CHAPTER 1. PETROLEUM EXPLORATION ON STATE PROPERTY
IC 14-38
ARTICLE 38. OTHER PETROLEUM REGULATION
IC 14-38-1
Chapter 1. Petroleum Exploration on State Property
IC 14-38-1-1
"Commence to drill a well" defined
Sec. 1. As used in this chapter, "commence to drill a well" meansthe institution of work in good faith with drilling equipment adequatefor the drilling of a well to a depth that will reasonably test the oiland gas productiveness of the public land where the well iscommenced.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-2
"Person" defined
Sec. 2. As used in this chapter, "person" means the following:
(1) A citizen of the United States.
(2) An individual who has, in good faith, declared the intentionof becoming a citizen of the United States.
(3) An association of individuals described in subdivision (1) or(2).
(4) A corporation organized and existing under and by virtue ofthe laws of any state or territory of the United States andauthorized to do business in Indiana.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-3
"Petroleum" defined
Sec. 3. As used in this chapter, "petroleum" means any liquid orgaseous hydrocarbon occurring in nature beneath the surface of theearth.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-4
"Proven territory" defined
Sec. 4. As used in this chapter, "proven territory" means territoryso situated with reference to known producing wells as to establishthe general opinion that, because of the territory's relation to theproducing wells, petroleum is contained in the territory.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-5
"Public land" defined
Sec. 5. As used in this chapter, "public land" means land and areabelonging to or subsequently acquired by the state or any of thestate's institutions. The term includes land of every kind and nature.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-6
Permit issuance
Sec. 6. (a) The commission may enter into written contractsdesignating a person as the permittee of the state with the exclusiveright to prospect and explore not to exceed three (3) sections, or anequivalent area, of the public land for the occurrence of petroleum.A contract must contain the conditions prescribed by the rulesadopted by the commission under this chapter. A permit must be fora period of not more than one (1) year in the discretion of thecommission. A permit shall be granted without cost, except:
(1) as provided in section 16 of this chapter; and
(2) that, if more than one (1) application for a permit is receivedwith respect to the same public land, the commission shall grantthe permit to the person offering the highest cash bonus.
(b) A permittee may, under a contract:
(1) enter in and upon the land; and
(2) prospect and explore the land to determine the occurrenceof petroleum.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-7
No permits issued for proven territory
Sec. 7. A permit may not be issued upon public land classified bythe commission as proven territory.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-8
Compensation of landowners and state
Sec. 8. A permittee may not commence an operation upon landcovered by a permit until the permittee has compensated thefollowing:
(1) The owners of private rights in the land according to law.
(2) The state for damage to the surface rights of the state inaccordance with the rules adopted by the commission.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-9
Prosecution of operations with reasonable diligence
Sec. 9. A permit requires the immediate commencement ofgeological, geophysical, or core drilling operations. All operationsshall be prosecuted with reasonable diligence in accordance withgood oil field practice and must be continuous except when causesbeyond the control of the permittee intervene and make continuousoperations not feasible. Geological, geophysical, or core drillingoperations may not include the actual operation of drilling for gas,oil, or other mineral deposits.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-10
Surrender of permit Sec. 10. Every permittee has the option of surrendering a permitat any time and is relieved of all liability under the permit except forphysical damage to the premises embraced by the permit that hasbeen caused by the permittee's operations.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-11
Permittee's lease for petroleum extraction
Sec. 11. (a) A permittee is, at any time during the life of thepermit or upon the termination of the permit, entitled to a lease forthe extraction of petroleum from not to exceed one (1) section, or anequivalent area, of land to be selected by the permittee.
(b) A lease under subsection (a) must be at a royalty of:
(1) not more than twelve and one-half percent (12 1/2%) of allpetroleum produced and saved from the lease; or
(2) the market value of the petroleum;
at the option of the commission.
(c) A lease must provide for an annual rental, payable in advance,of from one dollar ($1) to ten dollars ($10) per acre, as thecommission determines. Rentals shall be credited against futureroyalties.
