CSHB 531(FIN) am: "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 CS FOR HOUSE BILL NO. 531(FIN) am 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 exploration and development operations involving nonconventional 20 gas, the commission 21 (1) may not 22 (A) issue a permit to drill under this chapter if the well 23 would be used to produce gas from an aquifer that serves as a source of 24 water for human consumption or agricultural purposes unless the 25 commission finds that the well will not adversely affect the aquifer as a 26 source of water for human consumption or agricultural purposes; or 27 (B) allow injection of produced water except at depths 28 below known sources of water for human consumption or agricultural 29 purposes; 30 (2) shall 31 (A) regulate hydraulic fracturing in nonconventional gas
01 wells to assure protection of drinking water quality; 02 (B) regulate the disposal of wastes produced from the 03 operations unless the disposal is otherwise subject to regulation by the 04 Department of Environmental Conservation or the Environmental 05 Protection Agency; and 06 (C) for the purposes of AS 46.04.030(b), [THE 07 COMMISSION SHALL] determine whether a well drilled for 08 nonconventional [SHALLOW NATURAL] gas may penetrate a formation 09 capable of flowing oil and, if so, whether the volume of oil encountered will be 10 of such quantities that an oil discharge prevention and contingency plan will be 11 required. 12 * Sec. 5. AS 31.05.060(c) is amended to read: 13 (c) Notwithstanding the requirements of (a) and (b) of this section that relate 14 to fixing a date for a hearing and causing notice of the hearing to be given, for an 15 action under this chapter that involves the exploration for or development of 16 nonconventional [SHALLOW NATURAL] gas and that has application to a single 17 well or a single field, upon the request of a lessee or operator, the commission may, 18 where operations might be unduly delayed, approve a variance from the commission's 19 regulations that apply to the well or field without providing notice and opportunity to 20 be heard. In the exercise of its authority to issue the variance, 21 (1) the commission may approve the variance if 22 (A) the approval provides at least an equally effective means of 23 accomplishing the requirement set out in the commission's regulation; or 24 (B) the commission determines that the request is more 25 appropriate to the proposed operation than compliance with the requirement of 26 the regulation; and 27 (2) the terms of the approval of the variance may include exempting 28 the lessee or operator from a requirement of a regulation if the commission determines 29 that the requirement is not necessary or not suited to the well or field taking into 30 consideration 31 (A) the nature of the operation involved;
01 (B) the characteristics of the well or field for which the 02 variance is sought; and 03 (C) the reasonably anticipated risks of the exemption from the 04 requirement to human safety and the environment. 05 * Sec. 6. AS 31.05.170 is amended by adding a new paragraph to read: 06 (16) "nonconventional gas" has the meaning given in AS 38.05.965. 07 * Sec. 7. AS 36.30.850(b)(25) is amended to read: 08 (25) acquisition of confidential seismic survey data necessary for pre- 09 sale oil and gas lease or gas only lease analyses under AS 38.05.180; 10 * Sec. 8. AS 36.30.850(b)(33) is amended to read: 11 (33) contracts between the Department of Natural Resources and 12 contractors qualified to evaluate hydrocarbon development, production, transportation, 13 and economics, to assist the commissioner of natural resources in evaluating 14 applications for [OIL AND GAS] royalty increases or decreases or other [OIL AND 15 GAS] royalty adjustments, and evaluating the related financial and technical data, 16 entered into under AS 38.05.180(j); 17 * Sec. 9. AS 38.04.065(i) is amended to read: 18 (i) An oil and gas lease sale or gas only lease sale is not subject to this 19 section. Oil and gas lease sales and gas only lease sales are subject to the planning 20 process established under AS 38.05.180. 21 * Sec. 10. AS 38.05.035(e) is amended to read: 22 (e) Upon a written finding that the interests of the state will be best served, the 23 director may, with the consent of the commissioner, approve contracts for the sale, 24 lease, or other disposal of available land, resources, property, or interests in them. In 25 approving a contract under this subsection, the director need only prepare a single 26 written finding. In addition to the conditions and limitations imposed by law, the 27 director may impose additional conditions or limitations in the contracts as the director 28 determines, with the consent of the commissioner, will best serve the interests of the 29 state. The preparation and issuance of the written finding by the director are subject to 30 the following: 31 (1) with the consent of the commissioner and subject to the director's
01 discretion, for a specific proposed disposal of available land, resources, or property, or 02 of an interest in them, the director, in the written finding, 03 (A) shall establish the scope of the administrative review on 04 which the director's determination is based, and the scope of the written 05 finding supporting that determination; the scope of the administrative review 06 and finding may address only reasonably foreseeable, significant effects of the 07 uses proposed to be authorized by the disposal; 08 (B) may limit the scope of an administrative review and finding 09 for a proposed disposal to 10 (i) applicable statutes and regulations; 11 (ii) the facts pertaining to the land, resources, or 12 property, or interest in them, that the director finds are material to the 13 determination and that are known to the director or knowledge of which 14 is made available to the director during the administrative review; and 15 (iii) issues that, based on the statutes and regulations 16 referred to in (i) of this subparagraph, on the facts as described in (ii) of 17 this subparagraph, and on the nature of the uses sought to be authorized 18 by the disposal, the director finds are material to the determination of 19 whether the proposed disposal will best serve the interests of the state; 20 and 21 (C) may, if the project for which the proposed disposal is 22 sought is a multiphased development, limit the scope of an administrative 23 review and finding for the proposed disposal to the applicable statutes and 24 regulations, facts, and issues identified in (B)(i) - (iii) of this paragraph that 25 pertain solely to the disposal phase of the project when 26 (i) the only uses to be authorized by the proposed 27 disposal are part of that phase; 28 (ii) the disposal is a [AN OIL AND GAS] disposal of 29 oil and gas, or of gas only, and, before the next phase of the project 30 may proceed, public notice and the opportunity to comment are 31 provided under regulations adopted by the department unless the
01 project is subject to a consistency review under AS 46.40 and public 02 notice and the opportunity to comment are provided under 03 AS 46.40.096(c); 04 (iii) the department's approval is required before the 05 next phase of the project may proceed; and 06 (iv) the department describes its reasons for a decision 07 to phase; 08 (2) the director shall discuss in the written finding prepared and issued 09 under this subsection the reasons that each of the following was not material to the 10 director's determination that the interests of the state will be best served: 11 (A) facts pertaining to the land, resources, or property, or an 12 interest in them other than those that the director finds material under (1)(B)(ii) 13 of this subsection; and 14 (B) issues based on the statutes and regulations referred to in 15 (1)(B)(i) of this subsection and on the facts described in (1)(B)(ii) of this 16 subsection; 17 (3) a written finding for an oil and gas lease sale or gas only lease sale 18 under AS 38.05.180 is subject to (g) of this section; 19 (4) a contract for the sale, lease, or other disposal of available land or 20 an interest in land is not legally binding on the state until the commissioner approves 21 the contract, but if the appraised value is not greater than $50,000 in the case of the 22 sale of land or an interest in land, or $5,000 in the case of the annual rental of land or 23 interest in land, the director may execute the contract without the approval of the 24 commissioner; 25 (5) public notice requirements relating to the sale, lease, or other 26 disposal of available land or an interest in land for oil and gas, or for gas only, 27 proposed to be scheduled in the five-year oil and gas leasing program under 28 AS 38.05.180(b), except for a sale under (6)(F) of this subsection, are as follows: 29 (A) before a public hearing, if held, or in any case not less than 30 180 days before the sale, lease, or other disposal of available land or an interest 31 in land, the director shall make available to the public a preliminary written
01 finding that states the scope of the review established under (1)(A) of this 02 subsection and includes the applicable statutes and regulations, the material 03 facts and issues in accordance with (1)(B) of this subsection, and information 04 required by (g) of this section, upon which the determination that the sale, 05 lease, or other disposal will serve the best interests of the state will be based; 06 the director shall provide opportunity for public comment on the preliminary 07 written finding for a period of not less than 60 days; 08 (B) after the public comment period for the preliminary written 09 finding and not less than 90 days before the sale, lease, or other disposal of 10 available land or an interest in land for oil and gas or for gas only, the director 11 shall make available to the public a final written finding that states the scope of 12 the review established under (1)(A) of this subsection and includes the 13 applicable statutes and regulations, the material facts and issues in accordance 14 with (1) of this subsection, and information required by (g) of this section, 15 upon which the determination that the sale, lease, or other disposal will serve 16 the best interests of the state is based; 17 (6) before a public hearing, if held, or in any case not less than 21 days 18 before the sale, lease, or other disposal of available land, property, resources, or 19 interests in them other than a sale, lease, or other disposal of available land or an 20 interest in land for oil and gas or for gas only under (5) of this subsection, the director 21 shall make available to the public a written finding that, in accordance with (1) of this 22 subsection, sets out the material facts and applicable statutes and regulations and any 23 other information required by statute or regulation to be considered upon which the 24 determination that the sale, lease, or other disposal will best serve the interests of the 25 state was based; however, a written finding is not required before the approval of 26 (A) a contract for a negotiated sale authorized under 27 AS 38.05.115; 28 (B) a lease of land for a shore fishery site under AS 38.05.082; 29 (C) a permit or other authorization revocable by the 30 commissioner; 31 (D) a mineral claim located under AS 38.05.195;
