Legislature(2003 - 2004)

03/09/2004 03:17 PM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 364-NATURAL GAS LEASES ON THE KENAI PENINSULA                                                                              
Number 0880                                                                                                                     
CHAIR KOHRING  announced that the  final order of  business would                                                               
be  SPONSOR   SUBSTITUTE  FOR  HOUSE   BILL  NO.  364,   "An  Act                                                               
establishing  a  moratorium  on the  issuance  of  state  shallow                                                               
natural  gas  leases  in  the   vicinity  of  Kachemak  Bay,  and                                                               
precluding the  commissioner of natural resources  from reissuing                                                               
or otherwise extending  leases within the moratorium  area if the                                                               
leases fail to produce gas  in paying quantities within the terms                                                               
of the lease  or if there is  a breach of a term  or condition of                                                               
the lease; and providing for an effective date."                                                                                
The committee took an at-ease from 3:29 p.m. to 3:32 p.m.                                                                       
Number 0960                                                                                                                     
REPRESENTATIVE  PAUL SEATON,  Alaska State  Legislature, sponsor,                                                               
explained the bill's history.  Back  in 1976, the State of Alaska                                                               
bought back the  leases on the offshore portions  of Kachemak Bay                                                               
and included in  that definition the lands south  of the township                                                               
and  the waters  east of  Cook Inlet,  he related.   In  1996 the                                                               
shallow  natural gas  program was  passed, which  provided for  a                                                               
low-cost  lease sale  -  $500  per lease  -  designed for  remote                                                               
areas.   In 1999 the  State of Alaska  excluded the lands  of the                                                               
lower Cook  Inlet peninsula in  the areawide lease sale  for Cook                                                               
Inlet, and  in June of 2003,  the State of Alaska  issued shallow                                                               
natural gas  leases to the  subsurface rights in the  Homer area,                                                               
he said.   He referred  to a map that  show the leased  areas, "a                                                               
hodge-podge   of   state-owned    leases   and   private   leases                                                               
interspersed throughout the urban area of the Homer bench."                                                                     
REPRESENTATIVE SEATON  continued to say that  the shallow natural                                                               
gas programs had no competitive  bidding for the leases, nor best                                                               
interest  findings,  except  for   one  assumed  under  the  1996                                                               
program.    There  was  no   consideration  for  local  comments,                                                               
effective notification, or operational  regulations.  The goal of                                                               
the proposed sponsor substitute is  to make sure that the current                                                               
leases in  the Homer  area are  not extended  or reissued  and to                                                               
exclude these lands from future  shallow natural gas lease sales.                                                               
He said it in no way  complicates the future leasing of this area                                                               
under  an  areawide lease  sale  for  gas.    In fact,  it  would                                                               
actually simplify it, he explained.                                                                                             
Number 1160                                                                                                                     
REPRESENTATIVE SEATON pointed out:                                                                                              
     Section 1  [of the proposed sponsor  substitute] is the                                                                    
     legislative  findings.    Section  2  excludes  certain                                                                    
     lands  in the  vicinity  of Kachemak  Bay from  leasing                                                                    
     under  the  shallow natural  gas  program.   Section  3                                                                    
     prohibits  the  issuance   or  re-issuance  of  shallow                                                                    
     natural gas  leases entered  into before  the effective                                                                    
     date,  if it  turns  out  that there  is  a failure  to                                                                    
     produce payable  quantities of gas, or  if these leases                                                                    
     are relinquished  or illegally transferred.   Section 4                                                                    
     gives an immediate effective date of this bill.                                                                            
REPRESENTATIVE SEATON  remarked that  there are other  bills that                                                               
look at  the shallow  natural gas program,  plan to  terminate it                                                               
for the future, and  go to a gas-only sale.   He spoke of Homer's                                                               
long exclusion from gas production  when it was excluded from the                                                               
areawide lease sales, which somehow  made Homer available for the                                                               
shallow  natural  gas program,  a  program  more appropriate  for                                                               
rural areas.                                                                                                                    
Number 1251                                                                                                                     
REPRESENTATIVE  SEATON  spoke  about  Amendment  1,  which  gives                                                               
discretionary guidelines to  the director of the  Division of Oil                                                               
&  Gas  [DNR]  so  that  "if  someone  has  not  produced  paying                                                               
quantities of gas and has not  started activity on the leases, if                                                               
