CSSB 150(FIN) AM: "An Act relating to the exploration and production of oil and gas and related hydrocarbons, to oil and gas exploration licenses and to oil and gas leases in certain areas of the state, and to the proof of financial responsibility required for the operation of facilities for the production of crude oil and associated hydrocarbons and facilities for exploration for oil and gas and related hydrocarbons; and extending the period in which a sale on the five-year oil and gas lease sale schedule may be delayed; and providing for an effective date."
00CS FOR SENATE BILL NO. 150(FIN) am(fld S) 01 "An Act relating to the exploration and production of oil and gas and related 02 hydrocarbons, to oil and gas exploration licenses and to oil and gas leases in 03 certain areas of the state, and to the proof of financial responsibility required 04 for the operation of facilities for the production of crude oil and associated 05 hydrocarbons and facilities for exploration for oil and gas and related 06 hydrocarbons; and extending the period in which a sale on the five-year oil and 07 gas lease sale schedule may be delayed; and providing for an effective date." 08 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 09 * Section 1. AS 38 is amended by adding new sections to read: 10 ARTICLE 5A. OIL AND GAS EXPLORATION LICENSES; LEASES. 11 Sec. 38.05.131. APPLICABILITY; DETERMINATION; REGULATIONS. (a) 12 Unless specifically provided otherwise in AS 38.05.132 - 38.05.134, the provisions of 13 AS 38.05.005 - 38.05.040, 38.05.180, 38.05.182 - 38.05.184, and 38.05.920 - 14 38.05.990 apply to the issuance of oil and gas exploration licenses and leases under
01 AS 38.05.132 - 38.05.134. 02 (b) The provisions of AS 38.05.131 - 38.05.134 do not apply to land 03 (1) north of the Umiat baseline; and 04 (2) in the vicinity of Cook Inlet that is within the area bounded by 05 (A) the north boundary of Township 17 North, Seward 06 Meridian; 07 (B) the Seward Meridian; 08 (C) the south boundary of Township 7 South, Seward Meridian; 09 and 10 (D) the west boundary of Range 19 West, Seward Meridian. 11 (c) The commissioner shall make preliminary written determinations of the 12 state land that may be subject to the provisions of AS 38.05.132. The determinations 13 shall be given public notice using the methods described in AS 38.05.945(b). After 14 completion of the comment period and evaluation of the comments received, the 15 commissioner shall issue a written determination of the state land that is subject to the 16 provisions of AS 38.05.132. 17 (d) The commissioner may adopt regulations necessary to implement 18 AS 38.05.131 - 38.05.134. 19 Sec. 38.05.132. OIL AND GAS EXPLORATION LICENSE. (a) To 20 encourage exploration for oil and gas on state land, the commissioner may issue oil 21 and gas exploration licenses 22 (1) for unleased state land for which insufficient or undocumented 23 geological and geophysical information exists concerning the oil and gas potential of 24 that land; or 25 (2) for state land that was subject to a competitive lease sale under 26 AS 38.05.180 but for which an oil and gas lease has not been issued. 27 (b) An oil and gas exploration license issued under this section gives the 28 licensee 29 (1) the exclusive right to explore, for a term not to exceed 10 years, for 30 deposits of oil and gas on unleased state land described in the exploration license 31 unless the land is earlier relinquished, removed, or deleted under (d) of this section;
01 and 02 (2) the option to convert the exploration license for all or part of the 03 state land, except the land that is deleted or removed from the land described in the 04 exploration license under (d) of this section, into an oil and gas lease upon fulfillment 05 of the work commitments contained in the exploration license. 