provided hereinabove; a drainage or production unit so created or established shall, subject to the approval of the board, be valid and binding for all purposes even though the drainage or production unit contains more acreage or land than the board has included, or is authorized by this section to include in a drainage or production unit established by it for the same pool. (2) The acreage limitations set forth in this section for drainage or production units for oil reservoirs shall not apply to horizontal wells drilled into oil reservoirs. The board shall determine the size and configuration of drilling units and drainage or production units for horizontal oil wells. Notwithstanding the foregoing, the board shall not have authority to establish a drilling unit or a drainage or production unit in excess of either 640 acres or one governmental section or two contiguous half sections, plus 10 percent tolerance for any horizontal well drilled in any oil reservoirs, the 10 percent tolerance provided to allow for irregular sections. (3) The acreage limitations set forth in this section for drainage or production units for oil reservoirs and for gas reservoirs shall not apply to offshore wells, and the board shall determine the size and configuration of drilling units and drainage or production units of offshore wells. (c) Each well permitted to be drilled upon any drilling or production unit to a pool in a field with respect to which the board has promulgated special rules shall be drilled at a location on the unit authorized by the special rules, and each well permitted to be drilled upon any drilling or production unit where the location thereof is not prescribed by special rules shall be drilled at a location on the unit authorized by rules of statewide application promulgated by the board, with the exceptions as may be reasonably necessary, where it is shown, after notice and hearing, and the board finds, that the unit is partly outside the pool, or, for some other reason, that a well located in accordance with applicable rules would be nonproductive, would not be at the optimum position in the drilling or production unit for the most efficient and economic drainage of the unit, or where topographical conditions are such as to make the drilling at an authorized location on the unit unduly burdensome or where an exception is necessary to prevent the confiscation of property. Whenever an exception is granted, the board shall take such action as will offset any advantage which the person securing the exception may have over other producers by reason of the drilling of the well as an exception, and so that drainage from developed units to the tract with respect to which the exception is granted will be prevented or minimized and the producer of the well drilled as an exception will be allowed to produce no more than his or her just and equitable share of the oil and gas in the pool, as such share is set forth in this section. (d) Subject to the reasonable requirements for prevention of waste and to the reasonable adjustment because of structural position, a producer’s just and equitable share of the oil and gas in the pool (also sometimes referred to as a tract’s just and equitable share) is that part of the authorized production for the pool (whether it be the total which could be produced without any restriction on the amount of production or whether it be an amount less than that which the pool could produce if no restriction on amount were imposed) which is substantially in the proportion that the quantity of recoverable oil and gas in the developed area of his or her tract or interest or tracts or interests in the pool bear or bears to the recoverable oil and gas in the total developed area of the pool, insofar as these amounts can be practically ascertained; and to that end, the rules, regulations, permits, and orders of the board shall be such as will prevent or minimize reasonably avoidable net drainage from each developed unit (that is, drainage which is not equalized by counterdrainage), and will give to each producer the opportunity to use his or her just and equitable share of the reservoir energy. In determining each producer’s just and equitable share of the authorized production for the pool, the board is authorized to give due consideration to the productivity of the well or wells located thereon, as determined by flow tests, bottom hole pressure tests, or any other practical method of testing wells and producing structures, and to consider such other factors and geological or engineering tests and data as may be determined by the supervisor to be pertinent or relevant to ascertaining each producer’s just and equitable share of the production and reservoir energy of the field or pool. (Acts 1945, No. 1, p. 1, §12; Acts 1956, 2nd Ex. Sess., No. 83, p. 374, §1; Acts 1979, No. 79-760, p. 1356, §1; Acts 1990, No. 90-104, p. 114, §3; Act 2000-714, p. 1517, §1; Act 2008-450, p. 853, §1; Act 2014-281, p. 890, §1.)

Ala. Code § 9-17-13 Integration of Interests; Cycling Operations; Orders of Board; Procedures.

