(1) Every oil and gas lease granted by the state is subject to forfeiture and cancellation thereof upon failure of the lessee to fully discharge the obligations provided therein, after written notice from the department and reasonable time allowed to the lessee for performance of any undertaking or obligation specified in such notice concerning which the lessee is in default. Before any lease is declared forfeited or canceled, the department shall issue written notice to the lessee of the proposed forfeiture or cancellation and if, within 10 days after receipt of the notice, the lessee makes written application for a hearing on the matter, the lessee shall be granted a hearing before the department and no forfeiture or cancellation shall become effective until after such hearing and until the department confirms the original decision and intent to forfeit or cancel the lease, based upon the hearing. Following such hearing, notice of the decision shall be given to the lessee. Such decision may be for immediate cancellation of the lease without further opportunity of the lessee to correct any default, but the department may also grant the lessee a further extension of time within which to perform certain specified required acts in order to continue the lease, failing which the lease will automatically terminate without further notice or hearing.

(2) Promptly upon receipt of such notice that a lease is to be canceled or forfeited, if the lessee does not within the permitted 10 days period apply for hearing on such notice, and promptly after receipt of the final decision to cancel or forfeit the lease, following hearing on the matter, if the lessee does not appeal, the lessee shall furnish the department with written instrument of surrender of the lease as required under the provisions of ARM 36.25.213.