(d) A lease must be for a primary term of ten (10) years and aslong thereafter as oil in commercial quality and commercial quantitycan be produced from the land embraced in the lease.
(e) The form and terms of a lease must be the same as the standardcommercial petroleum lease generally in use in the territory in whichthe oil, gas, or other petroleum deposits are located, with theadditional terms provided in this chapter and the rules of thecommission. If the conditions contained in a standard commerciallease conflict with this chapter, this chapter controls.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-12
Other leases for petroleum extraction
Sec. 12. (a) A petroleum lease other than a lease provided for insection 11 of this chapter may be granted in parcels as determined bythe commission.
(b) A lease granted under this section must be at a royalty of:
(1) not less than twelve and one-half percent (12 1/2%) of allpetroleum produced and saved from the land covered by thelease; or
(2) the market value of the petroleum;
at the option of the commission.
(c) A lease must provide for an annual rental, payable in advance,of from one dollar ($1) to ten dollars ($10) per acre, as thecommission determines. Rentals shall be credited against futureroyalties.
(d) A lease must be for a primary term of ten (10) years.
(e) The forms and terms of a lease must be the same as thestandard commercial petroleum lease generally in use in the territory
in which the oil, gas, or other petroleum products are located, withthe additional terms provided in this chapter and the rules of thecommission. If the conditions contained in a standard commerciallease conflict with this chapter, this chapter controls.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-13
Proceeds
Sec. 13. (a) All proceeds derived:
(1) from or by virtue or by reason of a permit or lease executedor issued under this chapter; or
(2) from or by reason of any operations under this chapter;
shall, after deducting all costs incurred by the department, be paid tothe treasurer of state for the use of the division of the departmenthaving the custody, control, possession, or authority of or over thereal property involved.
(b) Except as provided in subsection (c), the proceeds shall bedeposited in the proper fund of the appropriate division of thedepartment.
(c) Except as provided in subsection (d), the proceeds fromroyalties or other compensation paid for minerals taken from beneaththe navigable waters of the state shall be deposited in the stategeneral fund.
(d) The proceeds from royalties or other compensation paid forminerals taken from beneath the navigable waters of the WabashRiver (as defined in IC 14-13-6-4) shall be deposited in the WabashRiver heritage corridor fund established by IC 14-13-6-23.
As added by P.L.1-1995, SEC.31. Amended by P.L.118-2009, SEC.4.
IC 14-38-1-14
Consideration for leases
Sec. 14. (a) A petroleum lease may not be issued on land that hasnot been classified by the commission as proven territory. Withregard to proven territory to which no permit holder is entitled to alease, the commission shall, in areas to be determined by thecommission, lease any of the land in the proven territory to theresponsible person offering the greatest consideration for the leaseif the person files with the commission five (5) days before:
(1) the opening of the sealed bids; or
(2) the auction;
as provided in this chapter, a bid bond in an amount fixed by thecommission to guarantee the posting of a performance bond if theperson is the successful bidder.
(b) To obtain the best possible consideration for a lease thecommission may offer leases under the following conditions:
(1) The commission may call for competitive offers byprospective lessees as to the royalty rate to be included as aterm of the lease. The commission may call for sealed bids asto the leases, but may temporarily reject all sealed bids andimmediately offer the property for competitive bidding at public
auction. If none of the bids received at public auction exceedthe highest sealed bid received by the commission, the leaseshall immediately be granted to the responsible person makingthe highest sealed bid.
(2) The commission may, with regard to any lease thecommission offers, set a minimum acceptable royalty rate,which may not be less than twelve and one-half percent (121/2%) and call for competitive offers by prospective lessees forcash bonuses in addition to the set royalty provision. Thiscompetition may be conducted in the alternative mannersprovided for in subdivision (1).
