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A08672 Summary:

BILL NOA08672B
 
SAME ASSAME AS S05553-B
 
SPONSORRules (Parment)
 
COSPNSR
 
MLTSPNSR
 
Amd SS23-0305, 23-0701, 23-0901 & Art 23 Title 5, add S23-0503, rpld & add S23-0501, En Con L;rpld & add S5-333 sub 5, Gen Ob L
 
Relates to mineral resources and the rights and responsibilities of owners and operators of wells and natural gas pools and fields.
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A08672 Actions:

BILL NOA08672B
 
06/02/2005referred to environmental conservation
06/19/2005amend and recommit to environmental conservation
06/19/2005print number 8672a
06/21/2005reported referred to rules
06/21/2005amend and recommit to rules 8672b
06/22/2005reported
06/22/2005rules report cal.778
06/22/2005ordered to third reading rules cal.778
06/24/2005substituted by s5553b
 S05553 AMEND=B WINNER
 06/02/2005REFERRED TO RULES
 06/19/2005AMEND AND RECOMMIT TO RULES
 06/19/2005PRINT NUMBER 5553A
 06/20/2005AMEND AND RECOMMIT TO RULES
 06/20/2005PRINT NUMBER 5553B
 06/22/2005ORDERED TO THIRD READING CAL.1757
 06/23/2005PASSED SENATE
 06/23/2005DELIVERED TO ASSEMBLY
 06/23/2005referred to environmental conservation
 06/24/2005substituted for a8672b
 06/24/2005ordered to third reading rules cal.778
 06/24/2005passed assembly
 06/24/2005returned to senate
 07/21/2005DELIVERED TO GOVERNOR
 08/02/2005SIGNED CHAP.386
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A08672 Memo:

NEW YORK STATE ASSEMBLY
MEMORANDUM IN SUPPORT OF LEGISLATION
submitted in accordance with Assembly Rule III, Sec 1(f)
 
BILL NUMBER: A8672B
 
SPONSOR: Rules (Parment)
  TITLE OF BILL: An act to amend the environmental conservation law and the general obligations law, in relation to mineral resources; and to repeal certain provisions of the environmental conservation law and the general obligations law relating thereto   PURPOSE OR GENERAL IDEA OF BILL: The purpose of this legislation is to eliminate uncertainty in the unitization and integration processes relating to the exploration and development of oil and gas reserves, protect investment associated with the development of oil and gas reserves, and protect the correlative rights of all landowners and adds consumer protection measures to facil- itate the orderly leasing of oil and gas rights.   SUMMARY OF SPECIFIC PROVISIONS: Section 1: Paragraph e of subdivision 8 of section 23-0305 of the envi- ronmental conservation law is amended. Section 2: Paragraph e of subdivision 9 of section 23-0305 of the envi- ronmental conservation law is amended. Section 3: Subdivision 11 of section 23-0305 of the environmental conservation law is amended. Section 4: Paragraph f of subdivision 14 of section 23-0305 of the environmental conservation law is amended. Section 5: The title heading of title of article 23 of the environ- mental conservation law is amended. Section 6: Section 23-0501 of the ECL is repealed and two new sections 23-0501 and 23-0503 are added. The new sections add new definitions to clarify existing concepts and refines existing definitions for clarity. Defines statewide spacing units for specific formations; defines "well operator." Adds new statutory procedures governing the application for and issuance of well drilling permits (based largely on existing DEC practice) including a fast-track approval process for units that conform to state- wide spacing. Adds streamlined procedure for individuals to contest units that do not conform with statewide spacing units, but requires that they meet the substantive and significant threshold for adjudi- cation. Section 7: Section 23-0701 of the ECL is amended by adding a require- ment for DEC to issue an order memorializing voluntary integration agreements following notice and an opportunity for a hearing. Section 8: Subdivisions 1, 2, 3 and 6 of section 23-0901 of the ECL, subdivision 1 is amended and a new subdivision 13 is added. Adds or clarifies several definitions. Adds a new, streamlined statutory procedure for the integration of interests in a unit in the absence of voluntary agreement among owners. Revises the manner in which non-operator owners in a unit can be inte- grated by providing three options: (1) participate up front in all costs and receive a full working interest in the well's production; (2) not participate up front, and be subject to a 300% risk penalty, and be subject to a proportionate share of costs going forward; or (3) be inte- grated at a royalty of either the lowest royalty paid to owners who have entered into voluntary agreements with the operator, or 1/8, whichever is greater. Requires that the failure to elect one of the three options results in being integrated as option (3) described above. Defines what costs are recoverable by the well operator from owners who elect one of the options to receive a full working interest; and speci- fies the terms of integration that are applicable to all such owners. Section 9: Subdivision 5 of section 5-333 of the general obligations law is repealed and two new subdivisions 5 and 6 which ensures that individuals leasing oil and gas interests have notice of the significant legal import of the leases; requires that all leases contain an uncondi- tional three business days right of rescission. Section 10: Effective date.   JUSTIFICATION: New York State's gas and oil conservation statute was originally enacted in 1963 to attract the investment capital necessary for exploration and development of the deep oil and gas horizons in New York State while ensuring that the production costs and production revenues would be shared on a just and reasonable basis, either through voluntary agree- ments or through orders issued by the Department of Environmental Conservation ("DEC"). It has taken more than 40 years since the enact- ment of New York's oil and gas conservation statute, but now companies are investing hundreds of millions of dollars into exploration and development of these resources. This investment in a potential source of clean domestic fuel comes at a crucial time. The original legislation did not, however, anticipate the controversy that has developed over implementation of the existing unitization and integration provisions in Article 23. The existing framework encourages inefficiency and discour- ages investment by bona fide operating companies. This legislation is intended to remove the uncertainty associated with the process of developing oil and natural gas wells, and to allocate risks and responsibilities among operators and owners of mineral inter- ests (either leased or unleased) on a reasonable and equitable basis. To achieve this objective, the proposed revisions make several types of changes. Generally, this legislation adds several new defined terms, and either explains or clarifies other terms. It also increases the risk penalty for owners who wish to make no up front investment in the well, but wish to obtain a potentially greater share in the revenue. This bill also revises the procedures for obtaining a well permit, establishing drilling units, and integrating interests. The existing law currently allows an operator to drill a well before the unit is finally deter- mined, which has led to significant conflict among operators and the various owners who seek to gain from the successful completion of a well. This bill provides an expedited procedure for determining spacing units such that the spacing unit can be determined before a well is drilled. Detailed public notice and hearing procedures have been added to ensure that the DEC-administered unitization and integration processes are open and transparent, giving all potentially affected parties the opportunity to participate as they are able, and to obtain revenue from the well commensurate with their risk investment. Time frames for unitization and integration have been imposed, allowing these two processes to run more quickly and consistently. Most importantly, this legislation fundamentally simplifies the poten- tial methods for integrating ownership interests in a unit in the absence of voluntary agreement by creating three basic options for hold- ers of gas or oil interests: (1) participate up front in all costs and receive a full working interest in the well's production; (2) not participate up front and be carried by the operator subject to cost recoupment plus a 300% risk penalty, and be subject to a proportionate share of costs going forward; or (3) be integrated cost-free as a royal- ty interest. Finally, this legislation adds a section devoted to consumer protection designed to ensure that all individuals participat- ing in leases of oil and gas interests have notice of the significant legal import of the leases, and requires that all leases contain an unconditional three business day right of rescission.   PRIOR LEGISLATIVE HISTORY: This is new legislation.   FISCAL IMPLICATIONS: This legislation will have no fiscal implications for the state and local governments.   EFFECTIVE DATE: This act shall take effect immediately and shall apply to any oil or gas well permit issued on or after such effective date except as otherwise provided in this act.
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A08672 Text:



 
                STATE OF NEW YORK
        ________________________________________________________________________
 
                                         8672--B
 
                               2005-2006 Regular Sessions
 
                   IN ASSEMBLY
 
                                      June 2, 2005
                                       ___________
 
        Introduced  by COMMITTEE ON RULES -- (at request of M. of A. Parment) --
          read once and referred to the Committee on Environmental  Conservation
          --  committee  discharged,  bill amended, ordered reprinted as amended
          and recommitted to said committee --  reported  and  referred  to  the
          Committee  on  Rules  --  Rules  Committee  discharged,  bill amended,

          ordered reprinted as amended and recommitted to the Committee on Rules
 
        AN ACT to amend the environmental conservation law and the general obli-
          gations law, in relation to mineral resources; and to  repeal  certain
          provisions of the environmental conservation law and the general obli-
          gations law relating thereto
 
          The  People of the State of New York, represented in Senate and Assem-
        bly, do enact as follows:
 
     1    Section 1. Paragraph e of subdivision 8  of  section  23-0305  of  the
     2  environmental conservation law, as amended by chapter 846 of the laws of
     3  1981, is amended to read as follows:
     4    e.  Enter,  take temporary possession of, plug or replug any abandoned
     5  well as provided in the rules and regulations,  whenever  any  owner  or
     6  operator  neglects or refuses to comply with such rules and regulations.

     7  Such plugging or replugging by the department shall be at the expense of
     8  the owner or operator whose duty it may be to  plug  the  well  and  who
     9  shall  hold  harmless  the  state of New York for all accounts, damages,
    10  costs and judgments arising from the plugging or replugging of the  well
    11  and  the surface restoration of the affected land. Primary liability for
    12  the expense of such plugging or replugging and first  recourse  for  the
    13  recovery  thereof  shall  be  to  the operator unless a contract for the
    14  production, development, exploration or other working of  the  well,  to
    15  which  the lessor or other grantor of the oil and gas rights is a party,
    16  shall place such liability on the owner  or  on  the  owner  of  another
    17  interest  in  the  land  on which the well is situated. When an operator
    18  violates any provision of this article, any rule or  regulation  promul-

    19  gated  thereunder,  or any order issued pursuant thereto in reference to
 
         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD11831-09-5

        A. 8672--B                          2
 
     1  plugging or replugging an abandoned well,  [he]  the  operator  may  not
     2  transfer  [his]  the  operator's responsibility therefor by surrendering
     3  the lease. Prior to the commencement of drilling of any well, the opera-
     4  tor  shall  be  required  to furnish to the department, and continuously
     5  maintain, a bond acceptable to it conditioned upon  the  performance  of
     6  said  operator's  plugging  responsibilities  with respect to said well.

     7  Upon the approval of the department, in lieu of such bond, the  operator
     8  may  deposit cash or negotiable bonds of the United States Government of
     9  like amount in an escrow account conditioned  upon  the  performance  of
    10  said operator's plugging responsibilities with respect to said well. Any
    11  interest accruing as a result of the aforementioned escrow deposit shall
    12  be  the  exclusive  property of the operator. The aforementioned bonding
    13  requirements shall  remain  the  obligation  of  the  original  operator
    14  regardless  of  changes  in  operators  unless a subsequent operator has
    15  furnished the appropriate bond or substitute as herein provided accepta-
    16  ble to the department and approval for the transfer of the well plugging
    17  responsibilities to the subsequent operator  has  been  granted  by  the
    18  department.  The  failure  of  any  operator to maintain a bond or other

    19  financial security as prescribed herein shall  be  deemed  a  breach  of
    20  plugging  responsibilities  and  entitle  the  department  to  claim the
    21  proceeds of the bond or other financial security. The cost  of  plugging
    22  or  replugging  any  well, where such action is necessary or incident to
    23  the  commencing  or  carrying  on  of  storage  operations  pursuant  to
    24  [sections]  section 23-1103 or 23-1301 shall be borne by the operator of
    25  the storage facility.
    26    § 2. Paragraph e of subdivision 9 of section 23-0305 of  the  environ-
    27  mental  conservation law, as amended by chapter 846 of the laws of 1981,
    28  is amended to read as follows:
    29    e. Enter, take temporary possession of, plug or replug  any  abandoned
    30  well  as  provided  in  the rules and regulations, whenever any operator

    31  neglects or refuses to comply with  such  rules  and  regulations.  Such
    32  plugging  or replugging by the department shall be at the expense of the
    33  owner or operator whose duty it shall be to plug the well and who  shall
    34  hold harmless the state of New York for all accounts, damages, costs and
    35  judgments  arising  for  the  plugging or replugging of the well and the
    36  surface restoration of the affected  land.  Primary  liability  for  the
    37  expense of such plugging or replugging and first recourse for the recov-
    38  ery  thereof  shall  be  to  the  operator  unless  a  contract  for the
    39  production, development, exploration or other working of  the  well,  to
    40  which  the  lessor  or  other  grantor  of the solution salt rights is a
    41  party, shall place such liability on the owner or on the owner of anoth-
    42  er interest in the land on which the well is situated. When an  operator

    43  violates  any  provision of this article, any rule or regulation promul-
    44  gated thereunder, or any order issued pursuant thereto in  reference  to
    45  plugging  or  replugging  an  abandoned  well, [he] the operator may not
    46  transfer [his] the operator's responsibility  therefor  by  surrendering
    47  the  lease.  Prior  to the commencement of drilling of any well to which
    48  this subdivision applies, the operator shall be required to  furnish  to
    49  the  department,  and  continuously  maintain,  a  bond acceptable to it
    50  conditioned upon the performance of said operator's  plugging  responsi-
    51  bilities with respect to said well. Upon the approval of the department,
    52  in  lieu of such bond, the operator may deposit cash or negotiable bonds
    53  of the United States Government of like  amount  in  an  escrow  account

    54  conditioned  upon  the performance of said operator's plugging responsi-
    55  bilities with respect to said well.  Any interest accruing as  a  result
    56  of  aforementioned escrow deposit shall be the exclusive property of the

        A. 8672--B                          3
 
     1  operator. The aforementioned bonding requirements shall remain the obli-
     2  gation of the original  operator  regardless  of  changes  in  operators
     3  unless  a  subsequent  operator  has  furnished  the appropriate bond or
     4  substitute  as herein provided acceptable to the department and approval
     5  for the transfer of the well plugging responsibility to  the  subsequent
     6  operator has been granted by the department. The failure of any operator
     7  to  maintain  a  bond  or  other financial security as prescribed herein

