HB 531: "An Act relating to natural gas exploration and development and to nonconventional gas, and amending the section under which shallow natural gas leases may be issued; and providing for an effective date."
00 HOUSE BILL NO. 531 01 "An Act relating to natural gas exploration and development and to nonconventional 02 gas, and amending the section under which shallow natural gas leases may be issued; 03 and providing for an effective date." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05 * Section 1. AS 14.40.365(a) is amended to read: 06 (a) The University of Alaska may select and is entitled to receive the 07 conveyance of not less than 250,000 and not more than 260,000 acres of land 08 conveyed to the state under sec. 6(b) of the Alaska Statehood Act (P.L. 85-508, 72 09 Stat. 339). The Board of Regents of the University of Alaska shall periodically submit 10 a list of selections to the commissioner of natural resources and, if the list of selections 11 contains land within the boundaries of a municipality, the Board of Regents of the 12 University of Alaska shall submit the list to the municipality. The Board of Regents 13 and the commissioner of natural resources shall periodically and jointly submit to the 14 legislature, within 30 days of the beginning of a regular legislative session, a list of the
01 selections of land proposed to be conveyed by the state to the University of Alaska 02 under this section. If the list submitted to the legislature contains land within the 03 boundaries of a municipality, the Board of Regents and the commissioner of natural 04 resources shall provide a copy of the list to the municipality. Each list must contain 05 not more than 25 percent of the total acres of land to which the university is entitled 06 after subtracting previous conveyances under this section, but not less than 25,000 07 acres or the remaining entitlement under this section, whichever is less. A list of 08 selections submitted shall be considered approved for conveyance to the University of 09 Alaska unless the legislature acts to disapprove the list during the legislative session 10 during which the list was submitted. If the amount of land to be conveyed exceeds the 11 balance due the university under this section, the university shall set out the land to be 12 conveyed in priority order. Land may not be selected if, on the date of its selection by 13 the university, it 14 (1) is identified in AS 16.20, AS 41.15.300 - 41.15.330, or AS 41.21 or 15 has been reserved by law from the public domain; 16 (2) is located within a municipality unless the land is vacant, 17 unappropriated, unreserved land; if land included on the list of selections is selected 18 by the municipality with remaining selection rights under AS 29.65 within 120 days of 19 receiving the Board of Regents' list of selections under this subsection, the university 20 may not select the land unless a binding agreement between the university and the 21 municipality is negotiated to allow the selection; if the municipal selection is 22 disapproved, in whole or in part, the university may select the land, or any available 23 portion of the land, and that selection will relate back to the date of the Board of 24 Regents' list of selections under this subsection and shall have priority over all other 25 selections or claims made subsequent to that notice; in this paragraph, "vacant, 26 unappropriated, unreserved land" has the meaning given in AS 29.65.130; 27 (3) is land 28 (A) included in a five-year proposed [OIL AND GAS] leasing 29 program under AS 38.05.180(b); or 30 (B) leased under, or for which a lease application is pending 31 under, AS 38.05.180(d) or 38.05.150;
01 (4) is subject to 02 (A) an oil, gas, or coal lease, or coal prospecting permit; 03 (B) a mining claim, offshore prospecting permit, a prospecting 04 site, an upland mining lease, or a mining leasehold location; 05 (5) is necessary to carry out the purpose of an interagency land 06 management agreement; or 07 (6) is subject to conveyance under a land exchange or land settlement 08 agreement. 09 * Sec. 2. AS 14.40.365(e) is amended to read: 10 (e) The list of selections of land submitted to the legislature may not include a 11 land selection made by the University of Alaska under this section if the commissioner 12 of natural resources determines in writing that the proposed selection 13 (1) includes land that the commissioner, in consultation with the 14 commissioner of fish and game, determines has demonstrated value to the public as a 15 habitat area that is especially critical to the perpetuation of fish or wildlife; 16 (2) includes land for which, at the time of its selection under this 17 section, a municipality has made a selection under AS 29.65 unless the land selection 18 is, at a later date, rejected by the commissioner of natural resources or relinquished by 19 the municipality; 20 (3) includes land that the commissioner reasonably believes may be 21 selected by a newly formed municipality under AS 29.65.030, but the commissioner 22 may not withhold selection under this paragraph for more than three years after the 23 municipality's incorporation; 24 (4) includes land within the boundaries of a municipality, the 25 municipality has a remaining entitlement under AS 29.65, and the municipality selects 26 the land under AS 29.65 within 120 days after receipt by the municipality of the Board 27 of Regents' list of selections under (a) of this section; 28 (5) includes land that, at the time of its selection under this section, 29 (A) is subject to an [OIL AND GAS] exploration license 30 issued under AS 38.05.131 - 38.05.134; or 31 (B) the commissioner reasonably believes will be made part of
01 an [OIL AND GAS] exploration license issued under AS 38.05.131 - 02 38.05.134; the commissioner may not refuse to convey title to land to the 03 University of Alaska under this subparagraph for more than two years after its 04 first selection by the University of Alaska; or 05 (6) includes land the commissioner of natural resources reasonably 06 believes would not be in the best interests of the state to convey outside of state 07 ownership. 08 * Sec. 3. AS 19.40.200(b) is amended to read: 09 (b) The prohibition on disposal of state land under (a) of this section does not 10 apply to a disposal 11 (1) to a licensed public utility or a licensed common carrier under 12 AS 38.05.810(e); 13 (2) for the reauthorization of leases that were in effect on January 1, 14 1994, for nonresidential purposes within the following development nodes: 15 (A) Coldfoot: 16 Township 28 North, Range 12 West, Fairbanks Meridian 17 Sections 3 - 4 18 Sections 9 - 10 19 Sections 15 - 16 20 Sections 20 - 22 21 (B) Yukon River Crossing: 22 Township 12 North, Range 10 West, Fairbanks Meridian 23 Sections 6 - 7 24 Township 12 North, Range 11 West, Fairbanks Meridian 25 Sections 1 - 2 26 Section 12 27 Township 13 North, Range 10 West, Fairbanks Meridian 28 Sections 29 - 32 29 Township 13 North, Range 11 West, Fairbanks Meridian 30 Section 22 31 Sections 25 - 27
01 Sections 34 - 36 02 (3) for nonresidential development within the following development 03 nodes: 04 (A) Deadhorse: 05 Township 10 North, Range 14 East, Umiat Meridian 06 Township 10 North, Range 15 East, Umiat Meridian 07 Section 8 08 Sections 17 - 20 09 Section 30 10 (B) Coldfoot: 11 Township 28 North, Range 12 West, Fairbanks Meridian 12 Sections 3 - 4 13 Sections 9 - 10 14 Sections 15 - 16 15 Sections 20 - 22 16 Township 29 North, Range 12 West, Fairbanks Meridian 17 Sections 23 - 27 18 Sections 34 - 35 19 (C) Franklin Bluffs: 20 Township 4 North, Range 14 East, Umiat Meridian 21 Sections 3 - 4 22 Sections 9 - 10 23 Sections 15 - 16 24 (D) Happy Valley: 25 Township 3 South, Range 14 East, Umiat Meridian 26 Sections 19 - 20 27 Sections 29 - 30 28 (E) Yukon River Crossing: 29 Township 12 North, Range 10 West, Fairbanks Meridian 30 Sections 6 - 7 31 Township 12 North, Range 11 West, Fairbanks Meridian
01 Sections 1 - 2 02 Section 12 03 Township 13 North, Range 10 West, Fairbanks Meridian 04 Sections 29 - 32 05 Township 13 North, Range 11 West, Fairbanks Meridian 06 Section 22 07 Sections 25 - 27 08 Sections 34 - 36; or 09 (4) necessary for 10 (A) an oil and gas lease or gas only lease under AS 38.05.180; 11 (B) exploration, development, production, or transportation of 12 oil and gas north of 68 degrees north latitude; or 13 (C) a state lease or materials sale for 14 (i) exploration, development, production, or 15 transportation of oil or [AND] gas; 16 (ii) reconstruction or maintenance of state highways; or 17 (iii) construction or maintenance of airports. 18 * Sec. 4. AS 31.05.030(j) is amended to read: 19 (j) For the purposes of AS 46.04.030(b), the commission shall determine 20 whether a nonconventional gas well [DRILLED FOR SHALLOW NATURAL GAS] 21 may penetrate a formation capable of flowing oil and, if so, whether the volume of oil 22 encountered will be of such quantities that an oil discharge prevention and 23 contingency plan will be required. 24 * Sec. 5. AS 31.05.060(c) is amended to read: 25 (c) Notwithstanding the requirements of (a) and (b) of this section that relate 26 to fixing a date for a hearing and causing notice of the hearing to be given, for an 27 action under this chapter that involves the exploration for or development of 28 nonconventional [SHALLOW NATURAL] gas and that has application to a single 29 well or a single field, upon the request of a lessee or operator, the commission may, 30 where operations might be unduly delayed, approve a variance from the commission's 31 regulations that apply to the well or field without providing notice and opportunity to
01 be heard. In the exercise of its authority to issue the variance, 02 (1) the commission may approve the variance if 03 (A) the approval provides at least an equally effective means of 04 accomplishing the requirement set out in the commission's regulation; or 05 (B) the commission determines that the request is more 06 appropriate to the proposed operation than compliance with the requirement of 07 the regulation; and 08 (2) the terms of the approval of the variance may include exempting 09 the lessee or operator from a requirement of a regulation if the commission determines 10 that the requirement is not necessary or not suited to the well or field taking into 11 consideration 12 (A) the nature of the operation involved; 13 (B) the characteristics of the well or field for which the 14 variance is sought; and 15 (C) the reasonably anticipated risks of the exemption from the 16 requirement to human safety and the environment. 17 * Sec. 6. AS 31.05.170 is amended by adding a new paragraph to read: 18 (16) "nonconventional gas" has the meaning given in AS 38.05.177. 19 * Sec. 7. AS 36.30.850(b)(25) is amended to read: 20 (25) acquisition of confidential seismic survey data necessary for pre- 21 sale oil and gas lease or gas only lease analyses under AS 38.05.180; 22 * Sec. 8. AS 36.30.850(b)(33) is amended to read: 23 (33) contracts between the Department of Natural Resources and 24 contractors qualified to evaluate hydrocarbon development, production, transportation, 25 and economics, to assist the commissioner of natural resources in evaluating 26 applications for [OIL AND GAS] royalty increases or decreases or other [OIL AND 27 GAS] royalty adjustments, and evaluating the related financial and technical data, 28 entered into under AS 38.05.180(j); 29 * Sec. 9. 38.04.065(i) is amended to read: 30 (i) An oil and gas lease sale or gas only lease sale is not subject to this 31 section. Oil and gas lease sales and gas only lease sales are subject to the planning
