SCS CSHB 394(RES): "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."
00SENATE CS FOR CS FOR HOUSE BILL NO. 394(RES) 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)(C), 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 onshore and within 3,000 feet of
01 the surface; and 02 (2) do not apply to authorize lease of 03 (A) land 04 (i) that is subject to an oil and gas exploration license or 05 lease issued under AS 38.05.131 - 38.05.134; or 06 (ii) that is leased under AS 38.05.180; 07 (B) the land (i) that is proposed to be subject to an oil and gas 08 exploration license or lease issued under AS 38.05.131 - 38.05.134; or (ii) that 09 is described in and part of a proposed oil and gas leasing program prepared under 10 AS 38.05.180(b); however, the commissioner may waive the limitations of this 11 subparagraph; 12 (C) the land that is held under a coal lease entered into under 13 AS 38.05.150, unless the applicant for a shallow natural gas lease is also the 14 lessee under AS 38.05.150 of that land; or 15 (D) the valid existing selections of the Alaska Mental Health 16 Trust Authority made for the purpose of reconstituting the mental health trust 17 established under the Alaska Mental Health Enabling Act, P.L. 84-830, 70 Stat. 18 709 (1956), that become subject to management under AS 38.05.801, or of land 19 that has been designated by law for or is subject to designation for conveyance 20 to the Alaska Mental Health Trust Authority; however, after consultation with 21 the Alaska Mental Health Trust Authority, the commissioner may waive the 22 limitations of this subparagraph. 23 (b) For the purpose of exploring for and developing shallow natural gas 24 reservoirs, upon application, the director may lease to a person land for which the state 25 owns the subsurface rights. A person applying for a lease under this subsection 26 (1) shall specify the area to be leased; the area to be leased may not 27 exceed 5,760 acres; a lessee may not hold more than 46,080 acres of land under leases 28 entered into under this section; 29 (2) may be required to pay a reasonable application fee of up to $500. 30 (c) Within 20 days of receipt of a lease application, the director shall give 31 notice under AS 38.05.945 of receipt of the lease application and call for comments
01 from the public. The director's call for public comments must provide opportunity for 02 public comment for a period of 60 days. If, after review of information received 03 during the public comment period, the director determines that the discovery of a local 04 source of natural gas would benefit the residents of an area, the director shall execute 05 a lease for the area described in (b) of this section. The director shall execute the 06 lease within 90 days after the close of the public comment period or, if review is 07 required under AS 46.40, within 30 days after the final consistency determination is 08 made under AS 46.40, whichever is later. A lease entered into under this subsection 09 gives the lessee the exclusive right to explore for, develop, and produce, for a term of 10 three years, natural gas on the state land described in the lease; the right to explore for, 11 develop, and produce is limited to gas derived from natural gas within 3,000 feet of 12 the surface. 13 (d) A lease shall be automatically extended if and for so long thereafter as gas 14 is produced in paying quantities from the lease and the lessee continues to meet all 15 requirements of the lease. A lease issued under this section covering land on which 16 there is a well capable of producing gas in paying quantities does not expire because 17 the lessee fails to produce gas unless the lessee is allowed reasonable time to place the 18 well on a producing status. If drilling has commenced on the expiration date of the 19 primary term of the lease and is continued with reasonable diligence, including such 20 operations as redrilling, sidetracking, or other means necessary to reach the originally 21 proposed bottom hole location, the lease is extended for one year and for so long 22 thereafter as gas is produced in paying quantities. A gas lease issued under this 23 section that is subject to termination by reason of cessation of production does not 24 terminate if, within 90 days after production ceases or a longer period determined at 25 the discretion of the director, reworking or drilling operations are commenced on the 26 land under lease and are thereafter conducted with reasonable diligence during the 27 period of nonproduction. In addition, upon application by the lessee, the director may 28 once extend a lease issued under (c) of this section for a period of not more than three 29 years. 30 (e) The director may, following the procedures described in (c) of this section, 31 adjust the boundaries of a lease entered into under this section as may be necessary
