CSHB 394(FIN) AM: "An Act authorizing shallow natural gas leasing from sources within 3,000 feet of the surface; relating to regulation of natural gas exploration facilities for purposes of preparation of discharge prevention and contingency plans and compliance with financial responsibility requirements; addressing the relationship between shallow natural gas and other natural resources; and adding, in the exemption from obtaining a waste disposal permit for disposal of waste produced from drilling, a reference to shallow natural gas."
00CS FOR HOUSE BILL NO. 394(FIN) am 01 "An Act authorizing shallow natural gas leasing from sources within 3,000 feet 02 of the surface; relating to regulation of natural gas exploration facilities for 03 purposes of preparation of discharge prevention and contingency plans and 04 compliance with financial responsibility requirements; addressing the relationship 05 between shallow natural gas and other natural resources; and adding, in the 06 exemption from obtaining a waste disposal permit for disposal of waste produced 07 from drilling, a reference to shallow natural gas." 08 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 09 * Section 1. LEGISLATIVE FINDINGS AND PURPOSE. (a) The legislature finds that 10 (1) there exist throughout the state sizeable deposits of coal and small but 11 commercially significant amounts of natural gas located close to the earth's surface that are 12 usually, though not always, associated with and emitted from coal deposits; 13 (2) the methane derived from this coal and other sources and that is found in 14 reservoirs at depths of less than 3,000 feet could be tapped to serve as a principal or a chief
01 supplemental energy source of benefit to residents of areas in which they are found; 02 (3) the methane derived from this coal and other shallow gas reservoirs could 03 be developed without interfering with the development and transportation of the state's vast gas 04 reserves available for interstate and foreign markets; and 05 (4) it is in the best interests of the state and its people that this natural gas should 06 be identified and developed, especially to serve as a source of natural gas for use in rural 07 communities and remote locations within the state, especially when this natural gas can be 08 delivered to consumers at less cost than alternative energy sources. 09 (b) In authorizing a program of leasing shallow natural gas from state land, it is the 10 legislature's purpose to provide both a means and an incentive by which that gas may be 11 identified and developed at low cost for the direct benefit of residents of remote or sparsely 12 populated areas for which connection to the in-place gas pipeline transmission and distribution 13 system serving population centers in Southcentral Alaska is not economically feasible. 14 * Sec. 2. AS 38.05.035(e)(6) is amended to read: 15 (6) before a public hearing, if held, or in any case not less than 21 days 16 before the sale, lease, or other disposal of available land, property, resources, or 17 interests in them other than a sale, lease, or other disposal of available land or an 18 interest in land for oil and gas under (5) of this subsection, the director shall make 19 available to the public a written finding that, in accordance with (1) of this subsection, 20 sets out the material facts and applicable statutes and regulations and any other 21 information required by statute or regulation to be considered upon which the 22 determination that the sale, lease, or other disposal will best serve the interests of the 23 state was based; however, a written finding is not required before the approval of 24 (A) a contract for a negotiated sale authorized under 25 AS 38.05.115; 26 (B) a lease of land for a shore fishery site under AS 38.05.082; 27 (C) a permit or other authorization revocable by the 28 commissioner; 29 (D) a mineral claim located under AS 38.05.195; 30 (E) a mineral lease issued under AS 38.05.205; 31 (F) a production license issued under AS 38.05.207;
01 (G) an exempt oil and gas sale under AS 38.05.180(d) of 02 acreage offered in a sale that was held within the previous five years if the sale 03 was subject to a written best interest finding, unless the commissioner 04 determines that new information has become available that justifies a revision 05 of the best interest finding; [OR] 06 (H) a lease sale under AS 38.05.180(w) of acreage offered in 07 a sale that was held within the previous five years if the sale was subject to a 08 best interest finding, unless the commissioner determines that new information 09 has become available that justifies a revision of the best interest finding; or 10 (I) a shallow gas lease authorized under AS 38.05.177 in an 11 area for which leasing is authorized under AS 38.05.177; 12 * Sec. 3. AS 38.05.140(a) is amended to read: 13 (a) A person may not take or hold coal leases or permits during the life of coal 14 leases on state land exceeding an aggregate of 46,080 acres, except that a person may 15 apply for coal leases or permits for acreage in addition to 46,080 acres, not exceeding 16 a total of 5,120 additional acres of state land. The additional area applied for shall be 17 in multiples of 40 acres and the application shall contain a statement that the granting 18 of a lease for additional land is necessary for the person to carry on business 19 economically and is in the public interest. On the filing of the application, except as 20 provided by AS 38.05.177(a)(2)(B), the coal deposits in the land covered by the 21 application shall be temporarily set aside and withdrawn from all other forms of 22 disposal provided under AS 38.05.135 - 38.05.181. 23 * Sec. 4. AS 38.05.150 is amended by adding a new subsection to read: 24 (f) Notwithstanding AS 38.05.177, a lease entered into under this section gives 25 the lessee the right to vent or remove methane and other gas held in association with 26 the coal in the land covered by the lease to ensure safe coal mining operations. 27 * Sec. 5. AS 38.05 is amended by adding a new section to read: 28 Sec. 38.05.177. SHALLOW NATURAL GAS LEASES. (a) The provisions of 29 this section 30 (1) apply to gas, whether methane associated with and derived from coal 31 deposits or otherwise, developed from a source that is within 3,000 feet of the surface;