they haven't  satisfied the director  that they really  intend to                                                               
go  into production  and are  willing to  put some  money up  for                                                               
exploration,  then  the commissioner  has  the  authority to  not                                                               
extend the  leases."  Under  the current  term there is  a three-                                                               
year rollover,  and these could  be extended for three  years, he                                                               
added.   It gives the director  the ability to weigh  whether gas                                                               
production is probable  or not, he concluded.  He  added that the                                                               
people  in Homer  are  overwhelmingly in  favor  of an  immediate                                                               
solution to the  problem, which would be a buy-out.   This is not                                                               
a buy-out bill, he emphasized.                                                                                                  
REPRESENTATIVE SEATON  indicated that  there is  an indeterminate                                                               
section  in the  fiscal note,  however, and  said, "The  director                                                               
would not  be extending the  leases if he doesn't  anticipate the                                                               
development  will take  place, so  there's really  not a  loss of                                                               
revenue because  the director  would have  to determine  that the                                                               
leases are not going to be produced  on anyway."  He said it is a                                                               
zero  fiscal note  other  than the  revenues,  and [Amendment  1]                                                               
would make that zero, as well.                                                                                                  
Number 1480                                                                                                                     
REPRESENTATIVE  CRAWFORD  said  he  was comparing  Version  Q  [a                                                               
proposed CS  labeled 23-LS1464\Q, Chenoweth, 3/4/04,  that hadn't                                                               
been  adopted] with  Version H  [SSHB 364]  and the  amendment in                                                               
both versions  seems to be identical.   He asked if  there is any                                                               
difference between them.                                                                                                        
REPRESENTATIVE  SEATON said  there  are a  few  differences.   He                                                               
referred to  the bold writing  in [Amendment 1] and  related that                                                               
there are a few clean-ups in the language suggested by DNR.                                                                     
REPRESENTATIVE CRAWFORD  asked for clarification, but  then said,                                                               
"Under   (B)   it   says  'likely   prospect'   as   opposed   to                                                               
REPRESENTATIVE SEATON concurred.                                                                                                
Number 1587                                                                                                                     
CHAIR KOHRING asked for clarification  about the area affected by                                                               
the bill.                                                                                                                       
REPRESENTATIVE SEATON  said the  boundaries are  the same  as the                                                               
original  buy-back  of  1976  and  are acceptable  to  DNR.    He                                                               
mentioned  the  Harding  Icefield  to  the  east  as  a  possible                                                               
addition.  He said that lands  in the current areawide lease sale                                                               
are excluded.                                                                                                                   
CHAIR KOHRING asked if the  boundary extended south to the three-                                                               
mile limit.                                                                                                                     
REPRESENTATIVE SEATON said it only  deals with lands and not with                                                               
CHAIR KOHRING asked what the square mileage is.                                                                                 
REPRESENTATIVE  SEATON replied  that  there are  eight leases  of                                                               
nine square miles  each, the area of the Homer  bench from Anchor                                                               
Point to East Homer.                                                                                                            
CHAIR KOHRING inquired if conventional oil is involved.                                                                         
REPRESENTATIVE SEATON  said no,  strictly shallow gas,  except in                                                               
an  unintended  consequence "if  a  producer  could show  that  a                                                               
reservoir  started above  3,000  feet and  then  went down,  they                                                               
could use  this an  excuse to  actually do  conventional drilling                                                               
and conventional gas  production, but they would have  to be able                                                               
to prove that for each reservoir that they were trying to tap."                                                                 
CHAIR KOHRING  opened public testimony  and asked  that testimony                                                               
be limited to three minutes.                                                                                                    
Number 1882                                                                                                                     
PATRICIA MACK spoke as a 53-year  resident of Alaska who lives in                                                               
the Matanuska-Susitna area.  She  asked that the bill be expanded                                                               
to include  Matanuska-Susitna urban areas  in order to  place the                                                               
shallow gas in an area away from people's back yards.                                                                           
Number 1926                                                                                                                     
MYRL  THOMPSON, Member,  Ogan is  So Gone,  agreed that  the bill                                                               
should be  extended to  include the  Matanuska-Susitna area.   He                                                               