9-17-13. Integration of Interests; Cycling Operations; Orders of Board; Procedures. (a) When any mineral or other related interests deriving from two or more separately owned tracts of land are embraced within an established or a proposed drilling or production unit, or when there are separately owned interests in all or a part of an established or proposed drilling or production unit, or any combination of such, the persons owning the interests therein may validly agree to integrate or pool the interests and to develop the interests and associated lands as a drilling or production unit. Where, however, the owners have not agreed to so integrate or pool the interests, the board shall, for the prevention of waste or to avoid the drilling of unnecessary wells, require the persons owning such interests to do so and to develop their interests and the associated lands as a drilling or production unit. (b) The board, in order to prevent waste and avoid the drilling of unnecessary wells, may permit or require the cycling of gas in any pool or portion thereof and is also authorized to permit or require the introduction of gas or other substance into an oil or gas reservoir for the purpose of repressuring the reservoir, maintaining pressure or carrying on enhanced recovery operations. The board may require pooling or integration of all the interests in or associated with the tracts, when reasonably necessary in connection with cycling operations. (c) All orders requiring integration, pooling, cycling, repressuring, pressure maintenance or enhanced recovery operations shall be made after notice and hearing and shall be upon terms and conditions that are just and reasonable and which will afford to the person owning each such interest associated with each tract the opportunity to recover or receive his or her just and equitable share of the oil and gas in the pool without unnecessary expense and will prevent or minimize reasonably avoidable drainage from each developed unit which is not equalized by counterdrainage. The portion of the production allocated to each tract or interest included in an integrated or pooled unit formed by an integration or pooling order shall, when produced, be considered as if it had been produced from the tract or interest by a well drilled thereon; and any operations conducted within or with respect to the pooled or integrated unit pursuant to the pooling or integration order shall be deemed for all purposes to be the conduct of operations for the production of oil or gas or both from each tract or interest within the unit. All orders requiring pooling or integration shall, among other things, provide all of the following: (1) That the actual and reasonable costs of developing and operating the pooled integrated unit (including a reasonable charge for supervision) and, if applicable, a risk compensation fee (as hereinafter provided) shall be charged to the separately owned tracts or interests in the unit in the same proportion that such tracts or interests share in production from the unit. (2) That such costs and fee (if any) chargeable to a tract or interest shall be paid by the person or persons not entitled to share in production free of development and operating costs and who, in the absence of the pooling or integration order, would be responsible for the expense of developing and operating the tract or interest and that person’s or persons’ interest in the separately owned tract or interest shall be primarily responsible therefor. (3) That, if any nonconsenting owner shall fail or refuse to pay the costs and/or fee (if any) chargeable to his or her tract or interest, the costs and/or fee shall be recoverable solely out of the production allocable to the tract or interest, provided, however, that this limitation shall not apply to a nonconsenting owner who has furnished the operator with a notarized statement agreeing to pay his or her proportionate share of the drilling and completion costs for a unit well as hereinafter provided. (4) That, when the full amount of any charge made against a separately owned tract or interest is not paid when due by the person or persons primarily responsible therefor, as provided above, then 13/16ths (or if the tract or interest is leased, the working interest fraction or percent if it is greater) of the oil and gas production allocated to the separately owned tract or interest may be appropriated by the operator and marketed and sold for the payment of the charge, but that a 3/16ths part (or the actual landowner royalty if it is less) of the unit production allocated to each separately owned tract or interest shall in all events be regarded as royalty and shall, if there be no reasonable question as to good and merchantable title, be distributed to and among, or the proceeds thereof paid to, the person or persons owning royalty or unleased mineral interests (as the case may be) in the tract or interest free and clear of the development and operating costs and of any risk compensation fee and free and clear of any lien for the payment of the costs and fee. (5) That any person owning any overriding royalty, oil and gas payment, royalty in excess of 3/16ths of production, or other interests, who is not primarily responsible for payment of the development and operating costs or risk compensation fee (if any), shall, to the extent of any payment or deduction therefor from his or her share, be subrogated to all the rights of the operator with respect to the interest or interests primarily responsible for the payment. Additionally, if the operator, or the operator together with the consenting owners, shall own a majority in interest of the drilling and operating rights in the integrated or pooled unit, and the operator has made a good faith effort to a. negotiate with each nonconsenting owner to have the owner’s interest voluntarily integrated or pooled into the unit, b. notify each nonconsenting owner of record of the names of all owners of drilling rights who have agreed to integrate or pool any interests in the unit, c. ascertain the address of each nonconsenting owner, d. give each nonconsenting owner written notice of the proposed operation, specifying the work to be performed, the proposed location, proposed depth, objective formation and the estimated cost of the proposed operation, and e. to offer each nonconsenting owner the opportunity to lease or farm out on reasonable terms or participate in the cost and risk of developing and operating the unit well involved on reasonable terms, then the pooling or integration order shall, if the operator so requests, also provide that, if any nonconsenting owner 1. does not pay his or her proportionate share of the drilling and completion costs for any unit well within 30 days after commencement of actual drilling operations, or prior to reaching total depth, whichever is earlier, or at such other time as may be contracted between the parties, or, alternatively, 2. does not, on or before commencement of actual drilling operations, provide the operator with a notarized statement agreeing to pay the costs, then there shall be charged to the tract or interest of the nonconsenting owner a risk compensation fee equal to 150 percent of the tract’s or interest’s share of the actual and reasonable costs of drilling, reworking (prior to initial commercial production), testing, plugging back, deepening (but not below that depth specified in the permit for the well), and completing (through the wellhead) the well; provided, however, that no risk compensation fee shall be chargeable against the tract or interest of any nonconsenting owner who owned of record a tract or interest in the unit prior to the time notice was given unless, at the pooling or integration hearing, it is shown, by a United States mail certified mail return receipt card or by other evidence deemed sufficient by the board, that the nonconsenting owner was given actual notice of the pooling or integration hearing and unless it is also shown that the notice given to the owner specifically stated that the operator was requesting that the board impose a risk compensation fee in accordance with the provisions of this section. Provided, further, that, if after diligent search and inquiry, the operator is unable to locate and give the required notice to any nonconsenting owner, the risk compensation fee shall not be imposed as to the interest of that nonconsenting owner, however, the operator may request that a risk compensation fee be imposed as to the interests of all other nonconsenting owners in the unit who received the required notice in accordance with the provisions of this section. In the event that a nonconsenting owner who has provided the operator with a notarized statement agreeing to pay his or her proportionate share of the drilling and completion costs for a unit well does not fully pay the costs within 30 days after commencement of actual drilling operations or prior to reaching total depth, whichever is earlier, or on or before such other time as may be contracted between the parties, then any unpaid balance of the costs shall bear interest at the rate of one and one-half percent per month, and the nonconsenting owner shall be personally liable for the unpaid balance together with interest thereon and also for any attorney’s fees, court costs, or other expenses incurred by the operator in attempting to collect the unpaid balance and interest thereon; and, additionally, the operator shall have the right, if the well is a producer, to appropriate, market, and sell the nonconsenting owner’s share of production for the payment of the amounts due by that owner. The value of any production appropriated by the operator under the authority of any integration or pooling order shall be calculated at the market price in the field (after deduction for taxes and for cleansing, transportation, compression, and processing costs) at the time such production is received by the operator or placed to his or her credit. Unless the pooling or integration order (or an amendment thereto) shall specify otherwise or unless the affected parties shall agree otherwise, production from any pooled or integrated unit formed by a pooling or integration order shall be allocated to each separately owned tract or interest in the unit in the proportion that the acreage of each tract or interest bears to the total acreage of the unit; and under the circumstances allocation of production on this basis shall be considered as a just and reasonable allocation which will afford to each person owning each tract or interest within the unit the opportunity to recover or receive his or her just and equitable share of the oil and gas produced from the unit. Nothing herein or in any order issued pursuant hereto shall be construed to subject any nonconsenting owner who is subject to a risk compensation fee, as hereinabove provided, to any personal liability for any damages caused by or resulting from any negligent act or other tort committed by the operator or by any consenting owner in the course of developing and operating a pooled or integrated unit; nor shall anything herein or in any order issued pursuant hereto prevent the operator and any other owner or owners in the unit from entering into any agreement that contains provisions respecting the pooling, integration, or development of their tracts or interests in the pooled or integrated unit that differ from the above provisions or from the provisions contained in any pooling or integration order. As used herein, the term operator shall mean the person designated by the board to be in charge of developing and operating a drilling or production unit; the term nonconsenting owner shall mean an owner who owns a tract or interest in a drilling or production unit and who has not, on or before the date a pooling or integration order is entered with respect to such unit, reached an agreement with the operator relative to the terms and conditions which will govern the manner in which his or her tract or interest shall be developed and operated; the term consenting owner shall mean an owner who has so reached such an agreement with the operator; the term owner shall mean a person who, if a pooling or integration order had not been entered, would be an owner as that term is defined elsewhere in this article; the terms costs of developing and development costs shall include, among other things, the costs of drilling, equipping, reworking, testing, plugging back, deepening, and completing the initial unit well and any subsequent unit well but shall not include any costs incurred in connection with the acquisition of any oil and gas leases covering tracts or interests in the unit; and the term actual and reasonable costs means actual expenditures not in excess of what are reasonable. Subsection (c) shall apply only to unitization of interests within a drilling unit and shall not apply to fieldwide or poolwide units, which are authorized and governed under the provisions of Article 3 of this chapter. (d) Should the owners of separate tracts or interests embraced within a drilling or production unit fail to agree upon the integration or pooling of the tracts or interests associated with the tracts and the drilling of a well on that unit, and should it be established that the board is without authority to require integration or pooling as provided for in this section, then subject to all other applicable provisions of this article, the owner of the interest or interests associated with each tract embraced within the drilling or production unit may drill on his or her tract; but the allowable production from that tract or interest shall be such proportion of the allowable production for the full drilling or production unit as the area of the separately owned tract associated with the separately owned interest bears to the full drilling or production unit. (e) Agreements made in the interest of conservation of oil or gas, or both, or for the prevention of waste, between and among owners or operators, or both, owning separate interests in the same oil or gas pool, or in any area that appears from geological or other data to be underlain by a common accumulation of oil or gas, or both, and agreements between and among the owners or operators, or both, and royalty owners therein of the pool or area or any part thereof as a unit for establishing and carrying out a plan for the cooperative development and operation thereof, when the agreements are approved by the board, are hereby authorized and shall not be held or construed to violate any of the statutes of this state relating to trusts, monopolies, or contracts and combinations in restraint of trade. (Acts 1945, No. 1, p. 1, §13; Acts 1979, No. 79-621, p. 1101, § 1; Acts 1989, No. 89-916, p. 1810; Acts 1990, No. 90-104, p. 114, §3; Act 2000-714, p. 1517, §1; Act 2017-297, §1.)

