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" means
the institution of work in good faith with drilling equipment adequate
for the drilling of a well to a depth that will reasonably test the oil
and gas productiveness of the public land where the well is
commenced. 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 intention
of 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 of
the laws of any state or territory of the United States and
authorized 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 or
gaseous hydrocarbon occurring in nature beneath the surface of the
earth. 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 territory
so situated with reference to known producing wells as to establish
the general opinion that, because of the territory's relation to the
producing 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 area
belonging to or subsequently acquired by the state or any of the
state'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 contracts
designating a person as the permittee of the state with the exclusive
right to prospect and explore not to exceed three (3) sections, or an
equivalent area, of the public land for the occurrence of petroleum.
A contract must contain the conditions prescribed by the rules
adopted by the commission under this chapter. A permit must be for
a period of not more than one (1) year in the discretion of the
commission. 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 received
with respect to the same public land, the commission shall grant
the 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 occurrence
of 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 by
the 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 land
covered by a permit until the permittee has compensated the
following:
(1) The owners of private rights in the land according to law.
(2) The state for damage to the surface rights of the state in
accordance 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 of
geological, geophysical, or core drilling operations. All operations
shall be prosecuted with reasonable diligence in accordance with
good oil field practice and must be continuous except when causes
beyond the control of the permittee intervene and make continuous
operations not feasible. Geological, geophysical, or core drilling
operations 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 permit
at any time and is relieved of all liability under the permit except for
physical damage to the premises embraced by the permit that has
been 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 the
permit or upon the termination of the permit, entitled to a lease for
the extraction of petroleum from not to exceed one (1) section, or an
equivalent 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 all
petroleum 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 the
commission determines. Rentals shall be credited against future
royalties.
(d) A lease must be for a primary term of ten (10) years and as
long thereafter as oil in commercial quality and commercial quantity
can be produced from the land embraced in the lease.
(e) The form and terms of a lease must be the same as the standard
commercial petroleum lease generally in use in the territory in which
the oil, gas, or other petroleum deposits are located, with the
additional terms provided in this chapter and the rules of the
commission. If the conditions contained in a standard commercial
lease 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 in
section 11 of this chapter may be granted in parcels as determined by
the 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 all
petroleum produced and saved from the land covered by 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 the
commission determines. Rentals shall be credited against future
royalties.
(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 the
standard commercial petroleum lease generally in use in the territory
in which the oil, gas, or other petroleum products are located, with
the additional terms provided in this chapter and the rules of the
commission. If the conditions contained in a standard commercial
lease 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 executed
or 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 to
the treasurer of state for the use of the division of the department
having the custody, control, possession, or authority of or over the
real property involved.
(b) Except as provided in subsection (c), the proceeds shall be
deposited in the proper fund of the appropriate division of the
department.
(c) Except as provided in subsection (d), the proceeds from
royalties or other compensation paid for minerals taken from beneath
the navigable waters of the state shall be deposited in the state
general fund.
(d) The proceeds from royalties or other compensation paid for
minerals taken from beneath the navigable waters of the Wabash
River (as defined in IC 14-13-6-4) shall be deposited in the Wabash
River 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 has
not been classified by the commission as proven territory. With
regard to proven territory to which no permit holder is entitled to a
lease, the commission shall, in areas to be determined by the
commission, lease any of the land in the proven territory to the
responsible person offering the greatest consideration for the lease
if 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 the
commission to guarantee the posting of a performance bond if the
person is the successful bidder.
(b) To obtain the best possible consideration for a lease the
commission may offer leases under the following conditions:
(1) The commission may call for competitive offers by
prospective lessees as to the royalty rate to be included as a
term of the lease. The commission may call for sealed bids as
to the leases, but may temporarily reject all sealed bids and
immediately offer the property for competitive bidding at public
auction. If none of the bids received at public auction exceed
the highest sealed bid received by the commission, the lease
shall immediately be granted to the responsible person making
the highest sealed bid.
(2) The commission may, with regard to any lease the
commission offers, set a minimum acceptable royalty rate,
which may not be less than twelve and one-half percent (12
1/2%) and call for competitive offers by prospective lessees for
cash bonuses in addition to the set royalty provision. This
competition may be conducted in the alternative manners
provided for in subdivision (1).
