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