     8  shall be deemed a breach of plugging responsibilities  and  entitle  the
     9  department  to claim the proceeds of the bond or other financial securi-
    10  ty. Any order issued pursuant to this paragraph  may  be  reviewed  upon
    11  application  of  an  aggrieved  party by means of an order to show cause
    12  which order shall be issued by any justice of the supreme court  in  the
    13  judicial  district  in which any such order applies and shall be return-
    14  able on the third succeeding business day following the issuance of such
    15  order. Service of such show cause order shall be made upon the  regional
    16  office of the department for the region in which such order applies, and
    17  upon  the  attorney  general  by  delivery of such order to an assistant
    18  attorney general at an office of the attorney general in the  county  in

    19  which venue of the proceeding is designated, or if there is no office of
    20  the  attorney  general within such county, at the office of the attorney
    21  [geenral] general nearest such county. Except as hereinabove  specified,
    22  the proceeding to review an order under this paragraph shall be governed
    23  by article seventy-eight of the civil practice law and rules.
    24    §  3. Subdivision 11 of section 23-0305 of the environmental conserva-
    25  tion law, as amended by chapter 922 of the laws of 1973  and  renumbered
    26  by chapter 846 of the laws of 1981, is amended to read as follows:
    27    11.  The department may use any of its powers for the purpose of coop-
    28  erating with any other state or jurisdiction in regulating or  otherwise
    29  affecting  the  development  or  production  of  oil, gas or salt at any
    30  location where such  development  or  production  may  have  a  physical

    31  [affect]  effect  on  development  or  production in such other state or
    32  jurisdiction.
    33    § 4. Paragraph f of subdivision 14 of section 23-0305 of the  environ-
    34  mental conservation law, as added by chapter 410 of the laws of 1987, is
    35  amended to read as follows:
    36    f.  Require  that  the operator furnish to the department, and contin-
    37  uously maintain, a bond or other financial security conditioned upon the
    38  satisfactory performance of [his] the operator's  plugging  responsibil-
    39  ities with respect to said well. The failure of any operator to maintain
    40  a  bond or other financial security as prescribed herein shall be deemed
    41  a breach of plugging responsibilities  and  entitle  the  department  to

    42  claim the proceeds of the bond or other financial security. Such bond or
    43  other  financial  security shall be for an amount as determined pursuant
    44  to the provisions of paragraph k of subdivision eight of this section.
    45    § 5. The title heading of title 5 of article 23 of  the  environmental
    46  conservation  law,  as  amended  by  chapter 846 of the laws of 1981, is
    47  amended to read as follows:
    48                              WELL PERMITS AND
    49            WELL SPACING IN OIL AND NATURAL GAS POOLS AND FIELDS
 
    50    § 6. Section 23-0501 of the environmental conservation law is REPEALED
    51  and two new sections 23-0501 and 23-0503 are added to read as follows:
    52  § 23-0501. Well permits.
    53    1. a. This section shall not apply to  (1)  wells  drilled,  deepened,

    54  plugged  back or converted in oil fields or pools which were discovered,
    55  developed and operated prior to January first, nineteen hundred  eighty-

        A. 8672--B                          4
 
     1  one,  and  (2)  wells  drilled,  deepened,  plugged back or converted in
     2  natural gas fields or pools which were discovered, developed  and  oper-
     3  ated  prior to January first, nineteen hundred ninety-five and which are
     4  not being extended.
     5    b.  As used in titles five, seven and nine of this article, unless the
     6  context otherwise requires:
     7    (1) "Statewide spacing" means spacing units for  gas  wells  that  are
     8  within  ten percent of the following sizes, unless another percentage is
     9  specifically stated:

    10    (i) For Medina polls and shale pools at any depth, 40 acres  with  the
    11  wellbore within the target formation no less than 660 feet from any unit
    12  boundary;
    13    (ii)  For Onondaga reef or Oriskany pools at any depth, 160 acres with
    14  the wellbore within the target formation no less than 660 feet from  any
    15  unit boundary;
    16    (iii) For fault-bounded Trenton and/or Black River hydrothermal dolom-
    17  ite pools where the majority of the pool is between 4,000 and 8,000 feet
    18  deep,  320  acres  with  the proposed productive section of the wellbore
    19  within the target formation no less than one-half mile  from  any  other
    20  well  in  another  unit in the same pool and no less than 1000 feet from

    21  any unit boundary that is not defined by a field-bounding fault  but  in
    22  no event less than 660 feet from any unit boundary;
    23    (iv)  For fault-bounded Trenton and/or Black River hydrothermal dolom-
    24  ite pools where the majority of the pool is below 8000 feet, within five
    25  percent of 640 acres with the proposed productive section of  the  well-
    26  bore  within  the  target formation no less than one mile from any other
    27  well in another unit in the same pool and no less than  1500  feet  from
    28  any  unit  boundary that is not defined by a field-bounding fault but in
    29  no event less than 660 feet from any unit boundary;
    30    (v) For all other pools where the majority of the pool  is  above  the

    31  depth of 4,000 feet, 80 acres with the wellbore within the target forma-
    32  tion no less than 660 feet from any unit boundary;
    33    (vi)  For  all  other pools where the majority of the pool is 4,000 to
    34  6,000 feet deep, 160 acres with the wellbore within the target formation
    35  no less than 660 feet from any unit boundary;
    36    (vii) For all other pools where the majority of the pool is  6,000  to
    37  8,000 feet deep, 320 acres with the wellbore within the target formation
    38  no less than 1000 feet from any unit boundary; and
    39    (viii)  For  all  other  pools where the majority of the pool is below
    40  8,000 feet, within five percent of 640 acres with  the  wellbore  within
    41  the target formation no less than 1500 feet from any unit boundary.

    42    (2) "Well operator" means the applicant for a permit to drill, deepen,
    43  plug  back or convert a well subject to this title and titles 7 and 9 of
    44  this article, or the actual operator of the well  if  the  well  is  not
    45  operated by the original applicant.
    46    (3)  "Permit"  or  "well permit" means a permit to drill, deepen, plug
    47  back or convert a well for production of oil or gas.
    48    2. Every person who applies for a permit to drill an oil or  gas  well
    49  or  deepen  or  plug back a well to a different pool after the effective
    50  date of  this  section,  notwithstanding  prior  orders,  shall  control
    51  through  fee  ownership, voluntary agreement, or integration pursuant to
    52  section 23-0701 or 23-0901 of this article no less than sixty percent of

    53  the acreage within the proposed spacing unit for  such  well  and  shall
    54  provide the department with:
    55    a.  A  map  in  a  format  specified  by  the department depicting the
    56  proposed spacing  unit  for  the  well,  the  surface  and  bottom  hole