Ala. Code § 9-17-14 Limitations Upon Rules, Regulations or Orders Establishing Limits on Production Allowable Within State or from Separate Pools; Production of More Than Established Allowable Production or Production in Unauthorized Manner.

9-17-14. Limitations Upon Rules, Regulations or Orders Establishing Limits on Production Allowable Within State or from Separate Pools; Production of More Than Established Allowable Production or Production in Unauthorized Manner. (a) Whenever the board limits the total amount of oil or gas which may be produced in this state, the limit so fixed shall not be less than the aggregate of the allowables fixed for each separate pool in this state for the prevention of waste in accordance with the foregoing definition of waste, plus the production from unrestricted pools, and it shall allocate or distribute the allowable so fixed among the separate pools. Such allocation or distribution among the pools of the state shall be made on a reasonable basis, giving to each pool with small wells of settled production an allowable production which will not accelerate or encourage a general premature abandonment of the wells in the pool. (b) Whenever the board limits the total amount of oil or gas which may be produced in any pool in this state to an amount less than that amount which the pool could produce if no restriction were imposed (which limitation may be imposed either incidentally to or without a limitation of the total amount of oil or gas which may be produced in the state), the board shall prorate or distribute the allowable production among the producers in the pool on a reasonable basis so as to prevent or minimize reasonably avoidable drainage from each developed unit which is not equalized by counterdrainage and so that each producer will have the opportunity to produce or receive his just and equitable share, as set forth in this article, subject to the reasonable requirements for the prevention of waste. (c) After the effective date of any rule, regulation or order of the board fixing the allowable production of oil or gas or both for any pool, no person shall produce from any well, lease or property more than the allowable production which is applicable, nor shall such amount be produced in a different manner than that which may be authorized. (Acts 1945, No. 1, p. 1, §14.)

Ala. Code § 9-17-15 Judicial Review of Rules, Regulations or Orders.

9-17-15. Judicial Review of Rules, Regulations or Orders. Any interested person aggrieved by any rule, regulation or order made or promulgated by the board under this article and who may be dissatisfied therewith shall, within 30 days from the date said order, rule or regulation was promulgated, have the right, regardless of the amount involved, to institute a civil action by filing a complaint in the circuit court of the county in which all or part of the aggrieved person’s property affected by any such rule, regulation or order is situated to test the validity of said rule, regulation or order promulgated by the board. Such civil action shall be advanced for trial and be determined as expeditiously as feasible, and no postponement or continuance thereof shall be granted except for reasons deemed imperative by the court. In such trials the validity of any rule, regulation or order made or promulgated under this article shall be deemed prima facie valid, and the court shall be limited in its consideration to a review of the record of the proceedings before the board, and no new or additional evidence shall be received. The reviewing court shall limit its consideration to the following: (1) Whether the rule, regulation or order is constitutional; (2) Whether the rule, regulation or order was without or in excess of jurisdiction; (3) Whether the rule, regulation or order was procured by fraud; (4) Whether the rule, regulation or order is reasonable; and (5) Whether the rule, regulation or order is unsupported by the evidence. (Acts 1945, No. 1, p. 1, §15; Acts 1957, No. 575, p. 798; Acts 1965, 2nd Ex. Sess., No. 81, p. 111.)

Ala. Code § 9-17-16 Injunctions - Issuance Against Board, Etc.

9-17-16. Injunctions - Issuance Against Board, Etc. (a) No temporary restraining order or injunction of any kind shall be granted against the board or the members thereof or against the Attorney General or any district attorney or against any agent, employee or representative of the board restraining the board or any of its members or any of its agents, employees or representatives or the Attorney General or any district attorney, from enforcing any of the provisions of this article or any rule, regulation or order made under this article, except after due notice to the members of the board and to all other defendants and after a hearing at which it shall be clearly shown to the court that the act done or threatened is without sanction of law and, if enforced against the complaining party, will cause an irreparable injury. The judgment or order of the court granting temporary injunctive relief shall state the nature and extent of the probable invalidity of any provision of this article or of any rule, regulation or order made under this article involved in such suit and shall also contain a clear statement of the probable damage relied upon by the court as justifying the temporary relief. (b) No temporary injunctive relief of any kind, including a temporary restraining order, against the board or the members thereof or its agents, employees or representatives or the Attorney General or any district attorney shall become effective until the plaintiff shall execute a bond to the state with sufficient surety in an amount to be fixed by the court, reasonably sufficient to indemnify all persons who may suffer damage by reason of the violation pendente lite by the complaining party of the provisions of this article or of any rule, regulation or order complained of. Such bond shall be approved by the judge of the court in which the civil action is pending, and the court may, from time to time on motion and with notice to the parties, increase or decrease the amount of the bond and may require new or additional sureties as the facts may warrant. Such bond shall be for the use and benefit of all persons who may suffer damage by reason of the violation pendente lite of this article or of any provision, rule, regulation or order complained of in such civil action, and any person so suffering damage may bring a civil action on such bond before the expiration of six months after any provision of this article or of any rule, regulation or order complained of shall be finally held to be valid in whole or in part or such civil action against the board or the members thereof shall be finally disposed of. (Acts 1945, No. 1, p. 1, §16.)

Ala. Code § 9-17-17 Injunctions - Issuance Against Persons Violating, Etc., Provisions of Article, Rules, Etc.

9-17-17. Injunctions - Issuance Against Persons Violating, Etc., Provisions of Article, Rules, Etc. Whenever it shall appear that any person is violating or threatening to violate any provision of this article or any rule, regulation or order made under this article and unless the board without litigation can effectively prevent further violation or threat of violation, then the board, through the Attorney General, who may call to his assistance the district attorney of the circuit in which civil action is instituted, shall bring in the name of the State of Alabama against such person in the circuit court in the county of the residence of the defendant or, if there is more than one defendant, in the circuit court of the county of the residence of any of them or in the circuit court of the county in which such violation is alleged to have occurred, a civil action to restrain such person from continuing such violation or from carrying out the threat of violation. In such civil action the board, in the name of the State of Alabama, may obtain such injunctions, prohibitory and mandatory, including temporary restraining orders and preliminary injunctions, as the facts may warrant, including, when appropriate, an injunction restraining any person from moving or disposing of illegal oil, illegal gas or illegal product, and any or all such commodities may be ordered to be impounded or placed under the control of an agent appointed by the court if, in the judgment of the court, such action is advisable. (Acts 1945, No. 1, p. 1, §17.)

Ala. Code § 9-17-18 Injunctions - Appeals.

