CSHB 394(FIN): "An Act authorizing shallow natural gas leasing from sources within 3,000 feet of the surface; relating to regulation of natural gas exploration facilities for purposes of preparation of discharge prevention and contingency plans and compliance with financial responsibility requirements; addressing the relationship between shallow natural gas and other natural resources; and adding, in the exemption from obtaining a waste disposal permit for disposal of waste produced from drilling, a reference to shallow natural gas."
00CS FOR HOUSE BILL NO. 394(FIN) 01 "An Act authorizing shallow natural gas leasing from sources within 3,000 feet 02 of the surface; relating to regulation of natural gas exploration facilities for 03 purposes of preparation of discharge prevention and contingency plans and 04 compliance with financial responsibility requirements; addressing the relationship 05 between shallow natural gas and other natural resources; and adding, in the 06 exemption from obtaining a waste disposal permit for disposal of waste produced 07 from drilling, a reference to shallow natural gas." 08 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 09 * Section 1. LEGISLATIVE FINDINGS AND PURPOSE. (a) The legislature finds that 10 (1) there exist throughout the state sizeable deposits of coal and small but 11 commercially significant amounts of natural gas located close to the earth's surface that are 12 usually, though not always, associated with and emitted from coal deposits; 13 (2) the methane derived from this coal and other sources and that is found in 14 reservoirs at depths of less than 3,000 feet could be tapped to serve as a principal or a chief
01 supplemental energy source of benefit to residents of areas in which they are found; 02 (3) the methane derived from this coal and other shallow gas reservoirs could 03 be developed without interfering with the development and transportation of the state's vast gas 04 reserves available for interstate and foreign markets; and 05 (4) it is in the best interests of the state and its people that this natural gas should 06 be identified and developed, especially to serve as a source of natural gas for use in rural 07 communities and remote locations within the state, especially when this natural gas can be 08 delivered to consumers at less cost than alternative energy sources. 09 (b) In authorizing a program of leasing shallow natural gas from state land, it is the 10 legislature's purpose to provide both a means and an incentive by which that gas may be 11 identified and developed at low cost for the direct benefit of residents of remote or sparsely 12 populated areas for which connection to the in-place gas pipeline transmission and distribution 13 system serving population centers in Southcentral Alaska is not economically feasible. 14 * Sec. 2. AS 38.05.035(e)(6) is amended to read: 15 (6) before a public hearing, if held, or in any case not less than 21 days 16 before the sale, lease, or other disposal of available land, property, resources, or 17 interests in them other than a sale, lease, or other disposal of available land or an 18 interest in land for oil and gas under (5) of this subsection, the director shall make 19 available to the public a written finding that, in accordance with (1) of this subsection, 20 sets out the material facts and applicable statutes and regulations and any other 21 information required by statute or regulation to be considered upon which the 22 determination that the sale, lease, or other disposal will best serve the interests of the 23 state was based; however, a written finding is not required before the approval of 24 (A) a contract for a negotiated sale authorized under 25 AS 38.05.115; 26 (B) a lease of land for a shore fishery site under AS 38.05.082; 27 (C) a permit or other authorization revocable by the 28 commissioner; 29 (D) a mineral claim located under AS 38.05.195; 30 (E) a mineral lease issued under AS 38.05.205; 31 (F) a production license issued under AS 38.05.207;
01 (G) an exempt oil and gas sale under AS 38.05.180(d) of 02 acreage offered in a sale that was held within the previous five years if the sale 03 was subject to a written best interest finding, unless the commissioner 04 determines that new information has become available that justifies a revision 05 of the best interest finding; [OR] 06 (H) a lease sale under AS 38.05.180(w) of acreage offered in 07 a sale that was held within the previous five years if the sale was subject to a 08 best interest finding, unless the commissioner determines that new information 09 has become available that justifies a revision of the best interest finding; or 10 (I) a shallow gas lease authorized under AS 38.05.177 in an 11 area for which leasing is authorized under AS 38.05.177; 12 * Sec. 3. AS 38.05.140(a) is amended to read: 13 (a) A person may not take or hold coal leases or permits during the life of coal 14 leases on state land exceeding an aggregate of 46,080 acres, except that a person may 15 apply for coal leases or permits for acreage in addition to 46,080 acres, not exceeding 16 a total of 5,120 additional acres of state land. The additional area applied for shall be 17 in multiples of 40 acres and the application shall contain a statement that the granting 18 of a lease for additional land is necessary for the person to carry on business 19 economically and is in the public interest. On the filing of the application, except as 20 provided by AS 38.05.177(a)(2)(B), the coal deposits in the land covered by the 21 application shall be temporarily set aside and withdrawn from all other forms of 22 disposal provided under AS 38.05.135 - 38.05.181. 23 * Sec. 4. AS 38.05.150 is amended by adding a new subsection to read: 24 (f) Notwithstanding AS 38.05.177, a lease entered into under this section gives 25 the lessee the right to vent or remove methane and other gas held in association with 26 the coal in the land covered by the lease to ensure safe coal mining operations. 27 * Sec. 5. AS 38.05 is amended by adding a new section to read: 28 Sec. 38.05.177. SHALLOW NATURAL GAS LEASES. (a) The provisions of 29 this section 30 (1) apply to gas, whether methane associated with and derived from coal 31 deposits or otherwise, developed from a source that is within 3,000 feet of the surface;