remarked that he is in favor of a buy-back.                                                                                     
Number 1960                                                                                                                     
EMILY WARD related  that she owns property outside  of Homer that                                                               
has been  leased.  She said  she received no notice  prior to the                                                               
lease's happening  and didn't find  out until after  three months                                                               
that the  lease took  place.   She voiced  concern that  the bill                                                               
does not  do enough, and said  she favors a buy-back  so that "we                                                               
can start over and do it right."                                                                                                
Number 2055                                                                                                                     
BRIAN HIRSCH,  Member, Kachemak Bay  Property Owners  Alliance, a                                                               
group of  people who strongly  advocate a buy-back, noted  he has                                                               
over 1,000 signatures to that  effect.  He thanked Representative                                                               
Seaton for pushing SSHB 364 forward  and stated his support for a                                                               
moratorium  on  shallow  natural  gas development  in  the  area,                                                               
however;  he said  he also  feels that  the bill  doesn't go  far                                                               
enough  and  enshrines  the  current   situation,  which  is  not                                                               
acceptable to many people.   He called the bill "window dressing"                                                               
and asked  for an inclusion of  a buy-back.  He  voiced a concern                                                               
about the amount of discretion given to the commissioner.                                                                       
Number 2206                                                                                                                     
NINA FAUST,  Member, Kachemak Bay Property  Owners Alliance, said                                                               
she  firmly  believes a  buy-back  is  the  only way  to  address                                                               
property owners'  concerns.   She noted  that the  state, through                                                               
this   lease  sale,   has  declared   22,000  acres   of  Homer's                                                               
residential areas an  industrial zone.  As a  property owner, she                                                               
spoke of her  resentment of de facto zoning.   She mentioned that                                                               
Homer has an economy and  demographics different from the rest of                                                               
the Kenai Peninsula and has  fought oil and gas development since                                                               
the early  1970s.  She  opined that  the area could  best support                                                               
itself  and  contribute  to the  state's  economy  without  heavy                                                               
industrial  development.     She  stated  her   appreciation  for                                                               
Representative  Seaton's   efforts  through  SSHB  364   and  her                                                               
disappointment that  there is  no buy-back  provision.   She also                                                               
voiced a concern  about the bill's giving too  much discretion to                                                               
the commissioner and having no appeal process.                                                                                  
Number 2420                                                                                                                     
REPRESENTATIVE  HOLM asked  if the  Kachemak Bay  Property Owners                                                               
Alliance has taken into consideration  that all of the subsurface                                                               
rights  and the  gas are  owned by  all of  Alaska, not  just the                                                               
people who live in the Homer area.                                                                                              
MS. FAUST said she understands  that, but feels they are entitled                                                               
to due process, which they did not receive.                                                                                     
REPRESENTATIVE  HOLM  suggested  Ms.  Faust is  not  against  the                                                               
utilization [of the gas], just the process that has taken place.                                                                
MS. FAUST  replied that Homer  has worked  for years to  keep out                                                               
heavy  industrial  development,  and  every place  in  the  state                                                               
should not have to have it.                                                                                                     
REPRESENTATIVE HOLM said  he thought that argument  could be made                                                               
everywhere  in  the   state,  but  thanked  Ms.   Faust  for  her                                                               
CHAIR KOHRING  asked if she  and her organization are  opposed to                                                               
coal bed methane in general or just want to achieve a buy-back.                                                                 
MS. FAUST responded that after  seeing all the problems it caused                                                               
in the Lower  48, she is opposed to coal  bed methane development                                                               
in Alaska.                                                                                                                      
CHAIR KOHRING  asked where  Ms. Faust  thought Alaska  should get                                                               
its coal bed methane from.                                                                                                      
MS. FAUST said in appropriate, nonresidential areas.                                                                            
Number 2535                                                                                                                     
REPRESENTATIVE    SEATON,    directing   his    explanation    to                                                               
Representative Holms,  stated that  part of  the problem  is that                                                               
there  was  no notification  given  in  the  Homer area  and  any                                                               
comments  made by  the owners  could  not be  considered by  DNR.                                                               
Under the  original bill  there was an  assumed best  interest of                                                               
