# Title 85 — University and School Lands, Board of

## Article 85-06 — Minerals Management

## Chapter 85-06-01 — Oil and Gas

### § 85-06-01-01. Oil and gas lease nomination.

The department shall accept an oil and gas lease nomination for a tract not already under an oil
and gas lease as reflected in department records and may accept a nomination for a tract under an oil
and gas lease which will expire prior to the date of the oil and gas lease sale. The first nomination
received on a tract is considered an offer and determines the opening bid.
1. The department shall accept a nomination for an oil or gas lease either electronically through
the department's website or in writing. The nomination period for an oil and gas lease must be
the period set by the commissioner during which the department shall accept oil and gas
lease nominations.
2. An oil and gas lease nomination must be limited to a maximum of one quarter section, unless
otherwise authorized under subsection 3, or by the board.
3. A nomination for a tract containing a body of water may include up to a section of land if the
tract cannot reasonably be subdivided by quarter section or half section. The tract acreage,
including islands, may be offered and described as "more or less" and may be adjusted by the
board within each quarter section.
History: Effective January 1, 2020; April 1, 2024.
General Authority: NDCC 15-05-09, 15-07-20, 15-08.1-06, 61-33-06
Law Implemented: N.D. Constitution article IX, § 5; NDCC 15-01-02, 15-02-05, 15-05-09, 61-33-06,
61-33.1
### § 85-06-01-02. Advertisement for public auction.

The department shall publish notice of an oil and gas lease auction in the official newspaper of the
county where the nominated tract is located and in the Bismarck Tribune. The notice must be published

once, ten days prior to the day of the auction. The advertisement must specify the date, time, and place
of the auction, and how an interested person may obtain a list of the tracts to be auctioned. Should
publication of any notice is inadvertently omitted by any newspaper or the notice contains typographical
errors, the department may proceed with the scheduled leasing if it appears the omission or error is not
prejudicial to the department's interest.
History: Effective January 1, 2020.
General Authority: NDCC 15-05-09, 15-07-20, 15-08.1-06, 61-33-06
Law Implemented: NDCC 15-05-09, 38-09-15
### § 85-06-01-03. Public auction.

The board may issue an oil and gas lease by public auction. Public auctions may be hosted either
live or online at the discretion of the commissioner. Bidding is based on a bonus of not less than one
dollar per acre, and an annual delay rental of not less than one dollar per acre per year based on the
acreage shown in the records of the department at the time the oil and gas lease is issued.
1. The successful bidder at an auction shall pay the bonus, the rental payments for the primary
term as defined by the oil and gas lease, the advertising fee, the lease auction administration
fee, and any processing fees via automated clearing house or wire transfer, by five p.m.
central prevailing time, ten days after the date the auction closed. The board may not issue an
oil and gas lease until receipt of the bonus, rental payments, and fees.
2. If no bids are received, the nominator is the successful bidder.
3. The board may not issue an oil and gas lease until receipt of the bonus, rental payments, and
fees.
History: Effective January 1, 2020; amended effective April 1, 2024.
General Authority: NDCC 15-05-09, 15-07-20, 15-08.1-06, 61-33-06
Law Implemented: N.D. Constitution article IX, § 5; NDCC 15-01-02, 15-02-05, 15-05-09, 15-05-10
### § 85-06-01-04. Rejection of nomination and bids.

The commissioner, in the best interests of the trusts, may reject a nomination or a bid any time prior
to the issuance of an oil and gas lease.
History: Effective January 1, 2020.
General Authority: NDCC 15-05-09, 15-07-20, 15-08.1-06, 61-33-06
Law Implemented: NDCC 15-05-09
### § 85-06-01-05. Form and term of oil and gas lease.

