CSSB 150(O&G): "An Act relating to oil and gas exploration licenses and to oil and gas leases in certain areas of the state, and to the proof of financial responsibility required for operation of onshore facilities for the production of crude oil and associated hydrocarbons and for exploration for oil and gas and related hydrocarbons; and providing for an effective date."
00CS FOR SENATE BILL NO. 150(O&G) 01 "An Act relating to oil and gas exploration licenses and to oil and gas leases 02 in certain areas of the state, and to the proof of financial responsibility required 03 for operation of onshore facilities for the production of crude oil and associated 04 hydrocarbons and for exploration for oil and gas and related hydrocarbons; and 05 providing for an effective date." 06 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 07 * Section 1. AS 38 is amended by adding new sections to read: 08 ARTICLE 5A. OIL AND GAS EXPLORATION LICENSES; LEASES. 09 Sec. 38.05.131. APPLICABILITY; DETERMINATION; REGULATIONS. (a) 10 Unless specifically provided otherwise in AS 38.05.132 - 38.05.134, the provisions of 11 AS 38.05.005 - 38.05.040, 38.05.180, 38.05.182 - 38.05.184, and 38.05.920 - 12 38.05.990 apply to the issuance of oil and gas exploration licenses and leases under 13 AS 38.05.132 - 38.05.134. 14 (b) The provisions of AS 38.05.131 - 38.05.134 do not apply to land
01 (1) north of the Umiat baseline; and 02 (2) in the vicinity of Cook Inlet that is within the area bounded by 03 (A) the north boundary of Township 17 North, Seward 04 Meridian; 05 (B) the Seward Meridian; 06 (C) the south boundary of Township 7 South, Seward Meridian; 07 and 08 (D) the west boundary of Range 19 West, Seward Meridian. 09 (c) The commissioner shall make preliminary written determinations of the 10 state land that may be subject to the provisions of AS 38.05.132. The determinations 11 shall be given public notice using the methods described in AS 38.05.945(b). After 12 completion of the comment period and evaluation of the comments received, the 13 commissioner shall issue a written determination of the state land that is subject to the 14 provisions of AS 38.05.132. 15 (d) The commissioner may adopt regulations necessary to implement 16 AS 38.05.131 - 38.05.134. 17 Sec. 38.05.132. OIL AND GAS EXPLORATION LICENSE. (a) To 18 encourage exploration for oil and gas on state land, the commissioner may issue oil 19 and gas exploration licenses 20 (1) for unleased state land for which insufficient or undocumented 21 geological and geophysical information exists concerning the oil and gas potential of 22 that land; or 23 (2) for state land that was subject to a competitive lease sale under 24 AS 38.05.180 but for which an oil and gas lease has not been issued. 25 (b) An oil and gas exploration license issued under this section gives the 26 licensee 27 (1) the exclusive right to explore, for a term not to exceed 10 years, for 28 deposits of oil and gas on unleased state land described in the exploration license 29 unless the land is earlier relinquished, removed, or deleted under (d) of this section; 30 and 31 (2) the option to convert the exploration license for all or part of the
01 state land, except the land that is deleted or removed from the land described in the 02 exploration license under (d) of this section, into an oil and gas lease upon fulfillment 03 of the work commitments contained in the exploration license. 04 (c) An exploration license awarded under this section 05 (1) is not subject to the acreage limitations imposed by AS 38.05.140(c) 06 or 38.05.180(m); 07 (2) may cover an area of not more than 500,000 acres, that must be 08 reasonably compact and contiguous; 09 (3) must be conditioned upon an obligation to perform a specified work 10 commitment, expressed in dollars of direct exploration expenditures; for purposes of 11 this paragraph, 12 (A) "direct exploration expenditure" means cash expenses 13 undertaken in performance of a specified work commitment under the 14 provisions of AS 38.05.131 - 38.05.134 and necessarily incurred by the licensee 15 in the permitting, mobilization, conducting, demobilization, and evaluation of 16 geophysical and geological surveys, including seismic, magnetic, and gravity 17 surveys or the drilling, logging, coring, testing, and evaluation of oil and gas 18 wells; the term 19 (i) includes direct labor costs, including the cost of 20 benefits, for employees directly associated with the work commitment 21 programs, the cost of renting or leasing equipment from parties not 22 affiliated with the licensee, the reasonable costs of maintaining and 23 operating equipment, payments to consultants and independent 24 contractors not affiliated with the licensee, and costs of materials and 25 supplies; 26 (ii) does not include noncash expenses such as 27 depreciation and reserves, interest or other costs of borrowed funds, 28 return on investment, overhead, insurance or bond premiums, or any 29 other expense that is unreasonable or that the licensee has not incurred 30 to satisfy the licensee's work commitment; 31 (B) "work commitment" includes the drilling of one or more