        A. 8672--B                          5
 
     1  locations of the well, the location of the wellbore in the target forma-
     2  tion,  the  location  of  any  field-bounding faults within the proposed
     3  spacing unit, the acreage of the proposed spacing unit, and the  bounda-
     4  ries  of each tract wholly or partially within the proposed spacing unit
     5  as may be evidenced by tax identification numbers; and
     6    b. A demonstration that the applicant controls the oil or gas  rights,

     7  as applicable, in the target formation to be penetrated by the wellbore,
     8  provided that, if the applicant does not control such oil or gas rights,
     9  the  department shall issue a permit that is conditional upon the appli-
    10  cant completing the integration process required by section  23-0901  of
    11  this article before the applicant can exercise the right to drill, deep-
    12  en, plug back or convert under the permit.
    13    3.  In  furtherance  of  the  policy  objectives  of this article, the
    14  department shall take all actions required by it under  this  title  and
    15  titles 7 and 9 of this article as expeditiously as possible.
    16  § 23-0503. Well spacing in oil and natural gas pools and fields.
    17    1.  Spacing  orders  are  not  required  for  wells drilled, deepened,

    18  plugged back or converted in oil fields or pools which were  discovered,
    19  developed  and operated prior to January first, nineteen hundred eighty-
    20  one. Spacing orders  are  not  required  for  wells  drilled,  deepened,
    21  plugged  back  or  converted  in natural gas fields or pools, which were
    22  discovered, developed and operated  prior  to  January  first,  nineteen
    23  hundred ninety-five and which are not being extended.
    24    2.  The department shall issue a permit to drill, deepen, plug back or
    25  convert a well, if the proposed spacing unit submitted to the department
    26  pursuant to paragraph a of subdivision 2  of  section  23-0501  of  this
    27  title  conforms  to  statewide  spacing  and is of approximately uniform

    28  shape with other spacing units within the same field or pool, and  abuts
    29  other spacing units in the same pool, unless sufficient distance remains
    30  between  units  for  another  unit to be developed. Prior to issuing any
    31  such permit, the department shall publish a notice of intent to issue  a
    32  well  permit  in  the environmental notice bulletin, which shall include
    33  information concerning the spacing unit associated with the well.
    34    3. a.  If the proposed spacing unit does  not  meet  the  requirements
    35  described  in  subdivision  two  of  this  section, the department shall
    36  determine if the proposed spacing unit satisfies the  policy  objectives
    37  of section 23-0301 of this article.

    38    b.  If  the  department determines the proposed spacing unit meets the
    39  policy objectives of section 23-0301 of  this  article,  the  department
    40  shall  issue a notice of intent to issue a permit and spacing order. The
    41  well operator shall cause such notice to be  published  in  a  form  and
    42  manner  prescribed by the department. If the notice of intent relates to
    43  a proposed spacing unit that is not of a uniform  size  and  shape  with
    44  other  spacing  units  for  the  field or pool, the department shall, if
    45  necessary, make such adjustment of the  allowable  production  from  the
    46  well  to  be  drilled  thereon  so  that  the owners in the spacing unit
    47  receive their just and equitable shares of the production from the pool.

    48  Any such adjustment of the allowables shall be included in the notice of
    49  intent to issue a permit and spacing order.
    50    c. Any comments regarding a notice of intent to  issue  a  permit  and
    51  spacing  order  must be received by the department within thirty days of
    52  the date of the notice of intent  and  must  meet  the  substantive  and
    53  significant  requirement for establishing an issue for adjudication. Any
    54  challenge to a spacing unit must contain (i) a description and a map  of
    55  the proposed alternative spacing unit; (ii) a technical justification of
    56  the proposed alternative spacing unit, which shall include a description

        A. 8672--B                          6
 

     1  and analysis of the scientific data intended by the owner to support its
     2  proposed  spacing  unit  configuration;  and (iii) the name, address and
     3  experience of any expert witness proposed to support the proposed alter-
     4  native  spacing unit configuration. The department may request the owner
     5  challenging the spacing unit to  present  its  scientific  data  to  the
     6  department.
     7    d.  The department shall determine whether substantive and significant
     8  issues have been raised. If the department receives no  comments  or  if
     9  the  comments  do  not  raise  a  substantive and significant issue, the
    10  department shall issue the permit and the final spacing order.   If  the
    11  department  determines that substantive and significant issues have been

    12  raised in a timely manner, the department shall schedule an adjudicatory
    13  hearing.
    14    4. The department may issue permits to drill infill wells on a reason-
    15  ably uniform pattern within the spacing unit after an integration  order
    16  has  been  issued,  if required, and only if it determines that drilling
    17  infill wells is necessary to satisfy the policy  objectives  of  section
    18  23-0301  of  this  article.   The distances from the unit boundaries set
    19  forth in paragraph b of subdivision 1 of section 23-0501 of  this  title
    20  shall  apply  to  any  infill  wells.  For purposes of this section, new
    21  lateral wellbores drilled from the original wellbore in the unit are not
    22  considered infill wells if they are drilled prior to the  first  product

    23  sales from the original surface location.
    24    5.  For  wells  permitted  prior to the effective date of this section
    25  where a spacing order is required but has not been issued,  the  depart-
    26  ment  shall issue a notice of intent to issue a spacing order.  The well
    27  operator shall cause such notice to be published in a  form  and  manner
    28  prescribed by the department.  The department may issue an order without
    29  a hearing if the proposed spacing unit complies with the requirements of
    30  subdivision  two  of  this  section  and  no substantive and significant
    31  objections to the boundaries of the proposed spacing unit  are  received
    32  within thirty days after publication of the notice by the well operator.

    33  If  the  department  determines  that substantive and significant issues
    34  have been raised in a timely manner, the department  shall  schedule  an
    35  adjudicatory hearing.
    36    6.    An  order  establishing a spacing unit shall be binding upon all
    37  persons and their heirs, successors and assigns. Upon good cause  shown,
    38  an  order  establishing a spacing unit may be modified by the department
    39  without conducting a hearing if a finding has been made  that  no  facts
    40  are  in  dispute after all affected persons have been provided a reason-
    41  able opportunity to comment. If necessary, upon issuance of  a  modified
    42  order  which changes unit boundaries, the well operator shall adjust the
    43  accounts for owners within the original and modified  units  to  reflect

    44  the  modified  boundary. Any participation by new owners and any adjust-
    45  ment of revenue or royalties based thereon shall  be  on  a  prospective
    46  basis  only.  If  the  initial risk penalty phase pursuant to title 9 of
    47  this article is in effect, any new owner added to the unit may elect  to
    48  be  integrated as a participating owner, a non-participating owner or an
    49  integrated royalty owner as defined by title 9  of  this  article.  Full
    50  well  costs  shall be assessed against new participating owners and non-
    51  participating owners and included in the risk  penalty  calculation.  If
    52  the initial risk penalty phase has concluded, any new owner added to the
    53  spacing  unit  may elect to be integrated as a participating owner or an

    54  integrated royalty owner on a prospective basis only.
    55    7. Upon the expiration of a well permit or the plugging  and  abandon-
    56  ment  of  all  wells in a spacing unit, the spacing unit shall be extin-