01 process established under AS 38.05.180. 02 * Sec. 10. AS 38.05.035(e) is amended to read: 03 (e) Upon a written finding that the interests of the state will be best served, the 04 director may, with the consent of the commissioner, approve contracts for the sale, 05 lease, or other disposal of available land, resources, property, or interests in them. In 06 approving a contract under this subsection, the director need only prepare a single 07 written finding. In addition to the conditions and limitations imposed by law, the 08 director may impose additional conditions or limitations in the contracts as the director 09 determines, with the consent of the commissioner, will best serve the interests of the 10 state. The preparation and issuance of the written finding by the director are subject to 11 the following: 12 (1) with the consent of the commissioner and subject to the director's 13 discretion, for a specific proposed disposal of available land, resources, or property, or 14 of an interest in them, the director, in the written finding, 15 (A) shall establish the scope of the administrative review on 16 which the director's determination is based, and the scope of the written 17 finding supporting that determination; the scope of the administrative review 18 and finding may address only reasonably foreseeable, significant effects of the 19 uses proposed to be authorized by the disposal; 20 (B) may limit the scope of an administrative review and finding 21 for a proposed disposal to 22 (i) applicable statutes and regulations; 23 (ii) the facts pertaining to the land, resources, or 24 property, or interest in them, that the director finds are material to the 25 determination and that are known to the director or knowledge of which 26 is made available to the director during the administrative review; and 27 (iii) issues that, based on the statutes and regulations 28 referred to in (i) of this subparagraph, on the facts as described in (ii) of 29 this subparagraph, and on the nature of the uses sought to be authorized 30 by the disposal, the director finds are material to the determination of 31 whether the proposed disposal will best serve the interests of the state;
01 and 02 (C) may, if the project for which the proposed disposal is 03 sought is a multiphased development, limit the scope of an administrative 04 review and finding for the proposed disposal to the applicable statutes and 05 regulations, facts, and issues identified in (B)(i) - (iii) of this paragraph that 06 pertain solely to the disposal phase of the project when 07 (i) the only uses to be authorized by the proposed 08 disposal are part of that phase; 09 (ii) the disposal is a [AN OIL AND GAS] disposal of 10 oil and gas, or of gas only, and, before the next phase of the project 11 may proceed, public notice and the opportunity to comment are 12 provided under regulations adopted by the department unless the 13 project is subject to a consistency review under AS 46.40 and public 14 notice and the opportunity to comment are provided under 15 AS 46.40.096(c); 16 (iii) the department's approval is required before the 17 next phase of the project may proceed; and 18 (iv) the department describes its reasons for a decision 19 to phase; 20 (2) the director shall discuss in the written finding prepared and issued 21 under this subsection the reasons that each of the following was not material to the 22 director's determination that the interests of the state will be best served: 23 (A) facts pertaining to the land, resources, or property, or an 24 interest in them other than those that the director finds material under (1)(B)(ii) 25 of this subsection; and 26 (B) issues based on the statutes and regulations referred to in 27 (1)(B)(i) of this subsection and on the facts described in (1)(B)(ii) of this 28 subsection; 29 (3) a written finding for an oil and gas lease sale or gas only lease sale 30 under AS 38.05.180 is subject to (g) of this section; 31 (4) a contract for the sale, lease, or other disposal of available land or
01 an interest in land is not legally binding on the state until the commissioner approves 02 the contract, but if the appraised value is not greater than $50,000 in the case of the 03 sale of land or an interest in land, or $5,000 in the case of the annual rental of land or 04 interest in land, the director may execute the contract without the approval of the 05 commissioner; 06 (5) public notice requirements relating to the sale, lease, or other 07 disposal of available land or an interest in land for oil and gas, or for gas only, 08 proposed to be scheduled in the five-year oil and gas leasing program under 09 AS 38.05.180(b), except for a sale under (6)(F) of this subsection, are as follows: 10 (A) before a public hearing, if held, or in any case not less than 11 180 days before the sale, lease, or other disposal of available land or an interest 12 in land, the director shall make available to the public a preliminary written 13 finding that states the scope of the review established under (1)(A) of this 14 subsection and includes the applicable statutes and regulations, the material 15 facts and issues in accordance with (1)(B) of this subsection, and information 16 required by (g) of this section, upon which the determination that the sale, 17 lease, or other disposal will serve the best interests of the state will be based; 18 the director shall provide opportunity for public comment on the preliminary 19 written finding for a period of not less than 60 days; 20 (B) after the public comment period for the preliminary written 21 finding and not less than 90 days before the sale, lease, or other disposal of 22 available land or an interest in land for oil and gas or for gas only, the director 23 shall make available to the public a final written finding that states the scope of 24 the review established under (1)(A) of this subsection and includes the 25 applicable statutes and regulations, the material facts and issues in accordance 26 with (1) of this subsection, and information required by (g) of this section, 27 upon which the determination that the sale, lease, or other disposal will serve 28 the best interests of the state is based; 29 (6) before a public hearing, if held, or in any case not less than 21 days 30 before the sale, lease, or other disposal of available land, property, resources, or 31 interests in them other than a sale, lease, or other disposal of available land or an
01 interest in land for oil and gas or for gas only under (5) of this subsection, the director 02 shall make available to the public a written finding that, in accordance with (1) of this 03 subsection, sets out the material facts and applicable statutes and regulations and any 04 other information required by statute or regulation to be considered upon which the 05 determination that the sale, lease, or other disposal will best serve the interests of the 06 state was based; however, a written finding is not required before the approval of 07 (A) a contract for a negotiated sale authorized under 08 AS 38.05.115; 09 (B) a lease of land for a shore fishery site under AS 38.05.082; 10 (C) a permit or other authorization revocable by the 11 commissioner; 12 (D) a mineral claim located under AS 38.05.195; 13 (E) a mineral lease issued under AS 38.05.205; 14 (F) an exempt oil and gas lease sale or gas only lease sale 15 under AS 38.05.180(d) of acreage subject to a best interest finding issued 16 within the previous 10 years or a reoffer oil and gas lease sale or gas only 17 lease sale under AS 38.05.180(w) of acreage subject to a best interest finding 18 issued within the previous 10 years, unless the commissioner determines that 19 substantial new information has become available that justifies a supplement to 20 the most recent best interest finding for the exempt oil and gas lease sale or 21 gas only lease sale acreage and for the reoffer oil and gas lease sale or gas 22 only lease sale acreage; however, for each oil and gas lease sale or gas only 23 lease sale described in this subparagraph, the director shall call for comments 24 from the public; the director's call for public comments must provide 25 opportunity for public comment for a period of not less than 30 days; if the 26 director determines that a supplement to the most recent best interest finding 27 for the acreage is required under this subparagraph, 28 (i) the director shall issue the supplement to the best 29 interest finding not later than 90 days before the sale; 30 (ii) not later than 45 days before the sale, the director 31 shall issue a notice describing the interests to be offered, the location
01 and time of the sale, and the terms and conditions of the sale; and 02 (iii) the supplement has the status of a final written best 03 interest finding for purposes of (i) and (l) of this section; 04 (G) [A SHALLOW GAS LEASE AUTHORIZED UNDER 05 AS 38.05.177 IN AN AREA FOR WHICH LEASING IS AUTHORIZED 06 UNDER AS 38.05.177; 07 (H)] a surface use lease under AS 38.05.255; 08 (H) [(I)] a permit, right-of-way, or easement under 09 AS 38.05.850; 10 (7) the director shall include in 11 (A) a preliminary written finding, if required, a summary of 12 agency and public comments, if any, obtained as a result of contacts with other 13 agencies concerning a proposed disposal or as a result of informal efforts 14 undertaken by the department to solicit public response to a proposed disposal, 15 and the department's preliminary responses to those comments; and 16 (B) the final written finding a summary of agency and public 17 comments received and the department's responses to those comments. 18 * Sec. 11. AS 38.05.035(g) is amended to read: 19 (g) Notwithstanding (e)(1)(A) and (B) of this section, when the director 20 prepares a written finding required under (e) of this section for an oil and gas lease 21 sale or a gas only lease sale scheduled under AS 38.05.180, the director shall consider 22 and discuss 23 (1) in a preliminary or final written finding facts that are known to the 24 director at the time of preparation of the finding and that are 25 (A) material to issues that were raised during the period 26 allowed for receipt of public comment, whether or not material to a matter set 27 out in (B) of this paragraph, and within the scope of the administrative review 28 established by the director under (e)(1) of this section; or 29 (B) material to the following matters: 30 (i) property descriptions and locations; 31 (ii) the petroleum potential of the sale area, in general