01 to ensure development of natural gas within a reasonably compact area; a lease as 02 adjusted under this paragraph remains subject to the acreage limitations set out in 03 (b)(1) of this section. 04 (f) A shallow gas lease must provide for payment to the state of annual rent 05 in the amount of 50 cents per acre. The rent is due and payable on the dates 06 determined in the lease. The director shall mail the lessee one written notice, certified 07 return receipt requested, three weeks before the due date of the rent. If the lessee fails 08 to pay rent, the director shall terminate the lease. 09 (g) The royalty payable on natural gas produced from a lease 10 (1) is 11 (A) 12.5 percent of the value of production removed or sold 12 from the lease for gas exported from the state or gas that is produced in direct 13 competition with gas on which a royalty at a rate of at least 12.5 percent is 14 payable; and 15 (B) except as provided in (A) of this paragraph, 6.25 percent of 16 the value of the production removed or sold from the lease; and 17 (2) shall be based upon production delivered in pipeline quality and 18 free of all lease expenses, including but not limited to separation, cleaning, 19 dehydration, gathering, salt water disposal, and preparation for transportation off the 20 lease. 21 (h) A lease issued under this section is subject to the following terms and 22 conditions and may be terminated by the director in the event of a breach of a term or 23 condition: 24 (1) the lessee may surrender the lease or relinquish part of the lease at 25 any time; 26 (2) the lease may not be transferred or assigned until a well capable of 27 production of gas in paying quantities has been drilled on the lease; however, this 28 paragraph does not prohibit the lessee from entering into a farm out agreement or similar 29 arrangement with a third party under which the third party assists in exploration and 30 development of production from the lease if the agreement or arrangement does not 31 require a payment of consideration by the third party to the lessee, except that the lessee
01 may retain an overriding royalty interest in the lease or may retain a net profit or other 02 production payment. 03 (i) The applicant for a lease is responsible for conducting a title search for the 04 area described in the lease application. 05 (j) A lease does not give the lessee the right to produce oil. A lease does not 06 give the lessee the right to produce gas from sources that are not within 3,000 feet of the 07 surface. If a well drilling for natural gas under a lease authorized by this section 08 penetrates a formation capable of producing gas below 3,000 feet of the surface or 09 penetrates a formation capable of producing oil, the owner or operator 10 (1) shall notify the department and the Alaska Oil and Gas Conservation 11 Commission; and 12 (2) may not conduct further operations in the drilled well until the facility 13 complies with all applicable laws and regulations relating to oil and gas exploration and 14 production; however, this paragraph does not prevent the owner or operator from 15 conducting activities that may be required by the Alaska Oil and Gas Conservation 16 Commission to plug, plug-back, or abandon a well. 17 (k) The commissioner of natural resources may adopt only the regulations that 18 are reasonable and that are necessary to implement, interpret, or make specific the 19 provisions of this section or to establish procedures to govern application of the 20 provisions of this section. 21 (l) A lessee obtaining a lease under this section may exercise the rights 22 authorized by this section and the lease. The rights granted by the lease must be 23 exercised in a manner that does not unreasonably interfere with eventual development 24 of other mineral deposits on the land leased. However, in a lease entered into under 25 AS 38.05.150 for land that is already leased under this section, coal may not be mined 26 or extracted by the coal lessee from the coal lease without prior agreement with the 27 lessee holding the lease issued under this section. 28 (m) Except as otherwise specifically provided in this section, the provisions 29 of AS 38.05.135 - 38.05.184 apply to leases entered into under this section. 30 (n) In this section, "lease" means a shallow gas lease authorized by this section. 31 * Sec. 6. AS 38.05.180(f) is amended to read:
01 (f) Except as provided by AS 38.05.131 - 38.05.134 and 38.05.177, the 02 commissioner may issue oil and gas leases on state land to the highest responsible 03 qualified bidder determined by competitive bidding under regulations adopted by the 04 commissioner. Bidding may be by sealed bid or according to any other bidding 05 procedure the commissioner determines is in the best interests of the state. Whenever, 06 under any of the leasing methods listed in this subsection, a royalty share is reserved 07 to the state, it shall be delivered in pipeline quality and free of all lease or unit 08 expenses, including but not limited to separation, cleaning, dehydration, gathering, salt 09 water disposal, and preparation for transportation off the lease or unit area. Following 10 a pre-sale analysis, the commissioner may choose at least one of the following leasing 11 methods: 12 (1) a cash bonus bid with a fixed royalty share reserved to the state of 13 not less than 12.5 percent in amount or value of the production removed or sold from 14 the lease; 15 (2) a cash bonus bid with a fixed royalty share reserved to the state of 16 not less than 12.5 percent in amount or value of the production removed or sold from 17 the lease and a fixed share of the net profit derived from the lease of not less than 30 18 percent reserved to the state; 19 (3) a fixed cash bonus with a royalty share reserved to the state as the 20 bid variable but no less than 12.5 percent in amount or value of the production 21 removed or sold from the lease; 22 (4) a fixed cash bonus with the share of the net profit derived from the 23 lease reserved to the state as the bid variable; 24 (5) a fixed cash bonus with a fixed royalty share reserved to the state 25 of not less than 12.5 percent in amount or value of the production removed or sold 26 from the lease with the share of the net profit derived from the lease reserved to the 27 state as the bid variable; 28 (6) a cash bonus bid with a fixed royalty share reserved to the state 29 based on a sliding scale according to the volume of production or other factor but in 30 no event less than 12.5 percent in amount or value of the production removed or sold 31 from the lease;
01 (7) a fixed cash bonus with a royalty share reserved to the state based 02 on a sliding scale according to the volume of production or other factor as the bid 03 variable but not less than 12.5 percent in amount or value of the production removed 04 or sold from the lease. 05 * Sec. 7. AS 46.03.100(f) is amended to read: 06 (f) This section does not apply to discharges of solid or liquid waste material 07 or water discharges from the following activities if the discharge is incidental to the 08 activity and the activity does not produce a discharge from a point source, as that term 09 is defined in regulations adopted under this chapter, directly into any surface water of 10 the state: 11 (1) mineral drilling, trenching, ditching, and similar activities; 12 (2) landscaping; 13 (3) water well drilling, geophysical drilling, or coal bed methane 14 drilling or other natural gas drilling to recover gas from a reservoir at a depth of 15 less than 3,000 feet; or 16 (4) drilling, ditching, trenching, and similar activities associated with 17 facility construction and maintenance or with road or other transportation facility 18 construction and maintenance; however, the exemption provided by this paragraph does 19 not relieve a person from obtaining a permit under (a) of this section if 20 (A) the drilling, ditching, trenching, or similar activity will 21 involve the removal of the groundwater, stormwater, or wastewater runoff that 22 has accumulated and is present at an excavation site for facility, road, or other 23 transportation construction or maintenance; and 24 (B) a permit is otherwise required by (a) of this section. 25 * Sec. 8. AS 46.04.030(b) is amended to read: 26 (b) A person may not cause or permit the operation of a pipeline or an 27 exploration or production facility in the state unless an oil discharge prevention and 28 contingency plan for the pipeline or facility has been approved by the department and 29 the person is in compliance with the plan. This subsection does not apply to an 30 exploration facility used solely to explore for shallow natural gas by means of 31 drilling a well on a lease authorized under AS 38.05.177.
01 * Sec. 9. 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 barrels 16 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 19 for shallow natural gas by means of drilling a well to explore for gas, 20 whether methane associated with and derived from coal deposits or 21 otherwise, from a source that is within 3,000 feet of the surface; and 22 (B) except as provided by (A) of this paragraph, $1,000,000 23 per incident.