SB 150: "An Act providing for oil and gas exploration licenses, and oil and gas leases, in certain areas of the state; and providing for an effective date."
00SENATE BILL NO. 150 01 "An Act providing for oil and gas exploration licenses, and oil and gas leases, 02 in certain areas of the state; and providing for an effective date." 03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 04 * Section 1. AS 38 is amended by adding new sections to read: 05 ARTICLE 5A. OIL AND GAS EXPLORATION LICENSES; LEASES. 06 Sec. 38.05.131. APPLICABILITY; DETERMINATION; REGULATIONS. (a) 07 Unless specifically provided otherwise in AS 38.05.132 - 38.05.134, the provisions of 08 AS 38.05.005 - 38.05.040; AS 38.05.180; AS 38.05.182 - 38.05.184; and AS 38.05.920 09 - 38.05.990 apply to the issuance of licenses and leases under AS 38.05.132 - 10 38.05.134. 11 (b) The commissioner shall make a preliminary written determination of the 12 state land that will be subject to the provisions of AS 38.05.132. The determination 13 shall be given public notice using the methods described in AS 38.05.945(b). After 14 completion of the comment period and evaluation of the comments received, the
01 commissioner shall issue a written determination of the state land that is subject to the 02 provisions of AS 38.05.132. 03 (c) The commissioner may adopt regulations necessary to implement 04 AS 38.05.131 - 38.05.134. 05 Sec. 38.05.132. OIL AND GAS EXPLORATION LICENSE. (a) To 06 encourage exploration for oil and gas on state land for which insufficient or 07 undocumented geologic and geophysical information exists concerning the oil and gas 08 potential of that land, or for state land that was subject to a competitive lease sale 09 under AS 38.05.180, but for which no lease has been issued, the commissioner may 10 issue an oil and gas exploration license to a prospective licensee. 11 (b) A license issued under this section gives the licensee 12 (1) the exclusive right to explore for deposits of oil and gas in unleased 13 state land described in the license, for a term not to exceed 10 years; and 14 (2) the option to convert the license for all or part of the state land into 15 an oil and gas lease upon fulfillment of the work commitments contained in the oil and 16 gas exploration license. 17 (c) A license awarded under this section 18 (1) is not subject to the acreage limitations imposed by AS 38.05.140(c) 19 or AS 38.05.180(m); 20 (2) may cover an area of not more than 500,000 acres, which must be 21 reasonably compact and contiguous; 22 (3) must be conditioned upon an obligation to perform a specified 23 minimum work commitment, expressed in dollars of exploration expenditures; "work 24 commitment" includes the drilling of one or more exploration wells or the gathering 25 of geophysical data, or both; 26 (4) is subject to revocation if the commissioner determines that the 27 licensee has failed to perform the minimum work commitment; 28 (5) must be conditioned upon the posting of a work commitment 29 performance bond or other security in favor of the state in an amount that is not less 30 than the amount of the work commitment; the bond or other security must be subject 31 to forfeiture to the state upon revocation of the license to the extent of the difference
01 between the dollar amount of the minimum work commitment specified in the license 02 and the dollar amount of the minimum work commitment that was fulfilled to the 03 satisfaction of the commissioner as of the date of the revocation of the license; 04 (6) must be conditioned upon payment to the commissioner of a non-refundable oil and gas exploration license 05 fee of $1 for each acre of land that is subject 06 to the license; and 07 (7) must be conditioned upon an agreement that exploration 08 expenditures are subject to audit by the commissioner. 09 Sec. 38.05.133. LICENSE PROCEDURES. (a) The procedures in this section 10 apply to the issuance of a license under AS 38.05.132. 11 (b) The licensing process is initiated by the commissioner preparing, or a 12 prospective licensee submitting to the commissioner, a proposal that identifies a 13 specific area to be subject to the license, proposes specific minimum work 14 commitments, and states the minimum qualifications for a licensee as established by 15 regulations adopted by the commissioner. A prospective licensee may initiate a 16 proposal only in response to a call for proposals by the commissioner or during a 17 period specified in regulations adopted by the commissioner. The regulations shall 18 provide for at least one such period each calendar year. 19 (c) If the commissioner initiates the licensing process under (b) of this section, 20 the commissioner shall publish notice of the commissioner's proposal in order to solicit 21 comments and competing proposals. 22 (d) Within 30 days after receipt of a proposal from a prospective licensee 23 under (b) of this section, the commissioner shall either reject it in a written decision 24 or give public notice of the intent to evaluate the acceptability of the proposal. The 25 commissioner shall solicit comments on a proposal for which public notice is given 26 under this subsection, and shall request competing proposals. 27 (e) The commissioner may make a written request to a prospective licensee for 28 additional information on the prospective licensee's proposal. The commissioner shall 29 keep confidential information described in AS 38.05.035(a)(9) that is voluntarily 30 provided. 31 (f) After considering proposals not rejected under (d) of this section, and