01 terms; 02 (iii) fish and wildlife species and their habitats in the 03 area; 04 (iv) the current and projected uses in the area, including 05 uses and value of fish and wildlife; 06 (v) the governmental powers to regulate the [OIL AND 07 GAS] exploration, development, production, and transportation of oil 08 and gas or of gas only; 09 (vi) the reasonably foreseeable cumulative effects of 10 [OIL AND GAS] exploration, development, production, and 11 transportation for oil and gas or for gas only on the sale area, 12 including effects on subsistence uses, fish and wildlife habitat and 13 populations and their uses, and historic and cultural resources; 14 (vii) lease stipulations and mitigation measures, 15 including any measures to prevent and mitigate releases of oil and 16 hazardous substances, to be included in the leases, and a discussion of 17 the protections offered by these measures; 18 (viii) the method or methods most likely to be used to 19 transport oil or gas from the lease sale area, and the advantages, 20 disadvantages, and relative risks of each; 21 (ix) the reasonably foreseeable fiscal effects of the lease 22 sale and the subsequent activity on the state and affected municipalities 23 and communities, including the explicit and implicit subsidies 24 associated with the lease sale, if any; 25 (x) the reasonably foreseeable effects of [OIL AND 26 GAS] exploration, development, production, and transportation 27 involving oil and gas or gas only on municipalities and communities 28 within or adjacent to the lease sale area; and 29 (xi) the bidding method or methods adopted by the 30 commissioner under AS 38.05.180; and 31 (2) the basis for the director's preliminary or final finding, as
01 applicable, that, on balance, leasing the area would be in the state's best interest. 02 * Sec. 12. AS 38.05.036(a) is amended to read: 03 (a) The department may conduct audits regarding royalty and net profits under 04 oil and gas contracts, agreements, or leases under this chapter and regarding costs 05 related to [OIL AND GAS] exploration licenses entered into under AS 38.05.131 - 06 38.05.134 and exploration incentive credits under this chapter or under AS 41.09. For 07 purposes of audit under this section, 08 (1) the department may examine the books, papers, records, or 09 memoranda of a person regarding matters related to the audit; and 10 (2) the records and premises where a business is conducted shall be 11 open at all reasonable times for inspection by the department. 12 * Sec. 13. AS 38.05.127(e) is amended to read: 13 (e) The establishment of easements or rights-of-way for oil and gas, gas only, 14 and mineral leases under (a) of this section need not be made until the leases are ready 15 to be developed. 16 * Sec. 14. AS 38.05.131(a) is amended to read: 17 (a) Unless specifically provided otherwise in AS 38.05.132 - 38.05.134, the 18 provisions of AS 38.05.005 - 38.05.037, 38.05.140(f), 38.05.180, 38.05.182 - 19 38.05.184, and 38.05.920 - 38.05.990 apply to the issuance of [OIL AND GAS] 20 exploration licenses and leases for oil and gas, or for gas only, as appropriate, 21 under AS 38.05.132 - 38.05.134. 22 * Sec. 15. AS 38.05.132(a) is amended to read: 23 (a) To encourage exploration for oil and gas on state land, the commissioner 24 may issue [OIL AND GAS] exploration licenses. The commissioner may limit the 25 exploration licenses under AS 38.05.132 - 38.05.134 to exploration for and 26 recovery of gas only. 27 * Sec. 16. AS 38.05.132(b) is amended to read: 28 (b) An [OIL AND GAS] exploration license issued under this section gives 29 the licensee 30 (1) the exclusive right to explore, for a term not to exceed 10 years, 31 [FOR DEPOSITS OF OIL AND GAS] on unleased state land described in the
01 exploration license for deposits of oil and gas, or for deposits of gas only, as 02 appropriate, unless the exploration license is terminated under (d)(1) of this section 03 or the land is earlier relinquished, removed, or deleted under (d)(2) of this section; and 04 (2) unless the exploration license is terminated under (d)(1) of this 05 section, the option to convert the exploration license for all or part of the state land, 06 except the land that is deleted or removed from the land described in the exploration 07 license under (d)(2) of this section, into an oil and gas lease, or a gas lease only, as 08 appropriate, upon fulfillment of the work commitments contained in the exploration 09 license. 10 * Sec. 17. AS 38.05.132(c) is amended to read: 11 (c) An exploration license awarded under this section 12 (1) is not subject to the acreage limitations imposed by 13 AS 38.05.140(c) or 38.05.180(m); 14 (2) may cover, subject to the maximum acreage limitation on 15 exploration licenses by one licensee under AS 38.05.131(e), an area of not less than 16 10,000 acres and not more than 500,000 acres, that must be reasonably compact and 17 contiguous; 18 (3) must be conditioned upon an obligation to perform a specified 19 work commitment, in total for the term of the license, expressed in dollars of direct 20 exploration expenditures; the specified work commitment 21 (A) may include a provision that adjusts the total amount of 22 work commitment, expressed in dollars of direct exploration expenditures, to 23 account for inflation; 24 (B) must include a requirement that the licensee complete at 25 least 25 percent of the licensee's total specified work commitment by the fourth 26 anniversary of the effective date of the issuance of the [OIL AND GAS] 27 exploration license; 28 (4) must be conditioned upon the posting of a bond or other security 29 acceptable to the commissioner, in favor of the state and subject to the following 30 requirements: 31 (A) the bond or other security must be renewed annually;
01 (B) the annual bond or other security shall be calculated as the 02 entire work commitment expressed in dollars, less the cumulative direct 03 exploration expenditures of the licensee as of the last day of the most recent 04 project year, divided by the number of years remaining in the term of the 05 exploration license; 06 (5) is subject to an annual review and revocation if the commissioner 07 determines that the licensee has failed to provide or maintain in effect the bond or 08 other security required by (4) of this subsection; 09 (6) must be conditioned upon the licensee's payment to the state of a 10 nonrefundable [OIL AND GAS] exploration license fee of $1 for each acre of land or 11 fraction of each acre that is subject to the exploration license; and 12 (7) must be conditioned upon an agreement that exploration 13 expenditures are subject to audit by the commissioner. 14 * Sec. 18. AS 38.05.132(f) is amended to read: 15 (f) In this section, 16 (1) "direct exploration expenditure" means cash expenses undertaken 17 in performance of a specified work commitment under the provisions of AS 38.05.131 18 - 38.05.134 and necessarily incurred by the licensee in the permitting, mobilization, 19 conducting, demobilization, and evaluation of geophysical and geological surveys, or 20 the drilling, logging, coring, testing, and evaluation of oil and gas or gas only wells; 21 the term 22 (A) includes direct labor costs, including the cost of benefits, 23 for employees directly associated with the work commitment programs, the 24 cost of renting or leasing equipment from parties not affiliated with the 25 licensee, the reasonable costs of maintaining and operating equipment, 26 payments to consultants and independent contractors not affiliated with the 27 licensee, and costs of materials and supplies; 28 (B) does not include noncash expenses such as depreciation 29 and reserves, interest or other costs of borrowed funds, return on investment, 30 overhead, insurance or bond premiums, or any other expense that is 31 unreasonable or that the licensee has not incurred to satisfy the licensee's work
01 commitment; 02 (2) "work commitment" includes the drilling of one or more 03 exploration wells or the gathering of data from activities described in (1) of this 04 subsection, or both. 05 * Sec. 19. AS 38.05.133(a) is amended to read: 06 (a) The procedures in this section apply to the issuance of an [OIL AND GAS] 07 exploration license under AS 38.05.132. 08 * Sec. 20. AS 38.05.133(f) is amended to read: 09 (f) After considering proposals not rejected under (d) of this section and public 10 comment on those proposals, the commissioner shall issue a written finding 11 addressing all matters set out in AS 38.05.035(e) and (g), except for 12 AS 38.05.035(g)(1)(B)(xi). If the finding concludes that the state's best interests would 13 be served by issuing an [OIL AND GAS] exploration license, the finding must (1) 14 describe the limitations, stipulations, conditions, or changes from the initiating 15 proposal or competing proposals that are required to make the issuance of the 16 exploration license conform to the best interests of the state, and (2) if only one 17 proposal was submitted, identify the prospective licensee whom the commissioner 18 finds should be issued the exploration license. The commissioner shall attach to the 19 finding a copy of the exploration license to be issued and the form of lease that will be 20 used for any portion of the exploration license area subsequently converted to a [AN 21 OIL AND GAS] lease under AS 38.05.134. 22 * Sec. 21. AS 38.05.133(h) is amended to read: 23 (h) If competing proposals are submitted, and the commissioner's finding 24 under (f) of this section concludes that an [OIL AND GAS] exploration license should 25 be issued, the commissioner shall issue a request for competitive sealed bids, under 26 procedures adopted by the commissioner by regulation, to determine which 27 prospective licensee should be issued the exploration license. The finding provided to 28 the prospective licensees and the public under (f) of this section must contain notice 29 that (1) the commissioner intends to request competitive sealed bids, (2) a prospective 30 licensee who intends to participate in the bidding must notify the commissioner in 31 writing by the date specified in the notice, and (3) a prospective licensee's notice of
01 intent to participate in the bidding constitutes acceptance of issuance of the 02 exploration license, as limited or conditioned by the terms contained in the finding and 03 by the exploration license to be issued and the form of lease to be used that have been 04 attached to that finding, if the prospective licensee is the successful bidder. The 05 successful bidder is the prospective licensee who submits the highest bid in terms of 06 the minimum work commitment dollar amount. 07 * Sec. 22. AS 38.05.134 is amended to read: 08 Sec. 38.05.134. Conversion to lease. If the licensee requests and the 09 commissioner determines that the work commitment obligation set out in an [OIL 10 AND GAS] exploration license issued under AS 38.05.132 has been met, the 11 commissioner shall convert to one or more [OIL AND GAS] leases all or part, as the 12 licensee may indicate, of the area described in the exploration license that remains 13 after the relinquishments, removals, or deletions required by AS 38.05.132(d)(2). A 14 lease issued under this section 15 (1) is subject to the acreage limitations imposed by AS 38.05.140(c); 16 (2) is subject to AS 38.05.180(j) - (m), (o) - (u), and (x) - (z); 17 (3) must be conditioned upon a royalty in amount or value of not less 18 than 12.5 percent of production, except that 19 (A) the lessee who, proceeding under AS 38.05.131 - 20 38.05.134, under a lease issued in the Cook Inlet sedimentary basin who is the 21 first to file with the commissioner a nonconfidential sworn statement claiming 22 to be the first to have drilled a well discovering oil or gas in a previously 23 undiscovered oil or gas pool and who is certified by the commissioner within 24 one year of completion of that discovery well to have drilled a well in that pool 25 that is capable of producing in paying quantities shall pay a royalty of five 26 percent on all production of oil or gas from that pool attributable to that lease 27 for a period of 10 years following the date of discovery of that pool, and 28 thereafter the royalty payable on all production of oil or gas from the pool 29 attributable to that lease shall be determined and payable as specified in the 30 lease; the payment of the five percent royalty under this paragraph is 31 authorized only to a holder of a lease who meets the requirements of
