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28th Legislature(2013-2014)

Bill Text 28th Legislature


00 Enrolled HB 198                                                                                                         
01 Relating to the primary period of an oil and gas or gas only lease and the extension of a lease;                        
02 relating to terms to be included in an oil and gas or gas only lease; relating to rental for an oil                     
03 and gas or gas only lease; and providing for an effective date.                                                         
04                           _______________                                                                               
05    * Section 1. AS 38.05.180(h) is amended to read:                                                                   
06            (h)  The commissioner may include terms in any lease imposing a minimum                                      
07       work commitment on the lessee. Except as provided in (m) of this section, these                               
08       [THESE] terms must [SHALL] be made public before the sale, and may include                                    
09       appropriate penalty provisions to take effect in the event the lessee does not fulfill the                        
10       minimum work commitment. If it is demonstrated that a lease has been proven                                       
11       unproductive by actions of adjacent lease holders, the commissioner may set aside a                               
12       work commitment. The commissioner may waive for a period not to exceed one two-                                   
13       year period any term of a minimum work commitment if the commissioner makes a                                     
01       written finding either that conditions preventing drilling or exploration were beyond                             
02       the lessee's reasonable ability to foresee or control or that the lessee has demonstrated                         
03       through good faith efforts an intent and ability to drill or develop the lease during the                         
04       term of the waiver.                                                                                               
05    * Sec. 2. AS 38.05.180(m) is amended to read:                                                                      
06            (m)  An oil and gas lease or a gas only lease must cover a reasonably compact                                
07       area not exceeding 5,760 acres, and may be for a maximum period of 10 years, except                               
08       that the commissioner may issue a lease for a period not less than five years upon a                              
09       finding that it is in the best interests of the state. An oil and gas lease or gas only lease                 
10       shall be extended beyond its primary term [AUTOMATICALLY EXTENDED] if,                                    
11       at the end of the primary term, oil or gas is produced in paying quantities from                              
12       the lease and for so long thereafter as oil or gas is produced in paying quantities from                      
13       the lease or if the lease is committed to a unit approved by the commissioner. If a                           
14       lease is not automatically extended under this subsection, the commissioner may                               
15       approve a one-time extension of the primary term of an oil and gas lease or gas                               
16       only lease upon written application by the lessee if the commissioner finds that                              
17       the extension is in the best interest of the state. A person requesting a one-time                            
18       extension shall send the request to the commissioner at least 180 days before the                             
19       expiration date of the primary term of the lease. The length of the primary term                              
20       of the lease combined with the term of the one-time extension may not exceed a                                
21       total of 10 years. The commissioner shall consider the funds expended by the                                  
22       lessee to explore and develop the lease, the types of work completed by or on                                 
23       behalf of a lessee, and any other relevant information in deciding whether to                                 
24       extend the lease. Notwithstanding the provisions of (h) of this section, the                                  
25       commissioner may condition a lease extension on posting of a performance bond                                 
26       by the lessee, meeting a minimum work commitment, or both. The work                                           
27       commitment, if required, must be expressed in terms of money to be spent or                                   
28       type and amount of work to be performed [, AND A GAS ONLY LEASE SHALL                                         
29       BE AUTOMATICALLY EXTENDED IF AND FOR SO LONG THEREAFTER AS                                                        
30       GAS IS PRODUCED IN PAYING QUANTITIES FROM THE LEASE OR IF THE                                                     
31       LEASE IS COMMITTED TO A UNIT APPROVED BY THE COMMISSIONER]. A                                                     
01       lease issued under this section covering land on which there is a well capable of                                 
02       producing oil or gas in paying quantities does not expire because the lessee fails to                             
03       produce oil or gas unless the lessee is allowed reasonable time to place the well on a                            
04       producing status. Upon extension, if oil or gas is produced in paying quantities                              
05       from the lease or the lease is committed to a unit approved by the commissioner,                              
06       the commissioner may increase lease rentals so long as the increased rental rate does                             
07       not exceed 150 percent of the rate for the preceding year. If the commissioner grants                         
