77-3-427. Provision for offset wells -- compensatory royalties.
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77-3-427 . Provision for offset wells -- compensatory royalties.
(1)Oil and gas leases granted by the state shall contain suitable provisions imposing upon all lessees the obligation to drill offset wells wherever and whenever necessary to prevent waste and damage to the property of the state.
(2)The board may allow the lessee the following options in lieu of drilling an offset well:
(a)releasing the lands in question; or
(b)paying a compensatory royalty on a nonproducing lease if the board determines that such compensatory royalty will fully compensate the state for waste and damage to the property of the state. The compensatory royalty shall be based upon the estimated drainage, as determined by the board, and shall be paid on a monthly basis unless circumstances require otherwise.
(3)If the board or the lessee terminates the lease, that termination does not impair any implied covenant against drainage or the right of the board to seek damages from the lessee for the lessee's failure to protect the lease from drainage of oil or gas by a well adjacent to the state lease.