01 AS 38.05.180(f)(4); and 02 (B) for nonconventional gas that is not produced in direct 03 competition with gas on which a royalty at a rate of at least 12.5 percent is 04 payable, if the licensee requests, the commissioner may negotiate with the 05 licensee and set a royalty rate for the gas of at least 6.25 percent; for 06 purposes of this subparagraph, "nonconventional gas" has the meaning 07 given in AS 38.05.177(o); 08 (4) must include an annual rent of $3 per acre or fraction of an acre 09 initially paid to the state at inception of the lease and payable annually after that until 10 the income to the state from royalty under that lease exceeds the rental income to the 11 state under that lease for that year; and 12 (5) is subject to other conditions and obligations that are specified in 13 the lease. 14 * Sec. 23. AS 38.05.140(a) is amended to read: 15 (a) A person may not take or hold coal leases or permits during the life of coal 16 leases on state land exceeding an aggregate of 92,160 acres, except that a person may 17 apply for coal leases or permits for acreage in addition to 92,160 acres, not exceeding 18 a total of 5,120 additional acres of state land. The additional area applied for shall be 19 in multiples of 40 acres, and the application shall contain a statement that the granting 20 of a lease for additional land is necessary for the person to carry on business 21 economically and is in the public interest. On the filing of the application, [EXCEPT 22 AS PROVIDED BY AS 38.05.177(a)(2)(C),] the coal deposits in the land covered by 23 the application shall be temporarily set aside and withdrawn from all other forms of 24 disposal provided under AS 38.05.135 - 38.05.181. 25 * Sec. 24. AS 38.05.140(f) is amended to read: 26 (f) The submerged and shoreland lying north of 57 degrees, 30 minutes, North 27 [NORTH] latitude and east of 159 degrees, 49 minutes, West [WEST] longitude 28 within the Bristol Bay drainage are designated as the Bristol Bay Fisheries Reserve. 29 Within the Bristol Bay Fisheries Reserve, a [NO] surface entry permit to develop an 30 oil or gas lease or an [OIL AND GAS] exploration license under AS 38.05.131 - 31 38.05.134 may not be issued on state owned or controlled land until the legislature by
01 appropriate resolution specifically finds that the entry will not constitute danger to the 02 fishery. 03 * Sec. 25. AS 38.05.150(f) is amended to read: 04 (f) A [NOTWITHSTANDING AS 38.05.177, A] lease entered into under this 05 section gives the lessee the right to vent or remove methane and other gas held in 06 association with the coal in the land covered by the lease to ensure safe coal mining 07 operations. 08 * Sec. 26. AS 38.05.177(a) is amended to read: 09 (a) The provisions of this section 10 (1) apply to nonconventional gas [, WHETHER METHANE 11 ASSOCIATED WITH AND DERIVED FROM COAL DEPOSITS OR 12 OTHERWISE, FROM A FIELD IF A PART OF THE FIELD IS WITHIN 3,000 13 FEET OF THE SURFACE]; and 14 (2) do not apply to authorize lease of 15 (A) [LAND 16 (i) THAT IS SUBJECT TO AN OIL AND GAS 17 EXPLORATION LICENSE OR LEASE ISSUED UNDER 18 AS 38.05.131 - 38.05.134; OR 19 (ii) THAT IS LEASED UNDER AS 38.05.180; 20 (B) THE LAND (i) THAT IS PROPOSED TO BE SUBJECT 21 TO AN OIL AND GAS EXPLORATION LICENSE OR LEASE ISSUED 22 UNDER AS 38.05.131 - 38.05.134; OR (ii) THAT IS DESCRIBED IN AND 23 PART OF A PROPOSED OIL AND GAS LEASING PROGRAM 24 PREPARED UNDER AS 38.05.180(b); HOWEVER, THE COMMISSIONER 25 MAY WAIVE THE LIMITATIONS OF THIS SUBPARAGRAPH; 26 (C)] the land that is held under a coal lease entered into under 27 AS 38.05.150, unless a lessee under this section [THE APPLICANT FOR A 28 SHALLOW NATURAL GAS LEASE] is also the lessee under AS 38.05.150 29 of that land; or 30 (B) [(D)] the valid existing selections of the Alaska Mental 31 Health Trust Authority made for the purpose of reconstituting the mental
01 health trust established under the Alaska Mental Health Enabling Act, P.L. 84- 02 830, 70 Stat. 709 (1956), that become subject to management under 03 AS 38.05.801, or of land that has been designated by law for or is subject to 04 designation for conveyance to the Alaska Mental Health Trust Authority; 05 however, after consultation with the Alaska Mental Health Trust Authority, the 06 commissioner may waive the limitations of this subparagraph. 07 * Sec. 27. AS 38.05.177(f) is amended to read: 08 (f) A nonconventional [SHALLOW] gas lease must provide for payment to 09 the state of annual rent in the amount of $1 per acre, notwithstanding 10 AS 38.05.180(n). The rent is due and payable on the date determined in the lease. If 11 the lease payment is not received by the due date, the director shall mail the lessee one 12 written notice, certified return receipt requested. If the lessee fails to pay the rent 13 within 30 days of receipt of the notice, the director shall terminate the lease. 14 * Sec. 28. AS 38.05.177(g) is amended to read: 15 (g) The royalty payable on nonconventional [NATURAL] gas produced from 16 a lease 17 [(1) IS 18 (A) 12.5 PERCENT OF THE VALUE OF PRODUCTION 19 REMOVED OR SOLD FROM THE LEASE FOR GAS EXPORTED FROM 20 THE STATE OR GAS THAT IS PRODUCED IN DIRECT COMPETITION 21 WITH GAS ON WHICH A ROYALTY AT A RATE OF AT LEAST 12.5 22 PERCENT IS PAYABLE; AND 23 (B) EXCEPT AS PROVIDED IN (A) OF THIS 24 PARAGRAPH, 6.25 PERCENT OF THE VALUE OF THE PRODUCTION 25 REMOVED OR SOLD FROM THE LEASE; AND 26 (2)] shall be based upon production delivered in pipeline quality and 27 free of all lease expenses, including but not limited to separation, cleaning, 28 dehydration, gathering, salt water disposal, and preparation for transportation off the 29 lease. 30 * Sec. 29. AS 38.05.177(j) is amended to read: 31 (j) A lease does not give the lessee the right to produce oil. A lease gives the
01 lessee the right to produce nonconventional gas [ONLY TO THE EXTENT THAT IT 02 IS FROM A FIELD IF A PART OF THE FIELD IS WITHIN 3,000 FEET OF THE 03 SURFACE]. If a well drilling for natural gas under a lease authorized by this section 04 [PENETRATES A FIELD, NO PORTION OF WHICH IS WITHIN 3,000 FEET OF 05 THE SURFACE, OR] penetrates a formation capable of producing oil, the owner or 06 operator 07 (1) shall notify the department and the Alaska Oil and Gas 08 Conservation Commission; and 09 (2) may not conduct further operations in the drilled well until the 10 facility complies with all applicable laws and regulations relating to oil and gas 11 exploration and production; however, this paragraph does not prevent the owner or 12 operator from conducting activities that may be required by the Alaska Oil and Gas 13 Conservation Commission to plug, plug-back, or abandon a well. 14 * Sec. 30. AS 38.05.177(k) is amended to read: 15 (k) The commissioner may 16 (1) adopt only the regulations that are reasonable and that are 17 necessary to implement, interpret, or make specific the provisions of this section or to 18 establish procedures to govern application of the provisions of this section; and 19 (2) in addition to any requirement for a bond under AS 38.05.130, 20 establish by regulation a form and amount for statewide, areawide, unit-wide, or per- 21 lease bonds sufficient to secure damages that may be caused by the activities of a 22 lessee, or the lessee's successors or assigns, related to a nonconventional 23 [SHALLOW] natural gas lease entered into under this section; if the commissioner 24 acts under this paragraph, the commissioner 25 (A) shall require a person applying for a lease under this 26 section to post the bond as a condition for the director's executing the lease; 27 (B) may not require a bond posted under this paragraph from a 28 person applying for a lease if the person has already posted a bond covering 29 the person's statewide oil and gas leasing activities in an amount of at least 30 $500,000. 31 * Sec. 31. AS 38.05.177(o) is amended to read:
01 (o) In this section, 02 (1) "lease" means a nonconventional [SHALLOW] gas lease 03 authorized by this section; 04 (2) "nonconventional gas" means coal bed methane, shales 05 containing gas, or gas hydrates. 06 * Sec. 32. AS 38.05.180(a) is amended to read: 07 (a) The legislature finds that 08 (1) the people of Alaska have an interest in the development of the 09 state's oil and gas resources to 10 (A) maximize the economic and physical recovery of the 11 resources; 12 (B) maximize competition among parties seeking to explore 13 and develop the resources; 14 (C) maximize use of Alaska's human resources in the 15 development of the resources; 16 (2) it is in the best interests of the state 17 (A) to encourage an assessment of its oil and gas resources and 18 to allow the maximum flexibility in the methods of issuing leases to 19 (i) recognize the many varied geographical regions of 20 the state and the different costs of exploring for oil and gas in these 21 regions; 22 (ii) minimize the adverse impact of exploration, 23 development, production, and transportation activity; and 24 (B) to offer acreage for oil and gas leases or for gas only 25 leases, specifically including 26 (i) state acreage that has been the subject of a best 27 interest finding at annual areawide lease sales; and 28 (ii) land in areas that, under (d) of this section, may be 29 leased without having been included in the leasing program prepared 30 and submitted under (b) of this section. 31 * Sec. 33. AS 38.05.180(b) is amended to read:
01 (b) The commissioner shall biennially prepare and, between the first and the 02 15th day of the first regular session of each legislature, notify the legislature of the 03 availability of, a five-year proposed oil and gas leasing program consisting of a 04 schedule of proposed lease sales and specifying as precisely as practicable the location 05 of tracts proposed to be offered for oil and gas leasing or for leasing of gas only 06 during the calendar year in which the proposed program is made available to the 07 legislature and the following four calendar years. 08 * Sec. 34. AS 38.05.180(c) is amended to read: 09 (c) Except as provided in (d) and (w) of this section, an oil and gas lease sale 10 or gas only lease sale may not be held unless it was included in the proposed leasing 11 programs submitted to the legislature during the two calendar years preceding the year 12 in which the sale is held. A lease sale, whether for oil and gas or for gas only, may 13 not be held before the date it is scheduled in the proposed oil and gas leasing program. 14 * Sec. 35. AS 38.05.180(d) is amended to read: 15 (d) The commissioner 16 (1) may annually offer leases for oil and gas or leases for gas only 17 [LEASES] of the acreage described in AS 38.05.035(e)(6)(F); 18 (2) may issue oil and gas leases in an area that has not been included in 19 a leasing program prepared, in accordance with (b) of this section, if the land to be 20 leased 21 (A) was previously subject to a valid state oil and gas lease, a 22 valid state gas lease, or a valid federal oil and gas lease; 23 (B) is contiguous to land already under state, federal, or private 24 lease and the commissioner makes a written finding, after hearing, that leasing 25 of the land would result in a substantial probability of early evaluation and 26 development of the land to be leased; 27 (C) is adjacent to land owned or controlled by another party on 28 which a discovery of commercial quantities of oil or gas has been made, and 29 the commissioner finds, after hearing, that there is a reasonable probability that 30 the land to be leased contains oil or gas in communication with the oil or gas 31 discovered on the land of the other party;
01 (D) is adjacent to land included in the federal five-year Outer 02 Continental Shelf leasing program under 43 U.S.C. 1344, and the 03 commissioner makes a written finding, after hearing, that coordinated or 04 simultaneous leasing with the federal government is in the public interest; or 05 (E) is the subject of an [OIL AND GAS] exploration license 06 issued under AS 38.05.131 - 38.05.134; however, if the license issued was 07 for exploration for and recovery of gas only, then the lease issued under 08 this subsection shall be limited to exploration for and recovery of gas only. 09 * Sec. 36. AS 38.05.180(f) is amended to read: 10 (f) Except as provided by AS 38.05.131 - 38.05.134 [AND 38.05.177], the 11 commissioner may issue oil and gas leases or leases for gas only on state land to the 12 highest responsible qualified bidder as follows: 13 (1) the commissioner shall issue an oil and gas lease or a gas only 14 lease, as appropriate, to the successful bidder determined by competitive bidding 15 under regulations adopted by the commissioner; bidding may be by sealed bid or 16 according to any other bidding procedure the commissioner determines is in the best 17 interests of the state; 18 (2) whenever, under any of the leasing methods listed in this 19 subsection, a royalty share is reserved to the state, it shall be delivered in pipeline 20 quality and free of all lease or unit expenses, including but not limited to separation, 21 cleaning, dehydration, gathering, salt water disposal, and preparation for transportation 22 off the lease or unit area; 23 (3) following a pre-sale analysis, the commissioner may choose at least 24 one of the following leasing methods: 25 (A) a cash bonus bid with a fixed royalty share reserved to the 26 state of not less than 12.5 percent in amount or value of the production 27 removed or sold from the lease; 28 (B) a cash bonus bid with a fixed royalty share reserved to the 29 state of not less than 12.5 percent in amount or value of the production 30 removed or sold from the lease and a fixed share of the net profit derived from 31 the lease of not less than 30 percent reserved to the state;
01 (C) a fixed cash bonus with a royalty share reserved to the state 02 as the bid variable but no less than 12.5 percent in amount or value of the 03 production removed or sold from the lease; 04 (D) a fixed cash bonus with the share of the net profit derived 05 from the lease reserved to the state as the bid variable; 06 (E) a fixed cash bonus with a fixed royalty share reserved to the 07 state of not less than 12.5 percent in amount or value of the production 08 removed or sold from the lease with the share of the net profit derived from the 09 lease reserved to the state as the bid variable; 10 (F) a cash bonus bid with a fixed royalty share reserved to the 11 state based on a sliding scale according to the volume of production or other 12 factor but in no event less than 12.5 percent in amount or value of the 13 production removed or sold from the lease; 14 (G) a fixed cash bonus with a royalty share reserved to the state 15 based on a sliding scale according to the volume of production or other factor 16 as the bid variable but not less than 12.5 percent in amount or value of the 17 production removed or sold from the lease; 18 (H) for nonconventional gas that will not be produced in 19 direct competition with gas on which a royalty at a rate of at least 12.5 20 percent is payable, a royalty share reserved to the state of at least 6.25 21 percent in amount or value of the production removed or sold from the 22 lease; for purposes of this subparagraph, "nonconventional gas" has the 23 meaning given in AS 38.05.177; 24 (4) notwithstanding a requirement in the leasing method chosen of a 25 minimum fixed royalty share, on and after March 3, 1997, the lessee under a lease 26 issued in the Cook Inlet sedimentary basin who is the first to file with the 27 commissioner a nonconfidential sworn statement claiming to be the first to have 28 drilled a well discovering oil or gas in a previously undiscovered oil or gas pool and 29 who is certified by the commissioner within one year of completion of that discovery 30 well to have drilled a well in that pool that is capable of producing in paying quantities 31 shall pay a royalty of five percent on all production of oil or gas from that pool
01 attributable to that lease for a period of 10 years following the date of discovery of that 02 pool, and thereafter the royalty payable on all production of oil or gas from the pool 03 attributable to that lease shall be determined and payable as specified in the lease; for 04 purposes of this paragraph, the reduced royalty authorized by this paragraph is subject 05 to the following: 06 (A) only one reduction of royalty authorized by this paragraph 07 may be allowed on each lease that qualifies for reduction of royalty under this 08 paragraph; 09 (B) if, under this paragraph, application is made for a royalty 10 reduction for a lease that was entered into before March 3, 1997, the 11 commissioner may approve the application only if, on that date, the lease was a 12 nonproducing lease that was not committed to a unit approved by the 13 commissioner under (m) of this section, that is not part of a unit under (p) or 14 (q) of this section, and that has not been made part of a unit under AS 31.05; 15 (C) if application for a royalty reduction is made under this 16 paragraph for a lease on which a discovery royalty was claimed or may be 17 claimed under the discovery royalty provisions of former AS 38.05.180(a) in 18 effect before May 6, 1969, the commissioner shall disallow the application 19 under this paragraph unless the applicant waives the right to claim the right to 20 a reduced royalty under the discovery royalty provisions of former 21 AS 38.05.180(a) in effect before May 6, 1969; and 22 (D) the commissioner shall adopt regulations setting out the 23 standards, criteria, and definitions of terms that apply to implement the filing 24 of applications for, and the review and certification of, discovery [OIL AND 25 GAS ROYALTY] certifications under this paragraph; 26 (5) notwithstanding and in lieu of a requirement in the leasing method 27 chosen of a minimum fixed royalty share, or the royalty provision of a lease, for leases 28 unitized as described in (p) of this section, leases subject to an agreement described in 29 (s) or (t) of this section, or interests unitized under AS 31.05, the lessee of all or part of 30 an oil or gas field identified in this section that has been granted approval of a written 31 plan submitted to the Alaska Oil and Gas Conservation Commission under
01 AS 31.05.030(i) shall, subject to (dd) of this section, pay a royalty of five percent on 02 the first 25,000,000 barrels of oil and the first 35,000,000,000 cubic feet of gas 03 produced for sale from that field that occurs in the 10 years following the date on 04 which the production for sale commences; the fields eligible for royalty reduction 05 under this paragraph, all of which are located within the Cook Inlet sedimentary basin, 06 were discovered before January 1, 1988, and have been undeveloped or shut in from at 07 least January 1, 1988, through December 31, 1997, are 08 (A) Falls Creek; 09 (B) Nicolai Creek; 10 (C) North Fork; 11 (D) Point Starichkof; 12 (E) Redoubt Shoal; and 13 (F) West Foreland; 14 (6) notwithstanding and in lieu of a requirement in the leasing method 15 chosen of a minimum fixed royalty share, or the royalty provision of a lease, for leases 16 unitized as described in (p) of this section, leases subject to an agreement described in 17 (s) or (t) of this section, or interests unitized under AS 31.05, the lessee of all or part of 18 an oil field located offshore in Cook Inlet on which an oil production platform 19 specified in (A), (C), or (E) of this paragraph operates, or the lessee of all or part of the 20 field located offshore in Cook Inlet and described in (G) of this paragraph, 21 (A) shall pay a royalty of five percent on oil produced from the 22 platform if oil production that equaled or exceeded a volume of 1,200 barrels a 23 day declines to less than that amount for a period of at least one calendar 24 quarter, as certified by the Alaska Oil and Gas Conservation Commission, for 25 as long as the volume of oil produced from the platform remains less than 26 1,200 barrels a day; the provisions of this subparagraph apply to 27 (i) Dolly; 28 (ii) Grayling; 29 (iii) King Salmon; 30 (iv) Steelhead; and 31 (v) Monopod;
01 (B) shall pay a royalty calculated under this subparagraph if the 02 volume of oil produced from the platform that was certified by the Alaska Oil 03 and Gas Conservation Commission under (A) of this paragraph later increases 04 to 1,200 or more barrels a day and remains at 1,200 or more barrels a day for a 05 period of at least one calendar quarter; until the royalty rate determined under 06 this subparagraph applies, the royalty continues to be calculated under (A) of 07 this paragraph; on and after the first day of the month following the month the 08 increased production exceeds the period specified in this subparagraph, the 09 royalty payable under this subparagraph is 10 (i) for production of at least 1,200 barrels a day but not 11 more than 1,300 barrels a day - seven percent; 12 (ii) for production of more than 1,300 barrels a day but 13 not more than 1,400 barrels a day - 8.5 percent; 14 (iii) for production of more than 1,400 barrels a day but 15 not more than 1,500 barrels a day - 10 percent; and 16 (iv) for production of more than 1,500 barrels a day - 17 12.5 percent; 18 (C) shall pay a royalty of five percent on oil produced from the 19 platform if oil production that equaled or exceeded a volume of 975 barrels a 20 day declines to less than that amount for a period of at least one calendar 21 quarter, as certified by the Alaska Oil and Gas Conservation Commission, for 22 as long as the volume of oil produced from the platform remains less than 975 23 barrels a day; the provisions of this subparagraph apply to 24 (i) Baker; 25 (ii) Dillon; 26 (iii) XTO.A; and 27 (iv) XTO.C; 28 (D) shall pay a royalty calculated under this subparagraph if the 29 volume of oil produced from the platform that was certified by the Alaska Oil 30 and Gas Conservation Commission under (C) of this paragraph later increases 31 to 975 or more barrels a day and remains at 975 or more barrels a day for a