(3) A permittee who qualifies for a lease of one (1) section, or
an equivalent area, of the land embraced by the permittee's
prospecting permit has a preferential right to leases on the
remainder of the land embraced by the permittee's prospecting
permit upon meeting the highest bid for royalty or bonus that
the commission receives. The commission may reject any bid
if the rejection of the bid of a permittee, if the permittee would
otherwise be the successful bidder, is accompanied by a
statement 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 lease
issued under this chapter for:
(1) nonpayment of royalties; or
(2) nonperformance by the permittee or lessee of any provision
or requirement of the permit or lease;
if before the cancellation the commission mails to the permittee or
lessee by registered mail, addressed to the post office address of the
permittee or lessee shown by the records of the office of the
commission, a notice of intention to cancel the permit or lease
specifying the default for which the permit or lease is subject to
cancellation.
(b) If not later than thirty (30) days after the mailing of the notice
to the permittee or lessee the permittee or lessee remedies the default
specified in the notice, the commission may not cancel the permit or
lease.
(c) If a cancellation occurs, all rights of the permittee or lessee
under the permit or lease automatically terminate.
(d) Failure to pay fees required under a permit within the time
prescribed automatically and without notice works a forfeiture of the
permit 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 new
permit covering the banks or any of the banks embraced by the
expired or forfeited permit may not be issued for thirty (30) days
following the date of expiration or forfeiture. If more than one (1)
application for a permit covering any of the land is made during the
thirty (30) day period, the commission shall issue a permit to the land
to the person offering the greatest cash bonus for a permit at a public
auction to be held at the time and place and in the manner that the
commission prescribes by rule. The auction shall be held at any time
after the expiration of the thirty (30) day period and the only notice
is the entering in a book kept at the office of the commission for the
purpose, date, place, and hour of the holding of the auction. The
book 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 the
state for the production of petroleum, the state, a permittee, a lessee,
an operator, or any person owning or controlling royalty or other
interest in separate properties of the same producing or prospective
petroleum field may enter into agreement among each other, subject
to the approval of the commission, for the following purposes:
(1) Cooperative exploration, development, and operation of all
or a part of the field or exploration, development, or operation
of 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 of
exploratory wells required for permits under unit operations and
leases.
(4) Operating wells for the exploration of petroleum on state
and private land.
(5) The apportionment of the petroleum between the state and
the 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 tracts
of land as far as the character and nature is reasonably
ascertainable.
(B) The apparent probability of producing petroleum from
all or any part of the land.
(6) All other apparent factors that tend to aid in arriving at a
fair, just, and equitable participation by the state and the owners
in the apportionment and distribution of the petroleum that is
recovered and saved.
(b) The purpose of this section is to encourage the development
and exploration of petroleum upon state land by and through the unit
plan of development. If it is in the best interests of the state, the
commission shall compel the adoption of unit plans of operation if
state land is included in a productive pool. If the permittee or lessee
of the land fails to agree upon a plan of unit operation acceptable to
the 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 issued
under this chapter the terms that are customary and proper for the
protection 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 carry
out 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 under
this chapter must contain a condition that a well may not be drilled
within three hundred thirty (330) feet of any of the outer boundaries
of the land held under permit or lease unless the right to petroleum
in 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 has
a right-of-way over public land, as provided by law, when necessary
for the drilling, recovering, saving, and marketing of petroleum.
Before a right-of-way grant becomes effective, the following must
occur:
(1) A written application for and a plat showing the location of
the right-of-way and the land necessary for the well site and
drilling operations, with reference to adjoining land, must be
filed with the commission.
(2) The commission shall appraise the timber on the
right-of-way and the land necessary for the drilling operation
and the person to whom the permit or lease is granted must pay
for 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 shall
proceed to develop the petroleum in the land through the drilling of
the wells that will efficiently extract the petroleum. The development
must 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 inclusion
in the terms of a lease, the rapidity and extent of development of the
oil, 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 an
offset well to a well on adjoining land that:
(1) is within three hundred thirty (330) feet of an outer
boundary of the land covered by the lease; and
(2) is producing petroleum in paying quantities and draining the
land covered by the lease.