developing  shallow  natural gas  wherever  it  occurred in  this                                                               
state, he explained.   It said if there was  any benefit to lease                                                               
production,  then  the  leases  had   to  be  granted,  which  is                                                               
different that any  other leases in Alaska, he added.   It was an                                                               
unintended consequence, he concluded.                                                                                           
Number 2646                                                                                                                     
VIOLA  JERREL,  Ph.D., saying  her  family  has land  within  the                                                               
leased area in Homer, stated  opposition to the drilling for coal                                                               
bed methane and  support of a buy-back, but said  she isn't anti-                                                               
oil.   She echoed some of  the same concerns as  the previous two                                                               
CHAIR  KOHRING asked  Dr. Jerrel  if she  is aware  of the  state                                                               
constitution's allowing the state  to override local regulations,                                                               
go in, and develop  if it is deemed in the  best interests of the                                                               
DR. JERREL asked, "How does that protect us?"                                                                                   
CHAIR KOHRING  clarified that  he is just  making the  point that                                                               
"that ultimate right was not  anything that was bestowed upon the                                                               
state through  any statute  that we  recently passed;  that's per                                                               
the constitution."                                                                                                              
DR.  JERREL  replied,  "We  need to  have  legislators  who  will                                                               
protect  our  rights."   She  thanked  Representative Seaton  and                                                               
Senator Gary Stevens for their help to the Homer area.                                                                          
TAPE 04-8, SIDE B                                                                                                             
Number 2965                                                                                                                     
CHRIS  WHITTINGTON-EVANS,  President,  Friends of  Mat-Su  Board,                                                               
stated  his group's  support  for Homer's  attempts  to push  for                                                               
reacquisition  of leases,  recognizing  that  their situation  is                                                               
similar  to  Mat-Su's.    He  related  that  the  people  in  the                                                               
Matanuska-Susitna  area feel  this  bill should  extend to  their                                                               
area for the same reasons:   not being given due process, no best                                                               
interest  finding,  noncompetitive   leasing,  and  virtually  no                                                               
notification.    The   same  considerations  regarding  conflicts                                                               
between  shallow  and   deep  well  gas  should   be  taken  into                                                               
consideration,  he said.    The valley  leases  deserve the  same                                                               
remedies, he opined, whether they  are a reacquisition or a lease                                                               
MR. WHITTINGTON-EVANS  also stated  opposition to giving  a great                                                               
deal  of discretion  to the  director in  terms of  lease sunset.                                                               
Future  legislative remedies  that  might  include best  interest                                                               
findings and competitive leases are  not very comforting to those                                                               
who  live  on land  that  has  already  been leased  without  due                                                               
process.   The idea of  a sunset is a  compromise, but only  as a                                                               
last  remedy if  a  complete reacquisition  does  not happen,  he                                                               
Number 2757                                                                                                                     
JOHN  MARTIN  also  thanked  Representative  Seaton  and  Senator                                                               
Stevens for their help on this issue.   He related that he is one                                                               
of  the  property owners  whose  land  was  leased by  the  state                                                               
without any  prior notice.   He spoke of  his support for  a buy-                                                               
back in Homer and in the Matanuska-Susitna area.                                                                                
Number 2719                                                                                                                     
CHAIR KOHRING closed public testimony.                                                                                          
REPRESENTATIVE  KERTTULA asked  Mr.  Myers if  the language  that                                                               
deals with the discretion is so  that in the future if the leases                                                               
don't prove up,  which the residents would hope  that they don't,                                                               
then the  director can pull the  leases back.  She  asked if that                                                               
language is  parallel to current  language that  gives discretion                                                               
in other areas.                                                                                                                 
Number 2654                                                                                                                     
MR.  MYERS,  Director,  Division  of Oil  &  Gas,  Department  of                                                               
Natural Resources (DNR), replied  that Representative Kerttula is                                                               
correct and  that there is some  confusion by the public.   Right                                                               
now there is  discretion to extend [the leases]  three years, but                                                               
the discretion  is broad and  has no  sidebars.  The  language in                                                               
SSHB  364  narrows the  director's  discretion  in some  specific                                                               