06 (c) An exploration license awarded under this section 07 (1) is not subject to the acreage limitations imposed by AS 38.05.140(c) 08 or 38.05.180(m); 09 (2) may cover an area of not more than 500,000 acres, that must be 10 reasonably compact and contiguous; 11 (3) must be conditioned upon an obligation to perform a specified work 12 commitment, in total and for each year of the term of the license, expressed in dollars 13 of direct exploration expenditures; for purposes of this paragraph, 14 (A) "direct exploration expenditure" means cash expenses 15 undertaken in performance of a specified work commitment under the 16 provisions of AS 38.05.131 - 38.05.134 and necessarily incurred by the licensee 17 in the permitting, mobilization, conducting, demobilization, and evaluation of 18 geophysical and geological surveys, including seismic, magnetic, and gravity 19 surveys or the drilling, logging, coring, testing, and evaluation of oil and gas 20 wells; the term 21 (i) includes direct labor costs, including the cost of 22 benefits, for employees directly associated with the work commitment 23 programs, the cost of renting or leasing equipment from parties not 24 affiliated with the licensee, the reasonable costs of maintaining and 25 operating equipment, payments to consultants and independent 26 contractors not affiliated with the licensee, and costs of materials and 27 supplies; 28 (ii) does not include noncash expenses such as 29 depreciation and reserves, interest or other costs of borrowed funds, 30 return on investment, overhead, insurance or bond premiums, or any 31 other expense that is unreasonable or that the licensee has not incurred
01 to satisfy the licensee's work commitment; 02 (B) "work commitment" includes the drilling of one or more 03 exploration wells or the gathering of geophysical data, or both; 04 (4) must be conditioned upon an obligation to perform an annual work 05 commitment; 06 (5) is subject to an annual review and revocation if the commissioner 07 determines that the licensee has failed to 08 (A) perform the previous year's annual work commitment; or 09 (B) provide or maintain in effect the bond or other security 10 required by (6) of this subsection; 11 (6) must be conditioned upon the posting of a bond or other security 12 acceptable to the commissioner in favor of the state and subject to the following 13 requirements: 14 (A) the bond or other security must be renewed annually; 15 (B) the bond or other security must be in the amount of 10 16 percent of the licensee's annual work commitment; 17 (7) must be conditioned upon payment to the commissioner of a 18 nonrefundable oil and gas exploration license fee of not more than $1 for each acre of 19 land that is subject to the exploration license; and 20 (8) must be conditioned upon an agreement that exploration 21 expenditures are subject to audit by the commissioner. 22 (d) The area within an exploration license awarded under this section may be 23 relinquished, removed, or deleted from the license. Relinquishment, removal, or 24 deletion of an area from the state land described in the exploration license terminates 25 the licensee's rights under AS 38.05.131 - 38.05.134 in the area that is relinquished, 26 removed, or deleted. A relinquishment, removal, or deletion of a portion of the area 27 described in the exploration license must be in areas that are reasonably compact and 28 contiguous. The areas relinquished from the state land described in the exploration 29 license shall be areas identified by the licensee but, if the licensee fails to identify 30 sufficient area, the commissioner may identify any additional acreage required to be 31 removed or deleted from the area under license to meet the requirements of this
01 subsection. Within the area described in the exploration license issued under (a) - (c) 02 of this section, 03 (1) 25 percent must be relinquished, removed, or deleted not later than 04 the fourth anniversary of the effective date of the issuance of the exploration license; 05 (2) an additional 10 percent must be removed or deleted on each of the 06 succeeding anniversaries of the effective date of the issuance of the exploration license. 07 (e) If, immediately before the beginning of the period for annual renewal of 08 the bond or other security under (c)(5)(A) of this section, the licensee fails to provide 09 or maintain in effect the bond or other security required by (c) of this section for the 10 period covered by the annual renewal and the commissioner revokes the exploration 11 license, the bond or other security then in effect for the licensee's obligations under 12 the exploration license is forfeited to the state. 