The shallow natural gas program created by HB 394 exempted shallow natural gas leases from a "best interest finding."  It did not require competitive bidding. Any applicant for a lease specified the area they wished to lease on a first-come first-serve basis. Within 20 days of receipt of the lease application, the DNR director was required to give notice & call for comments from the public. If the director determined that the discovery of a local source of natural gas "would benefit the residents of an area," the director was required to execute a lease. The applicant's fee could be $500 or less & an annual rent of 50 cents per acre was required. The area leased could not exceed 5,760 acres & total leases held could not exceed 46,080 acres; the lease term was 3 years & could be extended as long as gas was produced in "paying quantities;" the well depth could not exceed 3,000 ft; royalties paid ranged from 6.25% to 12.5%; and, proof of financial responsibility was required @ $25,000 per incident for a facility used to explore for CBM.  

Coal bed methane drilling was exempted from discharges of solid or liquid waste material or water discharges if the discharge was incidental to the activity and the activity didn't produce a discharge from a point source directly into any surface water. CBM exploration facilities were not required to have an oil discharge prevention & contingency plan.

HB 394, by allowing any applicant for a CBM lease to specify the area to be leased, gave outside corporations de facto authority to "zone" the areas they leased as "industrial" -- regardless of whether the areas primary use had been residential or recreational.  This was an indefensible give-away of state authority to the lower-48 CBM industry. In addition, it left local property owners, whose subsurface mineral rights were owned and leased by the state, at the mercy of the industry which could drill on their property as it saw fit.

(S) RES, FIN (waived) 

(only two nay  votes: Reps Brown & Finkelstein)

Effective:
10/9/96

Bill Text

The original program (HB 394) was intended to encourage a new energy supply for villages, mines and other rural users. However, the program became a vehicle for commercial gas development in Fairbanks, Big Delta, Mat-Su Valley and the Lower Kenai Peninsula. SB 319 was intended to "advance" the program into a viable commercial program.  Fees for shallow gas leases were increased from $500 to $5,000 and an annual rental fee was increased from $0.50 to $1.00 per acre to "increase revenue and pay for the program costs."

The requirement that DNR annually notify a lessee by certified mail of rent due was deleted. Rent would automatically be due on the date determined in the lease. 

The limitation on depth to 3,000 ft. was replaced with the requirement that "some portion of the field" must be within 3,000 ft.

The total amount of acreage that may be held by shallow natural gas lessees was increased from 46,080 acres to an aggregate of 138,240 acres.  DNR now conducts title searches rather than the applicant. 

New bonding provisions ($25,000 per incident, unless statewide bond of $500,000 already posted) were designed to demonstrate lessees were fiscally responsible and help protect surface owners. The lessee had to secure the bond as a precondition for obtaining a lease.

Lessees had 90 days to convert leases from the existing program to the new program if they desired. 

(H) O&G, RES 

(unanimous vote - Rep Masek absent)

Effective:
7/1/02

Bill Text

HB 69 streamlined the leasing process by removing coal bed methane (CBM) gas leasing and development from conventional oil and gas regulations.  It gave the Alaska Oil and Gas Conservation Commission (AOGCC) the authority to exempt CBM development -- without public notice and a hearing -- from state drilling regulations where CBM "operations might be unduly delayed." CBM operations were not required to have an oil discharge prevention & contingency plan.

HB 69 limited local government authority to regulate coal bed methane drilling.  It allows the state Department of Natural Resources (DNR) to approve a waiver of 1) local planning authority approval and 2) the requirements relating to compliance with local ordinances and regulations, if the state finds there is an "overriding state interest."

HB 69 was designed to greatly expand the shallow natural gas industry by "reforming existing laws & regulations" and removing "impediments." It had the support of Evergreen Resources and other CBM companies. It was touted as a good economic-development bill which encouraged more growth and had a "low-impact environmentally," because of the drilling methods employed and because wells were drilled "at very shallow depths." Yet,  HB 69 extended the depth permitted for shallow natural gas wells from 3,000' to 4,000'. More importantly, the industrial development it promoted would take place in the midst of the fastest growing population center in the state.  The Mat-Su Borough & other local governments were left toothless to plan or regulate CBM development in keeping with the desires of local constituents -- just what the industry wanted.

(S) RES

(Nays:
Sen Ellis & Reps Berkowitz, Crawford, Croft, Gara, Gruenberg, Guttenberg,
Joule, Kookesh, Moses, Ogg, Seaton

Excused:
Reps Cissna, Kapsner, Kerttula)

Effective:
Immediately

Bill Text

Last Updated:  3/11/04