An oil and gas lease must be issued on a form approved by the board. An oil and gas lease must
be made for a term of not less than five years and continue in effect under such term and for as long as
oil or gas may be produced from the oil and gas leased premises in commercial quantities or unless
otherwise extended. An oil and gas lease must provide for a bonus of not less than one dollar per acre
and an annual delay rental of not less than one dollar per acre per year based on the acreage shown in
the records of the department at the time the oil and gas lease is issued. An oil and gas lease may
contain such other terms and conditions as the board deems appropriate.
History: Effective January 1, 2020.
General Authority: NDCC 15-05-09, 15-05-10, 15-07-20, 15-08.1-06, 61-33-06
Law Implemented: NDCC 15-05-09, 15-05-10

### § 85-06-01-06. Assignment, amendment, or extension.

A lessee shall submit a written request to the department for an assignment, amendment, or
extension of an oil and gas lease, or a portion of the oil and gas leased premises, utilizing the form
available on the department's website. A request must include any documents requested by the
department. The lessee shall submit a fee, in an amount set by the board, to the department with the
request.
1. Assignments. All oil and gas lease obligations must be current at the time the assignment is
approved. The lessee remains bound by the terms and conditions of the oil and gas lease,
board rules and policies, and applicable laws until the assignment is approved by the
department. Upon approval of the assignment, the assignee is bound by all the terms and
conditions of the oil and gas lease, board rules and policies, and applicable laws. The
assignor shall provide the department with a copy of the fully executed assignment within
thirty days from the approval.
2. Extensions. If, at the expiration of the primary term, production of oil or gas or both has not
been obtained in commercial quantities on the leased premises but drilling, testing,
completion, recompletion, reworking, deepening, plugging back, or repairing operations are
being conducted thereon in good faith, the lessee may, on or before the expiration of the
primary term, file a written application with the department for a one hundred eighty day
extension of this oil and gas lease, such application to be accompanied by a payment of ten
dollars per acre, and the commissioner, in writing, shall extend this oil and gas lease for a
period of one hundred eighty days beyond the expiration of the primary term and as long as oil
or gas or both is produced in commercial quantities; the lessee may, as long as such drilling,
testing, or completion operations are being conducted in good faith, make written application
to the commissioner, on or before the expiration of the initial extended period of one hundred
eighty days for an additional extension of one hundred eighty days, such application to be
accompanied by a payment of twenty dollars per acre, and the commissioner, in writing, shall
extend this oil and gas lease for an additional one hundred eighty day period from and after
the expiration of the initial extended period of one hundred eighty days, and as long as oil or
gas or both is produced in commercial quantities; this oil and gas lease must not be extended
for more than a total of three hundred sixty days from and after the expiration of the primary
term unless production in commercial quantities has been obtained or unless extended by
some other provision hereof.
3. Amendments. A lessee may request an amendment to an oil and gas lease for a specific
purpose. A request for an amendment must state the specific grounds for the request.
Approval of a request is at the discretion of the commissioner and the department shall notify
the lessee in writing whether or not the request is approved.
History: Effective January 1, 2020.
General Authority: NDCC 15-05-09, 15-07-20, 15-08.1-06, 61-33-06
Law Implemented: NDCC 15-05-09, 15-05-15
### § 85-06-01-07. Voluntary release.

To request a voluntary release of an oil and gas lease, a lessee shall submit a written request to the
department for the voluntary release of an oil and gas lease, or portion of an oil and gas leased
premises, utilizing the form available on the department's website and all other documents requested
by the department. Approval of a voluntary release is at the discretion of the commissioner and the
department shall notify the lessee in writing whether or not the voluntary release is approved. All oil and
gas lease obligations must be current at the time the voluntary release is approved. The lessee remains
bound by the terms and conditions of the oil and gas lease, board rules and policies, and applicable
laws until the voluntary release is approved by the commissioner.

History: Effective January 1, 2020.
General Authority: NDCC 15-05-09, 15-07-20, 15-08.1-06, 61-33-06
Law Implemented: NDCC 15-05-09
### § 85-06-01-08. Royalties.