(b) The offset must be:
(1) started within ninety (90) days from the completion of the
adjoining 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 prospecting
permits 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 and
produce petroleum from the abutting land has a preferential right for
thirty (30) days after the owner has received notice from the
commission of the application for:
(1) a prospecting permit; or
(2) if petroleum has been discovered in commercial quantities
in a structure underlying the abutting land, a lease;
for the part of the shore land, river bed, and lake bed that adjoins the
abutting land upon the terms and conditions provided in this chapter,
notwithstanding any acreage limitations provided in this chapter for
permits 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 a
tract of land for prospecting or lease. The commission may withhold
a tract from prospecting or leasing for petroleum purposes if in the
commission's judgment the best interest of the state will be served by
so 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 be
paid under this chapter:
(1) for oil, at the option of the commission:
(A) at the mouth of the wells into tanks provided by the
commission; or
(B) into the pipeline with which the wells are connected, to
the commission's credit; and
(2) for gas, including casinghead gas or other gaseous
substance.
(b) The lessee shall account to the commission for the market
value of the oil or gas at the well for all that is sold by the lessee or
used 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 market
value 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 this
chapter to any officers or employees of the commission. As added by P.L.1-1995, SEC.31.
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" means
the institution of work in good faith with drilling equipment adequate
for the drilling of a well to a depth that will reasonably test the oil
and gas productiveness of the public land where the well is
commenced. 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 intention
of 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 of
the laws of any state or territory of the United States and
authorized 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 or
gaseous hydrocarbon occurring in nature beneath the surface of the
earth. 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 territory
so situated with reference to known producing wells as to establish
the general opinion that, because of the territory's relation to the
producing 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 area
belonging to or subsequently acquired by the state or any of the
state'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 contracts
designating a person as the permittee of the state with the exclusive
right to prospect and explore not to exceed three (3) sections, or an
equivalent area, of the public land for the occurrence of petroleum.
A contract must contain the conditions prescribed by the rules
adopted by the commission under this chapter. A permit must be for
a period of not more than one (1) year in the discretion of the
commission. 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 received
with respect to the same public land, the commission shall grant
the 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 occurrence
of 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 by
the 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 land
covered by a permit until the permittee has compensated the
following:
(1) The owners of private rights in the land according to law.
(2) The state for damage to the surface rights of the state in
accordance 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 of
geological, geophysical, or core drilling operations. All operations
shall be prosecuted with reasonable diligence in accordance with
good oil field practice and must be continuous except when causes
beyond the control of the permittee intervene and make continuous
operations not feasible. Geological, geophysical, or core drilling
operations 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 permit
at any time and is relieved of all liability under the permit except for
physical damage to the premises embraced by the permit that has
been 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 the
permit or upon the termination of the permit, entitled to a lease for
the extraction of petroleum from not to exceed one (1) section, or an
equivalent 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 all
petroleum 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 the
commission determines. Rentals shall be credited against future
royalties.
(d) A lease must be for a primary term of ten (10) years and as
long thereafter as oil in commercial quality and commercial quantity
can be produced from the land embraced in the lease.
(e) The form and terms of a lease must be the same as the standard
commercial petroleum lease generally in use in the territory in which
the oil, gas, or other petroleum deposits are located, with the
additional terms provided in this chapter and the rules of the
commission. If the conditions contained in a standard commercial
lease 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 in
section 11 of this chapter may be granted in parcels as determined by
the 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 all
petroleum produced and saved from the land covered by 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 the
commission determines. Rentals shall be credited against future
royalties.
(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 the
standard commercial petroleum lease generally in use in the territory
in which the oil, gas, or other petroleum products are located, with
the additional terms provided in this chapter and the rules of the
commission. If the conditions contained in a standard commercial
lease 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 executed
or 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 to
the treasurer of state for the use of the division of the department
having the custody, control, possession, or authority of or over the
real property involved.
(b) Except as provided in subsection (c), the proceeds shall be
deposited in the proper fund of the appropriate division of the
department.
