Collecting on surface damage

New laws would deal with damage claims from CBM development in Alaska

Larry Persily

Petroleum News Government Affairs Editor

The 86 lines of proposed new laws in Senate Bill 240 are intended to solve several of the most contentious issues for development of coalbed methane reserves in Alaska — determining if private property is damaged by drilling for its subsurface resources, putting a dollar amount on any damages, and collecting for any harm to the property’s value.

The legislation also would impose new requirements for notifying property owners when the state leases out the ground beneath their surface rights.

Property owners in the Matanuska-Susitna Borough and near Homer this past year learned three things about their land: they don’t own the subsurface rights; the state, which holds the rights, has leased more than a quarter-million acres for coalbed methane exploration; and, third, state law doesn’t give property owners veto power over access to their land by companies wanting to drill.

A lack of any requirement in state law for notice to individual property owners of such leases also added to the debate this past year.

Lawmakers expected they would see legislation dealing with the issue of coalbed methane, or shallow gas, when they returned to work Jan. 12 for the start of their annual 121-day session. Senate President Gene Therriault did not disappoint them. He said he took legislation that former Sen. Rick Halford had attempted several years ago, “dusted it off” and introduced it for consideration this year.

“It’s a starting point for discussion,” Therriault said.

Halford, a Chugiak Republican, represented the Matanuska-Susitna Borough until his retirement in 2002. Therriault, a North Pole Republican, represents a large district that stretches as far away as Sutton at the northern end of the gas-prospect borough.

Therriault’s bill defines “damages” as interference or interruption with the owner’s use of or access to the property, including the “the actual cost of repair, relocation, replacement or restoration of the property … not to exceed the fair market value.” A claim for damages must be based on “the owner’s actual use of the property” before any on-site exploration activity started. State statute requires coalbed methane exploration companies and other subsurface leaseholders to pay property owners for damages to their land, although it provides no definition for damages. Companies may either negotiate with landowners to cover potential damages before entering the property or, if negotiations fail, post a bond to cover possible damage claims.

Therriault said his intent is to clarify the process for all sides. Under his legislation, damage claims would be limited to the greater of any loss of income to property owners or loss in value of their land caused by drilling or other activity under the subsurface lease. The bill also would allow punitive damages if the property owner could prove that the leaseholder knowingly violated “a material term or condition” of an operating plan for the lease activities.

Because existing law provides no guidance for determining the amount of surety bond required to protect property owners who are unable to negotiate a contract to cover potential damages, Therriault’s bill directs the Department of Natural Resources to set the bond at the assessed value of the property or $100,000, whichever is greater.

The bill also bars claims against property owners for any damages incurred by leaseholders entering the property, unless it can be proven that the land owner acted with “intentional misconduct.”

A new section of law in the bill would require the Department of Natural Resources to notify individual property owners of subsurface leases on their property before any activity occurs on the property. The notice would have to include a copy of a state-approved plan for the activity, a summary of the activity, and “a brief description in writing of the legal rights of the owner.”