9-17-18. Injunctions - Appeals. In any civil action where the board, in the name of the state, seeks enforcement of this article or of any rule, regulation or order issued under this article, as provided in Section 9-17-17 or in any civil action where an interested party seeks to test the validity of or enjoin the enforcement of this article or any rule, regulation or order issued under this article as provided in Section 9-17-16, either party shall have the right of an immediate appeal to the Supreme Court from any judgment or order therein granting or refusing an injunction, whether temporary restraining order, preliminary injunction or permanent injunction, or other character of injunctive relief, or from any order granting or overruling a motion to dissolve such injunction. The manner of presenting any appeal as provided for in this section shall be governed by the provisions of the rules and laws of the State of Alabama regulating appeals in injunction proceedings. (Acts 1945, No. 1, p. 1, §18.)

Ala. Code § 9-17-19 Civil Actions for Damages for Violations of Provisions of Article, Rules, Etc.; Actions by Private Parties to Enjoin Violations of Provisions of Article, Rules, Etc.

9-17-19. Civil Actions for Damages for Violations of Provisions of Article, Rules, Etc.; Actions by Private Parties to Enjoin Violations of Provisions of Article, Rules, Etc. (a) Nothing contained or authorized in this article and no civil action by or against the board and no penalties imposed or claimed against any person for violating any provision of this article or any rule, regulation or order issued under this article and no forfeiture shall impair or abridge or delay any cause of action for damages which any person may have or assert against any person violating any provision of this article or any rule, regulation or order issued under this article. Any person so damaged by the violation may institute a civil action for and recover such damages as he may show that he is entitled to receive. (b) In the event the board should fail to bring a civil action to enjoin any actual or threatened violation of any provision of this article or of any rule, regulation or order made under this article, then any person or party in interest adversely affected by such violation or threat thereof and who has requested the board to institute a civil action in the name of the state may, to prevent any or further violation, bring a civil action for that purpose in any court in which the board could have brought a civil action. If, in such civil action, the court holds that injunctive relief should be granted, then the state shall be made a party and shall be substituted by order of the court for the person who brought the action, and the injunction shall be issued as if the state had at all times been the complaining party. (Acts 1945, No. 1, p. 1, §19.)

Ala. Code § 9-17-21 Illegal Oil, Gas or Product - Sale, Acquisition, Processing, Handling, Etc.

9-17-21. Illegal Oil, Gas or Product - Sale, Acquisition, Processing, Handling, Etc. (a) The sale, purchase or acquisition or the transportation, refining, processing or handling in any other way of illegal oil, illegal gas or illegal product is hereby prohibited. (b) Unless and until the board provides for certificates of clearance or tenders or some other method so that any person may have an opportunity to determine whether any contemplated transaction of sale, purchase or acquisition or of transportation, refining, processing or handling in any other way involves illegal oil, illegal gas or illegal product, no penalty shall be imposed for the sale, purchase or acquisition or the transportation, refining, processing or handling in any other way of illegal oil, illegal gas or illegal product, except under circumstances stated in this section. Penalties shall be imposed by the board for each transaction prohibited in this section when the person committing the same knows that illegal oil, illegal gas or illegal product is involved in such transaction or when such person could have known or determined such fact by the exercise of reasonable diligence or from facts within his knowledge. However, regardless of lack of actual notice or knowledge, penalties as provided in this article shall apply to any sale, purchase or acquisition and to the transportation, refining, processing or handling in any other way of illegal oil, illegal gas or illegal product where administrative provision is made for identifying the character of the commodity as to its legality. It shall likewise be a violation for which penalties shall be imposed for any person to sell, purchase or acquire or to transport, refine, process or handle in any other way any oil, gas or any product without complying with any rule, regulation or order of the board relating thereto. (Acts 1945, No. 1, p. 1, §22.)

Ala. Code § 9-17-22 Illegal Oil, Gas or Product - Seizure, Condemnation and Sale.

9-17-22. Illegal Oil, Gas or Product - Seizure, Condemnation and Sale. Apart from and in addition to any other remedy or procedure which may be available to the board or any penalty which may be sought against or imposed upon any person with respect to violations relating to illegal oil, illegal gas or illegal product, all illegal oil, illegal gas and illegal products shall, except under such circumstances as are stated in this section, be contraband, forfeited to the State of Alabama and shall be seized and sold and the proceeds applied as provided in this section. When any such seizure shall have been made, it shall be the duty of the Attorney General of the state to institute at once condemnation proceedings in the circuit court of the county in which such property is seized by filing a complaint in the name of the state against the property seized, describing the same, or against the person or persons in possession of such illegal property, if known, to obtain a judgment enforcing the forfeiture. Any party claiming a superior right may intervene in said action by filing a complaint and have his claim adjudicated. The judge presiding in said circuit court may superintend and make all proper orders as to the method and manner of notice to be given to any party claiming any right in the property so seized to come in and assert his right thereto. The said court shall have authority to frame all orders of procedure so as to regulate the proceedings whereby persons may have an opportunity to come in and propound their claim to the seized property sought to be condemned. The proceeds of the sale of any such property forfeited to the state shall, after paying all expenses of seizing, holding and selling such property, including the costs of court, be paid into the Oil and Gas Fund. The property sold shall be treated as legal oil, legal gas or legal product, as the case may be, in the hands of the purchaser, but the purchaser and the commodity shall be subject to all applicable laws, rules, regulations and orders with respect to further sale or purchase or acquisition and with respect to the transportation, refining, processing or handling in any other way of the commodity purchased. Nothing in this section shall deny or abridge any cause of action which a royalty owner or a lien holder or any other claimant may have because of the forfeiture of the illegal oil, illegal gas or illegal product against the person whose act resulted in such forfeiture. (Acts 1945, No. 1, p. 1, §23.)

Ala. Code § 9-17-23 Owners Not to Allow Wells to Get Out of Control, Etc.; Rights of Board Upon Failure of Owners to Control Wells; Powers, Etc., of Board to Secure Payment by Owners of Costs and Expenses of Controlling or Plugging Wells.

9-17-23. Owners Not to Allow Wells to Get Out of Control, Etc.; Rights of Board Upon Failure of Owners to Control Wells; Powers, Etc., of Board to Secure Payment by Owners of Costs and Expenses of Controlling or Plugging Wells. In order to protect further the natural gas fields and oil fields in this state, it is hereby declared to be unlawful for any owner to allow a well to go wild or to get out of control. The owner of any such well shall, after 24 hours written notice by the board given to him or to the person in possession of such well, make reasonable effort to control such well. In the event of the failure of the owner of such well within 24 hours after service of the notice above provided for to control the same, if such can be done within the period, or to begin in good faith, upon service of such notice, operations to control such well or upon failure to prosecute diligently such operations, then the board shall have the right to take charge of the work of controlling such well, and it shall have the right to proceed, through its own agents or by contract with a responsible contractor, to control the well or otherwise to prevent the escape or loss of gas or oil from such well, all at the reasonable expense of the owner of the well. In order to secure to the board in the payment the reasonable cost and expense of controlling or plugging such well, the board shall retain the possession of the same and shall be entitled to receive and retain the rents, revenues and incomes therefrom until the costs and expenses incurred by the board shall be repaid. When all such costs and expenses have been repaid, the board shall restore possession of such well to the owner; provided, that in the event the income received by the board shall not be sufficient to reimburse the board as provided for in this section, the board shall have a lien or privilege upon all of the property of the owner of such well, except such as is exempt by law, and the board shall proceed to enforce such lien or privilege by a civil action brought in any court of competent jurisdiction, the same as any other like civil action, and the judgment so obtained shall be executed in the same manner now provided by law for execution of judgments. Any excess over the amount due the board which the property seized and sold may bring, after payment of court costs, shall be paid over to the owner of such well. (Acts 1945, No. 1, p. 1, §24.)