01 period of at least one calendar quarter; until the royalty rate determined under 02 this subparagraph applies, the royalty continues to be calculated under (C) of 03 this paragraph; on and after the first day of the month following the month the 04 increased production exceeds the period specified in this subparagraph, the 05 royalty payable under this subparagraph is 06 (i) for production of at least 975 barrels a day but not 07 more than 1,100 barrels a day - seven percent; 08 (ii) for production of more than 1,100 barrels a day but 09 not more than 1,200 barrels a day - 8.5 percent; 10 (iii) for production of more than 1,200 barrels a day but 11 not more than 1,350 barrels a day - 10 percent; and 12 (iv) for production of more than 1,350 barrels a day - 13 12.5 percent; 14 (E) shall pay a royalty of five percent on oil produced from the 15 platform if oil production that equaled or exceeded a volume of 750 barrels a 16 day declines to less than that amount for a period of at least one calendar 17 quarter, as certified by the Alaska Oil and Gas Conservation Commission, for 18 as long as the volume of oil produced from the platform remains less than 750 19 barrels a day; the provisions of this subparagraph apply to 20 (i) Granite Point; 21 (ii) Anna; and 22 (iii) Bruce; 23 (F) shall pay a royalty calculated under this subparagraph if the 24 volume of oil produced from the platform that was certified by the Alaska Oil 25 and Gas Conservation Commission under (E) of this paragraph later increases 26 to 750 or more barrels a day and remains at 750 or more barrels a day for a 27 period of at least one calendar quarter; until the royalty rate determined under 28 this subparagraph applies, the royalty continues to be calculated under (E) of 29 this paragraph; on and after the first day of the month following the month the 30 increased production exceeds the period specified in this subparagraph, the 31 royalty payable under this subparagraph is
01 (i) for production of at least 750 barrels a day but not 02 more than 850 barrels a day - seven percent; 03 (ii) for production of more than 850 barrels a day but 04 not more than 1,000 barrels a day - 8.5 percent; 05 (iii) for production of more than 1,000 barrels a day but 06 not more than 1,200 barrels a day - 10 percent; and 07 (iv) for production of more than 1,200 barrels a day - 08 12.5 percent; 09 (G) shall pay a royalty of five percent on oil produced from the 10 field if oil production that equaled or exceeded a volume of 750 barrels a day 11 declines to less than that amount for a period of at least one calendar quarter, 12 as certified by the Alaska Oil and Gas Conservation Commission, for as long 13 as the volume of oil produced from the field remains less than 750 barrels a 14 day; the provisions of this subparagraph apply to the West McArthur River 15 field; 16 (H) shall pay a royalty calculated under this subparagraph if the 17 volume of oil produced from the field that was certified by the Alaska Oil and 18 Gas Conservation Commission under (G) of this paragraph later increases to 19 750 or more barrels a day and remains at 750 or more barrels a day for a period 20 of at least one calendar quarter; until the royalty rate determined under this 21 subparagraph applies, the royalty continues to be calculated under (G) of this 22 paragraph; on and after the first day of the month following the month the 23 increased production exceeds the period specified in this subparagraph, the 24 royalty payable under this subparagraph is 25 (i) for production of at least 750 barrels a day but not 26 more than 850 barrels a day - seven percent; 27 (ii) for production of more than 850 barrels a day but 28 not more than 1,000 barrels a day - 8.5 percent; 29 (iii) for production of more than 1,000 barrels a day but 30 not more than 1,200 barrels a day - 10 percent; and 31 (iv) for production of more than 1,200 barrels a day -
01 12.5 percent; and 02 (I) may obtain the benefits of the royalty adjustments set out in 03 (A) - (H) of this paragraph only if the commissioner determines that the 04 reduction in production from the platform or the field is 05 (i) based on the average daily production during the 06 calendar quarter based on reservoir conditions; and 07 (ii) not the result of short-term production declines due 08 to mechanical or other choke-back factors, temporary shutdowns or 09 decreased production due to environmental or facility constraints, or 10 market conditions. 11 * Sec. 37. AS 38.05.180(h) is amended to read: 12 (h) The commissioner may include terms in any [OIL AND GAS] lease 13 imposing a minimum work commitment on the lessee. These terms shall be made 14 public before the sale, and may include appropriate penalty provisions to take effect in 15 the event the lessee does not fulfill the minimum work commitment. If it is 16 demonstrated that a lease has been proven unproductive by actions of adjacent lease 17 holders, the commissioner may set aside a work commitment. The commissioner may 18 waive for a period not to exceed one two-year period any term of a minimum work 19 commitment if the commissioner makes a written finding either that conditions 20 preventing drilling or exploration were beyond the lessee's reasonable ability to 21 foresee or control or that the lessee has demonstrated through good faith efforts an 22 intent and ability to drill or develop the lease during the term of the waiver. 23 * Sec. 38. AS 38.05.180(i) is amended to read: 24 (i) The commissioner may provide for the establishment of an exploration 25 incentive credit system under which a lessee of state land drilling an exploratory well 26 on that land may earn credits based upon the footage drilled and the region in which 27 the well is situated. The commissioner may also provide for credits to be earned by 28 persons performing geophysical work on state land, if that work is performed during 29 the two seasons immediately preceding an announced lease sale and on land included 30 within the sale area and the geophysical information is made public following the sale. 31 Credits may not exceed 50 percent of the cost of the drilling or geophysical work.
01 Credits may be used during a limited period established by the commissioner and may 02 be assigned during that period. Credits may be applied against (1) [OIL AND GAS] 03 royalty and rental payments for oil and gas or for gas only payable to the state or (2) 04 taxes payable under AS 43.55. A credit may not exceed 50 percent of the payment 05 toward which it is being applied. Amounts due the Alaska permanent fund 06 (AS 37.13.010) shall be calculated before the application of credits under this 07 subsection. 08 * Sec. 39. AS 38.05.180(j) is amended to read: 09 (j) The commissioner 10 (1) may provide for modification of royalty on individual leases, leases 11 unitized as described in (p) of this section, leases subject to an agreement described in 12 (s) or (t) of this section, or interests unitized under AS 31.05 13 (A) to allow for production from an oil or gas field or pool if 14 (i) the oil or gas field or pool has been sufficiently 15 delineated to the satisfaction of the commissioner; 16 (ii) the field or pool has not previously produced oil or 17 gas for sale; and 18 (iii) oil or gas production from the field or pool would 19 not otherwise be economically feasible; 20 (B) to prolong the economic life of an oil or gas field or pool as 21 per barrel or barrel equivalent costs increase or as the price of oil or gas 22 decreases, and the increase or decrease is sufficient to make future production 23 no longer economically feasible; or 24 (C) to reestablish production of shut-in oil or gas that would 25 not otherwise be economically feasible; 26 (2) may not grant a royalty modification unless the lessee or lessees 27 requesting the change make a clear and convincing showing that a modification of 28 royalty meets the requirements of this subsection and is in the best interests of the 29 state; 30 (3) shall provide for an increase or decrease or other modification of 31 the state's royalty share by a sliding scale royalty or other mechanism that shall be
01 based on a change in the price of oil or gas and may also be based on other relevant 02 factors such as a change in production rate, projected ultimate recovery, development 03 costs, and operating costs 04 (4) may not grant a royalty reduction for a field or pool 05 (A) under (1)(A) of this subsection if the royalty modification 06 for the field or pool would establish a royalty rate of less than five percent in 07 amount or value of the production removed or sold from a lease or leases 08 covering the field or pool; 09 (B) under (1)(B) or (1)(C) of this subsection if the royalty 10 modification for the field or pool would establish a royalty rate of less than 11 three percent in amount or value of the production removed or sold from a 12 lease or leases covering the field or pool; 13 (5) may not grant a royalty reduction under this subsection without 14 including an explicit condition that the royalty reduction is not assignable without the 15 prior written approval, which may not be unreasonably withheld, by the 16 commissioner; the commissioner shall, in the preliminary and final findings and 17 determinations, set out the conditions under which the royalty reduction may be 18 assigned; 19 (6) shall require the lessee or lessees to submit, with the application for 20 the royalty reduction, financial and technical data that demonstrate that the 21 requirements of this subsection are met; the commissioner 22 (A) may require disclosure of only the financial and technical 23 data related to development, production, and transportation of oil and gas or 24 gas only from the field or pool that are reasonably available to the applicant; 25 and 26 (B) shall keep the data confidential under AS 38.05.035(a)(9) 27 at the request of the lessee or lessees making application for the royalty 28 reduction; the confidential data may be disclosed by the commissioner to 29 legislators and to the legislative auditor and as directed by the chair or vice- 30 chair of the Legislative Budget and Audit Committee to the director of the 31 division of legislative finance, the permanent employees of their respective