(c) Except as provided in subsection (d), the proceeds from
royalties or other compensation paid for minerals taken from beneath
the navigable waters of the state shall be deposited in the state
general fund.
(d) The proceeds from royalties or other compensation paid for
minerals taken from beneath the navigable waters of the Wabash
River (as defined in IC 14-13-6-4) shall be deposited in the Wabash
River 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 has
not been classified by the commission as proven territory. With
regard to proven territory to which no permit holder is entitled to a
lease, the commission shall, in areas to be determined by the
commission, lease any of the land in the proven territory to the
responsible person offering the greatest consideration for the lease
if 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 the
commission to guarantee the posting of a performance bond if the
person is the successful bidder.
(b) To obtain the best possible consideration for a lease the
commission may offer leases under the following conditions:
(1) The commission may call for competitive offers by
prospective lessees as to the royalty rate to be included as a
term of the lease. The commission may call for sealed bids as
to the leases, but may temporarily reject all sealed bids and
immediately offer the property for competitive bidding at public
auction. If none of the bids received at public auction exceed
the highest sealed bid received by the commission, the lease
shall immediately be granted to the responsible person making
the highest sealed bid.
(2) The commission may, with regard to any lease the
commission offers, set a minimum acceptable royalty rate,
which may not be less than twelve and one-half percent (12
1/2%) and call for competitive offers by prospective lessees for
cash bonuses in addition to the set royalty provision. This
competition may be conducted in the alternative manners
provided for in subdivision (1).
(3) A permittee who qualifies for a lease of one (1) section, or
an equivalent area, of the land embraced by the permittee's
prospecting permit has a preferential right to leases on the
remainder of the land embraced by the permittee's prospecting
permit upon meeting the highest bid for royalty or bonus that
the commission receives. The commission may reject any bid
if the rejection of the bid of a permittee, if the permittee would
otherwise be the successful bidder, is accompanied by a
statement 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 lease
issued under this chapter for:
(1) nonpayment of royalties; or
(2) nonperformance by the permittee or lessee of any provision
or requirement of the permit or lease;
if before the cancellation the commission mails to the permittee or
lessee by registered mail, addressed to the post office address of the
permittee or lessee shown by the records of the office of the
commission, a notice of intention to cancel the permit or lease
specifying the default for which the permit or lease is subject to
cancellation.
(b) If not later than thirty (30) days after the mailing of the notice
to the permittee or lessee the permittee or lessee remedies the default
specified in the notice, the commission may not cancel the permit or
lease.
(c) If a cancellation occurs, all rights of the permittee or lessee
under the permit or lease automatically terminate.
(d) Failure to pay fees required under a permit within the time
prescribed automatically and without notice works a forfeiture of the
permit 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 new
permit covering the banks or any of the banks embraced by the
expired or forfeited permit may not be issued for thirty (30) days
following the date of expiration or forfeiture. If more than one (1)
application for a permit covering any of the land is made during the
thirty (30) day period, the commission shall issue a permit to the land
to the person offering the greatest cash bonus for a permit at a public
auction to be held at the time and place and in the manner that the
commission prescribes by rule. The auction shall be held at any time
after the expiration of the thirty (30) day period and the only notice
is the entering in a book kept at the office of the commission for the
purpose, date, place, and hour of the holding of the auction. The
book 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 the
state for the production of petroleum, the state, a permittee, a lessee,
an operator, or any person owning or controlling royalty or other
interest in separate properties of the same producing or prospective
petroleum field may enter into agreement among each other, subject
to the approval of the commission, for the following purposes:
(1) Cooperative exploration, development, and operation of all
or a part of the field or exploration, development, or operation
of 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 of
exploratory wells required for permits under unit operations and
leases.
(4) Operating wells for the exploration of petroleum on state
and private land.
(5) The apportionment of the petroleum between the state and
the 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 tracts
of land as far as the character and nature is reasonably
ascertainable.
(B) The apparent probability of producing petroleum from
all or any part of the land.
(6) All other apparent factors that tend to aid in arriving at a
fair, just, and equitable participation by the state and the owners
in the apportionment and distribution of the petroleum that is
recovered and saved.
