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Article 3.5

Article 3.5. Disposal of Royalty Oil, Gas or Other Hydrocarbons

2150. Purpose
2151. Definitions
2152. Eligibility to Hold Sales Contracts
2153. Selection of Royalty Oil
2154. Bid Factor
2155. Other Conditions
2156. Notice Inviting Bids
2157. Submission of Bids
2158. Term
2159. Delivery Adjustments
2160. Delivery and Dehydration Costs
2161. Security
2162. Disposition of Royalty Oil In the Event of Default
2163. Assignment of Contract

'2150. Purpose.

Whenever the Commission determines that it is in the best interests of the State to take its royalty share of oil, gas, or other hydrocarbons in kind, the Commission shall enter into agreements for the disposition and sale of such oil, gas, or other hydrocarbons in accordance with procedures set forth in this Article.

NOTE: Authority cited: Sections 6108 and 6815.1, Public Resources Code.

HISTORY

1. New Article 3.5 (Sections 2150-2163) filed 7-5-73; effective thirtieth day thereafter (Register 73, No. 27).

'2151. Definitions.

As used in this Article unless otherwise specified:

(a) The term Aroyalty oil@ includes oil, gas, natural gasoline, other products extracted from gas, and all other hydrocarbons.

(b) The term Apurchaser@ means any person or corporation that has entered into a contract to purchase royalty oil from the State.

(c) The term Alease@ means oil and gas lease, easement, or other agreement for the extraction of oil, gas, or other hydrocarbons from lands owned by the State.

(d) The term Alessee@ means holder of a lease.

(e) The term Abase price@means, in relation to royalty oil, a price to be determined in accordance with a standard to be adopted by the Commission for each contract to purchase royalty oil and to be included in each such contract when it is adopted pursuant to Section 2153. The standard to be adopted shall relate, to the extent practical, to objective criteria and to data easily ascertainable, such as posted prices or prices paid for products of like quality, taking into account location, so that both the State and a purchaser will be able to establish the base price with reasonable ease and accuracy. Prices paid under any contract to purchase royalty oil pursuant to these rules and regulations shall not, under any circumstances, be used in determining such base price.

'2152. Eligibility to Hold Sales Contracts.

A sales contract for royalty oil shall be issued only to and held by:

(a) Persons or associations of persons who are citizens of the United States or who have declared their intention of becoming such, or who are citizens of any country, dependency, colony, or province, the laws, customs, and regulations of which permit the grant of similar or like privileges to citizens of the United States.

(b) Any corporation or corporations organized and existing under and by virtue of the laws of the United States or of any state or territory thereof; or any corporation or corporations 90 per cent or more of the shares of which are owned by persons eligible to hold a lease or permit under subdivision (a) or (c) of this section; or any corporation or corporations 90 percent or more of the shares of which are owned either by a corporation eligible to hold a lease or permit hereunder, or by any combination of such eligible persons or corporations, or both.

(c) Any alien person entitled thereto by virtue of any treaty between the United States and the nation or country of which the alien person is a citizen or subject.

'2153. Selection of Royalty Oil.

The Commission shall, in advance, select the lease or leases from which royalty oil will be taken in kind and the particular hydrocarbons to be taken, determine the increments, if any, in which such oil will be sold, and adopt the bid-form, notice inviting bids, bid-proposal, and the sales contract. The proposal shall remain on file in the Commissions’ Offices and shall contain the notice, bid-form, contract, copies of the lease or leases involved, and pertinent production and lease data.

'2154. Bid Factor.

The Commission shall select for each sales contract, prior to offering royalty oil for bid, one of the bid factors listed below:

(a) $_________ per barrel plus the base price.

(b) ________% plus 100% of the base price.

(c) $________ per barrel, provided that the purchaser shall at all times pay the bid price or the base price plus a specified percent of the base price as determined by the Commission, whichever is higher.

(d) $________ bonus plus the base price.

(e) $________ per barrel for a specified gravity with a gravity differential schedule as specified in advance by the Commission, provided that the purchaser shall at all times pay the bid price or the base price plus a specified percent of the base price as determined by the Commission. whichever is higher.

The Commission may, in offering a sales contract, require a minimum bid.

'2155. Other Conditions.

Any sales contract issued under the provisions of this article shall contain such other covenants, conditions, requirements. and reservations as may be deemed advisable by the Commission to protect the interests of the State.

'2156. Notice Inviting Bids.

Whenever the Commission elects to dispose of royalty oil by competitive public bid, the Commission shall cause notice of intention to receive bids to be published.

(a) The notice shall identify the lease from which the oil is to be offered, the proposed point of delivery, the time for receiving and opening bids, and indicate that forms for bidding may be obtained at an office of the Commission. Such notice shall be published at least once in a newspaper of general circulation in the county in which the point of delivery is situated, and may be published at least once in a newspaper of general circulation in the City of Los Angeles, or San Francisco, or Sacramento.

(b) At the time and place specified in the notice, not earlier than fourteen (14) days after the last date of publication the sealed bids shall be opened publicly and an award shall be made to the highest responsible bidder unless, in the opinion o the Commission, the acceptance of the highest qualified bid is not in the best interests of the State, in which event the Commission may reject all bids. Thereupon new bids may be called for or the Commission may refuse to call for new bids, or the Commission may negotiate and enter into agreements for sale under terms and conditions deemed to be in the best interests of the State. The Commission reserves the right at any time to reject any and all bids or to cancel the invitation to bid.

(c) At the time of the bid award, the Commission shall direct the Executive Officer or his agent to notify the lessee that the State intends to take royalty oil in kind commencing on the date specified in the sales contract.

'2157. Submission of Bids.