If a sale of gas, carbon black, sulfur, or any other products produced or manufactured from gas
produced and marketed from the oil and gas leased premises, including liquid hydrocarbons recovered
from such gas processed in a plant, does not constitute an arm's length transaction, the royalties due
the lessor are as follows:
1. On any gas produced and marketed, except as provided herein with respect to gas processed
in a plant for the extraction of gasoline, liquid hydrocarbons, or other products; the royalty, as
determined by the board, is based on the gross production or the market value thereof, at the
option of the lessor, such value to be based on the highest market price paid for gas of
comparable quality and quantity under comparable conditions of sale for the area where
produced and when run, or the gross proceeds of sale, whichever is greater; provided the
maximum pressure base in measuring the gas under an oil and gas lease at any time may
not exceed fourteen and seventy-three hundredths (14.73) pounds per square inch absolute,
and the standard base temperature shall be sixty degrees Fahrenheit, correction to be made
for pressure according to Boyle's Law, and for specific gravity according to a test made by the
balance method or by the most approved method of testing being used by the industry at the
time of testing.
2. On any gas processed in a gasoline plant or other plant for the recovery of gasoline or other
liquid hydrocarbons, the royalty, as determined by the board, is based on the residue gas and
the liquid hydrocarbons extracted or the market value thereof, at the option of the lessor. All
royalties due herein is based on eighty percent or that percent accruing to the lessee,
whichever is greater, of the total plant production of residue gas attributable to gas produced
from the oil and gas leased premises, and on forty percent or that percent accruing to the
lessee, whichever is greater, of the total plant production of liquid hydrocarbons attributable to
the gas produced from the oil and gas leased premises; provided that if a third party or parties
are processing gas through the same plant pursuant to arm's length transaction and one such
transaction accounts for an annual average of ten percent or more, or all such transactions
collectively account for an annual average of thirty percent or more of the gas being
processed in such plant, the royalty is based on the gross proceeds of sale that would accrue
to the lessee if the gas were processed under the terms of the most remunerative third-party
transaction for processing gas in such plant. Respective royalties on residue gas and on liquid
hydrocarbons for which the requirements for using third-party transactions cannot be met
must be determined by the greater of:
a. The highest market price paid for any gas or liquid hydrocarbons of comparable quality
and quantity under comparable conditions of sale in the general area F.O.B. at the plant
after processing;
b. The gross proceeds of sale for such residue gas or the weighted average gross proceeds
of sale for the respective grades of liquid hydrocarbons, F.O.B. at the plant after
processing; or
c. The gross proceeds of sale paid to a third party processing gas through the plant. The
lessee shall furnish copies of any and all third-party gas processing agreements
pertaining to the plant upon lessor's request.
3. On carbon black, sulfur, or any other products produced or manufactured from gas, excepting
liquid hydrocarbons, whether said gas be "casinghead", "dry", or any other gas, by
fractionating, burning, or any other processing, is based on the gross production of such

productions, or the market value thereof, at the option of the lessor. Such market value is to
be the greater of:
a. The highest market price paid for each of the products of comparable quality and quantity
under comparable conditions of sale in the general area during the same month in which
such products are produced; or
b. The average gross proceeds of sale for each of the products for the same month in
which such productions are produced, provided that if a third-party transaction is used to
determine royalty in accordance with subsection 2, the royalty due under this subsection
shall be determined in accordance with such transaction.
4. The lessee agrees all royalties accruing to the lessor under this rule are without deduction for
the cost of producing, gathering, storing, separating, treating, dehydrating, vapor recovery,
compressing, processing, transporting, conditioning, removing impurities, depreciation, risk
capital, and otherwise making the oil, gas, and other products produced hereunder ready for
sale or use.
History: Effective January 1, 2020; amended effective April 1, 2024.
General Authority: NDCC 15-05-09, 15-05-10, 15-07-20, 15-08.1-06, 61-33-06
Law Implemented: N.D. Constitution article IX, § 5; NDCC 15-01-02, 15-02-05, 15-05-09, 15-05-10
### § 85-06-01-09. Disputed title royalty escrow account.

Any payor that proposes to withhold royalty payments based upon an ownership dispute shall
establish an escrow deposit account and shall deposit the disputed payments into this account.
1. The account must be established at the Bank of North Dakota, or other state or national
chartered insured financial institution approved by the commissioner, with the board as a party
to the escrow agreement.
2. Prior to a final resolution of the dispute, a partial release of the disputed payments may be
made upon written approval by the commissioner and the payor. Upon approval, the disputed
payments must be distributed back to the payor for proper distribution to the rightful owner.
3. Upon final resolution of the ownership dispute, and with consent of the commissioner, the
escrow agent is authorized to release all disputed payments held in the account to the payor
for proper distribution to the rightful owner. The board is entitled to any interest income earned
on the account attributable to North Dakota's ownership interest.
4. This section applies to matters where the amount of the disputed payments is twenty-five
thousand dollars or more over a twelve-month period. The commissioner and the payor may
agree this section applies to oil and gas leases executed prior to the effective date of this
section.
History: Effective January 1, 2020.
General Authority: NDCC 15-05-09, 15-05-10, 15-07-20, 15-08.1-06, 61-33-06
Law Implemented: NDCC 15-05-09, 15-05-10
### § 85-06-01-10. Breach of oil and gas lease.