(b) The purpose of this section is to encourage the development
and exploration of petroleum upon state land by and through the unit
plan of development. If it is in the best interests of the state, the
commission shall compel the adoption of unit plans of operation if
state land is included in a productive pool. If the permittee or lessee
of the land fails to agree upon a plan of unit operation acceptable to
the 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 issued
under this chapter the terms that are customary and proper for the
protection 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 carry
out 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 under
this chapter must contain a condition that a well may not be drilled
within three hundred thirty (330) feet of any of the outer boundaries
of the land held under permit or lease unless the right to petroleum
in 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 has
a right-of-way over public land, as provided by law, when necessary
for the drilling, recovering, saving, and marketing of petroleum.
Before a right-of-way grant becomes effective, the following must
occur:
(1) A written application for and a plat showing the location of
the right-of-way and the land necessary for the well site and
drilling operations, with reference to adjoining land, must be
filed with the commission.
(2) The commission shall appraise the timber on the
right-of-way and the land necessary for the drilling operation
and the person to whom the permit or lease is granted must pay
for 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 shall
proceed to develop the petroleum in the land through the drilling of
the wells that will efficiently extract the petroleum. The development
must 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 inclusion
in the terms of a lease, the rapidity and extent of development of the
oil, 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 an
offset well to a well on adjoining land that:
(1) is within three hundred thirty (330) feet of an outer
boundary of the land covered by the lease; and
(2) is producing petroleum in paying quantities and draining the
land covered by the lease.
(b) The offset must be:
(1) started within ninety (90) days from the completion of the
adjoining 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 prospecting
permits 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 and
produce petroleum from the abutting land has a preferential right for
thirty (30) days after the owner has received notice from the
commission of the application for:
(1) a prospecting permit; or
(2) if petroleum has been discovered in commercial quantities
in a structure underlying the abutting land, a lease;
for the part of the shore land, river bed, and lake bed that adjoins the
abutting land upon the terms and conditions provided in this chapter,
notwithstanding any acreage limitations provided in this chapter for
permits 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 a
tract of land for prospecting or lease. The commission may withhold
a tract from prospecting or leasing for petroleum purposes if in the
commission's judgment the best interest of the state will be served by
so 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 be
paid under this chapter:
(1) for oil, at the option of the commission:
(A) at the mouth of the wells into tanks provided by the
commission; or
(B) into the pipeline with which the wells are connected, to
the commission's credit; and
(2) for gas, including casinghead gas or other gaseous
substance.
(b) The lessee shall account to the commission for the market
value of the oil or gas at the well for all that is sold by the lessee or
used 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 market
value 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 this
chapter to any officers or employees of the commission. As added by P.L.1-1995, SEC.31.
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" means
the institution of work in good faith with drilling equipment adequate
for the drilling of a well to a depth that will reasonably test the oil
and gas productiveness of the public land where the well is
commenced. 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 intention
of 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 of
the laws of any state or territory of the United States and
authorized 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 or
gaseous hydrocarbon occurring in nature beneath the surface of the
earth. 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 territory
so situated with reference to known producing wells as to establish
the general opinion that, because of the territory's relation to the
producing 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 area
belonging to or subsequently acquired by the state or any of the
state'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 contracts
designating a person as the permittee of the state with the exclusive
right to prospect and explore not to exceed three (3) sections, or an
equivalent area, of the public land for the occurrence of petroleum.
A contract must contain the conditions prescribed by the rules
adopted by the commission under this chapter. A permit must be for
a period of not more than one (1) year in the discretion of the
commission. 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 received
with respect to the same public land, the commission shall grant
the 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 occurrence
of 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 by
the 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 land
covered by a permit until the permittee has compensated the
following:
(1) The owners of private rights in the land according to law.