01 (E) a mineral lease issued under AS 38.05.205; 02 (F) an exempt oil and gas lease sale or gas only lease sale 03 under AS 38.05.180(d) of acreage subject to a best interest finding issued 04 within the previous 10 years or a reoffer oil and gas lease sale or gas only 05 lease sale under AS 38.05.180(w) of acreage subject to a best interest finding 06 issued within the previous 10 years, unless the commissioner determines that 07 substantial new information has become available that justifies a supplement to 08 the most recent best interest finding for the exempt oil and gas lease sale or 09 gas only lease sale acreage and for the reoffer oil and gas lease sale or gas 10 only lease sale acreage; however, for each oil and gas lease sale or gas only 11 lease sale described in this subparagraph, the director shall call for comments 12 from the public; the director's call for public comments must provide 13 opportunity for public comment for a period of not less than 30 days; if the 14 director determines that a supplement to the most recent best interest finding 15 for the acreage is required under this subparagraph, 16 (i) the director shall issue the supplement to the best 17 interest finding not later than 90 days before the sale; 18 (ii) not later than 45 days before the sale, the director 19 shall issue a notice describing the interests to be offered, the location 20 and time of the sale, and the terms and conditions of the sale; and 21 (iii) the supplement has the status of a final written best 22 interest finding for purposes of (i) and (l) of this section; 23 (G) [A SHALLOW GAS LEASE AUTHORIZED UNDER 24 AS 38.05.177 IN AN AREA FOR WHICH LEASING IS AUTHORIZED 25 UNDER AS 38.05.177; 26 (H)] a surface use lease under AS 38.05.255; 27 (H) [(I)] a permit, right-of-way, or easement under 28 AS 38.05.850; 29 (7) the director shall include in 30 (A) a preliminary written finding, if required, a summary of 31 agency and public comments, if any, obtained as a result of contacts with other
01 agencies concerning a proposed disposal or as a result of informal efforts 02 undertaken by the department to solicit public response to a proposed disposal, 03 and the department's preliminary responses to those comments; and 04 (B) the final written finding a summary of agency and public 05 comments received and the department's responses to those comments. 06 * Sec. 11. AS 38.05.035(g) is amended to read: 07 (g) Notwithstanding (e)(1)(A) and (B) of this section, when the director 08 prepares a written finding required under (e) of this section for an oil and gas lease 09 sale or a gas only lease sale scheduled under AS 38.05.180, the director shall consider 10 and discuss 11 (1) in a preliminary or final written finding facts that are known to the 12 director at the time of preparation of the finding and that are 13 (A) material to issues that were raised during the period 14 allowed for receipt of public comment, whether or not material to a matter set 15 out in (B) of this paragraph, and within the scope of the administrative review 16 established by the director under (e)(1) of this section; or 17 (B) material to the following matters: 18 (i) property descriptions and locations; 19 (ii) the petroleum potential of the sale area, in general 20 terms; 21 (iii) fish and wildlife species and their habitats in the 22 area; 23 (iv) the current and projected uses in the area, including 24 uses and value of fish and wildlife; 25 (v) the governmental powers to regulate the [OIL AND 26 GAS] exploration, development, production, and transportation of oil 27 and gas or of gas only; 28 (vi) the reasonably foreseeable cumulative effects of 29 [OIL AND GAS] exploration, development, production, and 30 transportation for oil and gas or for gas only on the sale area, 31 including effects on subsistence uses, fish and wildlife habitat and
01 populations and their uses, and historic and cultural resources; 02 (vii) lease stipulations and mitigation measures, 03 including any measures to prevent and mitigate releases of oil and 04 hazardous substances, to be included in the leases, and a discussion of 05 the protections offered by these measures; 06 (viii) the method or methods most likely to be used to 07 transport oil or gas from the lease sale area, and the advantages, 08 disadvantages, and relative risks of each; 09 (ix) the reasonably foreseeable fiscal effects of the lease 10 sale and the subsequent activity on the state and affected municipalities 11 and communities, including the explicit and implicit subsidies 12 associated with the lease sale, if any; 13 (x) the reasonably foreseeable effects of [OIL AND 14 GAS] exploration, development, production, and transportation 15 involving oil and gas or gas only on municipalities and communities 16 within or adjacent to the lease sale area; and 17 (xi) the bidding method or methods adopted by the 18 commissioner under AS 38.05.180; and 19 (2) the basis for the director's preliminary or final finding, as 20 applicable, that, on balance, leasing the area would be in the state's best interest. 21 * Sec. 12. AS 38.05.036(a) is amended to read: 22 (a) The department may conduct audits regarding royalty and net profits under 23 oil and gas contracts, agreements, or leases under this chapter and regarding costs 24 related to [OIL AND GAS] exploration licenses entered into under AS 38.05.131 - 25 38.05.134 and exploration incentive credits under this chapter or under AS 41.09. For 26 purposes of audit under this section, 27 (1) the department may examine the books, papers, records, or 28 memoranda of a person regarding matters related to the audit; and 29 (2) the records and premises where a business is conducted shall be 30 open at all reasonable times for inspection by the department. 31 * Sec. 13. AS 38.05.127(e) is amended to read:
01 (e) The establishment of easements or rights-of-way for oil and gas, gas only, 02 and mineral leases under (a) of this section need not be made until the leases are ready 03 to be developed. 04 * Sec. 14. AS 38.05.131(a) is amended to read: 05 (a) Unless specifically provided otherwise in AS 38.05.132 - 38.05.134, the 06 provisions of AS 38.05.005 - 38.05.037, 38.05.140(f), 38.05.180, 38.05.182 - 07 38.05.184, and 38.05.920 - 38.05.990 apply to the issuance of [OIL AND GAS] 08 exploration licenses and leases for oil and gas, or for gas only, as appropriate, 09 under AS 38.05.132 - 38.05.134. 10 * Sec. 15. AS 38.05.132(a) is amended to read: 11 (a) To encourage exploration for oil and gas on state land, the commissioner 12 may issue [OIL AND GAS] exploration licenses. The commissioner may limit the 13 exploration licenses under AS 38.05.132 - 38.05.134 to exploration for and 14 recovery of gas only. The commissioner may not issue an exploration license on 15 land that is held under an existing coal lease entered into under AS 38.05.150 that 16 has an active permit for exploration or mining unless the licensee under this 17 subsection is also the lessee under AS 38.05.150 of that land. 18 * Sec. 16. AS 38.05.132(b) is amended to read: 19 (b) An [OIL AND GAS] exploration license issued under this section gives 20 the licensee 21 (1) the exclusive right to explore, for a term not to exceed 10 years, 22 [FOR DEPOSITS OF OIL AND GAS] on unleased state land described in the 23 exploration license for deposits of oil and gas, or for deposits of gas only, as 24 appropriate, unless the exploration license is terminated under (d)(1) of this section 25 or the land is earlier relinquished, removed, or deleted under (d)(2) of this section; and 26 (2) unless the exploration license is terminated under (d)(1) of this 27 section, the option to convert the exploration license for all or part of the state land, 28 except the land that is deleted or removed from the land described in the exploration 29 license under (d)(2) of this section, into an oil and gas lease, or a gas lease only, as 30 appropriate, upon fulfillment of the work commitments contained in the exploration 31 license.
01 * Sec. 17. AS 38.05.132(c) is amended to read: 02 (c) An exploration license awarded under this section 03 (1) is not subject to the acreage limitations imposed by 04 AS 38.05.140(c) or 38.05.180(m); 05 (2) may cover, subject to the maximum acreage limitation on 06 exploration licenses by one licensee under AS 38.05.131(e), an area of not less than 07 10,000 acres and not more than 500,000 acres, that must be reasonably compact and 08 contiguous; 09 (3) must be conditioned upon an obligation to perform a specified 10 work commitment, in total for the term of the license, expressed in dollars of direct 11 exploration expenditures; the specified work commitment 12 (A) may include a provision that adjusts the total amount of 13 work commitment, expressed in dollars of direct exploration expenditures, to 14 account for inflation; 15 (B) must include a requirement that the licensee complete at 16 least 25 percent of the licensee's total specified work commitment by the fourth 17 anniversary of the effective date of the issuance of the [OIL AND GAS] 18 exploration license; 19 (4) must be conditioned upon the posting of a bond or other security 20 acceptable to the commissioner, in favor of the state and subject to the following 21 requirements: 22 (A) the bond or other security must be renewed annually; 23 (B) the annual bond or other security shall be calculated as the 24 entire work commitment expressed in dollars, less the cumulative direct 25 exploration expenditures of the licensee as of the last day of the most recent 26 project year, divided by the number of years remaining in the term of the 27 exploration license; 28 (5) is subject to an annual review and revocation if the commissioner 29 determines that the licensee has failed to provide or maintain in effect the bond or 30 other security required by (4) of this subsection; 31 (6) must be conditioned upon the licensee's payment to the state of a
01 nonrefundable [OIL AND GAS] exploration license fee of $1 for each acre of land or 02 fraction of each acre that is subject to the exploration license; and 03 (7) must be conditioned upon an agreement that exploration 04 expenditures are subject to audit by the commissioner. 05 * Sec. 18. AS 38.05.132(f) is amended to read: 06 (f) In this section, 07 (1) "direct exploration expenditure" means cash expenses undertaken 08 in performance of a specified work commitment under the provisions of AS 38.05.131 09 - 38.05.134 and necessarily incurred by the licensee in the permitting, mobilization, 10 conducting, demobilization, and evaluation of geophysical and geological surveys, or 11 the drilling, logging, coring, testing, and evaluation of oil and gas or gas only wells; 12 the term 13 (A) includes direct labor costs, including the cost of benefits, 14 for employees directly associated with the work commitment programs, the 15 cost of renting or leasing equipment from parties not affiliated with the 16 licensee, the reasonable costs of maintaining and operating equipment, 17 payments to consultants and independent contractors not affiliated with the 18 licensee, and costs of materials and supplies; 19 (B) does not include noncash expenses such as depreciation 20 and reserves, interest or other costs of borrowed funds, return on investment, 21 overhead, insurance or bond premiums, or any other expense that is 22 unreasonable or that the licensee has not incurred to satisfy the licensee's work 23 commitment; 24 (2) "work commitment" includes the drilling of one or more 25 exploration wells or the gathering of data from activities described in (1) of this 26 subsection, or both. 27 * Sec. 19. AS 38.05.133(a) is amended to read: 28 (a) The procedures in this section apply to the issuance of an [OIL AND GAS] 29 exploration license under AS 38.05.132. 30 * Sec. 20. AS 38.05.133(f) is amended to read: 31 (f) After considering proposals not rejected under (d) of this section and public