1. Other than as provided in subsection 7, an oil and gas lease may be canceled for:
a. Nonpayment of any sum due under the oil and gas lease;
b. Breach of any oil and gas lease terms or conditions; or
c. A violation of applicable laws, rules, or board policies.

2. Before an oil and gas lease is canceled, the department shall send a notice of intention to
cancel the lease specifying the reason for cancellation to the lessee listed in the records of the
department by mail requiring a signed receipt to the lessee's address as shown in the records
of the department.
3. A lessee may file with the commissioner a request for a waiver, or a request for the
commissioner to review the notice of intention to cancel the oil and gas lease, which must
include a statement of the specific grounds for the request. A request must be in writing and
filed with the commissioner within thirty days after the date the notice of intention to cancel the
oil and gas lease is postmarked. A request for a waiver or review is deemed filed when
personally delivered or when received by the department. The commissioner may allow the
lessee time to cure the breach, or may waive any breach, except a breach of oil and gas lease
terms required under North Dakota Century Code. Any waiver must be limited to the particular
breach waived and does not limit the board's right to cancel the oil and gas lease for any other
breach. If, after review of the request, the commissioner determines cancellation of the lease
is still warranted, the commissioner shall request board approval of the cancellation. An oil and
gas lease cancellation under this section is exempt from the requirements of section
85-06-01-11.
4. If the lessee has not filed a release of the oil and gas lease with the applicable county
recorder's office or requested a waiver or commissioner review within thirty days after the
postmark date of a notice of intention to cancel the lease, the commissioner may cancel the
lease.
5. Release of the oil and gas lease by the lessee or cancellation of the lease does not release
the lessee from liability for any sum due to the board or from any damages caused by a
breach of the lease.
6. Upon cancellation of the oil and gas lease, the department shall file a notice of cancellation of
oil and gas lease with the applicable county recorder's office.
7. An oil and gas lease automatically terminates for failure to pay the annual delay rental by the
date due without further notice by the department or opportunity for the lessee to remedy the
default.
History: Effective January 1, 2020; amended effective April 1, 2024.
General Authority: NDCC 15-05-09, 15-05-10, 15-07-20, 15-08.1-06, 61-33-06
Law Implemented: N.D. Constitution article IX, § 5; NDCC 15-01-02, 15-02-05, 15-05-09, 15-05-10
### § 85-06-01-11. Board review.

Within thirty days of a decision under these rules, an aggrieved party may request the
commissioner review the decision. The aggrieved party seeking review shall submit any information
required by the commissioner as part of this request. Within thirty days of the commissioner's review,
the aggrieved party may request board review and the commissioner shall recommend if a board
review is warranted.
History: Effective January 1, 2020.
General Authority: NDCC 15-05-09, 15-05-10, 15-07-20, 15-08.1-06, 61-33-06
Law Implemented: NDCC 15-05-09, 15-05-10
### § 85-06-01-12. Reports of lessee - Delinquency penalty.

Royalty payment and reporting are due on forms prescribed by the department as follows:
1. For gas:

a. Within one hundred twenty-three days of the last day of the month in which initial
production occurs, royalty payment and reporting are due for the first, second, and third
months of production.
b. Successive royalty payments and reporting are due within sixty-one days of the last day
of the month in which production occurs.
2. For oil:
a. Within ninety-two days of the last day of the month in which initial production occurs,
royalty payment and reporting are due for the first, second, and third months of
production.
b. Successive royalty payments and reporting are due within thirty days of the last day of
the month in which production occurs.
3. The royalty payment and reporting deadline may be extended by the commissioner upon
written request. An extension, if granted, only applies to future royalty payments and reporting.
4. Any sum, other than delay rentals, not paid when due is delinquent and is subject to a
delinquency penalty of one percent of the sum for each thirty day period of delinquency or
fraction of delinquency period, unless a waiver or board review is requested under
subsection 6. For leases issued after July 31, 2021, any penalty must be calculated pursuant
to subsection 3 of North Dakota Century Code section 15-05-10.
5. Unpaid royalties bear interest under subsection 2 of North Dakota Century Code section
15-05-10.
6. A lessee has thirty days from the date of the receipt of a notice of a penalty and interest
assessment to pay the penalty and interest, request a waiver or reduction, or to request board
review.
a. A request for a waiver or reduction of the penalty or interest or a request for board review
must be in writing and provide the grounds for the request.
b. The following factors may be considered when deciding to waive or reduce the penalty or
interest: the reason for the late payment; the degree of control the payor had over the
late payment; any unusual or mitigating circumstances involved; the loss of interest
earnings to the trust involved; and any other relevant factors.
c. A waiver or reduction of penalty and interest does not constitute a waiver of the right to
seek the full amount of both penalty and interest if the initial claim for royalty payment is
not paid. If a claim for unpaid royalties, penalties, and interest is settled and payment
received, the amount of penalties and interest not collected is deemed waived.
History: Effective January 1, 2020; amended effective April 1, 2022.
General Authority: NDCC 15-05-09, 15-05-10, 15-07-20, 15-08.1-06, 61-33-06
Law Implemented: NDCC 15-05-09, 15-05-10, 47-16-39.2
### § 85-06-01-13. Audit and examination.

1. The department may audit and examine any records, including:
a. Books, accounts, and receipts; and
b. Contracts and other records pertaining to the production, transportation, sale, and
marketing of the oil or gas or other products produced from the oil and gas leased
premises.

2. The department shall serve by certified mail, a written request to the payor specifying the
documents requested.
3. After audit and examination of the records set forth in subsection 1, the department shall notify
the payor of the results, including the audit findings, the basis for that determination, and the
date by which a response to the findings is due.
4. A payor has sixty days from the date of the receipt of the audit findings to comply, request an
extension, respond to the findings, or request commissioner review. A request for an extension
or for commissioner review must be made in writing. A request for commissioner review must
include a statement of the reasons for disagreement with the audit findings. If a payor fails to
comply with the audit findings, respond to the findings, or request commissioner review within
sixty days, the oil and gas lease is subject to cancellation under section 85-06-01-10.
History: Effective January 1, 2020.
General Authority: NDCC 15-05-09, 15-05-10, 15-07-20, 15-08.1-06, 47-16-39.1, 61-33-06
Law Implemented: NDCC 15-05-09, 15-05-10, 47-16-39.2
### § 85-06-01-14. Request for shut-in status for oil or gas.

1. A lessee requesting shut-in status of an oil or gas well, without canceling the lease, shall
submit a written request to the department utilizing the form available on the department's
website. The request must contain the following information:
a. The name and well file number assigned by the North Dakota department of mineral
resources oil and gas division;
b. The township, range, and section of the surface location of the well;
c. The board's oil and gas lease number for the subject lease, the date of the oil and gas
lease, the acreage covered by the oil and gas lease, and the current lessee;
d. The name and address of the operator of the well;
e. The cumulative production and the number of days of production for the three months
immediately preceding the request;
f. The written approval of the request from the operator;
g. The grounds for the request and the anticipated length of time the well will be shut-in;
and
h. Any additional information requested by the department.
2. An application fee, in an amount set by the department, must be submitted with the
application. Upon approval of the shut-in request, the applicant shall promptly submit to the
department a shut-in well payment. The shut-in well payment must be the same amount for oil
or gas wells and must be calculated on a per-lease, per-well basis.
3. An application is deemed filed when the department receives the application form, application
fee, shut-in well payment, and any additional information requested by the department.
4. Within fifteen days of receipt of an application, the commissioner shall notify the applicant in
writing, as follows:
a. The application is approved and the terms of the shut-in approval;
b. The application is denied;