13 Sec. 38.05.133. LICENSE PROCEDURES. (a) The procedures in this section 14 apply to the issuance of an oil and gas exploration license under AS 38.05.132. 15 (b) The licensing process is initiated by the commissioner preparing, or a 16 prospective licensee submitting to the commissioner, a proposal that identifies a 17 specific area to be subject to the exploration license, proposes specific minimum work 18 commitments, and states the minimum qualifications for a licensee as established by 19 regulations adopted by the commissioner. A prospective licensee may initiate a 20 proposal only in response to a call for proposals by the commissioner or during a 21 period specified in regulations adopted by the commissioner. The regulations must 22 provide for at least one period for that purpose during each calendar year. 23 (c) If the commissioner initiates the licensing process under (b) of this section, 24 the commissioner shall publish notice of the commissioner's proposal in order to solicit 25 comments and competing proposals. 26 (d) Within 30 days after receipt of a proposal from a prospective licensee 27 under (b) of this section, the commissioner shall either reject it in a written decision 28 or give public notice of the intent to evaluate the acceptability of the proposal. The 29 commissioner shall solicit comments on a proposal for which public notice is given 30 under this subsection, and shall request competing proposals. 31 (e) The commissioner may make a written request to a prospective licensee for
01 additional information on the prospective licensee's proposal. The commissioner shall 02 keep confidential information described in AS 38.05.035(a)(9) that is voluntarily 03 provided. 04 (f) After considering proposals not rejected under (d) of this section and public 05 comment on those proposals, the commissioner shall issue a written finding addressing 06 all matters set out in AS 38.05.035(e) and (g), except for AS 38.05.035(g)(1)(K). If 07 the finding concludes that the state's best interests would be served by issuing an oil 08 and gas exploration license, the finding must (1) describe the limitations, stipulations, 09 conditions, or changes from the initiating proposal or competing proposals that are 10 required to make the issuance of the exploration license conform to the best interests 11 of the state, and (2) if only one proposal was submitted, identify the prospective 12 licensee whom the commissioner finds should be issued the exploration license. The 13 commissioner shall attach to the finding a copy of the exploration license to be issued 14 and the form of lease that will be used for any portion of the exploration license area 15 subsequently converted to an oil and gas lease under AS 38.05.134. The commissioner 16 shall promptly provide a copy of the finding and required attachments to all 17 prospective licensees whose proposals were considered before the commissioner's 18 issuance of the finding. 19 (g) If only one prospective licensee submits a proposal and the finding under 20 (f) of this section concludes that an exploration license should be issued to that 21 prospective licensee, the prospective licensee has 30 days after issuance of the finding 22 within which to accept or reject the issuance of the exploration license, as limited or 23 conditioned by the terms contained in the finding. The exploration license to be issued 24 and the form of lease that will be used must be attached to that finding. The 25 prospective licensee must accept or reject the issuance of the exploration license in 26 writing. 27 (h) If competing proposals are submitted, and the commissioner's finding 28 under (f) of this section concludes that an oil and gas exploration license should be 29 issued, the commissioner shall issue a request for competitive sealed bids, under 30 procedures adopted by the commissioner by regulation, to determine which prospective 31 licensee should be issued the exploration license. The finding provided to the