01 exploration wells or the gathering of geophysical data, or both; 02 (4) must be conditioned upon an obligation to perform an annual work 03 commitment; 04 (5) is subject to an annual review and revocation if the commissioner 05 determines that the licensee has failed to 06 (A) perform the previous year's annual work commitment; or 07 (B) provide or maintain in effect the bond or other security 08 required by (6) of this subsection; 09 (6) must be conditioned upon the posting of a bond or other security 10 acceptable to the commissioner in favor of the state and subject to the following 11 requirements: 12 (A) the bond or other security must be renewed annually; 13 (B) the bond or other security must be in the amount of 10 14 percent of the licensee's annual work commitment; 15 (7) must be conditioned upon payment to the commissioner of a 16 nonrefundable oil and gas exploration license fee of not more than $1 for each acre of 17 land that is subject to the exploration license; and 18 (8) must be conditioned upon an agreement that exploration 19 expenditures are subject to audit by the commissioner. 20 (d) The area within an exploration license awarded under this section may be 21 relinquished, removed, or deleted from the license. Relinquishment, removal, or 22 deletion of an area from the state land described in the exploration license terminates 23 the licensee's rights under AS 38.05.131 - 38.05.134 in the area that is relinquished, 24 removed, or deleted. A relinquishment, removal, or deletion of a portion of the area 25 described in the exploration license must be in areas that are reasonably compact and 26 contiguous. The areas relinquished from the state land described in the exploration 27 license shall be areas identified by the licensee but, if the licensee fails to identify 28 sufficient area, the commissioner may identify any additional acreage required to be 29 removed or deleted from the area under license to meet the requirements of this 30 subsection. Within the area described in the exploration license issued under (a) - (c) 31 of this section,
01 (1) 25 percent must be relinquished, removed, or deleted not later than 02 the fourth anniversary of the effective date of the issuance of the exploration license; 03 (2) an additional 10 percent of the remaining land must be removed or 04 deleted on each of the succeeding anniversaries of the effective date of the issuance 05 of the exploration license. 06 (e) If, immediately before the beginning of the period for annual renewal of 07 the bond or other security under (c)(5)(A) of this section, the licensee fails to provide 08 or maintain in effect the bond or other security required by (c) of this section for the 09 period covered by the annual renewal and the commissioner revokes the exploration 10 license, the bond or other security then in effect for the licensee's obligations under 11 the exploration license is forfeited to the state. 12 Sec. 38.05.133. LICENSE PROCEDURES. (a) The procedures in this section 13 apply to the issuance of an oil and gas exploration license under AS 38.05.132. 14 (b) The licensing process is initiated by the commissioner preparing, or a 15 prospective licensee submitting to the commissioner, a proposal that identifies a 16 specific area to be subject to the exploration license, proposes specific minimum work 17 commitments, and states the minimum qualifications for a licensee as established by 18 regulations adopted by the commissioner. A prospective licensee may initiate a 19 proposal only in response to a call for proposals by the commissioner or during a 20 period specified in regulations adopted by the commissioner. The regulations must 21 provide for at least one period for that purpose during each calendar year. 22 (c) If the commissioner initiates the licensing process under (b) of this section, 23 the commissioner shall publish notice of the commissioner's proposal in order to solicit 24 comments and competing proposals. 