Sec 37-231. State lands subject to sale; rights reserved in lands sold; state lands not subject to sale; development agreements

A. All state lands, except as otherwise provided for in this title, including all improvements made or placed on or connected with state lands, shall be subject to appraisal and sale as provided in this title.

B. Any person over eighteen years of age is entitled to purchase any of the state lands.

C. All sales, grants, deeds or patents to any state lands sold between July 9, 1954 and March 18, 1968 shall be subject to and shall contain a reservation to the state of an undivided one-sixteenth of all oil, gases and other hydrocarbon substances, coal or stone, metals, minerals, fossils and fertilizer of every name and description, together with all uranium, all thorium, or any other material which is or may be determined by the laws of the state or the United States or decisions of courts to be peculiarly essential to the production of fissionable materials, whether or not of commercial value, subject to the following:

1. For the purpose of promoting the sale of state lands and the more active cooperation of the owner of the soil, and to facilitate the development of its mineral resources, the state constitutes the purchaser of the land its agent for the purposes specified in this section, and in consideration hereof, relinquishes to and vests in the purchaser of the state land an undivided fifteen-sixteenths of all oil, gas and the value thereof which may be upon or within any state land purchased after July 9, 1954 and before March 18, 1968.

2. The purchaser of the soil may sell or lease to any person, firm or corporation the oil and gas and other minerals which may be on or in the land, upon terms and conditions the purchaser and the owner deem best, subject to the provisions and reservations of this section, but the lessee or purchaser shall pay to the state an undivided one-sixteenth of the mineral produced or the value of the mineral produced at the well or mine as determined by the state land department.

3. Upon discovery of oil and gas in paying quantities on land adjoining state lands purchased under the authority of this section, the purchaser or the purchaser's lessee shall drill and produce all wells necessary to protect the land so purchased from drainage by wells on lands in which the state has no royalty interest, or has a lesser royalty interest. If the purchaser or the purchaser's lessee fails to protect against such drainage, the state, acting through the state land department, may, three months after demand therefor in writing by the state land department to such purchaser and the purchaser's lessee, enter upon such lands and drill all wells necessary to protect the state against such drainage.

4. The interest reserved by the state in any state lands sold may be committed to a drilling unit or cooperative or unit plans of development and operation of oil and gas pools with the United States, its agencies and its and their lessees and permittees, and with private owners and persons holding oil and gas leases on private lands or on state lands. The state land department may, insofar as the interest of the state may be affected thereby, join in and consent to any such plan on behalf of the state. Such agreements shall provide for the equitable division on an agreed basis of the oil and gas produced from the unit, but no such agreement shall relieve any operator from the obligation to develop reasonably the lands and leases as a whole committed thereto. The royalties to which the state is entitled on production from land purchased under this section shall be computed only on that part of the production allocated to such tract. When the agreements made under this section provide for the return of gas to a formation underlying the unit, they may provide that no royalties are required to be paid on the gas so returned.

D. State lands known to contain oil, gases and other hydrocarbon substances, geothermal resources, coal or stone, metals, minerals, fossils and fertilizer of every name and description, in paying quantities, or uranium, thorium or any other material which is or may be determined by the laws of the state the United States or decisions of court to be peculiarly essential to the production of fissionable materials, whether or not of commercial value, and state lands adjoining lands upon which there are producing oil, gas or geothermal wells or adjoining lands known to contain any of such substances in paying quantities, or uranium, thorium or any other material peculiarly essential to the production of fissionable materials, whether or not of commercial value, shall not be sold. The prohibition against sale shall not operate to prevent the sale of lands known to contain, in paying quantities, common variety minerals as defined in section 27-271 or to prevent the sale of lands where the state does not own such substances, minerals or metals in the lands sought to be sold. The provisions of this subsection shall not prohibit the sale of such lands located within the exterior boundaries of an incorporated city or town, in which case the commissioner may offer the land for sale, provided the land shall be used solely for a public purpose. Such land shall revert to the state if it is used other than for a public purpose.

E. Notwithstanding the provisions of subsection C of this section, all state lands sold after March 18, 1968 shall be sold with the reservation that all oil, gas, other hydrocarbon substances, helium or other substances of a gaseous nature, geothermal resources, coal, metals, minerals, fossils, fertilizer of every name and description, together with all uranium, all thorium or any other material which is or may be determined by the laws of the United States or of this state, or decisions of court, to be peculiarly essential to the production of fissionable materials, whether or not of commercial value, and the exclusive right thereto, on, in, or under such land, shall be and remain and be reserved in and retained by the state, regardless of any sale under this section and the issuance of any certificate of purchase to any purchaser of state lands pursuant to this section, provided, that the reservation shall not include common variety minerals as defined in section 27-271, subject to the following:

1. The state land department shall adopt rules providing for the protection of the patentee or contract purchaser of state lands, or their successors in interest, and the state of Arizona, against damage to the lands, livestock, water, crops, or other tangible improvements on lands held by such patentee or contract purchaser, and suffered by reason of the use or occupation of such lands by lessees or permittees engaged in mining and oil, gas and geothermal resource exploration and development under leases or permits executed by the department. The state land department may, at any time, require each of its lessees or permittees to execute a bond in a reasonable principal amount conditioned upon payment for all such damages.

2. The mineral rights reserved to the state in the lands sold shall be closed to entry and location as a mineral claim or claims, but the department may issue, upon application, mineral exploration permits embracing the reserved mineral rights when such issuance is deemed in the best interest of the state, provided that the surface owner or owners shall have the first right of refusal to acquire such mineral exploration permits.