(3) A permittee who qualifies for a lease of one (1) section, oran equivalent area, of the land embraced by the permittee'sprospecting permit has a preferential right to leases on theremainder of the land embraced by the permittee's prospectingpermit upon meeting the highest bid for royalty or bonus thatthe commission receives. The commission may reject any bidif the rejection of the bid of a permittee, if the permittee wouldotherwise be the successful bidder, is accompanied by astatement to the permittee of the reasons for the rejection.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-15
Cancellation of permit or lease
Sec. 15. (a) The commission may cancel any permit or leaseissued under this chapter for:
(1) nonpayment of royalties; or
(2) nonperformance by the permittee or lessee of any provisionor requirement of the permit or lease;
if before the cancellation the commission mails to the permittee orlessee by registered mail, addressed to the post office address of thepermittee or lessee shown by the records of the office of thecommission, a notice of intention to cancel the permit or leasespecifying the default for which the permit or lease is subject tocancellation.
(b) If not later than thirty (30) days after the mailing of the noticeto the permittee or lessee the permittee or lessee remedies the defaultspecified in the notice, the commission may not cancel the permit orlease.
(c) If a cancellation occurs, all rights of the permittee or lesseeunder the permit or lease automatically terminate.
(d) Failure to pay fees required under a permit within the timeprescribed automatically and without notice works a forfeiture of thepermit and of all rights under the permit.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-16
Issuance of new permit following expiration or forfeiture
Sec. 16. Upon the expiration or forfeiture of a permit, a newpermit covering the banks or any of the banks embraced by the
expired or forfeited permit may not be issued for thirty (30) daysfollowing the date of expiration or forfeiture. If more than one (1)application for a permit covering any of the land is made during thethirty (30) day period, the commission shall issue a permit to the landto the person offering the greatest cash bonus for a permit at a publicauction to be held at the time and place and in the manner that thecommission prescribes by rule. The auction shall be held at any timeafter the expiration of the thirty (30) day period and the only noticeis the entering in a book kept at the office of the commission for thepurpose, date, place, and hour of the holding of the auction. Thebook is a public record.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-17
Agreement for production from same petroleum field
Sec. 17. (a) If the commission finds it is in the best interest of thestate for the production of petroleum, the state, a permittee, a lessee,an operator, or any person owning or controlling royalty or otherinterest in separate properties of the same producing or prospectivepetroleum field may enter into agreement among each other, subjectto the approval of the commission, for the following purposes:
(1) Cooperative exploration, development, and operation of allor a part of the field or exploration, development, or operationof all or part of the field as a pool or unit.
(2) Fixing the time, location, and manner of drilling.
(3) Regulating the location, sequence, and number ofexploratory wells required for permits under unit operations andleases.
(4) Operating wells for the exploration of petroleum on stateand private land.
(5) The apportionment of the petroleum between the state andthe owners of land embraced within the field placed in the pool,taking into consideration the following:
(A) The relative character and geological nature of the tractsof land as far as the character and nature is reasonablyascertainable.
(B) The apparent probability of producing petroleum fromall or any part of the land.
(6) All other apparent factors that tend to aid in arriving at afair, just, and equitable participation by the state and the ownersin the apportionment and distribution of the petroleum that isrecovered and saved.
(b) The purpose of this section is to encourage the developmentand exploration of petroleum upon state land by and through the unitplan of development. If it is in the best interests of the state, thecommission shall compel the adoption of unit plans of operation ifstate land is included in a productive pool. If the permittee or lesseeof the land fails to agree upon a plan of unit operation acceptable tothe commission, the commission may fix the terms of the unit plan.A permittee or lessee affected who fails to abide by the plan forfeits
the permit or lease upon notice as provided in this chapter.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-18
Terms for protection of rights
Sec. 18. The commission may insert in a permit or lease issuedunder this chapter the terms that are customary and proper for theprotection of the rights of:
(1) the state;
(2) the permittee or lessee; and
(3) the owner of the surface of the leased land;
not in conflict with this chapter.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-19
Adoption of rules
Sec. 19. The commission may adopt rules under IC 4-22-2 to carryout this chapter.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-20
Well not to be drilled within 330 feet of property boundaries
Sec. 20. (a) This section does not apply to the following:
(1) Shore lands.
