23-0503 - Well spacing in oil and natural gas pools and fields.

§ 23-0503. Well spacing in oil and natural gas pools and fields.    1.  Spacing  orders  are  not  required  for  wells drilled, deepened,  plugged back or converted in oil fields or pools which were  discovered,  developed   and  operated  prior  to  January  first,  nineteen  hundred  eighty-one. Spacing orders are not required for wells drilled, deepened,  plugged back or converted in natural gas fields  or  pools,  which  were  discovered,  developed  and  operated  prior  to January first, nineteen  hundred ninety-five and which are not being extended.    2. The department shall issue a permit to drill, deepen, plug back  or  convert a well, if the proposed spacing unit submitted to the department  pursuant  to  paragraph  a  of  subdivision 2 of section 23-0501 of this  title conforms to statewide spacing  and  is  of  approximately  uniform  shape  with other spacing units within the same field or pool, and abuts  other spacing units in the same pool, unless sufficient distance remains  between units for another unit to be developed.  Prior  to  issuing  any  such  permit, the department shall publish a notice of intent to issue a  well permit in the environmental notice bulletin,  which  shall  include  information concerning the spacing unit associated with the well.    3.  a.  If  the  proposed  spacing unit does not meet the requirements  described in subdivision two  of  this  section,  the  department  shall  determine  if  the proposed spacing unit satisfies the policy objectives  of section 23-0301 of this article.    b. If the department determines the proposed spacing  unit  meets  the  policy  objectives  of  section  23-0301 of this article, the department  shall issue a notice of intent to issue a permit and spacing order.  The  well  operator  shall  cause  such  notice to be published in a form and  manner prescribed by the department. If the notice of intent relates  to  a  proposed  spacing  unit  that is not of a uniform size and shape with  other spacing units for the field or  pool,  the  department  shall,  if  necessary,  make  such  adjustment  of the allowable production from the  well to be drilled thereon so  that  the  owners  in  the  spacing  unit  receive their just and equitable shares of the production from the pool.  Any such adjustment of the allowables shall be included in the notice of  intent to issue a permit and spacing order.    c.  Any  comments  regarding  a notice of intent to issue a permit and  spacing order must be received by the department within thirty  days  of  the  date  of  the  notice  of  intent and must meet the substantive and  significant requirement for establishing an issue for adjudication.  Any  challenge  to a spacing unit must contain (i) a description and a map of  the proposed alternative spacing unit; (ii) a technical justification of  the proposed alternative spacing unit, which shall include a description  and analysis of the scientific data intended by the owner to support its  proposed spacing unit configuration; and (iii)  the  name,  address  and  experience  of  any  expert  witness  proposed  to  support the proposed  alternative spacing unit configuration. The department may  request  the  owner challenging the spacing unit to present its scientific data to the  department.    d.  The department shall determine whether substantive and significant  issues have been raised. If the department receives no  comments  or  if  the  comments  do  not  raise  a  substantive and significant issue, the  department shall issue the permit and the final spacing  order.  If  the  department  determines that substantive and significant issues have been  raised in a timely manner, the department shall schedule an adjudicatory  hearing.    4. The department may  issue  permits  to  drill  infill  wells  on  a  reasonably  uniform pattern within the spacing unit after an integration  order has been issued, if required,  and  only  if  it  determines  that  drilling  infill  wells is necessary to satisfy the policy objectives ofsection 23-0301 of this article. The distances from the unit  boundaries  set  forth  in  paragraph  b of subdivision 1 of section 23-0501 of this  title shall apply to any infill wells. For purposes of this section, new  lateral wellbores drilled from the original wellbore in the unit are not  considered  infill  wells if they are drilled prior to the first product  sales from the original surface location. In a spacing unit  established  pursuant  to clause (vi) of subparagraph 1 of paragraph b of subdivision  1 of section 23-0501  of  this  title,  infill  wells  shall  be  deemed  necessary, and the number of infill wells required to satisfy the policy  objectives  of  section  23-0301  of this article must be drilled within  three years of the date the first well in the unit commences drilling.    5. For wells permitted prior to the effective  date  of  this  section  where  a  spacing  order  is  required  but  has  not  been  issued, the  department shall issue a notice of intent to issue a spacing order.  The  well  operator  shall  cause  such  notice to be published in a form and  manner prescribed by the department. The department may issue  an  order  without  a  hearing  if  the  proposed  spacing  unit  complies with the  requirements of subdivision two of this section and no  substantive  and  significant  objections  to  the boundaries of the proposed spacing unit  are received within thirty days after publication of the notice  by  the  well  operator.    If  the  department  determines  that substantive and  significant issues have been raised in a timely manner,  the  department  shall schedule an adjudicatory hearing.    6.  Unless  it  is  extinguished pursuant to subdivision seven of this  section, a spacing unit established by the department shall  be  binding  upon  all  persons  and  their  heirs, successors and assigns. Upon good  cause shown, an order establishing a spacing  unit  or  a  spacing  unit  which  conforms  to  statewide spacing may be modified by the department  without conducting a hearing if a finding has been made  that  no  facts  are  in  dispute  after  all  affected  persons  have  been  provided  a  reasonable  opportunity  to  comment.  In  a  spacing  unit  established  pursuant  to clause (vi) of subparagraph 1 of paragraph b of subdivision  1 of section 23-0501 of  this  title,  failure  to  drill  infill  wells  pursuant  to  subdivision  4 of this section shall constitute good cause  for the department to initiate a modification of the  spacing  unit.  If  necessary,  upon issuance of an order which changes unit boundaries, the  well operator shall adjust the accounts for owners within  the  original  and  modified  units to reflect the modified boundary. Any participation  by new owners and any adjustment of revenue or royalties resulting  from  participation by new owners shall be on a prospective basis only. If the  initial  risk  penalty  phase  pursuant to title 9 of this article is in  effect, any new owner added to the unit may elect to be integrated as  a  participating  owner, a non-participating owner or an integrated royalty  owner as defined by title 9 of this article. Full well  costs  shall  be  assessed  against  new participating owners and non-participating owners  and included in the  risk  penalty  calculation.  If  the  initial  risk  penalty phase has concluded, any new owner added to the spacing unit may  elect to be integrated as a participating owner or an integrated royalty  owner on a prospective basis only.    7.  Upon  the  expiration  of  a  well  permit  or  the  plugging  and  abandonment of all wells in a spacing unit, the spacing  unit  shall  be  extinguished.    Upon extinguishment, all lands within such spacing unit  shall be eligible for inclusion in subsequent spacing units.    8. The department, without considering correlative rights, may grant a  permit to those entities described in paragraphs b and c of  subdivision  3  of  section  23-1901  of this article for the purposes of natural gas  development if the department determines, after notice and hearing, that  the natural gas resource would not be  developed  by  any  other  entitywithin  twelve  months  of the close of the hearing record. In the event  that the department shall not receive timely notice of appearance  prior  to  the scheduled date of hearing, it may dispense with such hearing. In  making  its  determination  the department shall require that the entity  described in paragraphs b and c of subdivision 3 of section  23-1901  of  this  article submit a finding made by such entity that such drilling is  likely to be economically sound, and that the entity in question utilize  the resource for its exclusive use when granting such a permit.