cases, he explained.                                                                                                            
REPRESENTATIVE KERTTULA said:                                                                                                   
     If we don't  do this, we leave the  discretion so broad                                                                    
     that if  you tried to  use your discretion  there could                                                                    
     conceivably be  a takings case,  and that  the language                                                                    
     in  Representative Seaton's  bill  and  in other  bills                                                                    
     that  are   pending  in   the  legislature,   it  seems                                                                    
     counterintuitive, but what  happens is we've restricted                                                                    
     that so  that you've got  the guidelines to be  able to                                                                    
     follow.    And  I'm   sure  for  the  residents'  side,                                                                    
     hopefully this  plays out, and  you could then  look at                                                                    
     things under  these guidelines  and enforce  the leases                                                                    
     being returned.  Is that right?                                                                                            
Number 2591                                                                                                                     
MR.  MYERS said  that is  correct.   Basically, it  shows clearly                                                               
what  the  legislature intended  -  or  intends  now -  for  that                                                               
discretion to be and how that  discretion is being used, he said.                                                               
It wouldn't give him the ability  to renew a lease if no activity                                                               
has occurred,  and it would  prevent him from issuing  a decision                                                               
that  would be  for  political or  other  reasons, he  explained.                                                               
"It's  the  legislature  narrowing  the  focus  and  limiting  my                                                               
authority," he concluded.                                                                                                       
Number 2560                                                                                                                     
REPRESENTATIVE HOLM  asked when all  these leases were  sold, for                                                               
how much, and how much a buy-back would cost.                                                                                   
MR. MYERS replied that the leases  in the Homer area were applied                                                               
for in  2000 and issued  in June 2003  with a purchase  price, at                                                               
the time, of $500 per lease,  but the fees have since been raised                                                               
to $5,000.                                                                                                                      
REPRESENTATIVE HOLM asked what that translates to.                                                                              
MR. MYERS  responded that all  eight leases  went for a  total of                                                               
$4,000, but  there is also  a rental fee of  $1 per acre.   There                                                               
are 22,000  acres, so that's $22,000  in rental fees.   The exact                                                               
figure of total rentals is $20,641 per year, he noted.                                                                          
REPRESENTATIVE HOLM  asked if  the maximum  amount of  money this                                                               
year is $24,000.                                                                                                                
MR.  MYERS said  that is  correct unless  production occurs,  and                                                               
then there would be royalties and severance tax.                                                                                
REPRESENTATIVE  HOLM asked  what the  potential for  drilling is,                                                               
and stated  that it is an  awfully low price for  tying up 22,000                                                               
acres for endless speculation.                                                                                                  
MR.  MYERS said  that  was  one of  the  issues  of the  original                                                               
shallow  gas-leasing program.    He opined  that legislation  was                                                               
passed  to  provide  a  very  low threshold  so  there  could  be                                                               
accelerated  exploration   and  development  for   rural  energy,                                                               
particularly  for natural  gas,  in areas  where  they are  using                                                               
diesel fuel  and didn't have  a reasonable alternative  source of                                                               
energy.   All  land outside  of areawide  lease sales  or current                                                               
exploration licenses in  the state was eligible  for the program,                                                               
so the leases went for less  than the cost of conventional leases                                                               
and  they  were noncompetitive.    The  administrative costs  are                                                               
higher than the money received, he added.                                                                                       
MR. MYERS  continued, saying  the other side  of the  equation is                                                               
that the  [Homer] area does  have potential for  conventional gas                                                               
and the  coal seams  are of  the right type  so coal  bed methane                                                               
could  be  extracted.    The  intent  of  Union  Oil  Company  of                                                               
California (Unocal) would  be to look at conventional  gas, as it                                                               
appears  to  no longer  be  interested  in  coal bed  methane  in                                                               
Alaska,  he  said.   There  is  reasonable potential  for  fairly                                                               
significant quantities of gas, he concluded.                                                                                    
Number 2337                                                                                                                     
REPRESENTATIVE HOLM asked  if a different type of  lease would be                                                               
needed for natural gas extraction.                                                                                              