01 and 02 (2) do not apply to authorize lease of 03 (A) the land (i) that is or is proposed to be subject to an oil and 04 gas exploration license or lease issued under AS 38.05.131 - 38.05.134; (ii) that 05 is leased under AS 38.05.180; or (iii) that is included in the final findings of a 06 proposed oil and gas leasing program prepared under AS 38.05.180(b); however, 07 the commissioner may waive the limitations of this subparagraph; or 08 (B) the land that is held under a coal lease entered into under 09 AS 38.05.150, unless the applicant for a shallow natural gas lease is also the 10 lessee under AS 38.05.150 of that land. 11 (b) For the purpose of exploring for and developing shallow natural gas 12 reservoirs, upon application, the director may lease to a person land for which the state 13 owns the subsurface rights. A person applying for a lease under this subsection 14 (1) shall specify the area to be leased; the area to be leased may not 15 exceed 5,760 acres; a lessee may not hold more than 23,040 acres of land under leases 16 entered into under this section; 17 (2) may be required to pay a reasonable application fee, as the 18 commissioner may determine, as a condition of submitting or processing the lease 19 application or obtaining the lease. 20 (c) Within 20 days of receipt of a lease application, the director shall give notice 21 of receipt of the lease application and call for comments from the public. The director's 22 call for public comments must provide opportunity for public comment for a period of 23 60 days. If, after review of available information, the director determines it is in the 24 state's interest to enter into a lease for the area described in (b) of this section, the 25 director shall execute the lease within 90 days after the close of the public comment 26 period or, if review is required under AS 46.40, within 30 days after the final consistency 27 determination is made under AS 46.40. A lease entered into under this subsection gives 28 the lessee the exclusive right to explore for, develop, and produce, for a term of three 29 years, natural gas on the state land described in the lease; the right to explore for, 30 develop, and produce is limited to gas derived from natural gas within 3,000 feet of the 31 surface.
01 (d) A lease shall be automatically extended if and for so long thereafter as gas 02 is produced in paying quantities from the lease. A lease issued under this section 03 covering land on which there is a well capable of producing gas in paying quantities 04 does not expire because the lessee fails to produce gas unless the lessee is allowed 05 reasonable time to place the well on a producing status. If drilling has commenced on 06 the expiration date of the primary term of the lease and is continued with reasonable 07 diligence, including such operations as redrilling, sidetracking, or other means necessary 08 to reach the originally proposed bottom hole location, the lease is extended for one year 09 and for so long thereafter as gas is produced in paying quantities. A gas lease issued 10 under this section that is subject to termination by reason of cessation of production does 11 not terminate if, within 90 days after production ceases or a longer period determined at 12 the discretion of the director, reworking or drilling operations are commenced on the land 13 under lease and are thereafter conducted with reasonable diligence during the period of 14 nonproduction. In addition, upon application by the lessee, the director may once extend 15 a lease issued under (c) of this section for a period of not more than three years. 16 (e) The director may, following the procedures described in (c) of this section, 17 adjust the boundaries of a lease entered into under this section as may be necessary to 18 ensure development of natural gas within a reasonably compact area; a lease as adjusted 19 under this paragraph remains subject to the acreage limitations set out in (b)(1) of this 20 section. 21 (f) A shallow gas lease must provide for payment to the state of rental in the 22 amount of 50 cents per acre. The rent is due and payable on the dates determined in the 23 lease. If rent is not paid when due, the director shall mail the lessee written notice of 24 nonpayment at the end of each month, while the rent remains unpaid, for a period of two 25 months. The lessee may cure the failure to pay rent when due within 90 days after the 26 rent payment becomes due and payable by paying to the director the amount of rent due 27 together with a penalty of the greater of $50 or five percent of the amount of rent in 28 default. If the lessee fails to remedy the lessee's failure to pay rent, the director shall 29 terminate the lease. 30 (g) The royalty payable on natural gas produced from a lease is 6.25 percent of 31 the value of the production removed or sold from the lease, the production to be