(2) The state for damage to the surface rights of the state in
accordance 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 of
geological, geophysical, or core drilling operations. All operations
shall be prosecuted with reasonable diligence in accordance with
good oil field practice and must be continuous except when causes
beyond the control of the permittee intervene and make continuous
operations not feasible. Geological, geophysical, or core drilling
operations 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 permit
at any time and is relieved of all liability under the permit except for
physical damage to the premises embraced by the permit that has
been 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 the
permit or upon the termination of the permit, entitled to a lease for
the extraction of petroleum from not to exceed one (1) section, or an
equivalent 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 all
petroleum 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 the
commission determines. Rentals shall be credited against future
royalties.
(d) A lease must be for a primary term of ten (10) years and as
long thereafter as oil in commercial quality and commercial quantity
can be produced from the land embraced in the lease.
(e) The form and terms of a lease must be the same as the standard
commercial petroleum lease generally in use in the territory in which
the oil, gas, or other petroleum deposits are located, with the
additional terms provided in this chapter and the rules of the
commission. If the conditions contained in a standard commercial
lease 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 in
section 11 of this chapter may be granted in parcels as determined by
the 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 all
petroleum produced and saved from the land covered by 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 the
commission determines. Rentals shall be credited against future
royalties.
(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 the
standard commercial petroleum lease generally in use in the territory
in which the oil, gas, or other petroleum products are located, with
the additional terms provided in this chapter and the rules of the
commission. If the conditions contained in a standard commercial
lease 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 executed
or 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 to
the treasurer of state for the use of the division of the department
having the custody, control, possession, or authority of or over the
real property involved.
(b) Except as provided in subsection (c), the proceeds shall be
deposited in the proper fund of the appropriate division of the
department.
(c) Except as provided in subsection (d), the proceeds from
royalties or other compensation paid for minerals taken from beneath
the navigable waters of the state shall be deposited in the state
general fund.
(d) The proceeds from royalties or other compensation paid for
minerals taken from beneath the navigable waters of the Wabash
River (as defined in IC 14-13-6-4) shall be deposited in the Wabash
River 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 has
not been classified by the commission as proven territory. With
regard to proven territory to which no permit holder is entitled to a
lease, the commission shall, in areas to be determined by the
commission, lease any of the land in the proven territory to the
responsible person offering the greatest consideration for the lease
if 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 the
commission to guarantee the posting of a performance bond if the
person is the successful bidder.
(b) To obtain the best possible consideration for a lease the
commission may offer leases under the following conditions:
(1) The commission may call for competitive offers by
prospective lessees as to the royalty rate to be included as a
term of the lease. The commission may call for sealed bids as
to the leases, but may temporarily reject all sealed bids and
immediately offer the property for competitive bidding at public
auction. If none of the bids received at public auction exceed
the highest sealed bid received by the commission, the lease
shall immediately be granted to the responsible person making
the highest sealed bid.
(2) The commission may, with regard to any lease the
commission offers, set a minimum acceptable royalty rate,
which may not be less than twelve and one-half percent (12
1/2%) and call for competitive offers by prospective lessees for
cash bonuses in addition to the set royalty provision. This
competition may be conducted in the alternative manners
provided for in subdivision (1).
(3) A permittee who qualifies for a lease of one (1) section, or
an equivalent area, of the land embraced by the permittee's
prospecting permit has a preferential right to leases on the
remainder of the land embraced by the permittee's prospecting
permit upon meeting the highest bid for royalty or bonus that
the commission receives. The commission may reject any bid
if the rejection of the bid of a permittee, if the permittee would
otherwise be the successful bidder, is accompanied by a
statement 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 lease
issued under this chapter for:
(1) nonpayment of royalties; or
(2) nonperformance by the permittee or lessee of any provision
or requirement of the permit or lease;
if before the cancellation the commission mails to the permittee or
lessee by registered mail, addressed to the post office address of the
permittee or lessee shown by the records of the office of the
commission, a notice of intention to cancel the permit or lease
specifying the default for which the permit or lease is subject to
cancellation.
(b) If not later than thirty (30) days after the mailing of the notice
to the permittee or lessee the permittee or lessee remedies the default
specified in the notice, the commission may not cancel the permit or
lease.
(c) If a cancellation occurs, all rights of the permittee or lessee
under the permit or lease automatically terminate.