MR. MYERS stated  that one of the confusions is  that the shallow                                                               
gas lease  allows for any  gas production  on that lease,  but it                                                               
allows it  only at specified depths.   The way the  current lease                                                               
reads it  requires some of the  geologic field to be  above 3,000                                                               
feet.   "The intent was  that if  you drilled something  at 3,000                                                               
feet and  it was  in communications  with parts  of a  field that                                                               
geologically  dips  downward below  3,000  feet,  that you  could                                                               
continue  to produce  that same  field or  that same  reservoir."                                                               
Conventional  gas  and  cold  bed methane  is  included  in  that                                                               
concept.   He  termed  this "depth-limited  leases," which  means                                                               
that some of the geological  potential at deeper depths could not                                                               
be realized and  the state would retain 100  percent ownership of                                                               
that resource.  If part of  the coal bed methane were above 3,000                                                               
feet, then it could continue  to be developed from deeper depths,                                                               
he said.  All gases could  be developed under one lease, but only                                                               
to a certain depth, he concluded.                                                                                               
REPRESENTATIVE  HOLM asked,  if  coal bed  methane  gas is  found                                                               
between  3,000-4,000 feet,  whether  the state  could change  the                                                               
lease  process and  add  another type  of  lease requirement  for                                                               
conventional gas.                                                                                                               
MR. MYERS replied:                                                                                                              
     Right now,  because there is  no best  interest finding                                                                    
     in the areas  that have shallow gas leases,  we have no                                                                    
     vehicle  to lease  the land  except for  potentially an                                                                    
     exploration  license   that  might  be   granted,  but,                                                                    
     basically, it would  be difficult to come  in and lease                                                                    
     on the  top, and in  some cases we legally  couldn't do                                                                    
     it, and other  cases where we could  it, would probably                                                                    
     not be  advisable because of what's  called correlative                                                                    
     rights problem.   There would be  arguments about whose                                                                    
     gas  is  really  there   between  3,000-4,000  feet  or                                                                    
     between 3,000-5,000 feet.  There  would be trouble with                                                                    
     legal challenges and enough  geological data would have                                                                    
     to be acquired to try to sort it out.                                                                                      
MR. MYERS continued  to say that it makes more  sense to drill as                                                               
few  wells  as possible  and  have  all  of the  rights  explored                                                               
REPRESENTATIVE   HOLM  thanked   Mr.   Myers  for   all  of   his                                                               
Number 2031                                                                                                                     
REPRESENTATIVE  SEATON  noted  that  Amendment  1  has  not  been                                                               
offered.    He pointed  out  that  in  the members'  packets  are                                                               
resolutions  from all  of the  government  entities that  support                                                               
this bill or the buy-back.  He  pointed out on the map the extent                                                               
of the  leases to show that  there are many leases  which are not                                                               
opposed.  "It's  not as if the people in  this area are uniformly                                                               
against anything  happening," he remarked.   He called  the Homer                                                               
area extremely  unique in that  it has consistently  come forward                                                               
with a  different plan  for economic development  in Alaska.   He                                                               
continued  to point  out urban  areas  that are  affected by  the                                                               
leases   and  noted   that  the   Kenai   Borough  gave   [Homer]                                                               
extraterritorial control  over the watershed  to protect  it, and                                                               
now  it is  leased  out for  coal bed  methane  with no  drilling                                                               
restrictions.  He requested that  the committee "let us constrain                                                               
this  time  frame from  a  6-year-time  window to  a  3-year-time                                                               
window," and give that authority to the commissioner.                                                                           
CHAIR KOHRING asked where "5 south and 14 west" are on the map.                                                                 
[Representative Seaton indicated those boundaries on the map.]                                                                  
CHAIR KOHRING asked for closing remarks.                                                                                        
REPRESENTATIVE SEATON said he  would appreciate the consideration                                                               
of the  committee of [Amendment 1],  which adds to the  bill, and                                                               
he said he believes that [SSHB  364] is a bill that House Special                                                               
Committee on Oil and Gas could support.                                                                                         
CHAIR KOHRING said  his intent is not to take  action to move the                                                               