08       a one-time lease extension, upon extension, the rental for the last three years of a                          
09       lease extension shall increase to $250 an acre for each year, except that, at the                             
10       commissioner's discretion, the rental may be less than $250 an acre if the                                    
11       commissioner determines that a lessee has exercised reasonable diligence to                                   
12       explore and develop the lease during the primary term. If drilling, including                             
13       operations such as redrilling, sidetracking, or using other means necessary to                                
14       reach the originally proposed bottom hole location, has commenced on the                                      
15       expiration date of the primary term of the lease and is continued with reasonable                                 
16       diligence [, INCLUDING SUCH OPERATIONS AS REDRILLING,                                                             
17       SIDETRACKING, OR OTHER MEANS NECESSARY TO REACH THE                                                               
18       ORIGINALLY PROPOSED BOTTOM HOLE LOCATION], the lease continues in                                                 
19       effect until 90 days after drilling has ceased and for so long thereafter as oil or gas is                        
20       produced in paying quantities. An oil and gas lease or a gas only lease issued under                              
21       this section that [WHICH] is subject to termination by reason of cessation of                                 
22       production does not terminate if, within 60 days after production ceases, reworking or                            
23       drilling operations are commenced on the land under lease and are thereafter                                      
24       conducted with reasonable diligence during the period of nonproduction.                                           
25    * Sec. 3. AS 38.05.180(n) is amended to read:                                                                      
26            (n)  The commissioner may establish by regulation that after a well has been                                 
27       plugged and abandoned, the rental rate that [WHICH] was in effect during the year of                          
28       abandonment is maintained for the remainder of the term. Rental is payable in advance                             
29       and continues until income to the state from royalty or net profit share exceeds rental                           
30       income to the state for that year. Except as provided in (m) and (w) of this section                          
31       [UNDER THIS SUBSECTION],                                                                                          
01                 (1)  an [LEASES FOR] oil and gas or [FOR] gas only lease must                                   
02       [SHALL] provide for payment to the state of rental on the following basis:                                        
03                      (A)  for the first year, $1.00 an [PER] acre;                                                  
04                      (B)  for the second year, $1.50 an [PER] acre;                                                 
05                      (C)  for the third year, $2.00 an [PER] acre;                                                  
06                      (D)  for the fourth year, $2.50 an [PER] acre;                                                 
07                      (E)  for the fifth and following years, $3.00 an [PER] acre;                                   
08                 (2)  if the lessee under a gas only lease demonstrates to the                                           
09       commissioner that the potential resources underlying the lease are reasonably                                     
10       estimated to be only nonconventional gas,                                                                         
11                      (A)  the rental payment is $1.00 an [PER] acre until the lease                                 
12            expires or paying quantities of conventional oil or gas are discovered                                       
13            underlying the lease; and                                                                                    
14                      (B)  if the nonconventional gas produced will not be in direct                                     
15            competition with gas on which a royalty at a rate of at least 12.5 percent is                                
16            payable, then the royalty share payable to the state on all production of gas                                
17            from the pool attributable to that lease shall be 6.25 percent based on [UPON]                           
18            production delivered in pipeline quality and free of all lease expenses,                                     
19            including separation, cleaning, dehydration, gathering, salt water disposal, and                             
20            preparation for transportation off the lease.                                                                
21    * Sec. 4. The uncodified law of the State of Alaska is amended by adding a new section to                          
22 read:                                                                                                                   
23       TRANSITION. A lessee of an oil and gas lease or gas only lease for which the                                      
24 primary term of the lease ends within 180 days after the effective date of sec. 2 of this Act                           
25 that chooses to apply for a one-time extension of the primary term of the lease under                                   
26 AS 38.05.180(m), as amended by sec. 2 of this Act, shall submit a written application for the                           
27 extension 30 days before the end of the primary term of the lease or within 10 days after the                           
28 effective date of sec. 2 of this Act.                                                                                   
29    * Sec. 5. This Act takes effect immediately under AS 01.10.070(c).                                                 
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