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(1) The lessee shall commence the drilling of a well for oil or gas upon the leased premises within 5 years of the date of approval of the lease or pay in advance a delay drilling penalty as follows:

(a) Prior to February 10, 1984, for all leases regardless of date of issuance, $1.25 per acre for the 6th year through the 10th year of the lease.

(b) After February 10, 1984, for all leases regardless of the date of issuance, $1.25 per acre for the 6th year and $2.50 per acre for the 7th through the 10th year.

(2) Failure to commence drilling a well or to pay the required delay drilling penalty shall be grounds for cancellation of the lease. Cancellation shall not occur until after notice and opportunity for an informal hearing to determine whether a well was commenced or delay drilling penalties were paid as required.

(3) If a well drilled on the leased premises is a dry hole, and if another well is not commenced on the land covered by lease before the 7th year or second anniversary of the lease following the completion of the well, whichever comes later, the leases may be terminated by the board, unless the lessee, on or before such anniversary date, pays the penalties in the amounts provided in this section. Upon the payment of such delay drilling penalties and their continued payment, the lease continues in force during the primary term as though there had been no interruption in the delay drilling payments. In case of any commencement of drilling in lieu of payment of a delay drilling penalty as above provided, the drilling of such well shall be prosecuted with due diligence and dispatch to such depth as is necessary to make a reasonable test for oil or gas. Failure of the lessee to do so shall subject the lease to termination by the board as though the lessee has neither commenced the drilling of the well nor paid the required delay drilling penalty. The lessee shall within five days of spudding in, notify the department of the commencement of drilling of any well.

History: 77-3-402, MCA; IMP, 77-3-424 and 77-3-425, MCA; NEW, Eff. 12/5/75; AMD, 1983 MAR p. 129, Eff. 2/11/83; TRANS, 1996 MAR p. 2384.

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