(2) River beds.
(3) Lake beds.
(4) Submerged land.
(b) A lease of land containing petroleum made or issued underthis chapter must contain a condition that a well may not be drilledwithin three hundred thirty (330) feet of any of the outer boundariesof the land held under permit or lease unless the right to petroleumin adjoining land is vested in private ownership.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-21
Right-of-way grants
Sec. 21. A person granted a permit or lease under this chapter hasa right-of-way over public land, as provided by law, when necessaryfor the drilling, recovering, saving, and marketing of petroleum.Before a right-of-way grant becomes effective, the following mustoccur:
(1) A written application for and a plat showing the location ofthe right-of-way and the land necessary for the well site anddrilling operations, with reference to adjoining land, must befiled with the commission.
(2) The commission shall appraise the timber on theright-of-way and the land necessary for the drilling operationand the person to whom the permit or lease is granted must payfor the timber.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-22
Development considerations
Sec. 22. (a) After the issuance of a petroleum lease the lessee shallproceed to develop the petroleum in the land through the drilling ofthe wells that will efficiently extract the petroleum. The developmentmust take into account the following:
(1) The productiveness of the producing horizon.
(2) The depth at which the producing horizon occurs.
(3) The average cost of wells.
(4) The market requirements obtaining at any given time.
(5) The maintenance of proper oil and gas ratios.
(b) The commission shall determine, either by rule or by inclusionin the terms of a lease, the rapidity and extent of development of theoil, gas, or other petroleum field covered by the lease.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-23
Offset well
Sec. 23. (a) A lease must provide that the lessee shall drill anoffset well to a well on adjoining land that:
(1) is within three hundred thirty (330) feet of an outerboundary of the land covered by the lease; and
(2) is producing petroleum in paying quantities and draining theland covered by the lease.
(b) The offset must be:
(1) started within ninety (90) days from the completion of theadjoining well; and
(2) drilled with due diligence to completion.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-24
Prospecting permits or leases
Sec. 24. (a) This section applies to an application for prospectingpermits or leases for the following:
(1) Shore lands.
(2) River beds.
(3) Lake beds.
(b) The owner of the right to prospect for and develop andproduce petroleum from the abutting land has a preferential right forthirty (30) days after the owner has received notice from thecommission of the application for:
(1) a prospecting permit; or
(2) if petroleum has been discovered in commercial quantitiesin a structure underlying the abutting land, a lease;
for the part of the shore land, river bed, and lake bed that adjoins theabutting land upon the terms and conditions provided in this chapter,notwithstanding any acreage limitations provided in this chapter forpermits and leases.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-25
Withholding land for prospecting or lease
Sec. 25. This chapter does not require the commission to offer atract of land for prospecting or lease. The commission may withholda tract from prospecting or leasing for petroleum purposes if in thecommission's judgment the best interest of the state will be served byso doing.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-26
Royalties
Sec. 26. (a) This section applies when a royalty is required to bepaid under this chapter:
(1) for oil, at the option of the commission:
(A) at the mouth of the wells into tanks provided by thecommission; or
(B) into the pipeline with which the wells are connected, tothe commission's credit; and
(2) for gas, including casinghead gas or other gaseoussubstance.
(b) The lessee shall account to the commission for the marketvalue of the oil or gas at the well for all that is sold by the lessee orused by the lessee in the manufacture of gasoline or other products.At the election of the commission, instead of delivering the royalty,when oil in kind, the lessee shall purchase the oil at the oil's marketvalue at the well when produced.
As added by P.L.1-1995, SEC.31.
IC 14-38-1-27
Delegation of powers
Sec. 27. The commission may delegate any powers granted in thischapter to any officers or employees of the commission.
As added by P.L.1-1995, SEC.31.