Prior to filing an
application for a permit to drill, the applying company must register with the Secretary of State’s office to conduct business in North Dakota. The applying company must
file an organizational report, pass a background check and receive approval for sufficient bonding to cover the potential cost of plugging and reclaiming the well. After
an operator is licensed and bonded they may apply for a permit and pay the $100 processing fee. In the absence of an order from the commission, the operator may use
“statewide” spacing. If the permit application spacing differs from “statewide” spacing or the spacing does not exist, then the application may need a commission
hearing. Spacing is determined based on the area from which the well will extract minerals.
A spacing unit is an area of land assigned to a well or group of wells
through the spacing process that establishes the area and vertical limits from which the well(s) can produce based on geological, engineering, and economic data. The commission
establishes spacing units for a pool by commission order after notice and hearing. All spacing units have a setback distance that keeps wells far enough from the spacing unit
boundary to protect correlative rights (the rights of each owner for a reasonable share of the common source of supply).The order which must specify the size and shape of each
unit and the location of the approved well(s) within it in accordance with a reasonably uniform spacing plan. (See N.D.C.C. 38-08-07 Commission Shall Set Spacing Units)
Every well permitted must be previously approved to drill in a drilling unit or a spacing unit and a pool.
Due to the size of spacing units for horizontal drilling and the subdividing of mineral ownership that has
taken place since the land was homesteaded, it is common for a spacing unit to include several different tracts and mineral interests. Once a spacing unit is created, pooling
is a process that joins together all tracts and mineral interest within the spacing unit to allow for the sharing of costs and benefits of development. Every owner within a
pooled spacing unit receives their “just and equitable” share of every barrel of oil and every cubic foot of natural gas sold from every well within the spacing unit. Pooling
allows for the equitable division of the royalties among the mineral owners based on their correlative rights. (See N.D.C.C. 38-08-08 Integration of fractional tracts)
Overlapping spacing units are created by the commission to prevent waste and to protect the correlative rights of interest owners.
In most cases, the establishment of an overlapping spacing unit is due to the setback requirements of two adjacent spacing units resulting in unproduced acreage along the
section line where the spacing units are adjacent to one another.
In order to allow the drilling and completion of wells to recover the oil and gas within the 1,000 ft. corridor created by spacing unit setbacks, an overlapping spacing unit
(typically 2560-acre size) may be approved. Wells drilled in the 1280-acre spacing units still share among only those interest owners in that 1280-acre spacing unit. Approximately
one-half of the production from wells permitted and drilled within the 1,000 foot setback corridor (and assigned to the 2560-acre spacing unit) will come from each of the adjacent
spacing unit setbacks. Because those spacing units are pooled, the production is owned and shared by all owners within the spacing units. Therefore, all owners within both adjacent
spacing units are affected and share in the production of the section line wells through an overlapping spacing unit.
The Department of Mineral Resources, Oil and Gas Division,
has sole jurisdiction within the state to issue oil and gas drilling permits. However, if the proposed well would drill through federal minerals and/or be drilled from a
surface controlled by the federal government, the operator would then also need to receive a federal permit to drill.
Permits are good for one year from the date of issue. After one year, a permit may be renewed
by the operator on an annual basis for an additional fee of $100. Permits automatically expire after one year, but the operator may cancel them at any time.
Categories of permits are: Wildcat (WC), Extension (EXT), Development (DEV),
Underground Injection Control (UIC), and Stratigraphic Test (ST). A wildcat well is drilled in an undeveloped field and is considered an exploratory well. Drilling a
well permitted as extension is generally done within one mile of a developed field with the expectation to expand the boundaries of the developed field should the
extension well be deemed economic. A development permit is issued within an established field in order to further develop that field. Most permits issued are development
permits. Underground Injection Control permits are issued for enhanced oil recovery and saltwater disposal
wells. Stratigraphic test permits are issued to test the viability and to gain additional information about a formation.
Public lands within an AOI are subject
to the AOI comment and permit policy. You can read more about what lands are considered an AOI, and how to comment on a proposed permit in the
Area of Interest Review Policy.
It is best to get involved before an application for a permit
to drill is even filed for by participating in the hearing process. Every month, lands are docketed for hearing
under temporary and proper spacing cases or amending field rules. These cases determine the appropriate number of wells that can be drilled in a given area. It would be
at this time that interested parties would have the opportunity to comment on potential permits and possible impacts.