        A. 8672--B                          7
 
     1  guished. Upon extinguishment, all lands within such spacing  unit  shall
     2  be eligible for inclusion in subsequent spacing units.
     3    8. The department, without considering correlative rights, may grant a
     4  permit  to those entities described in paragraphs b and c of subdivision
     5  3 of section 23-1901 of this article for the  purposes  of  natural  gas
     6  development if the department determines, after notice and hearing, that
     7  the  natural  gas  resource  would  not be developed by any other entity

     8  within twelve months of the close of the hearing record.  In  the  event
     9  that  the department shall not receive timely notice of appearance prior
    10  to the scheduled date of hearing, it may dispense with such hearing.  In
    11  making  its  determination  the department shall require that the entity
    12  described in paragraphs b and c of subdivision 3 of section  23-1901  of
    13  this  article submit a finding made by such entity that such drilling is
    14  likely to be economically sound, and that the entity in question utilize
    15  the resource for its exclusive use when granting such a permit.
    16    § 7. Section 23-0701 of the environmental conservation law, as amended
    17  by chapter 846 of the laws of 1981, is amended to read as follows:
    18  § 23-0701. Voluntary integration and unitization in oil and natural  gas

    19               pools and fields.
    20    1. Voluntary integration and unitization in oil pools or fields and in
    21  natural  gas  pools or fields shall be subject to the provisions of this
    22  section. When two or more separately owned tracts are embraced within  a
    23  spacing  unit,  or when there are separately owned interests in all or a
    24  part of a spacing unit,  the  interested  persons  may  integrate  their
    25  tracts  or  interests  for  the development and operation of the spacing
    26  unit. An agreement for the unit or for the cooperative  development  and
    27  operation  of  a  field,  pool, or part thereof, may be submitted to the
    28  department for approval as being in the public  interest  or  reasonably
    29  necessary  to  prevent waste.  Such approval shall constitute a complete
    30  defense to any suit charging violation of  any  statute  of  this  state

    31  relating  to  trusts  and monopolies on account thereof or on account of
    32  operations conducted pursuant thereto. Failure to submit such an  agree-
    33  ment  to  the department for approval shall not for that reason imply or
    34  constitute evidence that the agreement or operations conducted  pursuant
    35  thereto are in violation of laws relating to trusts and monopolies.
    36    2.    Upon  twenty-one  days  notice  to the fee owners of oil and gas
    37  interests under lease in a spacing unit, a well operator may  record  as
    38  to each tract for which notice has been given a declaration of voluntary
    39  integration.  The declaration of voluntary integration shall include the
    40  acreage applicable to each tract so integrated and the  proportion  such
    41  acreage  bears  to the entire spacing unit. The declaration of voluntary

    42  integration shall be final and binding upon all persons and their heirs,
    43  successors and assigns, and all persons who take title by  operation  of
    44  law.
    45    §  8.  Subdivisions  1,  2, 3 and 6 of section 23-0901 of the environ-
    46  mental conservation law, subdivision 1 as amended by chapter 1020 of the
    47  laws of 1981, are amended and a new subdivision 13 is added to  read  as
    48  follows:
    49    1. Compulsory integration and unitization in oil pools [or] and fields
    50  and  in  natural  gas  pools  [or]  and  fields  shall be subject to the
    51  provisions of this section with subdivision 3 to be specifically  appli-
    52  cable to integration within individual spacing units, and subdivisions 4
    53  through  12 to be specifically applicable to unit operation of an entire
    54  pool or part thereof.

    55    2. The department shall not make any order requiring  the  integration
    56  of  interests in any spacing unit or requiring the development or opera-

        A. 8672--B                          8
 
     1  tion of any field, pool or part thereof as a unit unless it finds, after
     2  detailed study and analysis, notice and hearing, that the integration of
     3  interests in spacing units,  under  conditions  then  existing  in  this
     4  state, or in the field or pool to be affected, is necessary to carry out
     5  the  policy  provisions of section 23-0301 of this article. [The hearing
     6  may be coincidental with that required prior to the spacing of wells  as
     7  provided in subdivision 2 of section 23-0501.]
     8    3.  In  the  absence  of voluntary integration as permitted by section

     9  23-0701 of this article and after finding as required by  subdivision  2
    10  of  this  section,  the  department  shall make an order integrating all
    11  tracts or interests in the spacing unit for development  and  operation.
    12  Each  such integration order shall be upon terms and conditions that are
    13  just and reasonable[.]  and subject to the following:
    14    a. As used in this section or otherwise in this article, to the extent
    15  applicable to oil and gas wells:
    16    (1) "Integrated non-participating owner" or "non-participating  owner"
    17  means  an  owner  who  elects  to  reimburse  the  well operator, out of
    18  production proceeds, for such owner's proportionate share of the  actual
    19  well  costs  of  the  initial well in a spacing unit and be subject to a

    20  risk penalty, and complies with all of the requirements for integration,
    21  including the terms of integration, as specified in an  order  of  inte-
    22  gration issued pursuant to the compulsory integration provisions of this
    23  section.  The  non-participating  owner  shall receive the full share of
    24  production attributable to such owner's proportionate  interest  in  the
    25  spacing  unit  following  the  recoupment  by  the  well operator of the
    26  owner's proportionate share of the actual well costs plus a risk penalty
    27  of two hundred percent of the share of the actual well  costs  allocable
    28  to  such  owner.    In  the  case  of a leased tract, a royalty shall be
    29  deducted from the non-participating owner's share of  production,  which

    30  shall not be subject to charges or costs, but shall be separately calcu-
    31  lated  and  paid to the non-participating owner on behalf of the royalty
    32  owner as follows:
    33    (i) During the recovery of the actual well costs, 1/16 or 6.25%,
    34    (ii) During the recovery of the first 100% of the risk  penalty,  3/32
    35  or 9.38%,
    36    (iii)  During the recovery of the second 100% of the risk penalty, the
    37  lowest royalty fraction set forth in an existing lease in the unit,  but
    38  no less than 1/8 or 12.5%.
    39    Nothing  in this subparagraph relieves any lessee of its obligation to
    40  pay, from the commencement of  production,  any  remaining  royalty  and
    41  overriding royalty owed under the terms of its lease.