(d) Failure to pay fees required under a permit within the time
prescribed automatically and without notice works a forfeiture of the
permit 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 new
permit covering the banks or any of the banks embraced by the
expired or forfeited permit may not be issued for thirty (30) days
following the date of expiration or forfeiture. If more than one (1)
application for a permit covering any of the land is made during the
thirty (30) day period, the commission shall issue a permit to the land
to the person offering the greatest cash bonus for a permit at a public
auction to be held at the time and place and in the manner that the
commission prescribes by rule. The auction shall be held at any time
after the expiration of the thirty (30) day period and the only notice
is the entering in a book kept at the office of the commission for the
purpose, date, place, and hour of the holding of the auction. The
book 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 the
state for the production of petroleum, the state, a permittee, a lessee,
an operator, or any person owning or controlling royalty or other
interest in separate properties of the same producing or prospective
petroleum field may enter into agreement among each other, subject
to the approval of the commission, for the following purposes:
(1) Cooperative exploration, development, and operation of all
or a part of the field or exploration, development, or operation
of 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 of
exploratory wells required for permits under unit operations and
leases.
(4) Operating wells for the exploration of petroleum on state
and private land.
(5) The apportionment of the petroleum between the state and
the 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 tracts
of land as far as the character and nature is reasonably
ascertainable.
(B) The apparent probability of producing petroleum from
all or any part of the land.
(6) All other apparent factors that tend to aid in arriving at a
fair, just, and equitable participation by the state and the owners
in the apportionment and distribution of the petroleum that is
recovered and saved.
(b) The purpose of this section is to encourage the development
and exploration of petroleum upon state land by and through the unit
plan of development. If it is in the best interests of the state, the
commission shall compel the adoption of unit plans of operation if
state land is included in a productive pool. If the permittee or lessee
of the land fails to agree upon a plan of unit operation acceptable to
the 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 issued
under this chapter the terms that are customary and proper for the
protection 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 carry
out 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 under
this chapter must contain a condition that a well may not be drilled
within three hundred thirty (330) feet of any of the outer boundaries
of the land held under permit or lease unless the right to petroleum
in 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 has
a right-of-way over public land, as provided by law, when necessary
for the drilling, recovering, saving, and marketing of petroleum.
Before a right-of-way grant becomes effective, the following must
occur:
(1) A written application for and a plat showing the location of
the right-of-way and the land necessary for the well site and
drilling operations, with reference to adjoining land, must be
filed with the commission.
(2) The commission shall appraise the timber on the
right-of-way and the land necessary for the drilling operation
and the person to whom the permit or lease is granted must pay
for 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 shall
proceed to develop the petroleum in the land through the drilling of
the wells that will efficiently extract the petroleum. The development
must 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 inclusion
in the terms of a lease, the rapidity and extent of development of the
oil, 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 an
offset well to a well on adjoining land that:
(1) is within three hundred thirty (330) feet of an outer
boundary of the land covered by the lease; and
(2) is producing petroleum in paying quantities and draining the
land covered by the lease.
(b) The offset must be:
(1) started within ninety (90) days from the completion of the
adjoining 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 prospecting
permits 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 and
produce petroleum from the abutting land has a preferential right for
thirty (30) days after the owner has received notice from the
commission of the application for:
(1) a prospecting permit; or
(2) if petroleum has been discovered in commercial quantities
in a structure underlying the abutting land, a lease;
for the part of the shore land, river bed, and lake bed that adjoins the
abutting land upon the terms and conditions provided in this chapter,
notwithstanding any acreage limitations provided in this chapter for
permits 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 a
tract of land for prospecting or lease. The commission may withhold
a tract from prospecting or leasing for petroleum purposes if in the
commission's judgment the best interest of the state will be served by
so 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 be
paid under this chapter:
(1) for oil, at the option of the commission:
(A) at the mouth of the wells into tanks provided by the
commission; or
(B) into the pipeline with which the wells are connected, to
the commission's credit; and
(2) for gas, including casinghead gas or other gaseous
substance.
(b) The lessee shall account to the commission for the market
value of the oil or gas at the well for all that is sold by the lessee or
used 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 market
value 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 this
chapter to any officers or employees of the commission. As added by P.L.1-1995, SEC.31.