01 public comment on those proposals, the commissioner shall issue a written finding 02 addressing all matters set out in AS 38.05.035(e) and (g), except for 03 AS 38.05.035(g)(1)(K). If the finding concludes that the state's best interests would 04 be served by issuing an oil and gas exploration license, the finding shall (1) describe 05 any limitations, stipulations, conditions, or changes from the initiating proposal or 06 competing proposals that are required to make the issuance of the license conform to 07 the best interests of the state, and (2) if only one proposal was submitted, the identity 08 of the prospective licensee whom the commissioner finds should be issued the license. 09 The commissioner shall attach to the finding the exploration license to be issued and 10 the form of lease that will be used if the license subsequently is converted to an oil 11 and gas lease under AS 38.05.134. The commissioner shall promptly provide a copy 12 of the finding and required attachments to all prospective licensees whose proposals 13 were considered before the commissioner's issuance of the finding. 14 (g) If only one prospective licensee submits a proposal and the finding under 15 (f) of this section concludes that a license should be issued to that prospective licensee, 16 that person has 30 days after issuance of the finding within which to accept or reject 17 the issuance of the license, as limited or conditioned by the terms contained in the 18 finding and the form of license and lease attached to that finding. 19 (h) If competing proposals are submitted, and the commissioner's finding 20 under (f) of this section concludes that an oil and gas exploration license should be 21 issued, the commissioner shall conduct an oral outcry auction, under procedures 22 adopted by the commissioner by regulation, to determine which prospective licensee 23 should be issued the license. The finding provided to the prospective licensees under 24 (f) of this section shall contain notice that (1) the commissioner intends to conduct an 25 oral outcry auction, (2) if a prospective licensee intends to participate in the auction, 26 that person must notify the commissioner in writing by the date specified in the notice, 27 and (3) a prospective licensee's notice of intent to participate in the auction constitutes 28 acceptance of issuance of the license, as limited or conditioned by the terms contained 29 in the finding and the form of license and lease attached to that finding, if the 30 prospective licensee is the successful bidder at the auction. The successful bidder at 31 the auction is the prospective licensee who submits the highest bid in terms of the
01 minimum work commitment dollar amount. 02 Sec. 38.05.134. CONVERSION TO LEASE. If the commissioner determines 03 that the minimum work commitment obligation set out in a license issued under 04 AS 38.05.132 has been met, the commissioner will convert, at the licensee's option, 05 all or part of the license area to one or more oil and gas leases. A lease issued under 06 this section 07 (1) may not exceed 30,000 acres; 08 (2) is not subject to the acreage limitations imposed by AS 38.05.140(c) 09 or AS 38.05.180(m); 10 (3) must be conditioned upon a royalty in amount or value of not less 11 than 12 1/2 percent of production; 12 (4) must include an annual rent of $3 per acre or fraction of an acre 13 initially paid to the state at inception of the lease and payable annually after that until 14 the income to the state from royalty under that lease exceeds the rental income to the 15 state under that lease for that year; and 16 (5) is subject to other conditions and obligations that are specified in 17 the lease. 18 * Sec. 2. AS 38.05.135(a) is amended to read: 19 (a) Except as otherwise provided, valuable mineral deposits in land belonging 20 to the state shall be open to exploration, development, and the extraction of minerals. 21 All land, together with tide, submerged, or shoreland, to which the state holds title to 22 or to which the state may become entitled, may be obtained by permit or lease for the 23 purpose of exploration, development, and the extraction of minerals. Except as 24 specifically limited by AS 38.05.131 [AS 38.05.135] - 38.05.181, land may be 25 withheld from lease application on a first-come, first-served basis, and offered only on 26 a competitive bid basis when determined by the commissioner to be in the best 27 interests of the state. In unproven areas the commissioner may offer additional 28 incentives, including a reduction of royalty to a minimum of five percent in the case 29 of oil and gas, and other terms in and granting permit or lease for exploration and 30 development whenever it appears to be in the best interests of the state to do so. 31 * Sec. 3. AS 38.05.140(c) is amended to read:
01 (c) A person may not take or hold at one time phosphate leases on state land 02 exceeding in the aggregate 10,240 acres. A person may not take or hold sodium leases 03 or permits during the life of sodium leases on state land exceeding in the aggregate 04 acreage 5,120 acres, except that the commissioner may, where it is necessary in order 05 to secure the economic mining of sodium compounds, permit a person to take or hold 06 sodium leases or permits for up to 15,360 acres. Except as provided in 07 AS 38.05.131 - 38.05.134, a [A] person may not take or hold at any one time oil or 08 gas leases exceeding in the aggregate 500,000 acres granted on tide and submerged 09 land and 500,000 acres on all land other than tide and submerged land, including 10 leases held both as lessee and under option or operating agreement from others. 11 Where more than a single person holds an interest in an oil or gas lease, each person 12 shall be charged only with that percentage of the total acreage which corresponds to 13 its percentage share of the total beneficial interest in the lease. 14 * Sec. 4. AS 38.05.180(d) is amended to read: 15 (d) The commissioner may issue oil and gas leases in an area that has not been 16 included in a leasing program submitted, in accordance with (b) of this section, to the 17 legislature if 18 (1) the land to be leased was previously subject to a valid state or 19 federal oil and gas lease; [OR] 20 (2) the land to be leased is contiguous to land already under state, 21 federal, or private lease and the commissioner makes a written finding, after hearing, 22 that leasing of the land would result in a substantial probability of early evaluation and 23 development of the land to be leased; [OR] 24 (3) the land to be leased is adjacent to land owned or controlled by 25 another party on which a discovery of commercial quantities of oil or gas has been 26 made, and the commissioner finds, after hearing, that there is a reasonable probability 27 that the land to be leased contains oil or gas in communication with the oil or gas 28 discovered on the land of the other party; [OR] 29 (4) the land to be leased is adjacent to land included in the federal five-year Outer Continental Shelf leasing 30 program under 43 U.S.C. 1344, and the 31 commissioner makes a written finding, after hearing, that coordinated or simultaneous
01 leasing with the federal government is in the public interest; or 02 (5) the land to be leased is the subject of an oil and gas exploration 03 license issued under AS 38.05.131 - 38.05.134. 04 * Sec. 5. AS 38.05.180(m) is amended to read: 05 (m) An oil and gas lease must cover a reasonably compact area that may not 06 exceed [EXCEEDING] 5,760 acres unless entered into under AS 38.05.131 - 07 38.05.134, and may be for a maximum period of 10 years, except that the 08 commissioner may issue a lease for a period of not less than five years upon a finding 09 that it is in the best interests of the state. An oil and gas lease shall be automatically 10 extended if and for so long thereafter as oil or gas is produced in paying quantities 11 from the lease or if the lease is committed to a unit approved by the commissioner. 12 A lease issued under this section covering land on which there is a well capable of 13 producing oil or gas in paying quantities does not expire because the lessee fails to 14 produce oil or gas unless the lessee is allowed reasonable time to place the well on a 15 producing status. Upon extension, the commissioner may increase lease rentals so long 16 as the increased rental rate does not exceed 150 percent of the rate for the preceding 17 year. If drilling has commenced on the expiration date of the primary term of the 18 lease and is continued with reasonable diligence, including such operations as 19 redrilling, sidetracking, or other means necessary to reach the originally proposed 20 bottom hole location, the lease continues in effect until 90 days after drilling has 21 ceased and for so long thereafter as oil or gas is produced in paying quantities. An 22 oil and gas lease issued under this section that [WHICH] is subject to termination by 23 reason of cessation of production does not terminate if, within 60 days after production 24 ceases, reworking or drilling operations are commenced on the land under lease and 25 are thereafter conducted with reasonable diligence during the period of nonproduction. 26 * Sec. 6. AS 38.05.945(a) is amended to read: 27 (a) This section establishes the requirements for notice given by the department 28 for the following actions: 29 (1) classification or reclassification of state land under AS 38.05.300 30 and the closing of land to mineral leasing or entry under AS 38.05.185; 31 (2) zoning of land under applicable law;
01 (3) a decision under AS 38.05.132 - 38.05.134 or AS 38.05.035(e) 02 regarding the sale, lease, or disposal of an interest in state land or resources; 03 (4) a competitive disposal of an interest in state land or resources after 04 final decision under AS 38.05.035(e); 05 (5) a public hearing under AS 38.05.856(b); 06 (6) a preliminary finding under AS 38.05.035(e) and 38.05.855(c) 07 concerning sites for aquatic farms and related hatcheries. 08 * Sec. 7. REGULATIONS. The commissioner of natural resources may proceed to adopt 09 regulations necessary to implement this Act. The regulations take effect under the 10 Administrative Procedure Act (AS 44.62), but not before the effective date of secs. 1 - 6 of 11 this Act. 12 * Sec. 8. Section 7 of this Act takes effect immediately under AS 01.10.070(c).