Bids submitted pursuant to a published notice shall contain the following documents:

(a) Two copies of the bid-form completed, and executed. In the event of a joint bid, or a bid by a partnership, each bidder shall execute the bid- form. The insertion of any additional condition, qualification, or provision on said bid-form will invalidate the bid. In the case of joint bidding, or bidding by a partnership, bid data shall be submitted as required by Section 1913, and Section 1914, Title 2 of the California Administrative Code. Corporations executing a bid shall submit with the bid evidence of the authority of the officer or officers executing the bid on behalf of the corporation and shall affix the corporate seal upon the signature page of the bid-form.

(b) Each bidder must submit with his bid evidence of qualification to enter a contract as specified in this Section.

(c) Each bid submitted pursuant to this notice shall be accompanied by a certified or cashier’s check or checks of a responsible bank in California and made payable to the State of California in an amount to be determined by the Commission before the offering as a deposit as evidence of the bidder’s good faith.

(d) Each bidder shall submit with the bid a certified financial statement establishing to the satisfaction of the Commission such bidder’s financial ability to undertake and fulfill all obligations under the prospective contract. Said financial statements shall be certified as to their truth and accuracy by each bidder, as a bidder, or by the person by whom or under whose direction the statements were prepared. Said financial statements shall be accurate as of the date of certification, which date shall be not earlier than the date the Notice of Intention herein was first published. Previously prepared financial statements and/or annual reports may be used by bidders provided that (a) such statements and/or reports are certified, as aforesaid, and (b) the bidder submits a certified statement by the bidder or a responsible financial officer of the bidder that there has been no material change in the financial or other condition of the bidder since the date of preparation of said statement and/or report that would impair the bidder’s financial ability to undertake and fulfill all obligations of the bidder under the prospective contract. The certification of such financial statement must be signed by the individual or firm by whom the statement was prepared, as well as by the bidder.

(e) Each bidder shall submit with the bid evidence establishing to the satisfaction of the Commission such bidder’s ability to take oil at the point of delivery. An agreement providing for the exchange of royalty oil for their oil or hydrocarbons may be submitted as evidence to establish bidder’s ability to take royalty oil at the point of delivery.

(f) Each bidder shall also submit with the bid information concerning installation and maintenance of metering facilities, shipping pumps, pipelines, storage, loading facilities, or any other facilities that may be required to facilitate said royalty oil deliveries. The installation of any such facilities shall be only with the prior approval of the State.

(g) Each bidder shall nominate by letter of authority the name and address of a person authorized to give or receive any notice to or from the State Lands Commission with respect to such bidding and to receive refund of sums accompanying an unsuccessful bid. Said letter shall be submitted with the bid and shall be signed by the bidder, and in the case of joint bids shall be signed by each person or other entity joining in said bid. Unless otherwise expressly provided, the person so authorized to receive notice shall, in the case of the successful bidder, be deemed to be the person duly authorized to give and receive notices on behalf of the bidder.

'2158. Term.

Sales contracts for the disposition of royalty oil shall be entered into for a term as determined by the Commission not to exceed five years.

'2159. Delivery Adjustments.

Lessee may make deliveries of royalty oil to purchaser on a regular basis, and adjustments to deliveries, overages, or underages. including quality considerations, will be made up by the last day of the following calendar month.

'2160. Delivery and Dehydration Costs.

The lessee, where so provided in the lease, shall be reimbursed for the actual allowable cost of dehydration of the royalty share of crude oil and, in the case of offshore leases, for the actual cost of delivery of the royalty share of crude oil to onshore storage and transportation facilities. Only those costs approved by the State in writing shall be allowed. The Commission shall select, prior to the bid offer, one of the methods listed below:

(a) The State shall reimburse the lessee monthly for such costs upon submission of an invoice by the lessee.

(b) The purchaser shall monthly, or as designated by the State, reimburse the lessee for such costs. Such costs may be deducted by the purchaser from the amounts to be submitted to the State pursuant to the sales contract.

'2161. Security.

Purchaser shall, at the time of the execution of the contract, furnish and thereafter maintain in favor of the State a good and sufficient bond or other such Security in such sum as may be specified by the State Lands Commission, guaranteeing faithful performance by the purchaser of the terms, covenants, and conditions of the contract. Such bond or other such Security will be used to indemnify the State for all costs and damages, including, but not limited to, damages caused by default of the purchaser of royalty oil. The cost of the bond or other Security shall be paid for by the purchaser. The Commission may in its discretion reduce, eliminate, or reinstate the Security requirement during the term of the sales contract.

'2162. Disposition of Royalty Oil In the Event of Default.

In the event purchaser fails to take the royalty oil as provided by the contract, the Executive Officer or his designee is authorized to dispose of the royalty oil in the most expeditious manner possible. All cost incurred therein shall be deemed as a charge against the purchaser. Purchaser shall be responsible to the State for the difference, if any, between the amount of money received by the State in such disposition and the amount due the State pursuant to the sales contract.

'2163. Assignment of Contract.

Any sales contract issued under the provisions of this article may be assigned, subject to approval by the Commission, to any person, association of persons, or corporation who, at the time of the proposed assignment, possesses the qualifications provided in this article. Any assignment shall take effect as of the first day of the month following the approval by the Commission and filing with the Commission of an executed counterpart thereof, together with any bond and proof of qualification of the assignee to take or hold such sales contract. Unless approved by the Commission, no assignment shall be of any effect. Such assignment shall be made upon the express condition that such assignment does not and shall not release or relieve the Assignor from any obligation to the State under the terms of said sales contract, and that the State may hold the Assignor liable for the faithful performance of any and all obligation of the Purchaser under said sales contract; and, further, that the Assignee shall be bound by the terms of said sales contract to the same extent as if such Assignee were the original Purchaser, any conditions in the assignment agreement to the contrary notwithstanding.