25 (d) Within 30 days after receipt of a proposal from a prospective licensee 26 under (b) of this section, the commissioner shall either reject it in a written decision 27 or give public notice of the intent to evaluate the acceptability of the proposal. The 28 commissioner shall solicit comments on a proposal for which public notice is given 29 under this subsection, and shall request competing proposals. 30 (e) The commissioner may make a written request to a prospective licensee for 31 additional information on the prospective licensee's proposal. The commissioner shall
01 keep confidential information described in AS 38.05.035(a)(9) that is voluntarily 02 provided. 03 (f) After considering proposals not rejected under (d) of this section and public 04 comment on those proposals, the commissioner shall issue a written finding addressing 05 all matters set out in AS 38.05.035(e) and (g), except for AS 38.05.035(g)(1)(K). If 06 the finding concludes that the state's best interests would be served by issuing an oil 07 and gas exploration license, the finding must (1) describe the limitations, stipulations, 08 conditions, or changes from the initiating proposal or competing proposals that are 09 required to make the issuance of the exploration license conform to the best interests 10 of the state, and (2) if only one proposal was submitted, identify the prospective 11 licensee whom the commissioner finds should be issued the exploration license. The 12 commissioner shall attach to the finding a copy of the exploration license to be issued 13 and the form of lease that will be used for any portion of the exploration license area 14 subsequently converted to an oil and gas lease under AS 38.05.134. The commissioner 15 shall promptly provide a copy of the finding and required attachments to all 16 prospective licensees whose proposals were considered before the commissioner's 17 issuance of the finding. 18 (g) If only one prospective licensee submits a proposal and the finding under 19 (f) of this section concludes that an exploration license should be issued to that 20 prospective licensee, the prospective licensee has 30 days after issuance of the finding 21 within which to accept or reject the issuance of the exploration license, as limited or 22 conditioned by the terms contained in the finding. The exploration license to be issued 23 and the form of lease that will be used must be attached to that finding. The 24 prospective licensee must accept or reject the issuance of the exploration license in 25 writing. 26 (h) If competing proposals are submitted, and the commissioner's finding 27 under (f) of this section concludes that an oil and gas exploration license should be 28 issued, the commissioner shall issue a request for competitive sealed bids, under 29 procedures adopted by the commissioner by regulation, to determine which prospective 30 licensee should be issued the exploration license. The finding provided to the 31 prospective licensees under (f) of this section must contain notice that (1) the
01 commissioner intends to request competitive sealed bids, (2) a prospective licensee 02 who intends to participate in the bidding must notify the commissioner in writing by 03 the date specified in the notice, and (3) a prospective licensee's notice of intent to 04 participate in the bidding constitutes acceptance of issuance of the exploration license, 05 as limited or conditioned by the terms contained in the finding and by the exploration 06 license to be issued and the form of lease to be used that have been attached to that 07 finding, if the prospective licensee is the successful bidder. The successful bidder is 08 the prospective licensee who submits the highest bid in terms of the minimum work 09 commitment dollar amount. 10 Sec. 38.05.134. CONVERSION TO LEASE. If the licensee requests and the 11 commissioner determines that the minimum work commitment obligation set out in an 12 oil and gas exploration license issued under AS 38.05.132 has been met, the 13 commissioner shall convert to one or more oil and gas leases all or part, as the 14 licensee may indicate, of the area described in the exploration license that remains 15 after the relinquishments, removals, or deletions required by AS 38.05.132(d). A lease 16 issued under this section 17 (1) is subject to the acreage limitations imposed by AS 38.05.140(c); 18 (2) is subject to AS 38.05.180(j) - (m), (o) - (u), and (x) - (z); 19 (3) must be conditioned upon a royalty in amount or value of not less 20 than 12.5 percent of production; 21 (4) must include an annual rent of $3 per acre or fraction of an acre 22 initially paid to the state at inception of the lease and payable annually after that until 23 the income to the state from royalty under that lease exceeds the rental income to the 24 state under that lease for that year; and 25 (5) is subject to other conditions and obligations that are specified in 26 the lease. 