Ala. Code § 9-17-24 Notification Requirement; Hearing; Fees; Alabama Oil and Gas Board Special Fund.

9-17-24. Notification Requirement; Hearing; Fees; Alabama Oil and Gas Board Special Fund. (a) Any person desiring or proposing to drill any well in search of oil or gas or any person proposing to drill a Class II injection well as defined in the Federal Safe Drinking Water Act, 42 U.S.C. § 300f et seq., before commencing the drilling of any such well, shall notify the State Oil and Gas Supervisor upon the form as the State Oil and Gas Supervisor may prescribe and shall pay to the State Treasurer a fee of three hundred dollars ($300) for each well. The drilling of any well is hereby prohibited until notice is given and the fee has been paid as herein provided. The State Oil and Gas Supervisor shall have the power and authority to prescribe that the form indicate the exact location of the well, the name and address of the owner, operator, contractor, driller, and any other person responsible for the conduct of drilling operations, the proposed depth of the well, the elevation of the well above sea level and such other relevant information as the State Oil and Gas Supervisor may deem necessary or convenient to effectuate the purposes of this article. (b) Any person filing a petition or notice of such petition with the State Oil and Gas Board requesting a public hearing before the State Oil and Gas Board shall pay to the State Treasurer a fee of one hundred fifty dollars ($150) for filing the petition. Any person who desires to file a petition with the board in forma pauperis shall file with the board a motion for leave so to proceed together with an affidavit, showing his or her inability to pay the filing fee therefor and his or her belief that he or she is entitled to redress before the board. If the motion is granted, the person may proceed without payment of the filing fee. If the motion is denied, the board shall state in writing the reasons for the denial. (c) Any person proposing to fracture a coal group or geologic formation shall notify the State Oil and Gas Supervisor. The notification shall be in a form prescribed by the State Oil and Gas Supervisor and shall be accompanied by a fee paid to the State Treasurer not to exceed two hundred fifty dollars ($250) for each stage of a fracture stimulation operation in an individual well, up to a maximum fee of seven hundred fifty dollars ($750) per well, regardless of the number of fracture stages proposed. With respect to coalbed methane operations, a stage of a fracture stimulation operation shall be considered the fracturing of a single coal group. All fees for a proposal to fracture a coal group or geologic formation paid pursuant to this section shall be deposited into the State Oil and Gas Board Special Fund and disbursed by the State Treasurer upon warrants drawn by the state Comptroller for the purpose of defraying the expenses incurred by the State Oil and Gas Board in the performance of its duties pursuant to this subsection. (d) Any person proposing a surface mining operation to recover oil from oil sands shall notify the State Oil and Gas Supervisor. The notification shall be in a form prescribed by the State Oil and Gas Supervisor and shall be accompanied by a fee paid to the State Treasurer in an amount based on acreage of the operation. The acreage fees for surface mining operations to recover oil from oil sands shall be set by rule of the State Oil and Gas Board. All fees for a proposal to conduct surface mining operations to recover oil from oil sands paid pursuant to this section shall be deposited into the State Oil and Gas Board Special Fund and disbursed by the State Treasurer upon warrants drawn by the state Comptroller for the purpose of defraying the expenses incurred by the State Oil and Gas Board in the performance of its duties pursuant to this subsection. (e) All well permit fees, filing fees for petitions, and other fees paid to the State Treasurer pursuant to this section shall be paid into the Alabama State Oil and Gas Board Special Fund and disbursed by the State Treasurer upon warrants drawn by the state Comptroller for the purpose of defraying expenses incurred by the State Oil and Gas Board in the performance of its duties. (f) There is hereby created a separate fund in the State Treasury to be known as the Alabama State Oil and Gas Board Special Fund. This fund shall consist of well permit fees, filing fees for petitions, and other fees. All moneys deposited in this fund shall be used for the purpose of defraying expenses incurred by the State Oil and Gas Board in the performance of its duties. The fund shall be paid out only by warrant of the Comptroller upon the Treasurer, upon itemized vouchers, approved by the State Oil and Gas Supervisor; provided, that no funds shall be withdrawn or expended except as budgeted and allotted according to the provisions of Sections 41-4-80 through 41-4-96 and Sections 41-19-1 through 41-19-12, and only in amounts as stipulated in the general appropriation or other appropriation bills, provided further, that any funds unspent and unencumbered at the end of any state fiscal year shall not be transferred into the General Fund. (Acts 1945, No. 1, p. 1, §25; Acts 1975, No. 1094, p. 2163, §1; Acts 1979, No. 79-425, p. 666, §§1, 2; Acts 1988, No. 88-576, p. 893, §1; Act 2000-714, p. 1517, §1; Act 2002-425, p. 1092, §1; Act 2013-203, p. 426, §1.)

Ala. Code § 9-17-25 Tax for Expenses of Administration and Enforcement of Article - Levied; Exemptions; Payment.

9-17-25. Tax for Expenses of Administration and Enforcement of Article - Levied; Exemptions; Payment. (a) For the purpose of defraying the expenses connected with the administration and enforcement of this article, including the expense of the inspections, tests, analyses, and all other expenses connected with the supervision and protection of crude petroleum oil and natural gas in the State of Alabama, there is hereby levied on the producer a tax equal in amount to two percent of the gross value, at the point of production, of the crude petroleum oil or natural gas produced for sale, transport, storage, profit, or for use from any well or wells in the State of Alabama. Provided, however, that the tax on offshore production, produced from depths greater than 8,000 feet below mean sea level, shall not be computed as a percentage of gross value at the point of production, as provided in this section, but shall be computed as a percentage of gross proceeds, as provided in Section 9-17-35. Also provided, that natural gas lawfully injected into oil or gas pools or reservoirs in the soil or beneath the soil or waters of the State of Alabama is exempt from this tax. Provided, further, that natural gas lawfully injected into the earth for the purpose of lifting oil or gas in the State of Alabama is exempt from this tax. However, if any gas so injected into the earth is sold for such purposes or injected into underground storage facilities as defined in Section 9-17-150 et seq., then the gas so sold or injected shall not be exempt from this tax. Natural gas lawfully vented or flared in connection with the production, treatment, or processing of oil or gas is exempt from the tax. The tax shall be paid to the Department of Revenue directly by the purchaser when authorized in writing by the producer, and, when so paid, the producer or person in charge of production shall be relieved of any further liability. (b) For any well for which the initial permit issued by the Oil and Gas Board is dated on or after July 1, 1996, and before July 1, 2002, except a replacement well for a well for which the initial permit was issued by the Oil and Gas Board is dated before July 1, 1996, the applicable rate of tax levied pursuant to subsection (a) shall be one percent for a period of five years commencing with commercial production, after which subsection (a) shall apply. (Acts 1945, No. 1, p. 1, §26; Acts 1953, No. 453, p. 558; Acts 1984, No. 84-661, p. 1325, §1; Acts 1994, No. 94-367, p. 615, §1; Acts 1996, 2nd Ex. Sess., No. 96-877, p. 1688, §1; Act 99-584, p. 1332, §1; Act 2009-147, p. 284, §1.)