01 comment on those proposals, the commissioner shall issue a written finding 02 addressing all matters set out in AS 38.05.035(e) and (g), except for 03 AS 38.05.035(g)(1)(B)(xi). If the finding concludes that the state's best interests 04 would be served by issuing an [OIL AND GAS] exploration license, the finding must 05 (1) describe the limitations, stipulations, conditions, or changes from the initiating 06 proposal or competing proposals that are required to make the issuance of the 07 exploration license conform to the best interests of the state, and (2) if only one 08 proposal was submitted, identify the prospective licensee whom the commissioner 09 finds should be issued the exploration license. The commissioner shall attach to the 10 finding a copy of the exploration license to be issued and the form of lease that will be 11 used for any portion of the exploration license area subsequently converted to a [AN 12 OIL AND GAS] lease under AS 38.05.134. 13 * Sec. 21. AS 38.05.133(h) is amended to read: 14 (h) If competing proposals are submitted, and the commissioner's finding 15 under (f) of this section concludes that an [OIL AND GAS] exploration license should 16 be issued, the commissioner shall issue a request for competitive sealed bids, under 17 procedures adopted by the commissioner by regulation, to determine which 18 prospective licensee should be issued the exploration license. The finding provided to 19 the prospective licensees and the public under (f) of this section must contain notice 20 that (1) the commissioner intends to request competitive sealed bids, (2) a prospective 21 licensee who intends to participate in the bidding must notify the commissioner in 22 writing by the date specified in the notice, and (3) a prospective licensee's notice of 23 intent to participate in the bidding constitutes acceptance of issuance of the 24 exploration license, as limited or conditioned by the terms contained in the finding and 25 by the exploration license to be issued and the form of lease to be used that have been 26 attached to that finding, if the prospective licensee is the successful bidder. The 27 successful bidder is the prospective licensee who submits the highest bid in terms of 28 the minimum work commitment dollar amount. 29 * Sec. 22. AS 38.05.134 is amended to read: 30 Sec. 38.05.134. Conversion to lease. If the licensee requests and the 31 commissioner determines that the work commitment obligation set out in an [OIL
01 AND GAS] exploration license issued under AS 38.05.132 has been met, the 02 commissioner shall convert to one or more [OIL AND GAS] leases all or part, as the 03 licensee may indicate, of the area described in the exploration license that remains 04 after the relinquishments, removals, or deletions required by AS 38.05.132(d)(2). A 05 lease issued under this section 06 (1) is subject to the acreage limitations imposed by AS 38.05.140(c); 07 (2) is subject to AS 38.05.180(j) - (m), (o) - (u), and (x) - (z); 08 (3) must be conditioned upon a royalty in amount or value of not less 09 than 12.5 percent of production, except that 10 (A) the lessee who, proceeding under AS 38.05.131 - 11 38.05.134, under a lease issued in the Cook Inlet sedimentary basin who is the 12 first to file with the commissioner a nonconfidential sworn statement claiming 13 to be the first to have drilled a well discovering oil or gas in a previously 14 undiscovered oil or gas pool and who is certified by the commissioner within 15 one year of completion of that discovery well to have drilled a well in that pool 16 that is capable of producing in paying quantities shall pay a royalty of five 17 percent on all production of oil or gas from that pool attributable to that lease 18 for a period of 10 years following the date of discovery of that pool, and 19 thereafter the royalty payable on all production of oil or gas from the pool 20 attributable to that lease shall be determined and payable as specified in the 21 lease; the payment of the five percent royalty under this paragraph is 22 authorized only to a holder of a lease who meets the requirements of 23 AS 38.05.180(f)(4); and 24 (B) for nonconventional gas that is not produced in direct 25 competition with gas on which a royalty at a rate of at least 12.5 percent is 26 payable, if the licensee requests, the commissioner may negotiate with the 27 licensee and set a royalty rate for the gas of at least 6.25 percent; for 28 purposes of this subparagraph, "nonconventional gas" has the meaning 29 given in AS 38.05.965; 30 (4) must include an annual rent of $3 per acre or fraction of an acre 31 initially paid to the state at inception of the lease and payable annually after that until
01 the income to the state from royalty under that lease exceeds the rental income to the 02 state under that lease for that year; and 03 (5) is subject to other conditions and obligations that are specified in 04 the lease. 05 * Sec. 23. AS 38.05.140(a) is amended to read: 06 (a) A person may not take or hold coal leases or permits during the life of coal 07 leases on state land exceeding an aggregate of 92,160 acres, except that a person may 08 apply for coal leases or permits for acreage in addition to 92,160 acres, not exceeding 09 a total of 5,120 additional acres of state land. The additional area applied for shall be 10 in multiples of 40 acres, and the application shall contain a statement that the granting 11 of a lease for additional land is necessary for the person to carry on business 12 economically and is in the public interest. On the filing of the application, except as 13 provided by AS 38.05.180(ff)(4) [AS 38.05.177(a)(2)(C)], the coal deposits in the land 14 covered by the application shall be temporarily set aside and withdrawn from all other 15 forms of disposal provided under AS 38.05.135 - 38.05.181. 16 * Sec. 24. AS 38.05.140(f) is amended to read: 17 (f) The submerged and shoreland lying north of 57 degrees, 30 minutes, North 18 [NORTH] latitude and east of 159 degrees, 49 minutes, West [WEST] longitude 19 within the Bristol Bay drainage are designated as the Bristol Bay Fisheries Reserve. 20 Within the Bristol Bay Fisheries Reserve, a [NO] surface entry permit to develop an 21 oil or gas lease or an [OIL AND GAS] exploration license under AS 38.05.131 - 22 38.05.134 may not be issued on state owned or controlled land until the legislature by 23 appropriate resolution specifically finds that the entry will not constitute danger to the 24 fishery. 25 * Sec. 25. AS 38.05.150(f) is amended to read: 26 (f) Notwithstanding AS 38.05.180(ff) or AS 38.05.132(a) [AS 38.05.177], a 27 lease entered into under this section gives the lessee the right to vent or remove 28 methane and other gas held in association with the coal in the land covered by the 29 lease to ensure safe coal mining operations. 30 * Sec. 26. AS 38.05.177(a) is amended to read: 31 (a) The provisions of this section
01 [(1)] apply to nonconventional gas [, WHETHER METHANE 02 ASSOCIATED WITH AND DERIVED FROM COAL DEPOSITS OR 03 OTHERWISE, FROM A FIELD IF A PART OF THE FIELD IS WITHIN 3,000 04 FEET OF THE SURFACE; AND 05 (2) DO NOT APPLY TO AUTHORIZE LEASE OF 06 (A) LAND 07 (i) THAT IS SUBJECT TO AN OIL AND GAS 08 EXPLORATION LICENSE OR LEASE ISSUED UNDER 09 AS 38.05.131 - 38.05.134; OR 10 (ii) THAT IS LEASED UNDER AS 38.05.180; 11 (B) THE LAND (i) THAT IS PROPOSED TO BE SUBJECT 12 TO AN OIL AND GAS EXPLORATION LICENSE OR LEASE ISSUED 13 UNDER AS 38.05.131 - 38.05.134; OR (ii) THAT IS DESCRIBED IN AND 14 PART OF A PROPOSED OIL AND GAS LEASING PROGRAM 15 PREPARED UNDER AS 38.05.180(b); HOWEVER, THE COMMISSIONER 16 MAY WAIVE THE LIMITATIONS OF THIS SUBPARAGRAPH; 17 (C) THE LAND THAT IS HELD UNDER A COAL LEASE 18 ENTERED INTO UNDER AS 38.05.150, UNLESS THE APPLICANT FOR 19 A SHALLOW NATURAL GAS LEASE IS ALSO THE LESSEE UNDER 20 AS 38.05.150 OF THAT LAND; OR 21 (D) THE VALID EXISTING SELECTIONS OF THE 22 ALASKA MENTAL HEALTH TRUST AUTHORITY MADE FOR THE 23 PURPOSE OF RECONSTITUTING THE MENTAL HEALTH TRUST 24 ESTABLISHED UNDER THE ALASKA MENTAL HEALTH ENABLING 25 ACT, P.L. 84-830, 70 STAT. 709 (1956), THAT BECOME SUBJECT TO 26 MANAGEMENT UNDER AS 38.05.801, OR OF LAND THAT HAS BEEN 27 DESIGNATED BY LAW FOR OR IS SUBJECT TO DESIGNATION FOR 28 CONVEYANCE TO THE ALASKA MENTAL HEALTH TRUST 29 AUTHORITY; HOWEVER, AFTER CONSULTATION WITH THE 30 ALASKA MENTAL HEALTH TRUST AUTHORITY, THE 31 COMMISSIONER MAY WAIVE THE LIMITATIONS OF THIS
01 SUBPARAGRAPH]. 02 * Sec. 27. AS 38.05.177(d) is amended to read: 03 (d) A lease 04 (1) shall be automatically extended if and for so long thereafter as gas 05 is produced in paying quantities from the lease and the lessee continues to meet all 06 requirements of the lease; a [. A] lease issued under this section covering land on 07 which there is a well capable of producing gas in paying quantities does not expire 08 because the lessee fails to produce gas unless the lessee is allowed reasonable time to 09 place the well on a producing status; if [. IF] drilling has commenced on the 10 expiration date of the primary term of the lease and is continued with reasonable 11 diligence, including such operations as redrilling, sidetracking, or other means 12 necessary to reach the originally proposed bottom hole location, the lease is extended 13 for one year and for so long thereafter as gas is produced in paying quantities; a [. A] 14 gas lease issued under this section that is subject to termination by reason of cessation 15 of production does not terminate if, within 90 days after production ceases or a longer 16 period determined at the discretion of the director, reworking or drilling operations are 17 commenced on the land under lease and are thereafter conducted with reasonable 18 diligence during the period of nonproduction; on application by the lessee, the 19 director may extend the lease issued under this section for a period of not more 20 than 10 years if the gas produced from the lease is to be used by the lessee solely 21 for its mining operations; 22 (2) issued under former (c) of this section before January 1, 2004, 23 may be extended at the discretion of the director; a lease may be extended under 24 this paragraph [. IN ADDITION,] upon application by the lessee; [,] the director 25 may once extend the [A] lease [ISSUED UNDER (c) OF THIS SECTION] for a 26 period of not more than three years; in exercising discretion to extend a lease under 27 this paragraph, the director may not extend the lease unless the director 28 considers 29 (A) the extent of the shallow natural gas exploration 30 activity already conducted on the lease and on adjacent areas; 31 (B) the probability that further shallow natural gas