01 prospective licensees under (f) of this section must contain notice that (1) the 02 commissioner intends to request competitive sealed bids, (2) a prospective licensee 03 who intends to participate in the bidding must notify the commissioner in writing by 04 the date specified in the notice, and (3) a prospective licensee's notice of intent to 05 participate in the bidding constitutes acceptance of issuance of the exploration license, 06 as limited or conditioned by the terms contained in the finding and by the exploration 07 license to be issued and the form of lease to be used that have been attached to that 08 finding, if the prospective licensee is the successful bidder. The successful bidder is 09 the prospective licensee who submits the highest bid in terms of the minimum work 10 commitment dollar amount. 11 Sec. 38.05.134. CONVERSION TO LEASE. If the licensee requests and the 12 commissioner determines that the work commitment obligation set out in an oil and 13 gas exploration license issued under AS 38.05.132 has been met, the commissioner 14 shall convert to one or more oil and gas leases all or part, as the licensee may indicate, 15 of the area described in the exploration license that remains after the relinquishments, 16 removals, or deletions required by AS 38.05.132(d). A lease issued under this section 17 (1) is subject to the acreage limitations imposed by AS 38.05.140(c); 18 (2) is subject to AS 38.05.180(j) - (m), (o) - (u), and (x) - (z); 19 (3) must be conditioned upon a royalty in amount or value of not less 20 than 12.5 percent of production; 21 (4) must include an annual rent of $3 per acre or fraction of an acre 22 initially paid to the state at inception of the lease and payable annually after that until 23 the income to the state from royalty under that lease exceeds the rental income to the 24 state under that lease for that year; and 25 (5) is subject to other conditions and obligations that are specified in 26 the lease. 27 * Sec. 2. AS 38.05.135(a) is amended to read: 28 (a) Except as otherwise provided, valuable mineral deposits in land belonging 29 to the state shall be open to exploration, development, and the extraction of minerals. 30 All land, together with tide, submerged, or shoreland, to which the state holds title to 31 or to which the state may become entitled, may be obtained by permit or lease for the
01 purpose of exploration, development, and the extraction of minerals. Except as 02 specifically limited by AS 38.05.131 - 38.05.181 [AS 38.05.135 - 38.05.181], land may 03 be withheld from lease application on a first-come, first-served basis, and offered only 04 on a competitive bid basis when determined by the commissioner to be in the best 05 interests of the state. In unproven areas the commissioner may offer additional 06 incentives, including a reduction of royalty to a minimum of five percent in the case 07 of oil and gas, and other terms in and granting permit or lease for exploration and 08 development whenever it appears to be in the best interests of the state to do so. 09 * Sec. 3. AS 38.05.180(c) is amended to read: 10 (c) Except as provided in (d) and (w) of this section, an oil and gas lease sale 11 may not be held unless it was included in the proposed leasing programs submitted to 12 the legislature during the two calendar years preceding the year in which the sale is 13 held. [A LEASE SALE SHALL BE HELD DURING THE CALENDAR QUARTER 14 FOR WHICH IT IS SCHEDULED IN THE PROPOSED OIL AND GAS LEASING 15 PROGRAM BUT MAY BE DELAYED BY THE COMMISSIONER FOR NOT 16 MORE THAN 90 DAYS AFTER THE LAST DAY OF THE CALENDAR 17 QUARTER FOR WHICH IT WAS SCHEDULED IF THE COMMISSIONER 18 DETERMINES THAT A DELAY IS IN THE BEST INTEREST OF THE STATE. 19 A LEASE SALE WHICH IS NOT HELD DURING THE CALENDAR QUARTER 20 FOR WHICH IT WAS SCHEDULED IN THE OIL AND GAS LEASING 21 PROGRAM, OR IN THE FOLLOWING 90-DAY PERIOD AUTHORIZED BY THIS 22 SUBSECTION, MAY BE HELD ONLY IF RESCHEDULED AS PROVIDED IN (b) 23 OF THIS SECTION.] A lease sale may not be held before the date it is scheduled in 24 the proposed oil and gas leasing program. 25 * Sec. 4. AS 38.05.180(d) is amended to read: 26 (d) The commissioner may issue oil and gas leases in an area that has not been 27 included in a leasing program submitted, in accordance with (b) of this section, to the 28 legislature if the land to be leased 29 (1) [THE LAND TO BE LEASED] was previously subject to a valid 30 state or federal oil and gas lease; [OR] 31 (2) [THE LAND TO BE LEASED] is contiguous to land already under
