HB 395: "An Act relating to shallow natural gas leasing and the regulation of shallow natural gas operations."
00 HOUSE BILL NO. 395 01 "An Act relating to shallow natural gas leasing and the regulation of shallow natural gas 02 operations." 03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 04 * Section 1. AS 31.05.030(e) is amended to read: 05 (e) The commission may regulate 06 (1) for conservation purposes 07 (A) the drilling, producing, and plugging of wells; 08 (B) the shooting and chemical treatment of wells; 09 (C) the spacing of wells; 10 (D) the disposal of salt water, nonpotable water, and oil field 11 wastes; 12 (E) the contamination or waste of underground water; 13 (F) the quantity and rate of the production of oil and gas from a 14 well or property; this authority shall also apply to a well or property in a
01 voluntary cooperative or unit plan of development or operation entered into in 02 accordance with AS 38.05.180(p); 03 (2) the disposal of drilling mud, cuttings, and nonhazardous drilling 04 operation wastes in the annular space of an oil or gas well or in the annular space of a 05 water well associated with oil or gas exploration and production; in this paragraph, a 06 "nonhazardous drilling operation waste" means a waste, other than a hazardous waste 07 identified by the Environmental Protection Agency in 40 C.F.R., Part 261, its 08 regulation identifying and listing hazardous wastes, associated with the act of drilling 09 an oil or gas well for exploratory or production purposes; and 10 (3) the hydraulic fracturing of shallow natural gas wells to assure 11 protection of drinking water quality by requiring reinjection of the water 12 produced from coal seam dewatering to depths below known subsurface water 13 supplies that are a source of the owner's drinking water for human consumption 14 or that are used by the owner for agricultural purposes. 15 * Sec. 2. AS 31.05 is amended by adding a new section to read: 16 Sec. 31.05.098. Public forum process concerning shallow natural gas. (a) 17 For the purpose of resolving public health, safety, welfare, or environmental 18 complaints about potential or actual shallow natural gas exploration and development 19 operations, the commission shall, by regulation, develop and implement a public 20 forum process by which to achieve informal resolution of the complaints. The 21 commission may provide that, if resolution of the complaints is not achieved through 22 the informal process established by regulation, a party may petition the commission to 23 take action on the complaint under AS 31.05.060 - 31.05.085. 24 (b) The commission's regulations adopted under this section shall provide for 25 scheduling a public forum at a location reasonably proximate to the land that is the 26 subject of or that is affected by the complaint and reasonable public notice and 27 opportunity to be heard. If the public forum is not personally convened and conducted 28 by a majority of the members of the commission, the person conducting the forum 29 shall prepare and submit to the commission a report of the forum proceedings. The 30 report prepared under this subsection is a public record. The commission shall review 31 the report and may require modification of a rule or of a plan of operation or
01 development of a shallow natural gas lease. 02 * Sec. 3. AS 31.05.170(14) is amended to read: 03 (14) "shallow natural gas" means coal bed methane, natural gas drilled 04 for under a lease authorized by AS 38.05.177, or natural gas drilled for in a well the 05 true vertical depth of which is 3,000 [4,000] feet or less; 06 * Sec. 4. AS 38.05.177(c) is amended to read: 07 (c) The director shall give notice under AS 38.05.945 of receipt of the lease 08 application and call for comments from the public. The director's call for public 09 comments must provide opportunity for public comment for a period of not less than 10 60 days. In addition to the requirements of AS 38.05.945(b), the director shall 11 provide notice in at least two newspapers of general circulation in the vicinity of 12 the proposed action at least three times and at intervals of not less than five days 13 between publications and shall provide notification to each municipality and to 14 each community council in the vicinity of the proposed action. If, after review of 15 information received during the public comment period and consideration of public 16 comments received, the director determines that the discovery of a local source of 17 natural gas would benefit the residents of an area, the director may [SHALL] execute 18 a lease for the area described in (b) of this section. The director shall execute the lease 19 after completion of a title search, the close of the public comment period, and, if 20 review is required under AS 46.40, after the final consistency determination is made 21 under AS 46.40. The director may not execute a lease under this subsection unless 22 the director first provides notice of intent to award the lease in at least two 23 newspapers of general circulation in the vicinity of the proposed action at least 24 three times and at intervals of not less than five days between publications and 25 shall provide notification to each municipality and to each community council in 26 the vicinity of the proposed action. A lease entered into under this subsection gives 27 the lessee the exclusive right to explore for, develop, and produce, for a term of three 28 years, natural gas on the state land described in the lease; the right to explore for, 29 develop, and produce is limited to gas from a field if a part of the field is within 3,000 30 feet of the surface. 31 * Sec. 5. AS 38.05.177(f) is amended to read:
01 (f) A shallow gas lease must provide for 02 (1) payment to the state of annual rent in the amount of $1 an [PER] 03 acre; the [. THE] rent is due and payable on the date determined in the lease; if [. IF] 04 the lease payment is not received by the due date, the director shall mail the lessee one 05 written notice, certified return receipt requested; if [. IF] the lessee fails to pay the 06 rent within 30 days after [OF] receipt of the notice, the director shall terminate the 07 lease; 08 (2) the lessee's payment to the owner of fees as follows, payable for 09 so long as the lessee or the lessee's agent produces shallow natural gas on 10 property of the owner: 11 (A) $300 a month for each wellhead that the lessee or the 12 lessee's agent locates on the owner's property; and 13 (B) $600 a month for a compressor station that the lessee 14 places in operation on the owner's property; 15 (3) appropriate setbacks governing the placement by the lessee or 16 the lessee's agent of compressor stations on the lease, to ensure that the owner 17 will not forego the peaceful enjoyment of the property owned; setbacks developed 18 under this paragraph must be determined with reference to the population 19 density of the parcel or parcels subject to the lease, the size of the owner's 20 parcels, and the general character of the land subject to the lease; the terms of 21 the lease must require the lessee or lessee's agent to negotiate to meet the 22 requirement of this paragraph, but the owner may not unreasonably withhold 23 agreement; 24 (4) reasonable and appropriate measures to mitigate the noise of 25 compressors, engines, and other equipment operated by the lessee or the lessee's 26 agent of compressor stations on the lease to ensure that the owner will not forego 27 the peaceful enjoyment of the property owned; noise mitigation measures 28 developed under this paragraph must be determined with reference to the 29 population density of the parcel or parcels subject to the lease, the size of the 30 owner's parcels, and the general character of the land subject to the lease; the 31 terms of the lease shall require the lessee or lessee's agent to negotiate to meet the
01 requirement of this paragraph, but the owner may not unreasonably withhold 02 agreement; 03 (5) action to require the lessee or the lessee's agent to restore, 04 reclaim, or abate the adverse effects of the exploration and development 05 operations using natural revegetation or reseeding using endemic plant species; 06 the lease may require the lessee or the lessee's agent to consult with the director 07 of the division of agriculture. 08 * Sec. 6. AS 38.05.177(j) is amended to read: 09 (j) A lease does not give the lessee the right to produce oil. A lease gives the 10 lessee the right to produce gas only to the extent that it is from a field if a part of the 11 field is within 3,000 feet of the surface. A lessee may not recover gas at a depth 12 greater than 3,000 feet unless the lessee first obtains a lease under AS 38.05.180. 13 If a well drilling for natural gas under a lease authorized by this section penetrates a 14 field, no portion of which is within 3,000 feet of the surface, or penetrates a formation 15 capable of producing oil, the owner or operator 16 (1) shall notify the department and the Alaska Oil and Gas 17 Conservation Commission; and 18 (2) may not conduct further operations in the drilled well until the 19 facility complies with all applicable laws and regulations relating to oil and gas 20 exploration and production; however, this paragraph does not prevent the owner or 21 operator from conducting activities that may be required by the Alaska Oil and Gas 22 Conservation Commission to plug, plug-back, or abandon a well. 23 * Sec. 7. AS 38.05.177(k) is amended to read: 24 (k) The commissioner [MAY] 25 (1) may adopt only the regulations that are reasonable and that are 26 necessary to implement, interpret, or make specific the provisions of this section or to 27 establish procedures to govern application of the provisions of this section; [AND] 28 (2) may, in addition to any requirement for a bond under 29 AS 38.05.130, establish by regulation a form and amount for statewide, areawide, 30 unit-wide, or per-lease bonds sufficient to secure damages that may be caused by the 31 activities of a lessee, or the lessee's successors or assigns, related to a shallow natural