01 exploration activity will occur on the lease and will lead to shallow natural 02 gas development and production; and 03 (C) whether extension of the lease's primary term will 04 accelerate the eventual production of shallow natural gas from the lease. 05 * Sec. 28. AS 38.05.177(l) is amended to read: 06 (l) A lessee holding [OBTAINING] a lease modified under 07 AS 38.05.180(n)(2) [THIS SECTION] may exercise the rights authorized by this 08 section and the lease. The rights granted by the lease must be exercised in a manner 09 that does not unreasonably interfere with eventual development of other mineral 10 deposits on the land leased. However, in a lease entered into under AS 38.05.150 for 11 land that is already subject to a lease covered [LEASED] under this section, coal may 12 not be mined or extracted by the coal lessee from the coal lease without prior 13 agreement with the lessee holding the lease covered [ISSUED] under this section. 14 * Sec. 29. AS 38.05.180(a) is amended to read: 15 (a) The legislature finds that 16 (1) the people of Alaska have an interest in the development of the 17 state's oil and gas resources to 18 (A) maximize the economic and physical recovery of the 19 resources; 20 (B) maximize competition among parties seeking to explore 21 and develop the resources; 22 (C) maximize use of Alaska's human resources in the 23 development of the resources; 24 (2) it is in the best interests of the state 25 (A) to encourage an assessment of its oil and gas resources and 26 to allow the maximum flexibility in the methods of issuing leases to 27 (i) recognize the many varied geographical regions of 28 the state and the different costs of exploring for oil and gas in these 29 regions; 30 (ii) minimize the adverse impact of exploration, 31 development, production, and transportation activity; and
01 (B) to offer acreage for oil and gas leases or for gas only 02 leases, specifically including 03 (i) state acreage that has been the subject of a best 04 interest finding at annual areawide lease sales; and 05 (ii) land in areas that, under (d) of this section, may be 06 leased without having been included in the leasing program prepared 07 and submitted under (b) of this section. 08 * Sec. 30. AS 38.05.180(b) is amended to read: 09 (b) The commissioner shall biennially prepare and, between the first and the 10 15th day of the first regular session of each legislature, notify the legislature of the 11 availability of, a five-year proposed oil and gas leasing program consisting of a 12 schedule of proposed lease sales and specifying as precisely as practicable the location 13 of tracts proposed to be offered for oil and gas leasing or for leasing of gas only 14 during the calendar year in which the proposed program is made available to the 15 legislature and the following four calendar years. 16 * Sec. 31. AS 38.05.180(c) is amended to read: 17 (c) Except as provided in (d) and (w) of this section, an oil and gas lease sale 18 or gas only lease sale may not be held unless it was included in the proposed leasing 19 programs submitted to the legislature during the two calendar years preceding the year 20 in which the sale is held. A lease sale, whether for oil and gas or for gas only, may 21 not be held before the date it is scheduled in the proposed oil and gas leasing program. 22 * Sec. 32. AS 38.05.180(d) is amended to read: 23 (d) The commissioner 24 (1) may annually offer leases for oil and gas or leases for gas only 25 [LEASES] of the acreage described in AS 38.05.035(e)(6)(F); 26 (2) may issue [OIL AND GAS] leases in an area that has not been 27 included in a leasing program prepared, in accordance with (b) of this section, if the 28 land to be leased 29 (A) was previously subject to a valid state oil and gas lease, a 30 valid state gas lease, or a valid federal oil and gas lease; 31 (B) is contiguous to land already under state, federal, or private
01 lease and the commissioner makes a written finding, after hearing, that leasing 02 of the land would result in a substantial probability of early evaluation and 03 development of the land to be leased; 04 (C) is adjacent to land owned or controlled by another party on 05 which a discovery of commercial quantities of oil or gas has been made, and 06 the commissioner finds, after hearing, that there is a reasonable probability that 07 the land to be leased contains oil or gas in communication with the oil or gas 08 discovered on the land of the other party; 09 (D) is adjacent to land included in the federal five-year Outer 10 Continental Shelf leasing program under 43 U.S.C. 1344, and the 11 commissioner makes a written finding, after hearing, that coordinated or 12 simultaneous leasing with the federal government is in the public interest; or 13 (E) is the subject of an [OIL AND GAS] exploration license 14 issued under AS 38.05.131 - 38.05.134; however, if the license issued was 15 for exploration for and recovery of gas only, then the lease issued under 16 this subsection shall be limited to exploration for and recovery of gas only. 17 * Sec. 33. AS 38.05.180(f) is amended to read: 18 (f) Except as provided by AS 38.05.131 - 38.05.134 [AND 38.05.177], the 19 commissioner may issue oil and gas leases or leases for gas only on state land to the 20 highest responsible qualified bidder as follows: 21 (1) the commissioner shall issue an oil and gas lease or a gas only 22 lease, as appropriate, to the successful bidder determined by competitive bidding 23 under regulations adopted by the commissioner; bidding may be by sealed bid or 24 according to any other bidding procedure the commissioner determines is in the best 25 interests of the state; 26 (2) whenever, under any of the leasing methods listed in this 27 subsection, a royalty share is reserved to the state, it shall be delivered in pipeline 28 quality and free of all lease or unit expenses, including but not limited to separation, 29 cleaning, dehydration, gathering, salt water disposal, and preparation for transportation 30 off the lease or unit area; 31 (3) following a pre-sale analysis, the commissioner may choose at least
01 one of the following leasing methods: 02 (A) a cash bonus bid with a fixed royalty share reserved to the 03 state of not less than 12.5 percent in amount or value of the production 04 removed or sold from the lease; 05 (B) a cash bonus bid with a fixed royalty share reserved to the 06 state of not less than 12.5 percent in amount or value of the production 07 removed or sold from the lease and a fixed share of the net profit derived from 08 the lease of not less than 30 percent reserved to the state; 09 (C) a fixed cash bonus with a royalty share reserved to the state 10 as the bid variable but no less than 12.5 percent in amount or value of the 11 production removed or sold from the lease; 12 (D) a fixed cash bonus with the share of the net profit derived 13 from the lease reserved to the state as the bid variable; 14 (E) a fixed cash bonus with a fixed royalty share reserved to the 15 state of not less than 12.5 percent in amount or value of the production 16 removed or sold from the lease with the share of the net profit derived from the 17 lease reserved to the state as the bid variable; 18 (F) a cash bonus bid with a fixed royalty share reserved to the 19 state based on a sliding scale according to the volume of production or other 20 factor but in no event less than 12.5 percent in amount or value of the 21 production removed or sold from the lease; 22 (G) a fixed cash bonus with a royalty share reserved to the state 23 based on a sliding scale according to the volume of production or other factor 24 as the bid variable but not less than 12.5 percent in amount or value of the 25 production removed or sold from the lease; 26 (H) for nonconventional gas that will not be produced in 27 direct competition with gas on which a royalty at a rate of at least 12.5 28 percent is payable, a royalty share reserved to the state of at least 6.25 29 percent in amount or value of the production removed or sold from the 30 lease; 31 (4) notwithstanding a requirement in the leasing method chosen of a
01 minimum fixed royalty share, on and after March 3, 1997, the lessee under a lease 02 issued in the Cook Inlet sedimentary basin who is the first to file with the 03 commissioner a nonconfidential sworn statement claiming to be the first to have 04 drilled a well discovering oil or gas in a previously undiscovered oil or gas pool and 05 who is certified by the commissioner within one year of completion of that discovery 06 well to have drilled a well in that pool that is capable of producing in paying quantities 07 shall pay a royalty of five percent on all production of oil or gas from that pool 08 attributable to that lease for a period of 10 years following the date of discovery of that 09 pool, and thereafter the royalty payable on all production of oil or gas from the pool 10 attributable to that lease shall be determined and payable as specified in the lease; for 11 purposes of this paragraph, the reduced royalty authorized by this paragraph is subject 12 to the following: 13 (A) only one reduction of royalty authorized by this paragraph 14 may be allowed on each lease that qualifies for reduction of royalty under this 15 paragraph; 16 (B) if, under this paragraph, application is made for a royalty 17 reduction for a lease that was entered into before March 3, 1997, the 18 commissioner may approve the application only if, on that date, the lease was a 19 nonproducing lease that was not committed to a unit approved by the 20 commissioner under (m) of this section, that is not part of a unit under (p) or 21 (q) of this section, and that has not been made part of a unit under AS 31.05; 22 (C) if application for a royalty reduction is made under this 23 paragraph for a lease on which a discovery royalty was claimed or may be 24 claimed under the discovery royalty provisions of former AS 38.05.180(a) in 25 effect before May 6, 1969, the commissioner shall disallow the application 26 under this paragraph unless the applicant waives the right to claim the right to 27 a reduced royalty under the discovery royalty provisions of former 28 AS 38.05.180(a) in effect before May 6, 1969; and 29 (D) the commissioner shall adopt regulations setting out the 30 standards, criteria, and definitions of terms that apply to implement the filing 31 of applications for, and the review and certification of, discovery [OIL AND
01 GAS ROYALTY] certifications under this paragraph; 02 (5) notwithstanding and in lieu of a requirement in the leasing method 03 chosen of a minimum fixed royalty share, or the royalty provision of a lease, for leases 04 unitized as described in (p) of this section, leases subject to an agreement described in 05 (s) or (t) of this section, or interests unitized under AS 31.05, the lessee of all or part of 06 an oil or gas field identified in this section that has been granted approval of a written 07 plan submitted to the Alaska Oil and Gas Conservation Commission under 08 AS 31.05.030(i) shall, subject to (dd) of this section, pay a royalty of five percent on 09 the first 25,000,000 barrels of oil and the first 35,000,000,000 cubic feet of gas 10 produced for sale from that field that occurs in the 10 years following the date on 11 which the production for sale commences; the fields eligible for royalty reduction 12 under this paragraph, all of which are located within the Cook Inlet sedimentary basin, 13 were discovered before January 1, 1988, and have been undeveloped or shut in from at 14 least January 1, 1988, through December 31, 1997, are 15 (A) Falls Creek; 16 (B) Nicolai Creek; 17 (C) North Fork; 18 (D) Point Starichkof; 19 (E) Redoubt Shoal; and 20 (F) West Foreland; 21 (6) notwithstanding and in lieu of a requirement in the leasing method 22 chosen of a minimum fixed royalty share, or the royalty provision of a lease, for leases 23 unitized as described in (p) of this section, leases subject to an agreement described in 24 (s) or (t) of this section, or interests unitized under AS 31.05, the lessee of all or part of 25 an oil field located offshore in Cook Inlet on which an oil production platform 26 specified in (A), (C), or (E) of this paragraph operates, or the lessee of all or part of the 27 field located offshore in Cook Inlet and described in (G) of this paragraph, 28 (A) shall pay a royalty of five percent on oil produced from the 29 platform if oil production that equaled or exceeded a volume of 1,200 barrels a 30 day declines to less than that amount for a period of at least one calendar 31 quarter, as certified by the Alaska Oil and Gas Conservation Commission, for