01 divisions who are responsible for evaluating a royalty reduction, and to agents 02 or contractors of the legislative auditor or the legislative finance director who 03 are engaged under contract to evaluate the royalty reduction, if they sign an 04 appropriate confidentiality agreement; 05 (7) may 06 (A) require the lessee or lessees making application for the 07 royalty reduction under (1)(A) of this subsection to pay for the services of an 08 independent contractor, selected by the lessee or lessees from a list of qualified 09 consultants compiled by the commissioner, to evaluate hydrocarbon 10 development, production, transportation, and economics and to assist the 11 commissioner in evaluating the application and financial and technical data; if, 12 under this subparagraph, the commissioner requires payment for the services of 13 an independent contractor, the total cost of the services to be paid for by the 14 lessee or lessees may not exceed $150,000 for each application, and the 15 commissioner shall determine the relevant scope of the work to be performed 16 by the contractor; selection of an independent contractor under this 17 subparagraph is not subject to AS 36.30; 18 (B) with the mutual consent of the lessee or lessees making 19 application for the royalty reduction under (1)(B) or (1)(C) of this subsection, 20 request payment for the services of an independent contractor, selected from a 21 list of qualified consultants to evaluate hydrocarbon development, production, 22 transportation, and economics by the commissioner to assist the commissioner 23 in evaluating the application and financial and technical data; if, under this 24 subparagraph, the commissioner requires payment for the services of an 25 independent contractor, the total cost of the services that may be paid for by 26 the lessee or lessees may not exceed $150,000 for each application, and the 27 commissioner shall determine the relevant scope of the work to be performed 28 by the contractor; selection of an independent contractor under this 29 subparagraph is not subject to AS 36.30; 30 (8) shall make and publish a preliminary findings and determination on 31 the royalty reduction application, give reasonable public notice of the preliminary
01 findings and determination, and invite public comment on the preliminary findings 02 and determination during a 30-day period for receipt of public comment; 03 (9) shall offer to appear before the Legislative Budget and Audit 04 Committee, on a day that is not earlier than 10 days and not later than 20 days after 05 giving public notice under (8) of this subsection, to provide the committee a review of 06 the commissioner's preliminary findings and determination on the royalty reduction 07 application and administrative process; if the Legislative Budget and Audit Committee 08 accepts the commissioner's offer, the committee shall give notice of the committee's 09 meeting to all members of the legislature; 10 (10) shall make copies of the preliminary findings and determination 11 available to 12 (A) the presiding officer of each house of the legislature; 13 (B) the chairs of the legislature's standing committees on 14 resources; and 15 (C) the chairs of the legislature's special committees on oil and 16 gas, if any; 17 (11) shall, within 30 days after the close of the public comment period 18 under (8) of this subsection, 19 (A) prepare a summary of the public response to the 20 commissioner's preliminary findings and determination; 21 (B) make a final findings and determination; the 22 commissioner's final findings and determination prepared under this 23 subparagraph regarding a royalty reduction is final and not appealable to the 24 court; 25 (C) transmit a copy of the final findings and determination to 26 the lessee; 27 (D) with the applicant's consent, amend the applicant's lease or 28 unitization agreement consistent with the commissioner's final decision; and 29 (E) make copies of the final findings and determination 30 available to each person who submitted comment under (8) of this subsection 31 and who has filed a request for the copies;
01 (12) is not limited by the provisions of AS 38.05.134(3) or (f) of this 02 section in the commissioner's determination under this subsection. 03 * Sec. 40. AS 38.05.180(l) is amended to read: 04 (l) Subject to the provisions of AS 31.05, the commissioner has discretion to 05 enter into an agreement whereby, with the consent of the lessee, the state's royalty 06 share of [OIL AND GAS] production of oil and gas or gas only may be stored or 07 retained in storage by the lessee, or the commissioner may enter into an agreement 08 with one or more of the affected field lease holders to trade current royalty production 09 from a field for a like amount, kind, and quality of future production, on the condition 10 that the state receives back its stored or traded royalty share during the first half of the 11 estimated field life or no later than 15 years after start of production, whichever is 12 sooner. 13 * Sec. 41. AS 38.05.180(m) is amended to read: 14 (m) An oil and gas lease or a gas only lease must cover a reasonably compact 15 area not exceeding 5,760 acres, and may be for a maximum period of 10 years, except 16 that the commissioner may issue a lease for a period not less than five years upon a 17 finding that it is in the best interests of the state. An oil and gas lease shall be 18 automatically extended if and for so long thereafter as oil or gas is produced in paying 19 quantities from the lease or if the lease is committed to a unit approved by the 20 commissioner, and a gas only lease shall be automatically extended if and for so 21 long thereafter as gas is produced in paying quantities from the lease or if the 22 lease is committed to a unit approved by the commissioner. A lease issued under 23 this section covering land on which there is a well capable of producing oil or gas in 24 paying quantities does not expire because the lessee fails to produce oil or gas unless 25 the lessee is allowed reasonable time to place the well on a producing status. Upon 26 extension, the commissioner may increase lease rentals so long as the increased rental 27 rate does not exceed 150 percent of the rate for the preceding year. If drilling has 28 commenced on the expiration date of the primary term of the lease and is continued 29 with reasonable diligence, including such operations as redrilling, sidetracking, or 30 other means necessary to reach the originally proposed bottom hole location, the lease 31 continues in effect until 90 days after drilling has ceased and for so long thereafter as
01 oil or gas is produced in paying quantities. An oil and gas lease or a gas only lease 02 issued under this section which is subject to termination by reason of cessation of 03 production does not terminate if, within 60 days after production ceases, reworking or 04 drilling operations are commenced on the land under lease and are thereafter 05 conducted with reasonable diligence during the period of nonproduction. 06 * Sec. 42. AS 38.05.180(p) is amended to read: 07 (p) To conserve the natural resources of all or a part of an oil or gas pool, 08 field, or like area, the lessees and their representatives may unite with each other, or 09 jointly or separately with others, in collectively adopting or operating under a 10 cooperative or a unit plan of development or operation of the pool, field, or like area, 11 or a part of it, when determined and certified by the commissioner to be necessary or 12 advisable in the public interest. The commissioner may, with the consent of the 13 holders of leases involved, establish, change, or revoke drilling, producing, and 14 royalty requirements of the leases and adopt regulations with reference to the leases, 15 with like consent on the part of the lessees, in connection with the institution and 16 operation of a cooperative or unit plan as the commissioner determines necessary or 17 proper to secure the proper protection of the public interest. The commissioner may 18 not reduce royalty on leases in connection with a cooperative or unit plan except as 19 provided in (j) of this section. The commissioner may require a lease [OIL AND 20 GAS LEASES] issued under this section to contain a provision requiring the lessee to 21 operate under a reasonable cooperative or unit plan, and may prescribe a plan under 22 which the lessee must operate. The plan must adequately protect all parties in interest, 23 including the state. 24 * Sec. 43. AS 38.05.180 is amended by adding a new subsection to read: 25 (ff) The provisions of this section that authorize oil and gas leases also apply 26 to authorize the commissioner to issue leases for the production of gas only. In 27 authorizing and managing leases under this subsection, the terms "oil and gas" or "oil 28 or gas" as they are used in this chapter shall be read and applied as referring to gas 29 only. 30 * Sec. 44. AS 38.05.860(a) is amended to read: 31 (a) The commissioner may require an applicant seeking the sale, lease, or
01 other disposal of land or an interest in land, other than under an oil and gas lease, gas 02 only lease, or mineral lease, to deposit an amount covering the estimated cost of an 03 appraisal, survey, and other costs necessary to offer the land or interest in land, 04 including advertising. All deposited funds not expended shall be refunded to the 05 applicant. If the land or interest in land is awarded to a person other than the applicant 06 making the deposit, the person awarded the land shall pay the total actual cost incurred 07 by the department in making the disposal, and the deposit shall be returned to the 08 original applicant. In lieu of requiring the deposit under this subsection, the 09 commissioner may enter into an agreement with an applicant seeking land or an 10 interest in land requiring the applicant to reimburse the department for costs incurred 11 in the disposal if the applicant is awarded the land or interest in land. 12 * Sec. 45. AS 38.05.860(c) is amended to read: 13 (c) The commissioner shall require each bidder for the competitive leasing of 14 [OIL AND GAS] land for oil and gas, or for gas only, to submit with each bid a 15 deposit of money equal to 20 percent of the bonus. 16 * Sec. 46. AS 38.05.945(a) is amended to read: 17 (a) This section establishes the requirements for notice given by the 18 department for the following actions: 19 (1) classification or reclassification of state land under AS 38.05.300 20 and the closing of land to mineral leasing or entry under AS 38.05.185; 21 (2) zoning of land under applicable law; 22 (3) issuance of a 23 (A) preliminary written finding under AS 38.05.035(e)(5)(A) 24 regarding the sale, lease, or disposal of an interest in state land or resources for 25 oil and gas, or for gas only, subject to AS 38.05.180(b); 26 (B) [REPEALED 27 (C)] written finding for the sale, lease, or disposal of an interest 28 in state land or resources under AS 38.05.035(e)(6), except a [AN OIL OR 29 GAS] lease sale described in AS 38.05.035(e)(6)(F) for which the director 30 must provide opportunity for public comment under the provisions of that 31 subparagraph;