    42    (2) "Integrated participating owner" or "participating owner" means an
    43  owner  who  elects to participate in the initial well in a spacing unit,
    44  pays all costs associated with participation and complies  with  all  of
    45  the  requirements for participation, including the terms of integration,
    46  specified in an order of integration issued pursuant to  the  compulsory
    47  integration provisions of this section.
    48    (3)  "Integrated  royalty owner" means an owner who has either elected
    49  to be an integrated royalty owner or who does not elect to become either
    50  a participating owner  or  a  non-participating  owner.  The  integrated
    51  royalty  owner shall receive a royalty equal to the lowest royalty in an

    52  existing lease in the spacing unit, but no  less  than  one-eighth.  The
    53  integrated  royalty  owner shall have no obligation to the well operator
    54  or any other owner for any charges, taxes or fees  associated  with  the
    55  operation  of  the oil or gas well and, notwithstanding any other law to
    56  the contrary, shall not be liable by reason of the owner's status as  an

        A. 8672--B                          9
 
     1  integrated  royalty owner for any claims for personal injury or property
     2  damage suffered by any person relating to the drilling and operation  of
     3  the well.
     4    (4) "Risk penalty" means the percentage applied to well costs to reim-
     5  burse  the  well operator for the risk involved with the exploration for

     6  and development of a well or the percentage applied to other costs  that
     7  are subject to recoupment and a risk penalty, as provided herein. At any
     8  time during a risk penalty phase, an owner subject to a risk penalty may
     9  pay  to  the  well operator the full amount subject to recoupment by the
    10  well operator, to terminate the risk penalty phase and be  eligible  for
    11  other opportunities for participation as provided herein.
    12    (5)  "Well costs" means the costs incurred or estimated to be incurred
    13  by the well operator in relation to the drilling,  completion,  and  the
    14  installation  of surface equipment, other than as described in item E of
    15  clause (ii) of subparagraph  1  of  paragraph  c  of  this  subdivision,

    16  including,  without limitation, surveying, drill site preparation, leas-
    17  ing of surface rights and access roads  pertinent  to  the  drill  site,
    18  construction  of  access roads, permitting, drilling, stimulation, test-
    19  ing, well logging, drilling insurance, plugging and abandonment  of  the
    20  well,  environmental  mitigation  costs associated with drilling and any
    21  other costs associated with the foregoing that the operator has incurred
    22  or anticipates incurring, including a reasonable charge for  supervision
    23  of the foregoing activities.
    24    b. If upon issuance of a well permit by the department, the well oper-
    25  ator does not control all owners within the spacing unit, either through

    26  lease  or  voluntary  agreement,  the department shall schedule an inte-
    27  gration hearing.
    28    c. The well operator shall, no later than thirty  days  prior  to  the
    29  date  of  the  integration  hearing scheduled by the department, provide
    30  actual notice of the  hearing  to  all  uncontrolled  owners  wholly  or
    31  partially  within  the spacing unit and shall provide notice by publica-
    32  tion in a form and manner prescribed by  the  department.  Prior  to  or
    33  contemporaneously  with  such notice, the well operator shall provide to
    34  the department the well operator's estimate of those well costs that the
    35  owners electing to participate shall be required  to  pay  to  the  well
    36  operator  prior  to  or at the integration hearing based on each owner's

    37  proportionate share of such costs and a list of  each  tract  wholly  or
    38  partially within the spacing unit, the acreage attributable thereto, the
    39  percentage  interest  of  the total spacing unit of each tract, an indi-
    40  cation of whether the tract is controlled by the well operator  and  the
    41  names and addresses of the uncontrolled owners. If applicable, such list
    42  shall also identify each tract where the owners remain unknown or cannot
    43  be located after diligent efforts by the well operator. To the extent an
    44  owner  cannot  be determined after diligent efforts by the well operator
    45  and such owner is integrated as an integrated royalty  owner,  the  well
    46  operator  shall  hold  the royalty percentage payable to such integrated

    47  royalty owner in an interest bearing account for such integrated royalty
    48  owner until the owner is located or the property  is  deemed  abandoned,
    49  whichever comes first.
    50    (1)  The notice of hearing to each uncontrolled owner shall be made in
    51  a form prescribed by the department, and shall include:
    52    (i) An election form, as prescribed by the  department,  granting  the
    53  uncontrolled  owner the right to elect to be integrated into the spacing
    54  unit as an integrated participating owner, an integrated non-participat-
    55  ing owner or an integrated royalty owner. Such form shall set forth  the
    56  well operator's good faith estimate of those well costs which the owners

        A. 8672--B                         10
 

     1  electing  to  be  integrated as participating owners will be responsible
     2  for paying to the well operator prior to conclusion of  the  integration
     3  hearing,  based  on  each owner's proportionate share of such costs, and
     4  confirm  that  if  an uncontrolled owner does not make a timely election
     5  and does not timely comply with all of the requirements to be  either  a
     6  participating owner or a non-participating owner, that such uncontrolled
     7  owner shall be integrated into the spacing unit as an integrated royalty
     8  owner.
     9    (ii)  A copy of the proposed order of integration, which shall include
    10  the proposed terms of integration applicable to integrated participating
    11  owners and integrated non-participating owners. The  proposed  order  of

    12  integration  shall include the following terms in addition to any appli-
    13  cable risk penalty:
    14    A. The owner shall be liable for its proportionate share of all  costs
    15  and  expenses,  including  taxes, and claims of third parties related to
    16  the well, operations thereon and in conjunction therewith, and shall  be
    17  entitled  to  its  proportionate  share of all benefits therefrom. If an
    18  owner's share of production is subject to a risk penalty, the well oper-
    19  ator shall establish a risk penalty  account  for  such  owner  and  all
    20  costs,  expenses  and  benefits  attributable  to  such  owner  shall be
    21  reflected in the penalty account;
    22    B. The well operator shall  hold  any  funds  paid  by  the  owner  or

    23  recouped through the risk penalty attributable to the plugging and aban-
    24  donment  costs  of  the  well, as estimated prior to the drilling of the
    25  well, in an interest bearing account until such funds are  required  and
    26  utilized for such purpose;
    27    C. The owner shall be liable for and shall indemnify all other persons
    28  participating  in  the  development  of  the well, whether participating
    29  owners, non-participating owners or otherwise, including the well opera-
    30  tor, from and against all claims arising out of the owner's  non-payment
    31  of  rentals,  royalties and other payments or burdens on the oil and gas
    32  rights that such owner contributes to the  spacing  unit  and  from  and
    33  against  all  claims associated with the loss or failure of title to the

    34  oil and gas rights the owner contributes to the spacing unit;
    35    D. The well operator shall have a first lien on the production of  the
    36  owner  to  pay  any  outstanding  costs, expenses or claims and the well
    37  operator shall be entitled to withhold and retain for  the  purposes  of
    38  set  off  any  revenue  or  production owed or due to the owner under an
    39  order of integration. Nothing in this paragraph shall  affect  the  well
    40  operator's  right  to  collect  any outstanding amounts incurred nor the
    41  right of any fee owner of oil and gas interests to collect  any  amounts
    42  owed  under  the terms of any lease from such owner. The exercise of any
    43  remedy shall not preclude the well operator from seeking any other reme-
    44  dies available under the law;

    45    E. Whether or not the owner is subject to a  risk  penalty,  the  well
    46  operator  shall  submit to the owner a written authority for expenditure
    47  of the estimated costs associated with the construction of  any  facili-
    48  ties  not  included  in  well  costs beyond the surface equipment at the
    49  wellhead to the first point of  interconnection  with  other  facilities
    50  that  commingle production from a group of wells that includes the well,
    51  including, but not limited to, pipe, compression, processing,  treating,
    52  dehydrating  or  separating  equipment,  fixtures, related buildings and
    53  other equipment. The owner shall have thirty days to  elect  to  partic-
    54  ipate  and pay its proportionate share of such estimated cost, the fail-