01 as long as the volume of oil produced from the platform remains less than 02 1,200 barrels a day; the provisions of this subparagraph apply to 03 (i) Dolly; 04 (ii) Grayling; 05 (iii) King Salmon; 06 (iv) Steelhead; and 07 (v) Monopod; 08 (B) shall pay a royalty calculated under this subparagraph if the 09 volume of oil produced from the platform that was certified by the Alaska Oil 10 and Gas Conservation Commission under (A) of this paragraph later increases 11 to 1,200 or more barrels a day and remains at 1,200 or more barrels a day for a 12 period of at least one calendar quarter; until the royalty rate determined under 13 this subparagraph applies, the royalty continues to be calculated under (A) of 14 this paragraph; on and after the first day of the month following the month the 15 increased production exceeds the period specified in this subparagraph, the 16 royalty payable under this subparagraph is 17 (i) for production of at least 1,200 barrels a day but not 18 more than 1,300 barrels a day - seven percent; 19 (ii) for production of more than 1,300 barrels a day but 20 not more than 1,400 barrels a day - 8.5 percent; 21 (iii) for production of more than 1,400 barrels a day but 22 not more than 1,500 barrels a day - 10 percent; and 23 (iv) for production of more than 1,500 barrels a day - 24 12.5 percent; 25 (C) shall pay a royalty of five percent on oil produced from the 26 platform if oil production that equaled or exceeded a volume of 975 barrels a 27 day declines to less than that amount for a period of at least one calendar 28 quarter, as certified by the Alaska Oil and Gas Conservation Commission, for 29 as long as the volume of oil produced from the platform remains less than 975 30 barrels a day; the provisions of this subparagraph apply to 31 (i) Baker;
01 (ii) Dillon; 02 (iii) XTO.A; and 03 (iv) XTO.C; 04 (D) shall pay a royalty calculated under this subparagraph if the 05 volume of oil produced from the platform that was certified by the Alaska Oil 06 and Gas Conservation Commission under (C) of this paragraph later increases 07 to 975 or more barrels a day and remains at 975 or more barrels a day for a 08 period of at least one calendar quarter; until the royalty rate determined under 09 this subparagraph applies, the royalty continues to be calculated under (C) of 10 this paragraph; on and after the first day of the month following the month the 11 increased production exceeds the period specified in this subparagraph, the 12 royalty payable under this subparagraph is 13 (i) for production of at least 975 barrels a day but not 14 more than 1,100 barrels a day - seven percent; 15 (ii) for production of more than 1,100 barrels a day but 16 not more than 1,200 barrels a day - 8.5 percent; 17 (iii) for production of more than 1,200 barrels a day but 18 not more than 1,350 barrels a day - 10 percent; and 19 (iv) for production of more than 1,350 barrels a day - 20 12.5 percent; 21 (E) shall pay a royalty of five percent on oil produced from the 22 platform if oil production that equaled or exceeded a volume of 750 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 750 26 barrels a day; the provisions of this subparagraph apply to 27 (i) Granite Point; 28 (ii) Anna; and 29 (iii) Bruce; 30 (F) shall pay a royalty calculated under this subparagraph if the 31 volume of oil produced from the platform that was certified by the Alaska Oil
01 and Gas Conservation Commission under (E) of this paragraph later increases 02 to 750 or more barrels a day and remains at 750 or more barrels a day for a 03 period of at least one calendar quarter; until the royalty rate determined under 04 this subparagraph applies, the royalty continues to be calculated under (E) of 05 this paragraph; on and after the first day of the month following the month the 06 increased production exceeds the period specified in this subparagraph, the 07 royalty payable under this subparagraph is 08 (i) for production of at least 750 barrels a day but not 09 more than 850 barrels a day - seven percent; 10 (ii) for production of more than 850 barrels a day but 11 not more than 1,000 barrels a day - 8.5 percent; 12 (iii) for production of more than 1,000 barrels a day but 13 not more than 1,200 barrels a day - 10 percent; and 14 (iv) for production of more than 1,200 barrels a day - 15 12.5 percent; 16 (G) shall pay a royalty of five percent on oil produced from the 17 field if oil production that equaled or exceeded a volume of 750 barrels a day 18 declines to less than that amount for a period of at least one calendar quarter, 19 as certified by the Alaska Oil and Gas Conservation Commission, for as long 20 as the volume of oil produced from the field remains less than 750 barrels a 21 day; the provisions of this subparagraph apply to the West McArthur River 22 field; 23 (H) shall pay a royalty calculated under this subparagraph if the 24 volume of oil produced from the field that was certified by the Alaska Oil and 25 Gas Conservation Commission under (G) of this paragraph later increases to 26 750 or more barrels a day and remains at 750 or more barrels a day for a period 27 of at least one calendar quarter; until the royalty rate determined under this 28 subparagraph applies, the royalty continues to be calculated under (G) of this 29 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; and 09 (I) may obtain the benefits of the royalty adjustments set out in 10 (A) - (H) of this paragraph only if the commissioner determines that the 11 reduction in production from the platform or the field is 12 (i) based on the average daily production during the 13 calendar quarter based on reservoir conditions; and 14 (ii) not the result of short-term production declines due 15 to mechanical or other choke-back factors, temporary shutdowns or 16 decreased production due to environmental or facility constraints, or 17 market conditions. 18 * Sec. 34. AS 38.05.180(h) is amended to read: 19 (h) The commissioner may include terms in any [OIL AND GAS] lease 20 imposing a minimum work commitment on the lessee. These terms shall be made 21 public before the sale, and may include appropriate penalty provisions to take effect in 22 the event the lessee does not fulfill the minimum work commitment. If it is 23 demonstrated that a lease has been proven unproductive by actions of adjacent lease 24 holders, the commissioner may set aside a work commitment. The commissioner may 25 waive for a period not to exceed one two-year period any term of a minimum work 26 commitment if the commissioner makes a written finding either that conditions 27 preventing drilling or exploration were beyond the lessee's reasonable ability to 28 foresee or control or that the lessee has demonstrated through good faith efforts an 29 intent and ability to drill or develop the lease during the term of the waiver. 30 * Sec. 35. AS 38.05.180(i) is amended to read: 31 (i) The commissioner may provide for the establishment of an exploration
01 incentive credit system under which a lessee of state land drilling an exploratory well 02 on that land may earn credits based upon the footage drilled and the region in which 03 the well is situated. The commissioner may also provide for credits to be earned by 04 persons performing geophysical work on state land, if that work is performed during 05 the two seasons immediately preceding an announced lease sale and on land included 06 within the sale area and the geophysical information is made public following the sale. 07 Credits may not exceed 50 percent of the cost of the drilling or geophysical work. 08 Credits may be used during a limited period established by the commissioner and may 09 be assigned during that period. Credits may be applied against (1) [OIL AND GAS] 10 royalty and rental payments for oil and gas or for gas only payable to the state or (2) 11 taxes payable under AS 43.55. A credit may not exceed 50 percent of the payment 12 toward which it is being applied. Amounts due the Alaska permanent fund 13 (AS 37.13.010) shall be calculated before the application of credits under this 14 subsection. 15 * Sec. 36. AS 38.05.180(j) is amended to read: 16 (j) The commissioner 17 (1) may provide for modification of royalty on individual leases, leases 18 unitized as described in (p) of this section, leases subject to an agreement described in 19 (s) or (t) of this section, or interests unitized under AS 31.05 20 (A) to allow for production from an oil or gas field or pool if 21 (i) the oil or gas field or pool has been sufficiently 22 delineated to the satisfaction of the commissioner; 23 (ii) the field or pool has not previously produced oil or 24 gas for sale; and 25 (iii) oil or gas production from the field or pool would 26 not otherwise be economically feasible; 27 (B) to prolong the economic life of an oil or gas field or pool as 28 per barrel or barrel equivalent costs increase or as the price of oil or gas 29 decreases, and the increase or decrease is sufficient to make future production 30 no longer economically feasible; or 31 (C) to reestablish production of shut-in oil or gas that would
01 not otherwise be economically feasible; 02 (2) may not grant a royalty modification unless the lessee or lessees 03 requesting the change make a clear and convincing showing that a modification of 04 royalty meets the requirements of this subsection and is in the best interests of the 05 state; 06 (3) shall provide for an increase or decrease or other modification of 07 the state's royalty share by a sliding scale royalty or other mechanism that shall be 08 based on a change in the price of oil or gas and may also be based on other relevant 09 factors such as a change in production rate, projected ultimate recovery, development 10 costs, and operating costs 11 (4) may not grant a royalty reduction for a field or pool 12 (A) under (1)(A) of this subsection if the royalty modification 13 for the field or pool would establish a royalty rate of less than five percent in 14 amount or value of the production removed or sold from a lease or leases 15 covering the field or pool; 16 (B) under (1)(B) or (1)(C) of this subsection if the royalty 17 modification for the field or pool would establish a royalty rate of less than 18 three percent in amount or value of the production removed or sold from a 19 lease or leases covering the field or pool; 20 (5) may not grant a royalty reduction under this subsection without 21 including an explicit condition that the royalty reduction is not assignable without the 22 prior written approval, which may not be unreasonably withheld, by the 23 commissioner; the commissioner shall, in the preliminary and final findings and 24 determinations, set out the conditions under which the royalty reduction may be 25 assigned; 26 (6) shall require the lessee or lessees to submit, with the application for 27 the royalty reduction, financial and technical data that demonstrate that the 28 requirements of this subsection are met; the commissioner 29 (A) may require disclosure of only the financial and technical 30 data related to development, production, and transportation of oil and gas or 31 gas only from the field or pool that are reasonably available to the applicant;
