Section 592. Determination of unit of production values

1. (a) The state
  board 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 state board may deem
  appropriate.
    (b) At least forty-five days prior to the  tentative  roll  date  each
  year,  the  state  board  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 board 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 state board 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 state board 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 state board
  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 state board 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  state  board 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 state board 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.