Ala. Code § 9-17-26 Tax for Expenses of Administration and Enforcement of Article - Records, Returns and Remittances of Producers; Determination of Gross Value at Point of Production; Rules and Regulations.

9-17-26. Tax for Expenses of Administration and Enforcement of Article - Records, Returns and Remittances of Producers; Determination of Gross Value at Point of Production; Rules and Regulations. (a) It shall be the duty of every person producing or in charge of production of crude petroleum or natural gas from any well or wells in the State of Alabama for sale, transport, storage, profit or for use to keep and preserve such records of the amount of all such crude petroleum oil or natural gas produced for sale, transport, storage, profit or for use as may be necessary to determine the amount of the tax for which he is liable under the provisions of Section 9-17-25 and Section 9-17-35. (b) It shall be the further duty of every such person to file with the Department of Revenue, not later than the fifteenth day of the second calendar month following the month of production, a return, subscribed by the person who completes such return, which must contain a printed declaration that it is made under the penalty of perjury, showing the amount of crude petroleum oil or natural gas produced for sale, transport, storage, profit or for use during the second preceding month, to compute on the return the amount of tax charged against him in accordance with the provisions of Section 9-17-25 and Section 9-17-35 and to transmit to the Department of Revenue with such return a remittance covering the tax chargeable against him. The return shall contain such other information and shall be in such form as the Department of Revenue shall designate. (c) The Department of Revenue is authorized to determine the gross value at the point of production as required under Section 9-17-25, and the gross proceeds attributable to offshore production as required under Section 9-17-35, both in accordance with customary practice. (d) The Department of Revenue is hereby authorized to promulgate reasonable rules and regulations relating to the administration and enforcement of this article provided, however, that no rule or regulation adopted or promulgated by the department shall alter, limit, extend or be out of harmony with any of the provisions of this article. (Acts 1945, No. 1, p. 1, §27; Acts 1981, No. 81-703, p. 1180, §1; Acts 1991, 1st Ex. Sess., No. 91-798, p. 193, §3; Act 2009-147, p. 284, §1.)

Ala. Code § 9-17-27 Tax for Expenses of Administration and Enforcement of Article - Recovery of Tax Improperly Collected.

9-17-27. Tax for Expenses of Administration and Enforcement of Article - Recovery of Tax Improperly Collected. In the event that any collection of tax is improperly made in an effort to enforce the provisions of Section 9-17-25 or Section 9-17-35, either as a result of a mistake of law or fact, the amount so paid may be recovered in the same manner as is provided by law for the recovery of other taxes erroneously paid directly to the Department of Revenue. (Acts 1945, No. 1, p. 1, §28; Act 2009-147, p. 284, §1.)

Ala. Code § 9-17-31 Tax for Expenses of Administration and Enforcement of Article - Disposition and Expenditure.

9-17-31. Tax for Expenses of Administration and Enforcement of Article - Disposition and Expenditure. All funds collected pursuant to the tax levied on the producer of crude petroleum oil or natural gas produced for sale, transport, storage, profit or for use, from any well or wells in the State of Alabama, as is provided in Section 9-17-25 and Section 9-17-35, shall be deposited in the State Treasury to the credit of the General Fund and shall be expended only in the manner provided by appropriation by the Legislature. (Acts 1961, Ex. Sess., No. 95, p. 2008, §1; Act 2009-147, p. 284, §1.)

Ala. Code § 9-17-32 Penalty for Violations of Provisions of Article, Rules, Etc.; Penalty Applicable to Each Prohibited Transaction Relating to Illegal Oil, Gas, or Product; Penalty for Aiding or Abetting Violations of Provisions of Article, Rules, Etc.; Payment of Fine Not to Abridge Private Causes of Action for Damages for Violations of Rules, Etc.

9-17-32. Penalty for Violations of Provisions of Article, Rules, Etc.; Penalty Applicable to Each Prohibited Transaction Relating to Illegal Oil, Gas, or Product; Penalty for Aiding or Abetting Violations of Provisions of Article, Rules, Etc.; Payment of Fine Not to Abridge Private Causes of Action for Damages for Violations of Rules, Etc. (a) Any person who knowingly and willfully violates any provision of this article, or any rule, regulation or order of the board made under this article shall, in the event a penalty for such violation is not otherwise provided for in this article, be subject to a fine not to exceed $10,000.00 a day for each and every day of such violation and for each and every act of violation, such fine to be recovered by a civil action in the circuit court of the county where the defendant resides, or in the county of the residence of any defendant if there is more than one defendant, or in the circuit court of the county where the violation took place. The place of the civil action shall be selected by the board, and such civil action, by direction of the board, shall be instituted and conducted in the name of the board by the attorney for the board or by the Attorney General or under his direction by the district attorney for the county where the civil action is instituted. (b) The payment of any fine as provided for in this section shall not have the effect of changing illegal oil into legal oil, illegal gas into legal gas or illegal product into legal product; nor shall such payment have the effect of authorizing the sale, purchase or acquisition or the transportation, refining, processing or handling in any other way of such illegal oil, illegal gas or illegal product, but, to the contrary, the fine shall be imposed for each prohibited transaction relating to such illegal oil, illegal gas or illegal product. (c) Any person knowingly and willfully aiding or abetting any other person in the violation of any statute of this state relating to the conservation of oil or gas or the violation of any provision of this article or any rule, regulation or order made under this article shall be subject to the same penalty prescribed in subsection (a) of this section for the violation by such other person. (d) The payment of any fine shall not impair or abridge any cause of action which any person may have against the person violating a rule, regulation or order by reason of an injury resulting from such violation. (Acts 1945, No. 1, p. 1, §21; Acts 1990, No. 90-104, p. 104, §3.)

Ala. Code § 9-17-33 Disposition of Proceeds from Sale of Oil or Gas Production.