01 and 02 (B) shall keep the data confidential under AS 38.05.035(a)(9) 03 at the request of the lessee or lessees making application for the royalty 04 reduction; the confidential data may be disclosed by the commissioner to 05 legislators and to the legislative auditor and as directed by the chair or vice- 06 chair of the Legislative Budget and Audit Committee to the director of the 07 division of legislative finance, the permanent employees of their respective 08 divisions who are responsible for evaluating a royalty reduction, and to agents 09 or contractors of the legislative auditor or the legislative finance director who 10 are engaged under contract to evaluate the royalty reduction, if they sign an 11 appropriate confidentiality agreement; 12 (7) may 13 (A) require the lessee or lessees making application for the 14 royalty reduction under (1)(A) of this subsection to pay for the services of an 15 independent contractor, selected by the lessee or lessees from a list of qualified 16 consultants compiled by the commissioner, to evaluate hydrocarbon 17 development, production, transportation, and economics and to assist the 18 commissioner in evaluating the application and financial and technical data; if, 19 under this subparagraph, the commissioner requires payment for the services of 20 an independent contractor, the total cost of the services to be paid for by the 21 lessee or lessees may not exceed $150,000 for each application, and the 22 commissioner shall determine the relevant scope of the work to be performed 23 by the contractor; selection of an independent contractor under this 24 subparagraph is not subject to AS 36.30; 25 (B) with the mutual consent of the lessee or lessees making 26 application for the royalty reduction under (1)(B) or (1)(C) of this subsection, 27 request payment for the services of an independent contractor, selected from a 28 list of qualified consultants to evaluate hydrocarbon development, production, 29 transportation, and economics by the commissioner to assist the commissioner 30 in evaluating the application and financial and technical data; if, under this 31 subparagraph, the commissioner requires payment for the services of an
01 independent contractor, the total cost of the services that may be paid for by 02 the lessee or lessees may not exceed $150,000 for each application, and the 03 commissioner shall determine the relevant scope of the work to be performed 04 by the contractor; selection of an independent contractor under this 05 subparagraph is not subject to AS 36.30; 06 (8) shall make and publish a preliminary findings and determination on 07 the royalty reduction application, give reasonable public notice of the preliminary 08 findings and determination, and invite public comment on the preliminary findings 09 and determination during a 30-day period for receipt of public comment; 10 (9) shall offer to appear before the Legislative Budget and Audit 11 Committee, on a day that is not earlier than 10 days and not later than 20 days after 12 giving public notice under (8) of this subsection, to provide the committee a review of 13 the commissioner's preliminary findings and determination on the royalty reduction 14 application and administrative process; if the Legislative Budget and Audit Committee 15 accepts the commissioner's offer, the committee shall give notice of the committee's 16 meeting to all members of the legislature; 17 (10) shall make copies of the preliminary findings and determination 18 available to 19 (A) the presiding officer of each house of the legislature; 20 (B) the chairs of the legislature's standing committees on 21 resources; and 22 (C) the chairs of the legislature's special committees on oil and 23 gas, if any; 24 (11) shall, within 30 days after the close of the public comment period 25 under (8) of this subsection, 26 (A) prepare a summary of the public response to the 27 commissioner's preliminary findings and determination; 28 (B) make a final findings and determination; the 29 commissioner's final findings and determination prepared under this 30 subparagraph regarding a royalty reduction is final and not appealable to the 31 court;
01 (C) transmit a copy of the final findings and determination to 02 the lessee; 03 (D) with the applicant's consent, amend the applicant's lease or 04 unitization agreement consistent with the commissioner's final decision; and 05 (E) make copies of the final findings and determination 06 available to each person who submitted comment under (8) of this subsection 07 and who has filed a request for the copies; 08 (12) is not limited by the provisions of AS 38.05.134(3) or (f) of this 09 section in the commissioner's determination under this subsection. 10 * Sec. 37. AS 38.05.180(l) is amended to read: 11 (l) Subject to the provisions of AS 31.05, the commissioner has discretion to 12 enter into an agreement whereby, with the consent of the lessee, the state's royalty 13 share of [OIL AND GAS] production of oil and gas or gas only may be stored or 14 retained in storage by the lessee, or the commissioner may enter into an agreement 15 with one or more of the affected field lease holders to trade current royalty production 16 from a field for a like amount, kind, and quality of future production, on the condition 17 that the state receives back its stored or traded royalty share during the first half of the 18 estimated field life or no later than 15 years after start of production, whichever is 19 sooner. 20 * Sec. 38. AS 38.05.180(m) is amended to read: 21 (m) An oil and gas lease or a gas only lease must cover a reasonably compact 22 area not exceeding 5,760 acres, and may be for a maximum period of 10 years, except 23 that the commissioner may issue a lease for a period not less than five years upon a 24 finding that it is in the best interests of the state. An oil and gas lease shall be 25 automatically extended if and for so long thereafter as oil or gas is produced in paying 26 quantities from the lease or if the lease is committed to a unit approved by the 27 commissioner, and a gas only lease shall be automatically extended if and for so 28 long thereafter as gas is produced in paying quantities from the lease or if the 29 lease is committed to a unit approved by the commissioner. A lease issued under 30 this section covering land on which there is a well capable of producing oil or gas in 31 paying quantities does not expire because the lessee fails to produce oil or gas unless
01 the lessee is allowed reasonable time to place the well on a producing status. Upon 02 extension, the commissioner may increase lease rentals so long as the increased rental 03 rate does not exceed 150 percent of the rate for the preceding year. If drilling has 04 commenced on the expiration date of the primary term of the lease and is continued 05 with reasonable diligence, including such operations as redrilling, sidetracking, or 06 other means necessary to reach the originally proposed bottom hole location, the lease 07 continues in effect until 90 days after drilling has ceased and for so long thereafter as 08 oil or gas is produced in paying quantities. An oil and gas lease or a gas only lease 09 issued under this section which is subject to termination by reason of cessation of 10 production does not terminate if, within 60 days after production ceases, reworking or 11 drilling operations are commenced on the land under lease and are thereafter 12 conducted with reasonable diligence during the period of nonproduction. 13 * Sec. 39. AS 38.05.180(n) is amended to read: 14 (n) The commissioner may establish by regulation that after a well has been 15 plugged and abandoned, the rental rate which was in effect during the year of 16 abandonment is maintained for the remainder of the term. Rental is payable in 17 advance and continues until income to the state from royalty or net profit share 18 exceeds rental income to the state for that year. Under this subsection, 19 (1) [OIL AND GAS] leases for oil and gas or for gas only shall 20 provide for payment to the state of rental on the following basis: 21 (A) [(1)] for the first year, $1.00 per acre; 22 (B) [(2)] for the second year, $1.50 per acre; 23 (C) [(3)] for the third year, $2.00 per acre; 24 (D) [(4)] for the fourth year, $2.50 per acre; 25 (E) [(5)] for the fifth and following years, $3.00 per acre; 26 (2) if the lessee under a gas only lease demonstrates to the 27 commissioner that the potential resources underlying the lease are reasonably 28 estimated to be only nonconventional gas, the rental payment is $1.00 per acre 29 until the lease expires or paying quantities of conventional oil or gas are 30 discovered underlying the lease. 31 * Sec. 40. AS 38.05.180(p) is amended to read:
01 (p) To conserve the natural resources of all or a part of an oil or gas pool, 02 field, or like area, the lessees and their representatives may unite with each other, or 03 jointly or separately with others, in collectively adopting or operating under a 04 cooperative or a unit plan of development or operation of the pool, field, or like area, 05 or a part of it, when determined and certified by the commissioner to be necessary or 06 advisable in the public interest. The commissioner may, with the consent of the 07 holders of leases involved, establish, change, or revoke drilling, producing, and 08 royalty requirements of the leases and adopt regulations with reference to the leases, 09 with like consent on the part of the lessees, in connection with the institution and 10 operation of a cooperative or unit plan as the commissioner determines necessary or 11 proper to secure the proper protection of the public interest. The commissioner may 12 not reduce royalty on leases in connection with a cooperative or unit plan except as 13 provided in (j) of this section. The commissioner may require a lease [OIL AND 14 GAS LEASES] issued under this section to contain a provision requiring the lessee to 15 operate under a reasonable cooperative or unit plan, and may prescribe a plan under 16 which the lessee must operate. The plan must adequately protect all parties in interest, 17 including the state. 18 * Sec. 41. AS 38.05.180 is amended by adding a new subsection to read: 19 (ff) The provisions of this section that authorize oil and gas leases also apply 20 to authorize the commissioner to issue leases for the production of gas only, subject to 21 the following: 22 (1) in authorizing and managing leases under this subsection, the terms 23 "oil and gas" or "oil or gas" as they are used in this chapter may be read and applied as 24 appropriate as referring to gas only; 25 (2) when a lease is authorized as a gas only lease, the lease does not 26 give the lessee the right to produce oil; if a well drilling for gas under a gas only lease 27 authorized by this subsection penetrates a formation capable of producing oil, the 28 owner or operator 29 (A) shall notify the department and the Alaska Oil and Gas 30 Conservation Commission; and 31 (B) may not conduct further operations in the drilled well until