01 and 02 (2) do not apply to authorize lease of 03 (A) the land (i) that is or is proposed to be subject to an oil and 04 gas exploration license or lease issued under AS 38.05.131 - 38.05.134; (ii) that 05 is leased under AS 38.05.180; or (iii) that is described in and is part of a 06 proposed oil and gas leasing program prepared under AS 38.05.180(b); however, 07 the commissioner may waive the limitations of this subparagraph; 08 (B) the land that is held under a coal lease entered into under 09 AS 38.05.150, unless the applicant for a shallow natural gas lease is also the 10 lessee under AS 38.05.150 of that land; or 11 (C) the valid existing selections of the Alaska Mental Health 12 Trust Authority made for the purpose of reconstituting the mental health trust 13 established under the Alaska Mental Health Enabling Act, P.L. 84-830, 70 Stat. 14 709 (1956), that become subject to management under AS 38.05.801, or of 15 land that has been designated by law for or is subject to designation for 16 conveyance to the Alaska Mental Health Trust Authority. 17 (b) For the purpose of exploring for and developing shallow natural gas 18 reservoirs, upon application, the director may lease to a person land for which the state 19 owns the subsurface rights. A person applying for a lease under this subsection 20 (1) shall specify the area to be leased; the area to be leased may not 21 exceed 5,760 acres; a lessee may not hold more than 23,040 acres of land under leases 22 entered into under this section; 23 (2) may be required to pay a reasonable application fee up to $500. 24 (c) Within 20 days of receipt of a lease application, the director shall give notice 25 of receipt of the lease application and call for comments from the public. The director's 26 call for public comments must provide opportunity for public comment for a period of 27 60 days. If, after review of available information, the director determines it is in the 28 state's interest to enter into a lease for the area described in (b) of this section, the 29 director shall execute the lease within 90 days after the close of the public comment 30 period or, if review is required under AS 46.40, within 30 days after the final consistency 31 determination is made under AS 46.40. A lease entered into under this subsection gives
01 the lessee the exclusive right to explore for, develop, and produce, for a term of three 02 years, natural gas on the state land described in the lease; the right to explore for, 03 develop, and produce is limited to gas derived from natural gas within 3,000 feet of the 04 surface. 05 (d) A lease shall be automatically extended if and for so long thereafter as gas 06 is produced in paying quantities from the lease. A lease issued under this section 07 covering land on which there is a well capable of producing gas in paying quantities 08 does not expire because the lessee fails to produce gas unless the lessee is allowed 09 reasonable time to place the well on a producing status. If drilling has commenced on 10 the 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 necessary 12 to reach the originally proposed bottom hole location, the lease is extended for one year 13 and for so long thereafter as gas is produced in paying quantities. A gas lease issued 14 under this section that is subject to termination by reason of cessation of production does 15 not terminate if, within 90 days after production ceases or a longer period determined at 16 the discretion of the director, reworking or drilling operations are commenced on the land 17 under lease and are thereafter conducted with reasonable diligence during the period of 18 nonproduction. In addition, upon application by the lessee, the director may once extend 19 a lease issued under (c) of this section for a period of not more than three years. 20 (e) The director may, following the procedures described in (c) of this section, 21 adjust the boundaries of a lease entered into under this section as may be necessary to 22 ensure development of natural gas within a reasonably compact area; a lease as adjusted 23 under this paragraph remains subject to the acreage limitations set out in (b)(1) of this 24 section. 25 (f) A shallow gas lease must provide for payment to the state of rental in the 26 amount of 50 cents per acre. The rent is due and payable on the dates determined in the 27 lease. If rent is not paid when due, the director shall mail the lessee one written notice, 28 certified return receipt requested, of nonpayment at least 30 days before the lease is to 29 be terminated. The lessee may cure the failure to pay rent when due within 90 days after 30 the rent payment becomes due and payable by paying to the director the amount of rent 31 due together with a penalty of the greater of $50 or five percent of the amount of rent