01 delivered in pipeline quality and free of all lease expenses, including but not limited 02 to separation, cleaning, dehydration, gathering, salt water disposal, and preparation for 03 transportation off the lease. 04 (h) A lease issued under this section is subject to the following terms and 05 conditions and may be terminated by the director in the event of a breach of a term or 06 condition: 07 (1) the lessee may surrender the lease or relinquish part of the lease at 08 any time; 09 (2) the lease may not be transferred or assigned until a well capable of 10 commercial production of gas has been drilled on the lease; however, this paragraph does 11 not prohibit the lessee from entering into a farm out agreement or similar arrangement 12 with a third party under which the third party assists in exploration and development of 13 production from the lease if the agreement or arrangement does not require a payment 14 of consideration by the third party to the lessee, except that the lessee may retain an 15 overriding royalty interest in the lease or may retain a net profit or other production 16 payment; 17 (3) gas produced from the lease may not be sold or otherwise made 18 available for insertion into the in-place gas pipeline transmission or distribution system 19 serving population centers in Southcentral Alaska, except that the director may waive this 20 limitation to permit the exchange of the gas produced for other gas that may be 21 distributed in rural communities and remote locations within the state. 22 (i) The applicant for a lease shall conduct a title search for the area described 23 in the lease application. 24 (j) A lease does not give the lessee the right to produce oil. A lease does not 25 give the lessee the right to produce gas from sources that are not within 3,000 feet of the 26 surface. If an onshore well drilling for natural gas under a lease authorized by this 27 section penetrates a formation capable of producing gas below 3,000 feet of the surface, 28 the owner or operator 29 (1) shall notify the department and the Alaska Oil and Gas Conservation 30 Commission; and 31 (2) may not conduct further operations in the drilled well until the facility
01 complies with all applicable laws and regulations relating to oil and gas production; 02 however, this paragraph does not prevent the owner or operator from conducting 03 activities that may be required by the Alaska Oil and Gas Conservation Commission to 04 plug, plug-back, or abandon a well. 05 (k) The commissioner of natural resources may adopt only the regulations that 06 are reasonable and that are necessary to implement, interpret, or make specific the 07 provisions of this section or to establish procedures to govern application of the 08 provisions of this section. 09 (l) A lessee obtaining a lease under this section may exercise the rights 10 authorized by this section and the lease. The rights granted by the lease must be 11 exercised in a manner that does not unreasonably interfere with eventual development 12 of the coal deposit on the land leased. Consistent with the principle of reasonable 13 concurrent uses as set out in art. VIII, sec. 8, of the state constitution, the state may 14 also lease the land under AS 38.05.150. However, in a lease entered into under 15 AS 38.05.150 for land that is already leased under this section, coal may not be mined 16 or extracted by the coal lease from the coal lessee without prior agreement with the 17 lessee holding the lease issued under this section. 18 (m) Except as otherwise specifically provided in this section, the provisions 19 of AS 38.05.135 - 38.05.184 apply to leases entered into under this section. 20 (n) In this section, "lease" means a shallow gas lease authorized by this section. 21 * Sec. 6. AS 38.05.180(f) is amended to read: 22 (f) Except as provided by AS 38.05.131 - 38.05.134 and 38.05.177, the 23 commissioner may issue oil and gas leases on state land to the highest responsible 24 qualified bidder determined by competitive bidding under regulations adopted by the 25 commissioner. Bidding may be by sealed bid or according to any other bidding 26 procedure the commissioner determines is in the best interests of the state. Whenever, 27 under any of the leasing methods listed in this subsection, a royalty share is reserved 28 to the state, it shall be delivered in pipeline quality and free of all lease or unit 29 expenses, including but not limited to separation, cleaning, dehydration, gathering, salt 30 water disposal, and preparation for transportation off the lease or unit area. Following 31 a pre-sale analysis, the commissioner may choose at least one of the following leasing