01 gas lease entered into under this section; if the commissioner acts under this 02 paragraph, the commissioner 03 (A) shall require a person applying for a lease under this 04 section to post the bond as a condition for the director's executing the lease; 05 (B) may not require a bond posted under this paragraph from a 06 person applying for a lease if the person has already posted a bond covering 07 the person's statewide oil and gas leasing activities in an amount of at least 08 $500,000; and 09 (3) shall, if a bond is sought under AS 38.05.130, before the 10 amount of the surety bond to be posted is determined by the director, require as 11 a condition for issuing the bond that the director, after notice and an opportunity 12 to be heard, determine that, to exercise rights under the reservation as set out in 13 AS 38.05.125 and the lease, the lessee has demonstrated that access and entry 14 upon the land of the owner is reasonably necessary or convenient to render 15 beneficial and efficient the complete enjoyment of the property and the reserved 16 rights; the lessee has the burden of demonstrating compliance with the 17 requirement of this paragraph. 18 * Sec. 8. AS 38.05.177 is amended by adding new subsections to read: 19 (p) Under AS 38.05.130 as applicable to shallow natural gas exploration and 20 development that is authorized under this section, 21 (1) if 22 (A) the owner and the lessee enter into an agreement by which 23 the state, or its lessees, successors, or assigns, will make provision to pay the 24 owner of the land full payment for all damages, the parties shall incorporate in 25 the agreement the provisions described in (f) of this section that are negotiated; 26 (B) the owner and the lessee do not enter into an agreement by 27 which the state, or its lessees, successors, or assigns, will make provision to 28 pay the owner of the land full payment for all damages, and the lessee proceeds 29 to request the director to set the amount of a surety bond, the owner may, in 30 conjunction with notice and the opportunity to be heard, provide the director 31 with the owner's comments about the appropriate location of wells, roads, and
01 other improvements that may be made by the lessee or the lessee's agent to 02 secure the lessee's rights under the lease; 03 (2) as part of the damages that may be recovered 04 (A) under the agreement entered into by the owner and the 05 lessee by which the state, or its lessees, successors, or assigns, will make 06 provision to pay the owner of the land full payment for all damages, the parties 07 shall provide for damage to the owner's surface and subsurface water sources 08 that may occur as a result of deterioration of water quality, well depletion, 09 hydraulic fracturing, or hazards from seismic activity; 10 (B) under the surety bond to secure to the owner the full 11 payment of damages, in addition to the amount of the bond to be determined 12 by the director, a surety bond to secure payment for damage to the owner's 13 surface and subsurface water sources that may occur as a result of deterioration 14 of water quality, well depletion, hydraulic fracturing, or hazards from seismic 15 activity; the bond described in this subparagraph must be in an amount 16 sufficient to assure the recovery of damages for the entirety of the owner's 17 property, as determined by the director, and may not be less than $25,000. 18 (q) In (f), (k)(3), and (p) of this section, "owner" means the property owner 19 whose property is subject to the reservation described in AS 38.05.125(a). 20 * Sec. 9. AS 46.04.900(25) is amended to read: 21 (25) "shallow natural gas" means coal bed methane, natural gas drilled 22 for under a lease authorized by AS 38.05.177, or natural gas drilled for in a well the 23 true vertical depth of which is 3,000 [4,000] feet or less; 24 * Sec. 10. The uncodified law of the State of Alaska added by sec. 1, ch. 45, SLA 2003, is 25 amended to read: 26 LEGISLATIVE FINDINGS. The legislature finds that 27 (1) the development of shallow natural gas resources is in the best interests of 28 the State of Alaska; 29 (2) shallow natural gas is abundant and widespread in Alaska and bears the 30 promise of providing Alaskans, particularly Alaskans living in rural areas, with an 31 inexpensive and clean source of energy if those resources can be economically developed;
01 (3) the development of shallow natural gas poses significantly fewer risks and 02 creates substantially less impact to the environment than traditional deep oil and gas projects, 03 which have served as the model for oil and gas industry and environmental regulations to date 04 in Alaska; 05 (4) the regulatory requirements developed and applied to traditional deep oil 06 and gas projects in Alaska are ill-suited and unduly onerous when applied to shallow natural 07 gas projects, threatening the economic viability of otherwise desirable exploration and 08 development projects; 09 (5) there is an immediate state and national need for the development of clean 10 and economical unconventional energy sources, such as shallow natural gas resources; 11 (6) reform of existing laws and regulations is needed to remove unnecessary 12 regulatory burdens on the private sector to foster and encourage the development in Alaska of 13 these necessary resources; 14 (7) the legislature is acting in the interest of promoting the active development 15 of such resources, while ensuring that suitable measures are taken to protect human health and 16 safety and the natural environment, 17 (A) to remove impediments to the responsible development of shallow 18 natural gas; and 19 (B) to provide the proper state agencies with clear authority and 20 discretion to adopt regulatory practices appropriate to shallow natural gas exploration 21 and development projects, in recognition of the lower risks posed by such projects to 22 human health and safety and the natural environment [; AND 23 (C) TO RESERVE ALL RIGHTS AND POWERS NOT 24 PREEMPTED BY FEDERAL LAW AND REGULATION IN ORDER TO ASSERT 25 STATE PRIMACY OVER THE REGULATION OF SHALLOW NATURAL GAS]. 26 * Sec. 11. AS 31.05.125 and AS 38.05.177(n) are repealed.