01 in default. If the lessee fails to remedy the lessee's failure to pay rent, the director shall 02 terminate the lease. 03 (g) The royalty payable on natural gas produced from a lease is 6.25 percent of 04 the value of the production removed or sold from the lease, the production to be 05 delivered in pipeline quality and free of all lease expenses, including but not limited 06 to separation, cleaning, dehydration, gathering, salt water disposal, and preparation for 07 transportation off the lease. 08 (h) A lease issued under this section is subject to the following terms and 09 conditions and may be terminated by the director in the event of a breach of a term or 10 condition: 11 (1) the lessee may surrender the lease or relinquish part of the lease at 12 any time; 13 (2) the lease may not be transferred or assigned until a well capable of 14 commercial production of gas has been drilled on the lease; however, this paragraph does 15 not prohibit the lessee from entering into a farm out agreement or similar arrangement 16 with a third party under which the third party assists in exploration and development of 17 production from the lease if the agreement or arrangement does not require a payment 18 of consideration by the third party to the lessee, except that the lessee may retain an 19 overriding royalty interest in the lease or may retain a net profit or other production 20 payment. 21 (i) The applicant for a lease shall conduct a title search for the area described 22 in the lease application. 23 (j) A lease does not give the lessee the right to produce oil. A lease does not 24 give the lessee the right to produce gas from sources that are not within 3,000 feet of the 25 surface. If an onshore well drilling for natural gas under a lease authorized by this 26 section penetrates a formation capable of producing gas below 3,000 feet of the surface, 27 the owner or operator 28 (1) shall notify the department and the Alaska Oil and Gas Conservation 29 Commission; and 30 (2) may not conduct further operations in the drilled well until the facility 31 complies with all applicable laws and regulations relating to oil and gas production;
01 however, this paragraph does not prevent the owner or operator from conducting 02 activities that may be required by the Alaska Oil and Gas Conservation Commission to 03 plug, plug-back, or abandon a well. 04 (k) The commissioner of natural resources may adopt only the regulations that 05 are reasonable and that are necessary to implement, interpret, or make specific the 06 provisions of this section or to establish procedures to govern application of the 07 provisions of this section. 08 (l) A lessee obtaining a lease under this section may exercise the rights 09 authorized by this section and the lease. The rights granted by the lease must be 10 exercised in a manner that does not unreasonably interfere with eventual development 11 of the coal deposit on the land leased. Consistent with the principle of reasonable 12 concurrent uses as set out in art. VIII, sec. 8, of the state constitution, the state may 13 also lease the land under AS 38.05.150. However, in a lease entered into under 14 AS 38.05.150 for land that is already leased under this section, coal may not be mined 15 or extracted by the coal lease from the coal lessee without prior agreement with the 16 lessee holding the lease issued under this section. 17 (m) Except as otherwise specifically provided in this section, the provisions 18 of AS 38.05.135 - 38.05.184 apply to leases entered into under this section. 19 (n) In this section, "lease" means a shallow gas lease authorized by this section. 20 * Sec. 6. AS 38.05.180(f) is amended to read: 21 (f) Except as provided by AS 38.05.131 - 38.05.134 and 38.05.177, the 22 commissioner may issue oil and gas leases on state land to the highest responsible 23 qualified bidder determined by competitive bidding under regulations adopted by the 24 commissioner. Bidding may be by sealed bid or according to any other bidding 25 procedure the commissioner determines is in the best interests of the state. Whenever, 26 under any of the leasing methods listed in this subsection, a royalty share is reserved 27 to the state, it shall be delivered in pipeline quality and free of all lease or unit 28 expenses, including but not limited to separation, cleaning, dehydration, gathering, salt 29 water disposal, and preparation for transportation off the lease or unit area. Following 30 a pre-sale analysis, the commissioner may choose at least one of the following leasing 31 methods:
01 (1) a cash bonus bid with a fixed royalty share reserved to the state of 02 not less than 12.5 percent in amount or value of the production removed or sold from 03 the lease; 04 (2) a cash bonus bid with a fixed royalty share reserved to the state of 05 not less than 12.5 percent in amount or value of the production removed or sold from 06 the lease and a fixed share of the net profit derived from the lease of not less than 30 07 percent reserved to the state; 08 (3) a fixed cash bonus with a royalty share reserved to the state as the 09 bid variable but no less than 12.5 percent in amount or value of the production 10 removed or sold from the lease; 11 (4) a fixed cash bonus with the share of the net profit derived from the 12 lease reserved to the state as the bid variable; 13 (5) a fixed cash bonus with a fixed royalty share reserved to the state 14 of not less than 12.5 percent in amount or value of the production removed or sold 15 from the lease with the share of the net profit derived from the lease reserved to the 16 state as the bid variable; 17 (6) a cash bonus bid with a fixed royalty share reserved to the state 18 based on a sliding scale according to the volume of production or other factor but in 19 no event less than 12.5 percent in amount or value of the production removed or sold 20 from the lease; 21 (7) a fixed cash bonus with a royalty share reserved to the state based 22 on a sliding scale according to the volume of production or other factor as the bid 23 variable but not less than 12.5 percent in amount or value of the production removed 24 or sold from the lease. 