27 * Sec. 2. AS 38.05.135(a) is amended to read: 28 (a) Except as otherwise provided, valuable mineral deposits in land belonging 29 to the state shall be open to exploration, development, and the extraction of minerals. 30 All land, together with tide, submerged, or shoreland, to which the state holds title to 31 or to which the state may become entitled, may be obtained by permit or lease for the
01 purpose of exploration, development, and the extraction of minerals. Except as 02 specifically limited by AS 38.05.131 - 38.05.181 [AS 38.05.135 - 38.05.181], land may 03 be withheld from lease application on a first-come, first-served basis, and offered only 04 on a competitive bid basis when determined by the commissioner to be in the best 05 interests of the state. In unproven areas the commissioner may offer additional 06 incentives, including a reduction of royalty to a minimum of five percent in the case 07 of oil and gas, and other terms in and granting permit or lease for exploration and 08 development whenever it appears to be in the best interests of the state to do so. 09 * Sec. 3. AS 38.05.180(d) is amended to read: 10 (d) The commissioner may issue oil and gas leases in an area that has not been 11 included in a leasing program submitted, in accordance with (b) of this section, to the 12 legislature if the land to be leased 13 (1) [THE LAND TO BE LEASED] was previously subject to a valid 14 state or federal oil and gas lease; [OR] 15 (2) [THE LAND TO BE LEASED] is contiguous to land already under 16 state, federal or private lease and the commissioner makes a written finding, after 17 hearing, that leasing of the land would result in a substantial probability of early 18 evaluation and development of the land to be leased; [OR] 19 (3) [THE LAND TO BE LEASED] is adjacent to land owned or 20 controlled by another party on which a discovery of commercial quantities of oil or 21 gas has been made, and the commissioner finds, after hearing, that there is a 22 reasonable probability that the land to be leased contains oil or gas in communication 23 with the oil or gas discovered on the land of the other party; [OR] 24 (4) [THE LAND TO BE LEASED] is adjacent to land included in the 25 federal five-year Outer Continental Shelf leasing program under 43 U.S.C. 1344, and 26 the commissioner makes a written finding, after hearing, that coordinated or 27 simultaneous leasing with the federal government is in the public interest; or 28 (5) is the subject of an oil and gas exploration license issued under 29 AS 38.05.131 - 38.05.134. 30 * Sec. 4. AS 38.05.180(f) is amended to read: 31 (f) Except as provided by AS 38.05.131 - 38.05.134, the [THE]
01 commissioner may issue oil and gas leases on state land to the highest responsible 02 qualified bidder determined by competitive bidding under regulations adopted by the 03 commissioner. Bidding may be by sealed bid or according to any other bidding 04 procedure the commissioner determines is in the best interests of the state. Whenever, 05 under any of the leasing methods listed in this subsection, a royalty share is reserved 06 to the state, it shall be delivered in pipeline quality and free of all lease or unit 07 expenses, including but not limited to separation, cleaning, dehydration, gathering, salt 08 water disposal, and preparation for transportation off the lease or unit area. Following 09 a pre-sale analysis, the commissioner may choose at least one of the following leasing 10 methods: 11 (1) a cash bonus bid with a fixed royalty share reserved to the state of 12 not less than 12.5 [12 1/2] percent in amount or value of the production removed or 13 sold from the lease; 14 (2) a cash bonus bid with a fixed royalty share reserved to the state of 15 not less than 12.5 [12 1/2] percent in amount or value of the production removed or 16 sold from the lease and a fixed share of the net profit derived from the lease of not 17 less than 30 percent