01 methods: 02 (1) a cash bonus bid with a fixed royalty share reserved to the state of 03 not less than 12.5 percent in amount or value of the production removed or sold from 04 the lease; 05 (2) a cash bonus bid with a fixed royalty share reserved to the state of 06 not less than 12.5 percent in amount or value of the production removed or sold from 07 the lease and a fixed share of the net profit derived from the lease of not less than 30 08 percent reserved to the state; 09 (3) a fixed cash bonus with a royalty share reserved to the state as the 10 bid variable but no less than 12.5 percent in amount or value of the production 11 removed or sold from the lease; 12 (4) a fixed cash bonus with the share of the net profit derived from the 13 lease reserved to the state as the bid variable; 14 (5) a fixed cash bonus with a fixed royalty share reserved to the state 15 of not less than 12.5 percent in amount or value of the production removed or sold 16 from the lease with the share of the net profit derived from the lease reserved to the 17 state as the bid variable; 18 (6) a cash bonus bid with a fixed royalty share reserved to the state 19 based on a sliding scale according to the volume of production or other factor but in 20 no event less than 12.5 percent in amount or value of the production removed or sold 21 from the lease; 22 (7) a fixed cash bonus with a royalty share reserved to the state based 23 on a sliding scale according to the volume of production or other factor as the bid 24 variable but not less than 12.5 percent in amount or value of the production removed 25 or sold from the lease. 26 * Sec. 7. AS 46.03.100(f) is amended to read: 27 (f) This section does not apply to discharges of solid or liquid waste material 28 or water discharges from the following activities if the discharge is incidental to the 29 activity and the activity does not produce a discharge from a point source, as that term 30 is defined in regulations adopted under this chapter, directly into any surface water of 31 the state:
01 (1) mineral drilling, trenching, ditching, and similar activities; 02 (2) landscaping; 03 (3) water well drilling, geophysical drilling, or coal bed methane 04 drilling or other natural gas drilling to recover gas from a reservoir at a depth of 05 less than 3,000 feet; or 06 (4) drilling, ditching, trenching, and similar activities associated with 07 facility construction and maintenance or with road or other transportation facility 08 construction and maintenance; however, the exemption provided by this paragraph does 09 not relieve a person from obtaining a permit under (a) of this section if 10 (A) the drilling, ditching, trenching, or similar activity will 11 involve the removal of the groundwater, stormwater, or wastewater runoff that 12 has accumulated and is present at an excavation site for facility, road, or other 13 transportation construction or maintenance; and 14 (B) a permit is otherwise required by (a) of this section. 15 * Sec. 8. AS 46.04.030(b) is amended to read: 16 (b) A person may not cause or permit the operation of a pipeline or an 17 exploration or production facility in the state unless an oil discharge prevention and 18 contingency plan for the pipeline or facility has been approved by the department and 19 the person is in compliance with the plan. This subsection does not apply to an 20 onshore exploration facility used solely to explore for shallow natural gas by 21 means of drilling a well on a lease authorized under AS 38.05.177. 22 * Sec. 9. AS 46.04.030 is amended by adding a new subsection to read: 23 (s) If an onshore well drilling for gas under a lease authorized by 24 AS 38.05.177 penetrates a formation capable of producing oil, the owner or operator 25 (1) shall notify the department and the Alaska Oil and Gas 26 Conservation Commission; and 27 (2) may not conduct further operations in the drilled well until the 28 facility complies with all applicable laws and regulations relating to oil and gas 29 production; however, this paragraph does not prevent the owner or operator from 30 conducting activities that may be required by the Alaska Oil and Gas Conservation 31 Commission to plug, plug-back, or abandon a well.
01 * Sec. 10. AS 46.04.040(b) is amended to read: 02 (b) A person may not cause or permit the operation of a pipeline or an 03 exploration or production facility in the state unless the person has furnished to the 04 department, and the department has approved, proof of financial ability to respond in 05 damages. Proof of financial responsibility required for 06 (1) a pipeline or an offshore exploration or production facility is 07 $50,000,000 per incident; 08 (2) an onshore production facility is 09 (A) $20,000,000 per incident if the facility produces over 10 10,000 barrels per day of oil; 11 (B) $10,000,000 per incident if the facility produces over 5,000 12 barrels per day but not more than 10,000 barrels per day of oil; 13 (C) $5,000,000 per incident if the facility produces over 2,500 14 barrels per day but not more than 5,000 barrels per day of oil; 15 (D) $1,000,000 per incident if the facility produces 2,500 barrels 16 per day or less of oil; 17 (3) an onshore exploration facility is 18 (A) $25,000 per incident for a facility used solely to explore 19 for shallow natural gas by means of drilling a well to explore for and 20 develop gas, whether methane associated with and derived from coal 21 deposits or otherwise, from a source that is within 3,000 feet of the 22 surface; and 23 (B) except as provided by (A) of this paragraph, $1,000,000 24 per incident. 25 * Sec. 11. AS 46.04.040 is amended by adding a new subsection to read: 26 (n) If an onshore well authorized under AS 38.05.177 to recover shallow 27 natural gas penetrates a formation capable of producing oil, the owner or operator may 28 not conduct further exploration activity. However, this subsection does not prevent the 29 owner or operator from conducting activities that may be required by the Alaska Oil 30 and Gas Conservation Commission to plug and abandon a well. 31 * Sec. 12. AS 46.04.050 is amended by adding a new subsection to read:
01 (c) Except as provided in AS 46.04.030(s), the provisions of AS 46.04.030(b) 02 do not apply to an onshore exploration facility used solely to explore for natural gas 03 by means of drilling a well when authorized under AS 38.05.177.