01 the facility complies with all applicable laws and regulations relating to oil and 02 gas exploration and production; however, this subparagraph does not prevent 03 the owner or operator from conducting activities that may be required by the 04 Alaska Oil and Gas Conservation Commission to plug, plug-back, or abandon 05 a well; 06 (3) for a nonconventional gas lease, if a bond is sought under 07 AS 38.05.130, before the amount of the surety bond to be posted is determined by the 08 director, require, as a condition for issuing the lease, that the director, after notice and 09 an opportunity to be heard, determine that, to exercise rights under the reservation as 10 set out in AS 38.05.125 and the lease, the lessee has no other reasonable means of 11 entry than access and entry upon the land of the owner; the lessee has the burden of 12 demonstrating compliance with the requirement of this paragraph; 13 (4) the provisions of this subsection do not apply to authorize a lease 14 for the recovery of nonconventional gas on land that is held under an existing coal 15 lease entered into under AS 38.05.150 that has an active permit for exploration or 16 mining unless the lessee under this subsection is also the lessee under AS 38.05.150 of 17 that land. 18 * Sec. 42. AS 38.05.860(a) is amended to read: 19 (a) The commissioner may require an applicant seeking the sale, lease, or 20 other disposal of land or an interest in land, other than under an oil and gas lease, gas 21 only lease, or mineral lease, to deposit an amount covering the estimated cost of an 22 appraisal, survey, and other costs necessary to offer the land or interest in land, 23 including advertising. All deposited funds not expended shall be refunded to the 24 applicant. If the land or interest in land is awarded to a person other than the applicant 25 making the deposit, the person awarded the land shall pay the total actual cost incurred 26 by the department in making the disposal, and the deposit shall be returned to the 27 original applicant. In lieu of requiring the deposit under this subsection, the 28 commissioner may enter into an agreement with an applicant seeking land or an 29 interest in land requiring the applicant to reimburse the department for costs incurred 30 in the disposal if the applicant is awarded the land or interest in land. 31 * Sec. 43. AS 38.05.860(c) is amended to read:
01 (c) The commissioner shall require each bidder for the competitive leasing of 02 [OIL AND GAS] land for oil and gas, or for gas only, to submit with each bid a 03 deposit of money equal to 20 percent of the bonus. 04 * Sec. 44. AS 38.05.945(a) is amended to read: 05 (a) This section establishes the requirements for notice given by the 06 department for the following actions: 07 (1) classification or reclassification of state land under AS 38.05.300 08 and the closing of land to mineral leasing or entry under AS 38.05.185; 09 (2) zoning of land under applicable law; 10 (3) issuance of a 11 (A) preliminary written finding under AS 38.05.035(e)(5)(A) 12 regarding the sale, lease, or disposal of an interest in state land or resources for 13 oil and gas, or for gas only, subject to AS 38.05.180(b); 14 (B) [REPEALED 15 (C)] written finding for the sale, lease, or disposal of an interest 16 in state land or resources under AS 38.05.035(e)(6), except a [AN OIL OR 17 GAS] lease sale described in AS 38.05.035(e)(6)(F) for which the director 18 must provide opportunity for public comment under the provisions of that 19 subparagraph; 20 (4) a competitive disposal of an interest in state land or resources after 21 final decision under AS 38.05.035(e); 22 (5) a preliminary finding under AS 38.05.035(e) concerning sites for 23 aquatic farms and related hatcheries; 24 (6) a decision under AS 38.05.132 - 38.05.134 regarding the sale, 25 lease, or disposal of an interest in state land or resources. 26 * Sec. 45. AS 38.05.965 is amended by adding a new paragraph to read: 27 (25) "nonconventional gas" means coal bed methane, shales containing 28 gas, or gas hydrates. 29 * Sec. 46. AS 38.06.080(2) is amended to read: 30 (2) "state lease" means an oil and gas lease or gas only lease on state 31 land.
01 * Sec. 47. AS 38.35.020(a) is amended to read: 02 (a) Rights-of-way on state land including rights-of-way over, under, along, 03 across, or upon the right-of-way of a public road or highway or the right-of-way of a 04 railroad or other public utility, or across, upon, over, or under a river or other body of 05 water or land belonging to or administered by the state may be granted by 06 noncompetitive lease by the commissioner for pipeline purposes for the transportation 07 of oil, products, or natural gas under those conditions prescribed by law or by 08 administrative regulation. Except to the extent authorized by an oil and gas lease, a 09 gas only lease, or an oil and gas or gas only unit agreement approved by the state, no 10 person may engage in any construction or operation of any part of an oil, products, or 11 natural gas pipeline, which in whole or in part is or is proposed to be on state land 12 unless that person has obtained from the commissioner a right-of-way lease of the land 13 under this chapter. 14 * Sec. 48. AS 43.20.072(c) is amended to read: 15 (c) A taxpayer's business income shall be apportioned to this state by 16 multiplying the taxpayer's income determined under (b) of this section by the 17 apportionment factor applicable to the taxpayer among the following factors: 18 (1) the apportionment factor of a taxpayer subject to this section but 19 not engaged in the production of oil and gas, or of gas only, as appropriate, from a 20 lease or property in this state during the tax period is a fraction, the numerator of 21 which is the sum of the property factor under AS 43.19 (Multistate Tax Compact) and 22 the sales factor under (d) of this section for the taxpayer for that tax period, and the 23 denominator of which is two; 24 (2) the apportionment factor of a taxpayer subject to this section but 25 not engaged in the pipeline transportation of oil or gas in this state during the tax 26 period is a fraction, the numerator of which is the sum of the property factor under (e) 27 of this section and the extraction factor under (f) of this section for the taxpayer for the 28 tax period, and the denominator of which is two; 29 (3) the apportionment factor of a taxpayer engaged both in the 30 production of oil or gas from a lease or property in this state and in the pipeline 31 transportation of oil or gas in this state during the tax period is a fraction, the
01 numerator of which is the sum of the sales factor under (d) of this section, the property 02 factor under (e) of this section, and the extraction factor under (f) of this section for 03 the taxpayer for the tax period, and the denominator of which is three. 04 * Sec. 49. AS 43.55.025(a) is amended to read: 05 (a) Subject to the terms and conditions of this section, on oil and gas produced 06 from an oil and gas lease, or on gas produced from a gas only lease, on or after 07 July 1, 2004, a credit against the tax due under this chapter is allowed in an amount 08 equal to 09 (1) 20 percent of the total exploration expenditures that qualify under 10 (b) and (c) of this section, 20 percent of the total exploration expenditures that qualify 11 under (b) and (d) of this section, or both, for a total credit that does not exceed 40 12 percent of the total exploration expenditures; or 13 (2) 40 percent of the total exploration expenditures that qualify under 14 (b) and (e) of this section, for a total production tax credit that does not exceed 40 15 percent of the total qualified exploration expenditures. 16 * Sec. 50. AS 43.55.900(9) is amended to read: 17 (9) "lease or property" means any right, title, or interest in or the right 18 to produce or recover oil or gas including: 19 (A) a mineral interest, 20 (B) a leasehold interest, 21 (C) a working interest, royalty interest, overriding royalty 22 interest, production payment, net profit interest or any other interest in a lease, 23 concession, joint venture, or other agreement for [OIL AND GAS] exploration, 24 development, or production of oil and gas or of gas only, 25 (D) a working interest, royalty interest, overriding royalty 26 interest, production payment, net profit interest or any other interest in an 27 agreement for unitization or pooling under the provisions of 26 U.S.C. 28 614(b)(3) (Internal Revenue Code) as defined on January 1, 1974; 29 * Sec. 51. AS 46.03.100(f) is amended to read: 30 (f) This section does not apply to discharges of solid or liquid waste material 31 or water discharges from the following activities if the discharge is incidental to the
01 activity and the activity does not produce a discharge from a point source, as that term 02 is defined in regulations adopted under this chapter, directly into any surface water of 03 the state: 04 (1) mineral drilling, trenching, ditching, and similar activities; 05 (2) landscaping; 06 (3) water well drilling and [,] geophysical drilling [, OR COAL BED 07 METHANE DRILLING OR OTHER NATURAL GAS DRILLING TO RECOVER 08 GAS FROM A FIELD IF A PART OF THE FIELD IS WITHIN 3,000 FEET OF THE 09 SURFACE]; or 10 (4) drilling, ditching, trenching, and similar activities associated with 11 facility construction and maintenance or with road or other transportation facility 12 construction and maintenance; however, the exemption provided by this paragraph 13 does not relieve a person from obtaining a permit under this section if 14 (A) the drilling, ditching, trenching, or similar activity will 15 involve the removal of the groundwater, stormwater, or wastewater runoff that 16 has accumulated and is present at an excavation site for facility, road, or other 17 transportation construction or maintenance; and 18 (B) a permit is otherwise required by this section. 19 * Sec. 52. AS 46.04.030(b) is amended to read: 20 (b) A person may not cause or permit the operation of a pipeline or an 21 exploration or production facility in the state unless an oil discharge prevention and 22 contingency plan for the pipeline or facility has been approved by the department and 23 the person is in compliance with the plan. This subsection does not apply to an 24 exploration or production facility used solely to explore for or to develop or produce 25 nonconventional [SHALLOW NATURAL] gas resources, except that this exemption 26 does not apply if the Alaska Oil and Gas Conservation Commission determines under 27 AS 31.05.030(j) that 28 (1) a well drilled for nonconventional [SHALLOW NATURAL] gas 29 may penetrate a formation capable of flowing oil; and 30 (2) the volume of oil encountered will be of such quantities that a 31 contingency plan will be required.