25 * Sec. 7. AS 46.03.100(f) is amended to read: 26 (f) This section does not apply to discharges of solid or liquid waste material 27 or water discharges from the following activities if the discharge is incidental to the 28 activity and the activity does not produce a discharge from a point source, as that term 29 is defined in regulations adopted under this chapter, directly into any surface water of 30 the state: 31 (1) mineral drilling, trenching, ditching, and similar activities;
01 (2) landscaping; 02 (3) water well drilling, geophysical drilling, or coal bed methane 03 drilling or other natural gas drilling to recover gas from a reservoir at a depth of 04 less than 3,000 feet; or 05 (4) drilling, ditching, trenching, and similar activities associated with 06 facility construction and maintenance or with road or other transportation facility 07 construction and maintenance; however, the exemption provided by this paragraph does 08 not relieve a person from obtaining a permit under (a) of this section if 09 (A) the drilling, ditching, trenching, or similar activity will 10 involve the removal of the groundwater, stormwater, or wastewater runoff that 11 has accumulated and is present at an excavation site for facility, road, or other 12 transportation construction or maintenance; and 13 (B) a permit is otherwise required by (a) of this section. 14 * Sec. 8. AS 46.04.030(b) is amended to read: 15 (b) A person may not cause or permit the operation of a pipeline or an 16 exploration or production facility in the state unless an oil discharge prevention and 17 contingency plan for the pipeline or facility has been approved by the department and 18 the person is in compliance with the plan. This subsection does not apply to an 19 onshore exploration facility used solely to explore for shallow natural gas by 20 means of drilling a well on a lease authorized under AS 38.05.177. 21 * Sec. 9. AS 46.04.030 is amended by adding a new subsection to read: 22 (s) If an onshore well drilling for gas under a lease authorized by 23 AS 38.05.177 penetrates a formation capable of producing oil, the owner or operator 24 (1) shall notify the department and the Alaska Oil and Gas 25 Conservation Commission; and 26 (2) may not conduct further operations in the drilled well until the 27 facility complies with all applicable laws and regulations relating to oil and gas 28 production; however, this paragraph does not prevent the owner or operator from 29 conducting activities that may be required by the Alaska Oil and Gas Conservation 30 Commission to plug, plug-back, or abandon a well. 31 * Sec. 10. AS 46.04.040(b) is amended to read:
01 (b) A person may not cause or permit the operation of a pipeline or an 02 exploration or production facility in the state unless the person has furnished to the 03 department, and the department has approved, proof of financial ability to respond in 04 damages. Proof of financial responsibility required for 05 (1) a pipeline or an offshore exploration or production facility is 06 $50,000,000 per incident; 07 (2) an onshore production facility is 08 (A) $20,000,000 per incident if the facility produces over 09 10,000 barrels per day of oil; 10 (B) $10,000,000 per incident if the facility produces over 5,000 11 barrels per day but not more than 10,000 barrels per day of oil; 12 (C) $5,000,000 per incident if the facility produces over 2,500 13 barrels per day but not more than 5,000 barrels per day of oil; 14 (D) $1,000,000 per incident if the facility produces 2,500 barrels 15 per day or less of oil; 16 (3) an onshore exploration facility is 17 (A) $25,000 per incident for a facility used solely to explore 18 for shallow natural gas by means of drilling a well to explore for and 19 develop gas, whether methane associated with and derived from coal 20 deposits or otherwise, from a source that is within 3,000 feet of the 21 surface; and 22 (B) except as provided by (A) of this paragraph, $1,000,000 23 per incident. 24 * Sec. 11. AS 46.04.040 is amended by adding a new subsection to read: 25 (n) If an onshore well authorized under AS 38.05.177 to recover shallow 26 natural gas penetrates a formation capable of producing oil, the owner or operator may 27 not conduct further exploration activity. However, this subsection does not prevent the 28 owner or operator from conducting activities that may be required by the Alaska Oil 29 and Gas Conservation Commission to plug and abandon a well. 30 * Sec. 12. AS 46.04.050 is amended by adding a new subsection to read: 31 (c) Except as provided in AS 46.04.030(s), the provisions of AS 46.04.030(b)
01 do not apply to an onshore exploration facility used solely to explore for natural gas 02 by means of drilling a well when authorized under AS 38.05.177.