9-17-33. Disposition of Proceeds from Sale of Oil or Gas Production. (a) As used in this section, the following terms shall have the following meanings: (1) CHECK STUB. The financial record attached to a check, included with a check, or mailed separately at or near the time the check is mailed. (2) DIVISION ORDER. A contract between the interest owner and the purchaser, operator, or the owner of the right to drill and to produce, directing the distribution of the value from the sale of the oil, gas, and other liquid hydrocarbons in the proportions set out in the division order, which division order is prepared by the purchaser, operator, and/or the owner of the right to drill and to produce on the basis of the ownership shown in a title opinion prepared after examination of abstracts or based on other generally acceptable legal ownership documentation and which is executed by the interest owners or others having an interest in the production. (3) INTEREST OWNER. A person owning a royalty interest or a working interest in an oil or gas well or unit. (b) Whenever payment is made for oil or gas production to an interest owner, whether pursuant to a division order, lease, servitude, or other agreement, all of the following information shall be included on or ascertainable from the check stub or on an attachment to the form of payment, unless the information is otherwise provided on a regular basis: (1) Lease, property, or well identification number, if any, or reference to appropriate agreement with identification of the well or unit from which production is attributed. (2) Month and year of sales or purchases included in the payment. (3) Total barrels of crude oil or MCF of gas purchased or sold. (4) Owner’s final realizable price per barrel MCF, long ton, or other appropriate measurement. (5) Total amount of severance and other production taxes, with the exception of windfall profit tax. (6) Net value of total sales from the property after taxes are deducted. (7) Interest owner’s interest, expressed as a decimal fraction, in production from subdivision (1) above. (8) Interest owner’s share of the total value of sales prior to any tax deductions. (9) Interest owner’s share of the sales value less the share of the production and severance taxes, as applicable. (c) The proceeds derived from the sale of oil or gas production from any oil or gas well shall be paid to persons legally entitled thereto, commencing no later than six months after the date of the first sale, and thereafter no later than 60 days after the end of the calendar month within which subsequent production is sold. The payment shall be made to persons legally entitled thereto by the first purchasers of the production by tender to the person’s designated agents or at their last known address. The purchasers may remit to the persons entitled to the proceeds from production annually where the aggregate of one year’s accumulation of monthly proceeds does not exceed one hundred dollars ($100). However, the purchaser may hold accumulated proceeds of less than ten dollars ($10) until production ceases or the purchaser’s responsibility for making payment for production ceases, whichever occurs first. On the request of the person legally entitled to the proceeds, the purchaser shall remit payment of accumulated proceeds annually to the person if the purchaser owes the person less than ten dollars ($10). On the request of the person legally entitled to the proceeds, the purchaser shall remit payment of the proceeds to the person monthly if the purchaser owes the person more than twenty-five dollars ($25), but less than one hundred dollars ($100). In addition, before the purchaser accumulates proceeds greater than twenty-five dollars ($25), the purchaser shall provide notice to the persons entitled to the proceeds that there is an option to be paid monthly for proceeds greater than twenty-five dollars ($25). The notice to the person entitled to the proceeds shall also provide directions for requesting monthly payment and shall constitute notice to all heirs, successors, representatives, and assigns of the person entitled to the proceeds. As used herein, “first purchase” shall mean the first commercial purchaser of production after completion of the well and shall not include purchasers of oil or gas during initial testing prior to completion of the well; further provided, that any delay in determining the persons legally entitled to an interest in the proceeds from production caused by unmarketable title to the interest shall not affect payment to persons whose title is marketable. In those instances where the proceeds derived from oil or gas produced and sold after May 4, 1982, cannot be paid within the time allowed by this section because the title thereto is not marketable, the purchasers of the production shall remit to the parties ultimately determined to be the legal owners of the production, the full amount of the proceeds plus interest at the rate on a per annum basis equal to the Federal Reserve Discount Rate in effect as of the first day of each month during which interest on the proceeds is payable, the interest to accrue from the date that proceeds were due to persons with marketable title as hereinabove specified. Marketability of title shall be determined in accordance with the then current legally recognized real property law governing title to oil and gas interest. The first purchaser shall be exempt from this subsection and the operator and/or the owner of the right to drill and to produce under an oil and/or gas lease shall be substituted for the first purchaser therein where the operator and/or the owner and purchaser have entered into an arrangement where the proceeds are paid by the purchaser to the operator and/or the owner who assumes responsibility of paying the proceeds to persons legally entitled thereto. Where the operator and/or the owner of the drilling rights are substituted herein for the purchaser, the period of time set forth herein under which the parties must account to persons entitled to the production shall be determined as of the date of receipt of the proceeds for the production as opposed to the date of first sale applicable to the purchaser. (d) Any first purchaser of production or operator and/or owner of the right to drill substituted for the first commercial purchaser as provided herein, that violates this section shall be liable to the persons legally entitled to the proceeds from production for the unpaid amount of the proceeds plus interest at the rate of 12 percent per annum, the interest accruing from the date at which the proceeds were due as specified herein. (e) The circuit court for the county or counties in which the oil or gas well is located shall have jurisdiction over all proceedings brought pursuant to this section. (Acts 1982, No. 82-557, p. 917, §§1-3; Acts 1991, No. 91-681, p. 1324, §1; Act 99-396, p. 657, §1.)

Ala. Code § 9-17-34 Additional Definitions.

9-17-34. Additional Definitions. In addition to the definitions contained in Section 9-17-1, which shall apply for the purpose of computing the tax as provided in Section 9-17-35, except to the extent there is a conflict with the definitions contained herein, the following definitions shall apply for the purpose of computing the tax as provided in Section 9-17-35: (1) Gross Proceeds. The gross proceeds for a month shall be the sum of the month’s market proceeds and non-market proceeds. No adjustments or deductions may be taken from the market proceeds or the non-market proceeds in computing gross proceeds. (2) Market Proceeds. The market proceeds for a month shall be the sum of the amounts due under all market sales transactions during the month. The amount due under each market sales transaction shall be determined by multiplying the unit sales price by the volume of severed oil or gas sold in each transaction. (3) Market Sales Transaction. An agreement or contract for the sale of offshore production produced from depths greater than 8,000 feet below mean sea level that has been entered into by or on behalf of a producer or its related party and an unrelated party, regardless of the place of sale, regardless of any interim sales to parties that are not unrelated, and regardless of any processing, treating, or transportation done prior to the point of sale. (4) Non-Market Proceeds. The non-market proceeds for a month shall be the cash and other consideration that would have been due if all non-market taxable volumes for the month had been sold for the same unit sales price due under the market sales transactions occurring during that month, using weighted averages if two or more market sales transactions occurred during the month; provided, however, that if less than 10% by volume of the total taxable offshore production produced during a month is sold in market sales transactions, then the non-market proceeds shall be deemed to be the cash and other consideration, as reasonably determined by the department, that would have been generated if the non-market taxable volumes had been sold in a market sale transaction, considering the unit sales price for offshore production of like quality if such data is available; otherwise, considering published data from recognized market centers for trading oil and/or gas, in both cases adjusted for location and quality to the point at which the first market sale would likely have occurred. Taxpayers seeking to use the published selling prices in calculating their monthly non-market proceeds may request a determination from the department approving the market center data and the manner of making the calculations. The calculations must be made in the same manner from month to month, except as approved by the department. (5) Non-Market Taxable Volumes. The non-market taxable volumes for a month shall be the total volumes of offshore production not disposed of pursuant to a market sales transaction, excluding volumes taken in-kind by other producers in accordance with Section 40-20-22(g). The total volumes include all offshore production used or consumed in operations, but do not include natural gas lawfully vented or flared in connection with the production, treatment, or processing of oil or gas in the State of Alabama, or natural gas lawfully injected into the earth for the purpose of lifting oil or gas in the State of Alabama. Provided, however, that if any gas so injected into the earth is sold for such purposes or injected into underground storage facilities as defined in Section 9-17-150 et seq., then the gas so sold or injected shall be included in the total non-market taxable volumes for the month. (6) Producer. Producer shall have the same meaning for purposes of calculating the tax under Section 9-17-35 as it has for purposes of calculating the tax under Section 9-17-25. (7) Offshore Production. Offshore production shall have the same meaning as it has in Section 40-20-1. (8) Transportation Charges. The actual cash amount paid to an unrelated party by a producer or seller of severed gas for transporting pipeline quality gas to the point of a market sales transaction. Transportation charges may include amounts paid to a related party if the related party is a regulated entity operating an open access natural gas pipeline. The transportation charges are limited to the lesser of the actual fees paid or the maximum allowable firm transportation tariff amount approved by the Federal Energy Regulatory Commission, or other appropriate governmental authority. (9) Unit Sales Price. The total cash or other consideration due for each unit of offshore production, sold under the terms of a market sales transaction, including any and all premiums, bonuses, or other amounts received. If allowable actual transportation charges were paid by the producer or seller for transporting pipeline quality gas to the point of sale, the unit sales price may be adjusted to remove the transportation charge. No other adjustments or deductions may be taken from the actual amounts due in determining the unit sales price. (10) Unrelated Party. A person or entity with opposing economic interests to the producer or seller of severed oil or gas. No producer’s parent company, subsidiary company, sister company, or other company affiliated through common ownership of greater than 5% or control will be considered an unrelated party. In addition, no producer’s principal owners, management, members of their immediate families, or companies owned or controlled by any of them will be considered unrelated parties. (Act 2009-147, p. 284, §2.)