    55  ure of which shall be deemed to be an  election  by  the  owner  not  to
    56  participate. If the owner elects not to participate or is deemed to have

        A. 8672--B                         11
 
     1  elected  not  to  participate,  the  well  operator shall be entitled to
     2  retain for its own account all of the owner's share of  production  from
     3  the  well  until the well operator has recouped from the net proceeds of
     4  the owner's share of production the owner's share of the actual costs of
     5  the  facilities,  plus  a  risk  penalty  of one hundred percent of such
     6  costs.  Any such amounts shall be added to the risk penalty account  for
     7  such owner;
     8    F. If the owner is not subject to a risk penalty, the owner shall have

     9  the  right  to take its share of gas or oil production in kind and shall
    10  be responsible for its transportation and marketing  arrangements  down-
    11  stream  of the facilities constructed pursuant to item E of this clause.
    12  The owner's election to take in kind must be conveyed to the well opera-
    13  tor no later than fourteen days prior to first production from the  well
    14  or  upon  seventy-five  days written notice to well operator at any time
    15  following first production from the well subject to  the  expiration  of
    16  any existing contracts;
    17    G. If the owner is not subject to a risk penalty and does not take its
    18  share  of  gas or oil production in kind, the well operator shall market
    19  the owner's share of production from the well ratably with its own share

    20  of production from the well for the account of the owner. The well oper-
    21  ator shall pay the owner based on the price received by the well  opera-
    22  tor  for  production  in  the  general area less (I) the owner's propor-
    23  tionate  share  of  all  costs  incurred  by  the  well   operator   for
    24  transporting,  treating,  processing, or otherwise making the production
    25  marketable, and (II) a marketing fee not to exceed five percent  of  the
    26  sales price of the production;
    27    H.    The  well  operator  shall  be entitled to propose and conduct a
    28  subsequent operation on a well,  meaning  any  reworking,  sidetracking,
    29  deepening, re-completing or plugging back of the well or the drilling of

    30  a  lateral  or  an  infill  well in the formation for which the unit was
    31  created. Owners shall be  provided  with  a  written  authorization  for
    32  expenditure of the estimated costs of the subsequent operation. An owner
    33  shall  not  be entitled to participate in a subsequent operation as long
    34  as the owner is in a risk penalty phase. If a  subsequent  operation  is
    35  proposed  while an owner is in a risk penalty phase, the owner's propor-
    36  tionate share of the actual cost of the subsequent  operation  plus  two
    37  hundred  percent of such actual costs shall be added to the risk penalty
    38  account for such owner.  The owner not in a  risk  penalty  phase  shall
    39  have  thirty  days to elect and pay its proportionate share of the esti-

    40  mated costs, unless a drilling rig is on location, in which event notice
    41  of a subsequent operation may be given by telephone and the owner  shall
    42  have  forty-eight  hours,  exclusive of Saturday, Sunday and legal holi-
    43  days, to make an election and thirty days to  pay  the  owner's  propor-
    44  tionate  share of costs.  The failure of any such owner to elect and pay
    45  in a timely manner shall be deemed an  election  by  the  owner  not  to
    46  participate  in  the  subsequent  operation.  If such owner elects or is
    47  deemed to have elected not to participate in the  subsequent  operation,
    48  the well operator shall be entitled to retain all of the owner's propor-
    49  tionate  share  of  production from the well until the well operator has

    50  recouped the proportionate share of the actual costs of  the  subsequent
    51  operation  attributable  to such owner, plus two hundred percent of such
    52  actual costs;
    53    I. The well operator, on behalf of the owner,  shall  be  entitled  to
    54  conduct  all  acts  associated  with  the  well and necessary facilities
    55  related thereto, including without limitation: conducting title examina-
    56  tion and curative work on the  tracts  included  in  the  spacing  unit;

        A. 8672--B                         12
 
     1  arranging  for  contract  services or employees of the well operator, at
     2  the customary salaries, wages and benefits of such employees, to oversee
     3  the operation and maintenance of the well  and  the  facilities  in  the

     4  production  unit associated with the well; arranging for and maintaining
     5  required financial security for well bonds  and  insurance;  discharging
     6  litigation,  claims  of  third  parties  and  disputing tax assessments;
     7  developing  and  implementing  emergency  responses  and  dealing   with
     8  catastrophic  events;  and  arranging  for the storage, transporting and
     9  disposal of  produced  water,  by-products  or  refuse  associated  with
    10  production and maintenance facilities; and
    11    J.  Other  terms  may  be  included in the order of integration if the
    12  department determines such terms are reasonably required to further  the
    13  policy objectives of section 23-0301 of this article.
    14    (2)  Within  twenty-one  days  of  receiving notice of the integration

    15  hearing, each uncontrolled owner shall provide to the well operator  and
    16  the department its election as to whether it chooses to be integrated as
    17  a participating owner, a non-participating owner or an integrated royal-
    18  ty  owner. Failure of an uncontrolled owner to elect to be integrated as
    19  a participating owner, a non-participating owner or an integrated royal-
    20  ty owner and to pay the amount specified in the notice by  the  date  of
    21  the  hearing,  or  to make any election, shall result in the owner being
    22  integrated as an integrated royalty owner.   Nothing contained  in  this
    23  section  shall  preclude  any person from entering into a lease or other
    24  voluntary agreement at any time prior to the hearing.

    25    d. If substantive and significant issues are raised during  the  inte-
    26  gration hearing, the department shall schedule an adjudicatory hearing.
    27    e. If no substantive and significant issues are raised at the hearing,
    28  the  department  shall issue a final order of integration confirming the
    29  status of all uncontrolled owners in the spacing unit  as  participating
    30  owners, non-participating owners or integrated royalty owners; the terms
    31  of  integration;  the acreage attributable to each owner and the propor-
    32  tion such acreage bears to the entire  spacing  unit;  and  the  royalty
    33  applicable  to  each  integrated  royalty  owner.  Such  order  shall be
    34  recorded by the well operator in the office of the county clerk  in  the

    35  county or counties where the spacing unit is wholly or partially located
    36  and  such  order  shall be final and binding upon the well operator, all
    37  owners and their heirs, successors and assigns.
    38    f. All operations including, but not  limited  to,  the  commencement,
    39  drilling, or operation of a well or the existence of a shut-in well upon
    40  any portion of a spacing unit covered by an order of integration [order]
    41  shall  be  deemed  for  all purposes the conduct of such operations upon
    42  each separately owned tract in the spacing unit by the owner or  several
    43  owners  thereof.  That portion of the production allocated to each tract
    44  included in a spacing unit covered by an  order  of  integration  shall,
    45  when  produced,  be  deemed  for all purposes to have been produced from