01 (4) a competitive disposal of an interest in state land or resources after 02 final decision under AS 38.05.035(e); 03 (5) a preliminary finding under AS 38.05.035(e) concerning sites for 04 aquatic farms and related hatcheries; 05 (6) a decision under AS 38.05.132 - 38.05.134 regarding the sale, 06 lease, or disposal of an interest in state land or resources. 07 * Sec. 47. AS 38.06.080(2) is amended to read: 08 (2) "state lease" means an oil and gas lease or gas only lease on state 09 land. 10 * Sec. 48. AS 38.35.020(a) is amended to read: 11 (a) Rights-of-way on state land including rights-of-way over, under, along, 12 across, or upon the right-of-way of a public road or highway or the right-of-way of a 13 railroad or other public utility, or across, upon, over, or under a river or other body of 14 water or land belonging to or administered by the state may be granted by 15 noncompetitive lease by the commissioner for pipeline purposes for the transportation 16 of oil, products, or natural gas under those conditions prescribed by law or by 17 administrative regulation. Except to the extent authorized by an oil and gas lease, a 18 gas only lease, or an oil and gas or gas only unit agreement approved by the state, no 19 person may engage in any construction or operation of any part of an oil, products, or 20 natural gas pipeline, which in whole or in part is or is proposed to be on state land 21 unless that person has obtained from the commissioner a right-of-way lease of the land 22 under this chapter. 23 * Sec. 49. AS 43.20.072(c) is amended to read: 24 (c) A taxpayer's business income shall be apportioned to this state by 25 multiplying the taxpayer's income determined under (b) of this section by the 26 apportionment factor applicable to the taxpayer among the following factors: 27 (1) the apportionment factor of a taxpayer subject to this section but 28 not engaged in the production of oil and gas, or of gas only, as appropriate, from a 29 lease or property in this state during the tax period is a fraction, the numerator of 30 which is the sum of the property factor under AS 43.19 (Multistate Tax Compact) and 31 the sales factor under (d) of this section for the taxpayer for that tax period, and the
01 denominator of which is two; 02 (2) the apportionment factor of a taxpayer subject to this section but 03 not engaged in the pipeline transportation of oil or gas in this state during the tax 04 period is a fraction, the numerator of which is the sum of the property factor under (e) 05 of this section and the extraction factor under (f) of this section for the taxpayer for the 06 tax period, and the denominator of which is two; 07 (3) the apportionment factor of a taxpayer engaged both in the 08 production of oil or gas from a lease or property in this state and in the pipeline 09 transportation of oil or gas in this state during the tax period is a fraction, the 10 numerator of which is the sum of the sales factor under (d) of this section, the property 11 factor under (e) of this section, and the extraction factor under (f) of this section for 12 the taxpayer for the tax period, and the denominator of which is three. 13 * Sec. 50. AS 43.55.025(a) is amended to read: 14 (a) Subject to the terms and conditions of this section, on oil and gas produced 15 from an oil and gas lease, or on gas produced from a gas only lease, on or after 16 July 1, 2004, a credit against the tax due under this chapter is allowed in an amount 17 equal to 18 (1) 20 percent of the total exploration expenditures that qualify under 19 (b) and (c) of this section, 20 percent of the total exploration expenditures that qualify 20 under (b) and (d) of this section, or both, for a total credit that does not exceed 40 21 percent of the total exploration expenditures; or 22 (2) 40 percent of the total exploration expenditures that qualify under 23 (b) and (e) of this section, for a total production tax credit that does not exceed 40 24 percent of the total qualified exploration expenditures. 25 * Sec. 51. AS 43.55.900(9) is amended to read: 26 (9) "lease or property" means any right, title, or interest in or the right 27 to produce or recover oil or gas including: 28 (A) a mineral interest, 29 (B) a leasehold interest, 30 (C) a working interest, royalty interest, overriding royalty 31 interest, production payment, net profit interest or any other interest in a lease,
01 concession, joint venture, or other agreement for [OIL AND GAS] exploration, 02 development, or production of oil and gas or of gas only, 03 (D) a working interest, royalty interest, overriding royalty 04 interest, production payment, net profit interest or any other interest in an 05 agreement for unitization or pooling under the provisions of 26 U.S.C. 06 614(b)(3) (Internal Revenue Code) as defined on January 1, 1974; 07 * Sec. 52. AS 46.03.100(f) is amended to read: 08 (f) This section does not apply to discharges of solid or liquid waste material 09 or water discharges from the following activities if the discharge is incidental to the 10 activity and the activity does not produce a discharge from a point source, as that term 11 is defined in regulations adopted under this chapter, directly into any surface water of 12 the state: 13 (1) mineral drilling, trenching, ditching, and similar activities; 14 (2) landscaping; 15 (3) water well drilling, geophysical drilling, or nonconventional 16 [COAL BED METHANE DRILLING OR OTHER NATURAL] gas drilling; for 17 purposes of this paragraph, "nonconventional gas" has the meaning given in 18 AS 38.05.177 [TO RECOVER GAS FROM A FIELD IF A PART OF THE FIELD IS 19 WITHIN 3,000 FEET OF THE SURFACE]; or 20 (4) drilling, ditching, trenching, and similar activities associated with 21 facility construction and maintenance or with road or other transportation facility 22 construction and maintenance; however, the exemption provided by this paragraph 23 does not relieve a person from obtaining a permit under this section if 24 (A) the drilling, ditching, trenching, or similar activity will 25 involve the removal of the groundwater, stormwater, or wastewater runoff that 26 has accumulated and is present at an excavation site for facility, road, or other 27 transportation construction or maintenance; and 28 (B) a permit is otherwise required by this section. 29 * Sec. 53. AS 46.04.030(b) is amended to read: 30 (b) A person may not cause or permit the operation of a pipeline or an 31 exploration or production facility in the state unless an oil discharge prevention and
01 contingency plan for the pipeline or facility has been approved by the department and 02 the person is in compliance with the plan. This subsection does not apply to an 03 exploration or production facility used solely to explore for or to develop or produce 04 nonconventional [SHALLOW NATURAL] gas resources, except that this exemption 05 does not apply if the Alaska Oil and Gas Conservation Commission determines under 06 AS 31.05.030(j) that 07 (1) a well drilled for nonconventional [SHALLOW NATURAL] gas 08 may penetrate a formation capable of flowing oil; and 09 (2) the volume of oil encountered will be of such quantities that a 10 contingency plan will be required. 11 * Sec. 54. AS 46.04.040(b) is amended to read: 12 (b) A person may not cause or permit the operation of a pipeline or an 13 exploration or production facility in the state unless the person has furnished to the 14 department, and the department has approved, proof of financial ability to respond in 15 damages. Proof of financial responsibility required for 16 (1) a pipeline or an offshore exploration or production facility is 17 $50,000,000 per incident; 18 (2) an onshore production facility is 19 (A) $20,000,000 per incident if the facility produces over 20 10,000 barrels per day of oil; 21 (B) $10,000,000 per incident if the facility produces over 5,000 22 barrels per day but not more than 10,000 barrels per day of oil; 23 (C) $5,000,000 per incident if the facility produces over 2,500 24 barrels per day but not more than 5,000 barrels per day of oil; 25 (D) $1,000,000 per incident if the facility produces 2,500 26 barrels per day or less of oil; 27 (3) an onshore exploration facility is 28 (A) $25,000 per incident for a facility used solely to explore for 29 nonconventional [SHALLOW NATURAL] gas by means of drilling a well to 30 explore for the gas [, WHETHER METHANE ASSOCIATED WITH AND 31 DERIVED FROM COAL DEPOSITS OR OTHERWISE, FROM A FIELD IF
01 A PART OF THE FIELD IS WITHIN 3,000 FEET OF THE SURFACE]; and 02 (B) except as provided by (A) of this paragraph, $1,000,000 per 03 incident. 04 * Sec. 55. AS 46.04.900 is amended by adding a new paragraph to read: 05 (31) "nonconventional gas" has the meaning given in AS 38.05.177. 06 * Sec. 56. AS 46.40.205 is amended to read: 07 Sec. 46.40.205. Consistency determinations for certain activities involving 08 nonconventional [SHALLOW NATURAL] gas. (a) When conducted under 09 oversight and regulation of the Alaska Oil and Gas Conservation Commission and the 10 state's resource agencies, projects for the exploration and development of 11 nonconventional [SHALLOW NATURAL] gas are consistent with the program 12 described in this chapter. Persons responsible for activities subject to this section shall 13 obtain all required permits and approvals from municipal, state, and federal agencies 14 as otherwise required by law. 15 (b) In this section, "nonconventional [SHALLOW NATURAL] gas" has the 16 meaning given in AS 38.05.177 [AS 46.04.900]. 17 * Sec. 57. AS 46.40.210(12) is amended to read: 18 (12) "uses of state concern" means those land and water uses that 19 would significantly affect the long-term public interest; "uses of state concern" include 20 (A) uses of national interest, including the use of resources for 21 the siting of ports and major facilities that contribute to meeting national 22 energy needs, construction and maintenance of navigational facilities and 23 systems, resource development of federal land, and national defense and 24 related security facilities that are dependent upon coastal locations; 25 (B) uses of more than local concern, including those land and 26 water uses that confer significant environmental, social, cultural, or economic 27 benefits or burdens beyond a single coastal resource district; 28 (C) the siting of major energy facilities, activities pursuant to a 29 state oil and gas lease, a state gas only lease, or a federal oil and gas lease, or 30 large-scale industrial or commercial development activities that are dependent 31 on a coastal location and that, because of their magnitude or the magnitude of
01 their effect on the economy of the state or the surrounding area, are reasonably 02 likely to present issues of more than local significance; 03 (D) facilities serving statewide or interregional transportation 04 and communication needs; and 05 (E) uses in areas established as state parks or recreational areas 06 under AS 41.21 or as state game refuges, game sanctuaries, or critical habitat 07 areas under AS 16.20. 08 * Sec. 58. AS 31.05.170(14); AS 38.05.177(b), 38.05.177(c), 38.05.177(d), 38.05.177(e), 09 38.05.177(h), 38.05.177(m); and AS 46.04.900(25) are repealed. 10 * Sec. 59. The uncodified law of the State of Alaska is amended by adding a new section to 11 read: 12 CERTAIN SHALLOW NATURAL GAS LEASES AND LEASE APPLICATIONS 13 TO BE ADMINISTERED UNDER FORMER LAW. The provisions of AS 38.05.177(a), (f), 14 (g), (j), (k), and (o), amended by secs. 26 - 31 of this Act, as those provisions read on the day 15 before the effective date of amendment of those sections, and the provisions of 16 AS 38.05.177(b) - (e), (h), and (m), repealed by sec. 58 of this Act, as those provisions read 17 on the day before the effective date of the repeal of those subsections, apply to shallow natural 18 gas 19 (1) leases issued under AS 38.05.177 and in effect on December 31, 2003; and 20 (2) lease applications under AS 38.05.177 that were received by the 21 Department of Natural Resources before January 1, 2004. 22 * Sec. 60. This Act takes effect immediately under AS 01.10.070(c).