§ 592. Determination of unit of production values. 1. (a) The
commissioner shall annually develop one or more economic profiles for
gas and one or more economic profiles for oil for use in the
determination of unit of production values. The establishment of more
than one economic profile for either gas or oil shall be based upon
common factors such as geologic formation, geographic region, economic
and cost characteristics of such profiles and such other criteria as the
commissioner may deem appropriate.

(b) At least forty-five days prior to the tentative roll date each
year, the commissioner shall establish a tentative unit of production
value for each economic profile and shall provide to appropriate local
officials and industry representatives notice of the tentative unit of
production values. The commissioner shall conduct at least one public
hearing to receive comments on the tentative unit of production values.
At least fifteen days prior to the tentative roll date, the commissioner
shall certify to each assessor appropriate unit of production values for
use in the assessment of oil and gas economic units.

(c) Unit of production values shall be based upon the average of
typical income, expense and operating data for five consecutive calendar
years beginning with the sixth calendar year preceding the year in which
the unit of production values are to be certified. In determining unit
of production values, the commissioner shall use a discounted net cash
flow approach in which gross income shall be reduced by the following:
operating expenses; landowner royalty payments, which the commissioner
shall deem to be the value of one-eighth of the economic unit's
production; and other costs, if any, such as overriding royalty
interests not retained by the owners of the working interest, additional
capital investment required, depletion and depreciation. In determining
the unit of production values, the minimum discount rate or rates
applied by the commissioner shall be the sum of (1) the average of the
discount rates established by the United States federal reserve board on
the first business day of each month for each of the five calendar years
upon which the economic profiles are based and that precede the year in
which the unit of production values are to be certified, plus (2) a
seventeen and one-half percent factor to account for risk, nonliquidity,
management, real property taxes, intangible drilling costs and income
taxes.

2. For the purpose of developing economic profiles and determining
discounted net cash flow, the commissioner may require producers to
submit statements of income and expenses related to the economic units
for five consecutive calendar years beginning with the sixth calendar
year preceding the year in which the unit of production values are to be
certified. Such statements of income and expenses shall consist of
information usually kept in the ordinary course of business. This
subdivision is not applicable to producers of one thousand barrels of
oil or two hundred million cubic feet of gas per year or less.

3. The commissioner shall promulgate rules establishing the
methodology for determining unit of production values pursuant to
subdivision one of this section. Such rules shall include a description
of the economic data to be compiled, the method for their compilation
and a delineation of the process to be followed in applying the
discounted net cash flow methodology. Such rules shall provide that,
subject to the availability of suitable economic data, the establishment
of unit of production values shall take into account and reflect varying
economic and operating conditions and characteristics.