01 state, federal or private lease and the commissioner makes a written finding, after 02 hearing, that leasing of the land would result in a substantial probability of early 03 evaluation and development of the land to be leased; [OR] 04 (3) [THE LAND TO BE LEASED] is adjacent to land owned or 05 controlled by another party on which a discovery of commercial quantities of oil or 06 gas has been made, and the commissioner finds, after hearing, that there is a 07 reasonable probability that the land to be leased contains oil or gas in communication 08 with the oil or gas discovered on the land of the other party; [OR] 09 (4) [THE LAND TO BE LEASED] is adjacent to land included in the 10 federal five-year Outer Continental Shelf leasing program under 43 U.S.C. 1344, and 11 the commissioner makes a written finding, after hearing, that coordinated or 12 simultaneous leasing with the federal government is in the public interest; or 13 (5) is the subject of an oil and gas exploration license issued under 14 AS 38.05.131 - 38.05.134. 15 * Sec. 5. AS 38.05.180(f) is amended to read: 16 (f) Except as provided by AS 38.05.131 - 38.05.134, the [THE] 17 commissioner may issue oil and gas leases on state land to the highest responsible 18 qualified bidder determined by competitive bidding under regulations adopted by the 19 commissioner. Bidding may be by sealed bid or according to any other bidding 20 procedure the commissioner determines is in the best interests of the state. Whenever, 21 under any of the leasing methods listed in this subsection, a royalty share is reserved 22 to the state, it shall be delivered in pipeline quality and free of all lease or unit 23 expenses, including but not limited to separation, cleaning, dehydration, gathering, salt 24 water disposal, and preparation for transportation off the lease or unit area. Following 25 a pre-sale analysis, the commissioner may choose at least one of the following leasing 26 methods: 27 (1) a cash bonus bid with a fixed royalty share reserved to the state of 28 not less than 12.5 [12 1/2] percent in amount or value of the production removed or 29 sold from the lease; 30 (2) a cash bonus bid with a fixed royalty share reserved to the state of 31 not less than 12.5 [12 1/2] percent in amount or value of the production removed or
01 sold from the lease and a fixed share of the net profit derived from the lease of not 02 less than 30 percent reserved to the state; 03 (3) a fixed cash bonus with a royalty share reserved to the state as the 04 bid variable but no less than 12.5 [12 1/2] percent in amount or value of the 05 production removed or sold from the lease; 06 (4) a fixed cash bonus with the share of the net profit derived from the 07 lease reserved to the state as the bid variable; 08 (5) a fixed cash bonus with a fixed royalty share reserved to the state 09 of not less than 12.5 [12 1/2] percent in amount or value of the production removed 10 or sold from the lease with the share of the net profit derived from the lease reserved 11 to the state as the bid variable; 12 (6) a cash bonus bid with a fixed royalty share reserved to the state 13 based on a sliding scale according to the volume of production or other factor but in 14 no event less than 12.5 [12 1/2] percent in amount or value of the production removed 15 or sold from the lease; 16 (7) a fixed cash bonus with a royalty share reserved to the state based 17 on a sliding scale according to the volume of production or other factor as the bid 18 variable but not less than 12.5 [12 1/2] percent in amount or value of the production 19 removed or sold from the lease. 20 * Sec. 6. AS 38.05.945(a) is amended to read: 21 (a) This section establishes the requirements for notice given by the department 22 for the following actions: 23 (1) classification or reclassification of state land under AS 38.05.300 24 and the closing of land to mineral leasing or entry under AS 38.05.185; 25 (2) zoning of land under applicable law; 26 (3) a decision under AS 38.05.035(e) or 38.05.132 - 38.05.134 27 regarding the sale, lease, or disposal of an interest in state land or resources; 28 (4) a competitive disposal of an interest in state land or resources after 29 final decision under AS 38.05.035(e); 30 (5) a public hearing under AS 38.05.856(b); 31 (6) a preliminary finding under AS 38.05.035(e) and 38.05.855(c)