bill out of committee today.                                                                                                    
Number 1781                                                                                                                     
REPRESENTATIVE HOLM  suggested that since [Amendment  1] would be                                                               
contained  in  the  [proposed]  CS,  the  committee  could  adopt                                                               
the CS.                                                                                                                         
REPRESENTATIVE SEATON  pointed out that  some of the  language of                                                               
[Amendment 1]  has been changed  to reflect DNR's  preferences on                                                               
language from the  proposed CS.  He requested  that [Amendment 1]                                                               
be adopted so a new CS could be drafted.                                                                                        
Number 1735                                                                                                                     
REPRESENTATIVE  HOLM [moved  to  adopt Amendment  1], which  read                                                               
[original punctuation provided]:                                                                                                
     Page  3,  line  10;  Insert  new  Section  3;  renumber                                                                    
     sections accordingly.                                                                                                      
     *Sec. 3.   AS 38.05.177(d) is amended to read:                                                                           
          (d) A lease                                                                                                           
               (1) shall be automatically extended if and                                                                   
     for so  long thereafter  as gas  is produced  in paying                                                                    
     quantities from  the lease and the  lessee continues to                                                                    
     meet  all requirements  of  the lease;  a  [. A]  lease                                                                
     issued under this section covering  land on which there                                                                    
     is  a   well  capable   of  producing  gas   in  paying                                                                    
     quantities does not expire because  the lessee fails to                                                                    
     produce  gas unless  the lessee  is allowed  reasonable                                                                    
     time to  place the  well on a  producing status;  if [.                                                                
     IF] drilling  has commenced on  the expiration  date of                                                                    
     the primary  term of  the lease  and is  continued with                                                                    
     reasonable  diligence,  including  such  operations  as                                                                    
     redrilling, sidetracking,  or other means  necessary to                                                                    
     reach  the originally  proposed  bottom hole  location,                                                                    
     the  lease is  extended for  one year  and for  so long                                                                    
     thereafter as  gas is produced in  paying quantities; a                                                                
     [.  A] gas  lease  issued under  this  section that  is                                                                    
     subject  to  termination  by  reason  of  cessation  of                                                                    
     production does not terminate if,  within 90 days after                                                                    
     production ceases or a longer  period determined at the                                                                    
     discretion  of  the  director,  reworking  or  drilling                                                                    
     operations are  commenced on the  land under  lease and                                                                    
     are  thereafter  conducted  with  reasonable  diligence                                                                    
     during the period of nonproduction;                                                                                    
               (2) issued under (c) of this section before                                                                  
     January 1, 2004,  may be extended at  the discretion of                                                                
     the  director;  a  lease may  be  extended  under  this                                                                
     paragraph  [.   IN ADDITION,]  upon application  by the                                                                
     lessee; [,] the director may  once extend the [A] lease                                                            
     [ISSUED UNDER (c) OF THIS  SECTION] for a period of not                                                                    
     more  than three  years;  in  exercising discretion  to                                                                
     extend a  lease under this paragraph,  the director may                                                                
     not extend the lease unless the director considers                                                                     
               (A)  the extent of the shallow natural gas                                                                   
     exploration  activity already  conducted  on the  lease                                                                
     and on adjacent areas;                                                                                                 
               (B)  the probability that further shallow                                                                    
     natural  gas exploration  activity  will  occur on  the                                                                
     lease and will lead  to shallow natural gas development                                                                
     and production; and                                                                                                    
               (C)  whether extension of the lease's                                                                        
      primary term will accelerate the eventual production                                                                  
     of shallow natural gas from the lease.                                                                                 
Number 1720                                                                                                                     
CHAIR KOHRING asked whether there was any objection.  Hearing no                                                                
objection, he indicated Amendment 1 was adopted.  [SSHB 364 was                                                                 
held over.]                                                                                                                     

Document Name Date/Time Subjects