§ 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 of
section 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 entity
within 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.