§ 38-08-08 — Integration of fractional tracts

1. When two or more separately owned tracts are embraced within a spacing unit, or
when there are separately owned interests in all or a part of the spacing unit, then the
owners and royalty owners thereof may pool their interests for the development and
operation of the spacing unit. In the absence of voluntary pooling, the commission
upon the application of any interested person shall enter an order pooling all interests
in the spacing unit for the development and operations thereof. Each such pooling
order must be made after notice and hearing, and must be upon terms and conditions
that are just and reasonable, and that afford to the owner of each tract or interest in
the spacing unit the opportunity to recover or receive, without unnecessary expense,
that owner's just and equitable share. Operations incident to the drilling of a well upon
any portion of a spacing unit covered by a pooling order must be deemed, for all
purposes, the conduct of such operations upon each separately owned tract in the
drilling unit by the several owners thereof. That portion of the production allocated to
each tract included in a spacing unit covered by a pooling order must, when produced,
be deemed for all purposes to have been produced from such tract by a well drilled
thereon. For the purposes of this section and section 38-08-10, any unleased mineral
interest pooled by virtue of this section before August 1, 2009, is entitled to a cost-free
royalty interest equal to the acreage weighted average royalty interest of the leased
tracts within the spacing unit, but in no event may the royalty interest of an unleased
tract be less than a one-eighth interest. An unleased mineral interest pooled after
July 31, 2009, is entitled to a cost-free royalty interest equal to the acreage weighted
average royalty interest of the leased tracts within the spacing unit or, at the operator's
election, a cost-free royalty interest of sixteen percent. The remainder of the unleased
interest must be treated as a lessee or cost-bearing interest.
2. Each such pooling order must make provision for the drilling and operation of a well on
the spacing unit, and for the payment of the reasonable actual cost thereof by the
owners of interests in the spacing unit, plus a reasonable charge for supervision. In the
event of any dispute as to such costs, the commission shall determine the proper
costs. If one or more of the owners shall drill and operate, or pay the expenses of
drilling and operating the well for the benefit of others, then, the owner or owners so
drilling or operating shall, upon complying with the terms of section 38-08-10, have a
lien on the share of production from the spacing unit accruing to the interest of each of
the other owners for the payment of the owner's or owners' proportionate share of
such expenses. All the oil and gas subject to the lien must be marketed and sold and
the proceeds applied in payment of the expenses secured by such lien as provided for
in section 38-08-10.
3. In addition to any costs and charges recoverable under subsections 1 and 2, if the
owner of an interest in a spacing unit elects not to participate in the risk and cost of
drilling a well thereon, the owner paying for the nonparticipating owner's share of the
drilling and operation of a well may recover from the nonparticipating owner a risk
penalty for the risk involved in drilling the well. The recovery of a risk penalty is as
follows:
a. If the nonparticipating owner's interest in the spacing unit is derived from a lease
or other contract for development, the risk penalty is two hundred percent of the
nonparticipating owner's share of the reasonable actual costs of drilling and
completing the well and may be recovered out of, and only out of, production from
the pooled spacing unit, as provided by section 38-08-10, exclusive of any royalty
or overriding royalty.
b. If the nonparticipating owner's interest in the spacing unit is not subject to a lease
or other contract for development, the risk penalty is fifty percent of the
nonparticipating owner's share of the reasonable actual costs of drilling and
completing the well and may be recovered out of production from the pooled
spacing unit, as provided by section 38-08-10, exclusive of any royalty provided
for in subsection 1.

c. The owner paying for the nonparticipating owner's share of the drilling and
operation of a well may recover from the nonparticipating owner a risk penalty for
the risk involved in drilling and completing the well only if the paying owner has
made an unsuccessful, good-faith attempt to have the unleased nonparticipating
owner execute a lease or to have the leased nonparticipating owner join in and
participate in the risk and cost of drilling the well. Before a risk penalty may be
imposed, the paying owner must notify the nonparticipating owner with proof of
service that the paying owner intends to impose a risk penalty and that the
nonparticipating owner may object to the risk penalty by either responding in
opposition to the petition for a risk penalty or if no such petition has been filed, by
filing an application or request for hearing with the industrial commission.