c. An additional fifteen day period is necessary to consider the application; or
d. The application requires board approval.
5. If an application is denied, a lessee may file with the department a written request for
commissioner review, specifying the grounds for the request.
6. A shut-in approval is effective for one year from the date of approval unless the commissioner
determines a shorter amount of time is appropriate.
7. The commissioner may revoke a shut-in approval if the commissioner determines the action is
in the best interests of the trusts. If a shut-in approval is revoked prior to its expiration, the
department shall provide notice to the lessee by certified mail. Within sixty days from the date
of receipt of the notice, the lessee shall re-establish production. If the lessee fails to
re-establish production, the oil and gas lease is subject to cancellation under section
85-06-01-10.
History: Effective January 1, 2020; amended effective April 1, 2024.
General Authority: NDCC 15-05-09, 15-05-10, 15-07-20, 15-08.1-06, 61-33-06
Law Implemented: N.D. Constitution article IX, § 5; NDCC 15-01-02, 15-02-05, 15-05-09, 15-05-10
### § 85-06-01-15. Offset obligations for vertical oil and gas wells.

1. If a vertical oil and gas well has been drilled and is producing in commercial quantities from
mineral acreage owned by another or from adjacent trust lands leased at a lesser royalty,
which vertical oil and gas well is within one thousand feet [304.8 meters] of the trust lands, the
lessee of the trust lands shall, within one hundred twenty days after completion of such
vertical oil and gas well, exercise one of the following options:
a. Diligently begin in good faith the drilling of a corresponding offset well on the leased trust
lands, or on lands pooled therewith;
b. Pay a compensatory royalty, as determined by the commissioner, in lieu of the drilling of
an offset well. If a lessee elects to pay a compensatory royalty, the lessee shall submit to
the commissioner, within thirty days of the date such election, a proposed compensatory
royalty agreement based on the estimated drainage area of the vertical oil and gas well
located within one thousand feet [304.8 meters] of the trust lands. Geological,
engineering, or other evidence in the form of a narrative or maps, or both, which form the
basis for the offset drainage computation must be included with the proposed agreement;
c. Release the leased acreage to avoid the offset requisites; or
d. Submit a request to the commissioner for a waiver of the offset obligation as follows:
(1) A request for a waiver of the offset obligation must be in writing and provide the
grounds for the request. If a request is made, the lessee shall submit to the
commissioner, within thirty days of the request, geological, engineering, or other
evidence in the form of a narrative or maps, or both, which, in the opinion of the
lessee, indicates that an additional offset well need not be drilled to reasonably
develop or protect the trust lands from offset drainage due to the vertical oil and gas
well located within one thousand feet [304.8 meters] on trust land. After a review of
the evidence required to be submitted, the commissioner may:
(a) Request that the lessee supply additional evidence to support:
[1] The request for a waiver of the offset obligation; or

[2] The proposed compensatory royalty agreement submitted by the lessee.
(b) Grant a waiver of the offset obligation;
(c) Approve the proposed compensatory royalty agreement of the lessee;
(d) Require the lessee to pay compensatory royalties as determined by the
commissioner;
(e) Take such other action as the commissioner may deem appropriate, including
the acceptance of a release either in whole or in part as to all or less than all
strata included in the lease; or
(f) Cancel the lease in accordance with section 85-06-01-10.
(2) A waiver of offset obligation is effective from the date of approval by commissioner.
The commissioner may revoke a waiver of offset obligation if the commissioner
determines the action is in the best interests of the trusts. If a waiver of offset
obligation is revoked, the department shall provide notice to the lessee by certified
mail. In the event of revocation, the lessee shall have one hundred twenty days from
the date of revocation to exercise one of the options under this section.
(3) Lessee shall submit a report as to the conditions regarding offset drainage from an
offset well every five years from the date of approval of waiver of offset obligation. If
there is a change of conditions regarding offset drainage from an offset well at any
time, the lessee shall be required to submit a report notifying the department of the
change within one hundred twenty days of the change of conditions.
(4) The commissioner shall notify the lessee of the commissioner's decision.
2. If the lessee fails to exercise any of the options in subsection 1 the oil and gas lease is subject
to cancellation under section 85-06-01-10.
3. The commissioner may approve compensatory royalties on the board's behalf in accordance
with this section.
4. If an application does not comply with this section, or if the commissioner determines board
review is desirable, the application may be brought before the board for its consideration.
History: Effective January 1, 2021.
General Authority: NDCC 15-05-09, 15-07-20, 15-08.1-06, 61-33-06
Law Implemented: NDCC 15-05-09, 61-33-06, 61-33.1