reserved to the state; 18 (3) a fixed cash bonus with a royalty share reserved to the state as the 19 bid variable but no less than 12.5 [12 1/2] percent in amount or value of the 20 production removed or sold from the lease; 21 (4) a fixed cash bonus with the share of the net profit derived from the 22 lease reserved to the state as the bid variable; 23 (5) a fixed cash bonus with a fixed royalty share reserved to the state 24 of not less than 12.5 [12 1/2] percent in amount or value of the production removed 25 or sold from the lease with the share of the net profit derived from the lease reserved 26 to the state as the bid variable; 27 (6) a cash bonus bid with a fixed royalty share reserved to the state 28 based on a sliding scale according to the volume of production or other factor but in 29 no event less than 12.5 [12 1/2] percent in amount or value of the production removed 30 or sold from the lease; 31 (7) a fixed cash bonus with a royalty share reserved to the state based
01 on a sliding scale according to the volume of production or other factor as the bid 02 variable but not less than 12.5 [12 1/2] percent in amount or value of the production 03 removed or sold from the lease. 04 * Sec. 5. AS 38.05.945(a) is amended to read: 05 (a) This section establishes the requirements for notice given by the department 06 for the following actions: 07 (1) classification or reclassification of state land under AS 38.05.300 08 and the closing of land to mineral leasing or entry under AS 38.05.185; 09 (2) zoning of land under applicable law; 10 (3) a decision under AS 38.05.035(e) or 38.05.132 - 38.05.134 11 regarding the sale, lease, or disposal of an interest in state land or resources; 12 (4) a competitive disposal of an interest in state land or resources after 13 final decision under AS 38.05.035(e); 14 (5) a public hearing under AS 38.05.856(b); 15 (6) a preliminary finding under AS 38.05.035(e) and 38.05.855(c) 16 concerning sites for aquatic farms and related hatcheries. 17 * Sec. 6. AS 46.04.040(b) is amended to read: 18 (b) A person may not cause or permit the operation of a pipeline or an 19 exploration or production facility in the state unless the person has furnished to the 20 department, and the department has approved, proof of financial ability to respond in 21 damages. Proof of financial responsibility required 22 (1) for a pipeline or an offshore exploration or production facility is 23 $50,000,000 per incident; 24 (2) [. PROOF OF FINANCIAL RESPONSIBILITY REQUIRED] for 25 an onshore production facility is 26 (A) $1,000,000 per incident for a facility that produces not 27 more than 2,500 barrels of crude oil per day; 28 (B) $5,000,000 per incident for a facility that produces more 29 than 2,500 barrels of crude oil but not more than 5,000 barrels of crude 30 oil per day; 31 (C) $10,000,000 per incident for a facility that produces
01 more than 5,000 barrels of crude oil but not more than 10,000 barrels of 02 crude oil per day; and 03 (D) $20,000,000 per incident for a facility that produces more 04 than 10,000 barrels of crude oil per day; and 05 (3) [. PROOF OF FINANCIAL RESPONSIBILITY REQUIRED] for 06 an onshore exploration facility is $1,000,000 [$5,000,000] per incident. 07 * Sec. 7. ADDITIONAL EXCLUDED AREA. In addition to the area designated in 08 AS 38.05.131(b), added by sec. 1 of this Act, the provisions of AS 38.05.131 - 38.05.134, 09 added by sec. 1 of this Act, do not apply to land within proposed Competitive Oil and Gas 10 Lease Sales 57, 77, 80, 87, and 88, as the area to be offered in each of those proposed 11 competitive oil and gas lease sales was delineated in the Five-Year Oil and Gas Leasing 12 Program prepared by the Department of Natural Resources and dated January 1993. However, 13 the exclusion of the land in any one of those lease sales that is required by this section ceases 14 on the date the land described in the lease sale is first offered for competitive oil and gas 15 leasing under AS 38.05.180, and that land is thereafter subject to the provisions of 16 AS 38.05.131 - 38.05.134, added by sec. 1 of this Act. 17 * Sec. 8. REGULATIONS. The commissioner of natural resources may proceed to adopt 18 regulations necessary to implement AS 38.05.131 - 38.05.134, added by sec. 1 of this Act. 19 The regulations take effect under AS 44.62 (Administrative Procedure Act), but not before the 20 effective date of secs. 1 - 7 of this Act. 21 * Sec. 9. Section 8 of this Act takes effect immediately under AS 01.10.070(c).