01 concerning sites for aquatic farms and related hatcheries. 02 * Sec. 7. AS 46.04.040(b) is amended to read: 03 (b) A person may not cause or permit the operation of a pipeline or an 04 exploration or production facility in the state unless the person has furnished to the 05 department, and the department has approved, proof of financial ability to respond in 06 damages. Proof of financial responsibility required 07 (1) for a pipeline or an offshore exploration or production facility is 08 $50,000,000 per incident; for purposes of this paragraph, an "offshore exploration 09 or production facility" means an exploration or production facility that is located 10 (A) between the line of mean high water and seaward 11 (i) to a distance of three geographical miles; or 12 (ii) to a distance of more than three geographical 13 miles if the greater distance is validly claimed by or within the 14 enforcement jurisdiction of the state; or 15 (B) in or on nontidal waters of the state that are navigable 16 under the laws of the United States up to ordinary high water mark, as 17 modified by accretion, erosion, or reliction; 18 (2) [. PROOF OF FINANCIAL RESPONSIBILITY REQUIRED] for 19 a [AN ONSHORE] production facility other than an offshore production facility 20 described in (1) of this subsection is 21 (A) $1,000,000 per incident for a person who produces an 22 average of not more than 75,000 barrels of crude oil per month from the 23 oil field; 24 (B) $5,000,000 per incident for a person who produces an 25 average of more than 75,000 barrels of crude oil but not more than 26 150,000 barrels of crude oil per month from the oil field; 27 (C) $10,000,000 per incident for a person who produces an 28 average of more than 150,000 barrels of crude oil but not more than 29 300,000 barrels of crude oil per month from an oil field; and 30 (D) $20,000,000 per incident for a person who produces an 31 average of more than 300,000 barrels of crude oil per month from an oil
01 field; and 02 (3) [. PROOF OF FINANCIAL RESPONSIBILITY REQUIRED] for 03 an [ONSHORE] exploration facility other than an offshore exploration facility 04 described in (1) of this subsection is $5,000,000 per incident. 05 * Sec. 8. AS 46.04.040 is amended by adding a new subsection to read: 06 (n) For purposes of determining proof of financial responsibility under (b)(2) 07 of this section, 08 (1) the person submitting proof of financial ability to respond in 09 damages shall report the monthly production for each field during the previous 12 10 months; 11 (2) the department shall base its consideration and decision of the 12 submission on 13 (A) the production facility's average monthly production during 14 the 12 months preceding the date of the submission; or 15 (B) the anticipated monthly production as determined by the 16 production facility's maximum engineered design capacity, if the submission 17 relates to a production facility for which the information required by (A) of this 18 paragraph is not available. 19 * Sec. 9. ADDITIONAL EXCLUDED AREA. In addition to the area designated in 20 AS 38.05.131(b), added by sec. 1 of this Act, the provisions of AS 38.05.131 - 38.05.134, 21 added by sec. 1 of this Act, do not apply to land within proposed Competitive Oil and Gas 22 Lease Sales 57, 77, 80, 87, and 88, as the area to be offered in each of those proposed 23 competitive oil and gas lease sales was delineated in the Five-Year Oil and Gas Leasing 24 Program prepared by the Department of Natural Resources and dated January 1993. However, 25 the exclusion of the land in any one of those lease sales that is required by this section ceases 26 on the date the land described in the lease sale is first offered for competitive oil and gas 27 leasing under AS 38.05.180, and that land is thereafter subject to the provisions of 28 AS 38.05.131 - 38.05.134, added by sec. 1 of this Act. 29 * Sec. 10. REGULATIONS. The commissioner of natural resources may proceed to adopt 30 regulations necessary to implement AS 38.05.131 - 38.05.134, added by sec. 1 of this Act. 31 The regulations take effect under AS 44.62 (Administrative Procedure Act), but not before the
01 effective date of secs. 1 - 9 of this Act. 02 * Sec. 11. Section 10 of this Act takes effect immediately under AS 01.10.070(c).