01 * Sec. 53. AS 46.04.040(b) is amended to read: 02 (b) A person may not cause or permit the operation of a pipeline or an 03 exploration or production facility in the state unless the person has furnished to the 04 department, and the department has approved, proof of financial ability to respond in 05 damages. Proof of financial responsibility required for 06 (1) a pipeline or an offshore exploration or production facility is 07 $50,000,000 per incident; 08 (2) an onshore production facility is 09 (A) $20,000,000 per incident if the facility produces over 10 10,000 barrels per day of oil; 11 (B) $10,000,000 per incident if the facility produces over 5,000 12 barrels per day but not more than 10,000 barrels per day of oil; 13 (C) $5,000,000 per incident if the facility produces over 2,500 14 barrels per day but not more than 5,000 barrels per day of oil; 15 (D) $1,000,000 per incident if the facility produces 2,500 16 barrels per day or less of oil; 17 (3) an onshore exploration facility is 18 (A) $25,000 per incident for a facility used solely to explore for 19 nonconventional [SHALLOW NATURAL] gas by means of drilling a well to 20 explore for the gas [, WHETHER METHANE ASSOCIATED WITH AND 21 DERIVED FROM COAL DEPOSITS OR OTHERWISE, FROM A FIELD IF 22 A PART OF THE FIELD IS WITHIN 3,000 FEET OF THE SURFACE]; and 23 (B) except as provided by (A) of this paragraph, $1,000,000 per 24 incident. 25 * Sec. 54. AS 46.04.900 is amended by adding a new paragraph to read: 26 (31) "nonconventional gas" has the meaning given in AS 38.05.965. 27 * Sec. 55. AS 46.40.205 is amended to read: 28 Sec. 46.40.205. Consistency determinations for certain activities involving 29 nonconventional [SHALLOW NATURAL] gas. (a) When conducted under 30 oversight and regulation of the Alaska Oil and Gas Conservation Commission and the 31 state's resource agencies, projects for the exploration and development of
01 nonconventional [SHALLOW NATURAL] gas are consistent with the program 02 described in this chapter. Persons responsible for activities subject to this section shall 03 obtain all required permits and approvals from municipal, state, and federal agencies 04 as otherwise required by law. 05 (b) In this section, "nonconventional [SHALLOW NATURAL] gas" has the 06 meaning given in AS 38.05.965 [AS 46.04.900]. 07 * Sec. 56. AS 46.40.210(12) is amended to read: 08 (12) "uses of state concern" means those land and water uses that 09 would significantly affect the long-term public interest; "uses of state concern" include 10 (A) uses of national interest, including the use of resources for 11 the siting of ports and major facilities that contribute to meeting national 12 energy needs, construction and maintenance of navigational facilities and 13 systems, resource development of federal land, and national defense and 14 related security facilities that are dependent upon coastal locations; 15 (B) uses of more than local concern, including those land and 16 water uses that confer significant environmental, social, cultural, or economic 17 benefits or burdens beyond a single coastal resource district; 18 (C) the siting of major energy facilities, activities pursuant to a 19 state oil and gas lease, a state gas only lease, or a federal oil and gas lease, or 20 large-scale industrial or commercial development activities that are dependent 21 on a coastal location and that, because of their magnitude or the magnitude of 22 their effect on the economy of the state or the surrounding area, are reasonably 23 likely to present issues of more than local significance; 24 (D) facilities serving statewide or interregional transportation 25 and communication needs; and 26 (E) uses in areas established as state parks or recreational areas 27 under AS 41.21 or as state game refuges, game sanctuaries, or critical habitat 28 areas under AS 16.20. 29 * Sec. 57. The uncodified law of the State of Alaska added by sec. 1, ch. 45, SLA 2003, is 30 amended to read: 31 LEGISLATIVE FINDINGS. The legislature finds that
01 (1) [THE DEVELOPMENT OF SHALLOW NATURAL GAS 02 RESOURCES IS IN THE BEST INTERESTS OF THE STATE OF ALASKA; 03 (2)] shallow natural gas is abundant and widespread in Alaska and 04 bears the promise of providing Alaskans, particularly Alaskans living in rural areas, 05 with an inexpensive and clean source of energy if those resources can be economically 06 developed; 07 (2) [(3)] the development of shallow natural gas poses significantly 08 fewer risks and creates substantially less impact to the environment than traditional 09 deep oil and gas projects, which have served as the model for oil and gas industry and 10 environmental regulations to date in Alaska; 11 (3) [(4)] the regulatory requirements developed and applied to 12 traditional deep oil and gas projects in Alaska are ill-suited and unduly onerous when 13 applied to shallow natural gas projects, threatening the economic viability of otherwise 14 desirable exploration and development projects; 15 (4) [(5)] there is an immediate state and national need for the 16 development of clean and economical unconventional energy sources, such as shallow 17 natural gas resources; 18 (5) [(6)] reform of existing laws and regulations is needed to remove 19 unnecessary regulatory burdens on the private sector to foster and encourage the 20 development in Alaska of these necessary resources; 21 (6) [(7)] the legislature is acting in the interest of promoting the active 22 development of such resources, while ensuring that suitable measures are taken to 23 protect human health and safety and the natural environment, 24 (A) to remove impediments to the responsible development of 25 shallow natural gas; and 26 (B) to provide the proper state agencies with clear authority and 27 discretion to adopt regulatory practices appropriate to shallow natural gas 28 exploration and development projects, in recognition of the lower risks posed 29 by such projects to human health and safety and the natural environment [; 30 AND 31 (C) TO RESERVE ALL RIGHTS AND POWERS NOT
01 PREEMPTED BY FEDERAL LAW AND REGULATION IN ORDER TO 02 ASSERT STATE PRIMACY OVER THE REGULATION OF SHALLOW 03 NATURAL GAS]. 04 * Sec. 58. AS 31.05.125, 31.05.170(14); AS 38.05.177(b), 38.05.177(c), 38.05.177(e), 05 38.05.177(f), 38.05.177(g), 38.05.177(h), 38.05.177(j), 38.05.177(k), 38.05.177(m), 06 38.05.177(n), 38.05.177(o); and AS 46.04.900(25) are repealed. 07 * Sec. 59. The uncodified law of the State of Alaska is amended by adding a new section to 08 read: 09 CERTAIN SHALLOW NATURAL GAS LEASES AND LEASE APPLICATIONS 10 TO BE ADMINISTERED UNDER FORMER LAW. The provisions of AS 38.05.177(a), 11 (d)(1), and (l), amended by secs. 26 - 28 of this Act, as those provisions read on the day 12 before the effective date of amendment of those subsections, and the provisions of 13 AS 38.05.177(b), (c), (e) - (h), (j), (k), (m), (n), and (o), repealed by sec. 58 of this Act, as 14 those provisions read on the day before the effective date of the repeal of those subsections, 15 apply to shallow natural gas leases issued under AS 38.05.177 and in effect on December 31, 16 2003. 17 * Sec. 60. The uncodified law of the State of Alaska is amended by adding a new section to 18 read: 19 CONVERSION OF EXISTING SHALLOW NATURAL GAS LEASE 20 APPLICATIONS. (a) The applicant for a shallow natural gas lease under AS 38.05.177 21 whose application was received by the Department of Natural Resources before the effective 22 date of this section may, not later than August 31, 2004, or 60 days after the effective date of 23 this Act, whichever is later, convert the application to an exploration license and lease 24 application under AS 38.05.131(a), as amended by sec. 14 of this Act. An applicant 25 converting an application under this subsection 26 (1) may apply for as few as 3,000 acres, notwithstanding the minimum 27 limitation of acreage set out in AS 38.05.132(c)(2); 28 (2) shall pay the fee required by AS 38.05.132(c)(6); 29 (3) is subject to a three-year work commitment in lieu of a work commitment 30 of any other duration required by AS 38.05.132 and, notwithstanding AS 38.05.132(c)(3), is 31 under an obligation to perform a specified work commitment of $1 per acre per year; and
01 (4) may, subject to (b) of this section, convert an exploration license to a lease 02 under AS 38.05.134, as amended by sec. 22 of this Act. 03 (b) The provisions of AS 38.05.035(e) apply to an application made under (a) of this 04 section. 05 (c) For an application made under (a) of this section, the director of the division of 06 lands shall remit to the applicant the application fee paid by the applicant under 07 AS 38.05.177(b)(2). 08 * Sec. 61. This Act takes effect immediately under AS 01.10.070(c).