Sec. 66.75. PROTECTION FROM DRAINAGE; COMPENSATORY ROYALTIES. (a) The lessee shall protect the leased premises from drainage. The lease may contain express terms regarding drainage as the board may adopt.

(b) Subject to the provisions of this section, the commissioner may execute agreements that provide for the payment of compensatory royalty in lieu of drilling offset wells that may be required to protect the leased premises from drainage from a well or wells located on non-university lands, or university lands leased at a lesser royalty, situated within 1,000 feet of or draining the leased premises.

(c) Agreements providing for the payment of compensatory royalty must be approved by the board.

(d) Agreements providing for the payment of compensatory royalty must be found by the commissioner and the board to be in the best interest of the state.

(e) Nothing in an agreement for the payment of compensatory royalty shall relieve the lessee of the obligation of reasonable development or of the obligation to drill offset wells, obtain suitable regulatory relief, propose appropriate pooling or unitization arrangements, or conduct other activities to protect the leased premises from drainage as to other producing horizons.

(f) An agreement for the payment of compensatory royalty shall provide that compensatory royalty be paid at the royalty rate provided in the lease and shall provide that compensatory royalty be paid on the market value of production from the well located on non-university lands or university lands leased at a lesser royalty situated within 1,000 feet of or draining the leased premises.

Amended by Acts 1997, 75th Leg., ch. 1324, Sec. 1, eff. Jan. 1, 1998.