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CSSSHB 364(O&G): "An Act prohibiting the issuance of state shallow natural gas leases in the vicinity of Kachemak Bay, modifying the authority to extend certain shallow natural gas leases, and precluding the director of the division of lands from reissuing or otherwise extending shallow natural gas leases within the Kachemak Bay area if there is a breach of a term or condition of the lease; and providing for an effective date."

00           CS FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 364(O&G)                                                         
01 "An Act prohibiting the issuance of state shallow natural gas leases in the vicinity of                                 
02 Kachemak Bay, modifying the authority to extend certain shallow natural gas leases,                                     
03 and precluding the director of the division of lands from reissuing or otherwise                                        
04 extending shallow natural gas leases within the Kachemak Bay area if there is a breach                                  
05 of a term or condition of the lease; and providing for an effective date."                                              
06 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                
07    * Section 1.  AS 38.05.177(a) is amended to read:                                                                  
08            (a)  The provisions of this section                                                                          
09                 (1)  apply to gas, whether methane associated with and derived from                                     
10       coal deposits or otherwise, from a field if a part of the field is within 3,000 feet of the                       
11       surface; and                                                                                                      
12                 (2)  do not apply to authorize lease of                                                                 
13                      (A)  land                                                                                          
01                           (i)  that is subject to an oil and gas exploration license or                                 
02                 lease issued under AS 38.05.131 - 38.05.134; or                                                         
03                           (ii)  that is leased under AS 38.05.180;                                                      
04                      (B)  the land (i) that is proposed to be subject to an oil and gas                                 
05            exploration license or lease issued under AS 38.05.131 - 38.05.134; or (ii) that                             
06            is described in and part of a proposed oil and gas leasing program prepared                                  
07            under AS 38.05.180(b); however, the commissioner may waive the limitations                                   
08            of this subparagraph;                                                                                        
09                      (C)  the land that is held under a coal lease entered into under                                   
10            AS 38.05.150, unless the applicant for a shallow natural gas lease is also the                               
11            lessee under AS 38.05.150 of that land; [OR]                                                                 
12                      (D)  the valid existing selections of the Alaska Mental Health                                     
13            Trust Authority made for the purpose of reconstituting the mental health trust                               
14            established under the Alaska Mental Health Enabling Act, P.L. 84-830, 70                                     
15            Stat. 709 (1956), that become subject to management under AS 38.05.801, or                                   
16            of land that has been designated by law for or is subject to designation for                                 
17            conveyance to the Alaska Mental Health Trust Authority; however, after                                       
18            consultation with the Alaska Mental Health Trust Authority, the commissioner                                 
19            may waive the limitations of this subparagraph; or                                                       
20                      (E)  land and water within the Kenai Peninsula Borough                                         
21            east of Cook Inlet and south of the north boundary of Township 5 South,                                  
22            Seward Meridian.                                                                                         
23    * Sec. 2.  AS 38.05.177(d) is amended to read:                                                                     
24            (d)  A lease                                                                                                 
25                 (1)  shall be automatically extended if and for so long thereafter as gas                           
26       is produced in paying quantities from the lease and the lessee continues to meet all                              
27       requirements of the lease; a [. A] lease issued under this section covering land on                           
28       which there is a well capable of producing gas in paying quantities does not expire                               
29       because the lessee fails to produce gas unless the lessee is allowed reasonable time to                           
30       place the well on a producing status; if [.  IF] drilling has commenced on the                                
31       expiration date of the primary term of the lease and is continued with reasonable                                 
01       diligence, including such operations as redrilling, sidetracking, or other means                                  
02       necessary to reach the originally proposed bottom hole location, the lease is extended                            
03       for one year and for so long thereafter as gas is produced in paying quantities; a  [.  A]                    
04       gas lease issued under this section that is subject to termination by reason of cessation                         
05       of production does not terminate if, within 90 days after production ceases or a longer                           
06       period determined at the discretion of the director, reworking or drilling operations are                         
07       commenced on the land under lease and are thereafter conducted with reasonable                                    
08       diligence during the period of nonproduction;                                                                 
09                 (2)  issued under (c) of this section before January 1, 2004, may be                                
10       extended at the discretion of the director; a lease may be extended under this                                
11       paragraph [.  IN ADDITION,] upon application by the lessee; [,] the director may                          
12       once extend the [A] lease [ISSUED UNDER (c) OF THIS SECTION] for a period of                                  
13       not more than three years; in exercising discretion to extend a lease under this                              
14       paragraph, the director may not extend the lease unless the director considers                                
15                      (A)  the extent of the shallow natural gas exploration                                         
16            activity already conducted on the lease and on adjacent areas;                                           
17                      (B)  the probability that further shallow natural gas                                          
18            exploration activity will occur on the lease and will lead to shallow natural                            
19            gas development and production; and                                                                      
20                      (C)  whether extension of the lease's primary term will                                        
21            accelerate the eventual production of shallow natural gas from the lease.                                
22    * Sec. 3.  The uncodified law of the State of Alaska is amended by adding a new section to                         
23 read:                                                                                                                   
24       APPLICATION OF SECTION 1 TO LAND CURRENTLY LEASED IN THE                                                          
25 VICINITY OF KACHEMAK BAY FOR SHALLOW NATURAL GAS EXPLORATION                                                            
26 AND DEVELOPMENT.  The provisions of AS 38.05.177(a)(2)(E), added by sec. 1 of this                                      
27 Act, apply to prohibit the issuance or reissuance of a lease under AS 38.05.177 entered into                            
28 before the effective date of this Act if the lease terminates because of the failure to extend the                      
29 lease under AS 38.05.177(d), as modified by sec. 2 of this Act, or if the lease terminates by                           
30 the operation of AS 38.05.177(h).                                                                                       
31    * Sec. 4.  This Act takes effect immediately under AS 01.10.070(c).