Ala. Code § 9-17-35 Tax Based on Gross Proceeds for Offshore Production.

9-17-35. Tax Based on Gross Proceeds for Offshore Production. (a) The tax levied upon the producers of offshore production, produced from depths greater than 8,000 feet below mean sea level, shall be computed at the rate of one and sixty-six one hundredths percent (1.66%) of the gross proceeds attributable to the offshore production. (b) The gross proceeds for offshore production required to be calculated under this section shall be reported and allocated in accordance with Section 40-20-22. (Act 2009-147, p. 284, §2.)

Ala. Code § 9-17-36 Regulation of Alternative Energy Wells, Facilities, Etc.

9-17-36. Regulation of Alternative Energy Wells, Facilities, Etc. (a) For purposes of this section, the following terms have the following meanings: (1) ALTERNATIVE ENERGY FACILITY or FACILITY. An alternative energy well and associated infrastructure used for developing, producing, or supporting alternative energy resources. (2) ALTERNATIVE ENERGY RESOURCES. a. The earth’s natural heat and the energy, in whatever form, which is below the earth’s surface and which is present in, results from, or is created by, or which may be extracted from, the earth’s natural heat. b. The term includes: 1. All products of geothermal processes and byproducts derived therefrom such as indigenous steam, hot water, and hot brines; 2. Steam, gases, hot water, and hot brines resulting from water, gas, or other fluids artificially introduced into geothermal formations; 3. Heat or other associated energy found in geothermal formations; and 4. Other forms of energy, energy generation, energy capture, energy storage, and related uses, including hydropower derived from natural underground water flows or from injecting water into lower pressure reservoirs with water processed at the surface or by using the energy potential between two subsurface formations within a wellbore. c. The term does not include the heating and cooling capacity of the earth which may be used for heating and cooling buildings through an on-site heat pump or similar on-site system. (3) ALTERNATIVE ENERGY WELL. A well that has been permitted pursuant to the board’s authorization to produce or support the production of alternative energy resources. (b)(1) The State Oil and Gas Board, after providing notice and a public hearing, may authorize the development and operation of an alternative energy facility or the conversion of an existing oil and gas well and associated infrastructure into an alternative energy facility, so long as any alternative energy well extends 5,000 feet or more below the surface of the land, regardless of whether the land is submerged. (2) As determined by rule of the board, an applicant seeking approval to operate an alternative energy facility shall submit a petition fee, a well permit fee, and financial security instruments specific to the proposed uses of the alternative energy facility. (c) An alternative energy facility operator shall do all of the following: (1) Comply with all rules adopted by the board relating to alternative energy wells and facilities. (2) Make a good faith effort to obtain the consent of all persons that own the facility’s alternative energy resources. (3) Obtain the consent of persons that own not less than 66 and two-thirds percent of the facility’s alternative energy resources. (4) Upon an order of the board to amalgamate pursuant to subsection (d), compensate all nonconsenting owners on terms deemed equitable and reasonable by the board. (5) Employ commercially reasonable efforts to limit the adverse impacts to surface uses of lands owned by the nonconsenting owners of the alternative energy resources of the facility. (6) If seeking approval to operate a facility within a 10-mile radius of a coal mine operation, obtain the written consent of the coal mine operator and mineral owner with an operation or mineral interest within the radius, provided consent shall not be unreasonably withheld or delayed. (d) Upon an alternative energy facility operator obtaining the consent of persons that own not less than 66 and two-thirds percent of a facility’s alternative energy resources, the board, after providing notice and a public hearing, may enter an order to amalgamate and pool the alternative energy resources owned by nonconsenting owners into the facility. (e)(1) The board shall require the owner or operator of an alternative energy facility that has ceased alternative energy production for 12 months or more to properly plug and abandon the facility and take any other appropriate action as deemed necessary by the board. When completed, the facility shall be deemed abandoned. (2) Upon the board’s order approving the conversion of an oil and gas well and associated infrastructure into an alternative energy facility, the approved well shall not be considered an inactive or abandoned oil or gas well. (f) The board may adopt rules to administer this section, including regulating the operation and abandonment of alternative energy facilities and associated operations. (g) The board may set fees and charges to defray expenses incurred by the board in regulating alternative energy facilities pursuant to this section. All well permit fees, filing fees for petitions, and other fees paid to the State Treasurer pursuant to this section shall be paid into the Alabama State Oil and Gas Board Special Fund established by Section 9-17-24, and disbursed by the State Treasurer upon warrants drawn by the Comptroller for the purpose of defraying expenses incurred by the board in the performance of its duties. (h) Nothing in this section shall: (1) Be construed to amend, repeal, enlarge, or otherwise affect any provision of Title 37, including, but not limited to, Chapters 1, 4, and 14 of that title; (2) Notwithstanding the use of the term “hydropower,” apply to any hydropower project that is subject to the licensing jurisdiction of the Federal Energy Regulatory Commission under Subchapter I of Chapter 12 of Title 16 of the United States Code; (3) Apply to coal mines or coal mining, or operations related to coal mines or coal mining, except as provided in subdivision (c)(6); or (4) Apply to active or prospective oil and natural gas exploration and production or gas storage operations regulated by the board pursuant to this article or Article 3 or 6 and any rules adopted by the board pursuant these articles. (Act 2026-534, §1.)
Source: Alabama Legislature (alison.legislature.state.al.us)URL: https://alison.legislature.state.al.us/code-of-alabamaFetched: 10/20/2026

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