    46  such tract by a well drilled thereon. [Each such integration order shall
    47  authorize the drilling, equipping and operation or operations of a  well
    48  on  the  spacing unit, and make provision for the payment of the reason-
    49  able actual cost thereof, plus a reasonable charge for  supervision  and
    50  interest. If there is any dispute as to such costs, the department shall
    51  determine  the  proper  costs. If one or more of the owners shall drill,
    52  equip and operate, or operate, or pay the expenses of  drilling,  equip-
    53  ping  and  operating,  or  operating,  a well for the benefit of another
    54  person as provided for in an order of integration, then  such  owner  or
    55  owners  shall  be  entitled  to the share of production from the spacing

    56  unit accruing to the interest of  such  other  person,  exclusive  of  a

        A. 8672--B                         13

     1  royalty  not  to  exceed  one-eighth of the production, until the market
     2  value of such other person's share of the production, exclusive of  such
     3  royalty, equals twice such other person's share of the reasonable actual
     4  cost  of  drilling,  equipping  and  operating,  or  operating the well,
     5  including a reasonable charge for supervision and interest.]
     6    6. No order of the department  providing  for  unit  operations  shall
     7  become   effective  unless  and  until  the  plan  for  unit  operations
     8  prescribed by the department has been approved in writing by the  owners

     9  of  sixty  [per  cent]  percent or more in interest as the costs of such
    10  unit operations are shared under the order of  the  department,  and  by
    11  owners  of  record of a like percentage of a one-eighth royalty interest
    12  in and to the unit area, and the department has made a  finding,  either
    13  in  the order providing for unit operations, or in a supplemental order,
    14  that the plan for unit operations has been so approved by  the  required
    15  number of owners and royalty owners. If the plan for unit operations has
    16  not  been so approved by owners and royalty owners at the time the order
    17  providing for unit operations is made, the department shall upon  appli-
    18  cation  and notice hold such supplemental hearings as may be required to
    19  determine if and when the plan for unit operations has been so approved.
    20  If the owners  and  royalty  owners,  or  either,  owning  the  required

    21  percentage of interest in the unit area do not approve the plan for unit
    22  operations  within  a  period  of  six months from the date on which the
    23  order providing for unit operations is made, such order shall  cease  to
    24  be of force and shall be revoked by the department.
    25    13.  Any  person  taking  title by operation of law to any oil and gas
    26  interests integrated into a spacing unit pursuant to an order  of  inte-
    27  gration,  shall  take such interests subject to the terms and conditions
    28  of the final order of integration issued by the department duly recorded
    29  in accordance with the provisions of this section and shall  be  subject
    30  to  all  liabilities  and  benefits  associated  therewith,  unless such
    31  person, within sixty days of the taking of such interest, elects  to  be

    32  an  integrated  royalty  owner  and  notifies  the well operator of such
    33  election.
    34    § 9. Subdivision 5 of section 5-333 of the general obligations law  is
    35  REPEALED and two new subdivisions 5 and 6 are added to read as follows:
    36    5.  On  or after January first, two thousand six, any oil or gas lease
    37  shall contain the following statement printed in at least ten point bold
    38  type:
    39    THIS IS A LEASE OF OIL AND GAS RIGHTS, NOT A  SALE,  CONTAINING  TERMS
    40  THAT  MAY  BE NEGOTIATED BY YOU. YOU HAVE THE RIGHT TO CANCEL THIS LEASE
    41  WITHIN THREE BUSINESS DAYS AFTER EXECUTION OF THE LEASE BY NOTIFYING THE
    42  LESSEE THAT YOU HAVE CANCELED THIS CONTRACT. IN  ORDER  TO  CANCEL  THIS
    43  LEASE,  YOU  MUST  EXECUTE A NOTICE OF CANCELLATION IN THE FORM PROVIDED

    44  BELOW, MAIL IT TO THE LESSEE AND REFUND ALL AMOUNTS PAID TO YOU  BY  THE
    45  LESSEE  WITHIN  THE  THREE-DAY  CANCELLATION PERIOD. THE MAILING MUST BE
    46  POSTMARKED WITHIN THE THREE-DAY CANCELLATION PERIOD TO BE EFFECTIVE.
    47                    NOTICE OF CANCELLATION
    48          I/WE HEREBY CANCEL THIS LEASE.
    49    DATED:
    50    SIGNATURE(S):
    51    THE PERSON PRESENTING THIS LEASE TO YOU IS [ ] NOT [ ] A MEMBER OF
    52    (name of organization)        AND THEREFORE IS [ ] IS NOT [ ]  SUBJECT
    53  TO  A  CODE  OF  CONDUCT.  IF THE PERSON PRESENTING THIS LEASE TO YOU IS
    54  SUBJECT TO A CODE OF CONDUCT, A COPY OF THE  CODE  OF  CONDUCT  MUST  BE

    55  PRESENTED  TO  YOU  WITH  THIS LEASE. IF APPLICABLE, THE CODE OF CONDUCT
    56  PROVIDES A DISPUTE RESOLUTION MECHANISM FOR ANY  DISPUTE  THAT  YOU  MAY

        A. 8672--B                         14
 
     1  HAVE  REGARDING  THE MANNER BY WHICH THIS LEASE WAS PRESENTED TO YOU. IF
     2  YOU HAVE ANY SUCH DISPUTE, YOU MAY INVOKE THE DISPUTE  RESOLUTION  MECH-
     3  ANISM  OF THE CODE OF CONDUCT BY CONTACTING THE PERSON OR PERSONS DESIG-
     4  NATED  IN  THE  CODE  OF CONDUCT.   THE FAILURE OF THE LESSEE TO PAY ANY
     5  ROYALTIES TO YOU AS REQUIRED UNDER THE TERMS OF THE LEASE FOR  A  PERIOD
     6  OF  FOUR  CONSECUTIVE MONTHS OR MORE SHALL BE A DEFAULT UNLESS OTHERWISE
     7  PROVIDED BY LAW, AND WILL RESULT IN CANCELLATION OF THE LEASE APPLICABLE

     8  TO THE TARGET FORMATION OF THE WELL WITHIN THE SPACING  UNIT,  FOLLOWING
     9  WRITTEN  NOTIFICATION  TO  THE LESSEE OF YOUR INTENT TO CANCEL AND SIXTY
    10  DAYS FOR THE LESSEE TO CURE THE DEFAULT. IF THE LESSEE HAS A  BONA  FIDE
    11  DISPUTE  REGARDING  THE  GROUNDS  FOR CANCELLATION, SUCH DISPUTE AND THE
    12  REASONS THEREFOR MUST BE PROVIDED TO YOU IN WRITING OR THE DEFAULT  MUST
    13  BE  CURED  WITHIN  SUCH  SIXTY  DAY PERIOD, OTHERWISE THE LEASE SHALL BE
    14  CANCELLED.
    15    6. The provisions of subdivisions one, two, three  and  four  of  this
    16  section  shall  apply  to leases entered into on or after January first,
    17  nineteen hundred eighty-five and the provisions of subdivision  five  of
    18  this  section  shall  apply  to  leases entered into on or after January

    19  first, two thousand six.
    20    § 10. This act shall take effect immediately and shall  apply  to  any
    21  oil  or  gas well permit or spacing order issued on or after such effec-
    22  tive date except as otherwise specifically provided in this act.
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