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Proposed bill would change leasing rules Legislation would end Alaska’s over-the-counter shallow gas leasing program Larry Persily Petroleum News Government Affairs Editor
Alaska’s over-the-counter leasing program for shallow gas exploration would end under legislation introduced by the state Senate Resources Committee.
The bill would instead require explorers to apply for leases under the state’s competitive-bid programs of exploration licensing or areawide leasing, both of which require the Department of Natural Resources to issue a best interest finding. Such a determination is not required of the non-competitive, over-the-counter shallow gas leasing program.
Senate Bill 312, as presented Feb. 9, would exempt all existing shallow gas leases from the new laws, as well as any lease applications received by the state before Jan. 1, 2004. The state would continue to administer those leases under existing laws, said Mark Myers, director of the Oil and Gas Division at the Department of Natural Resources.
Alaska’s attempt to start up a coalbed methane industry ran into vocal opposition over the past year from residents in leased areas north and south of Anchorage. Matanuska-Susitna Borough and Homer residents complained of what they said were inadequate public notices of the over-the-counter leases, in addition to finding fault with the ease with which developers were able to lease subsurface rights beneath their private surface holdings. Residents didn’t understand subsurface rights Many residents were unaware that their property ownership covered only surface rights and not any minerals underground, which are held by the state and subject to lease.
Much of their anger was directed at Sen. Scott Ogan, R-Palmer, chair of the Senate Resources Committee, who was employed by Denver-based Evergreen Resources Inc. until he resigned the job last year. Some residents said Ogan’s dual employment, which is allowed under state law, presented a conflict of interest. The senator has denied the accusations.
The senator’s committee aide said Ogan introduced the bill at the request of the Department of Natural Resources. No hearings were scheduled as of Feb. 11.
Myers said the department is reviewing the 45-page bill, which he called “a work in progress.”
The legislation’s intent, he said, is to bring all future non-conventional drilling leases under the state’s competitive-bid leasing programs with their requirements for more public notice.
Competitive bid awards for areawide leasing are based on the value of bonuses offered by bidders, while exploration licensing is judged on bidders’ work commitments for the acreage. The existing shallow gas leasing program, originally designed to promote exploration and production in rural areas, requires just a $5,000 fee per lease. ‘Non-conventional gas’ better definition The legislation also would replace the term “shallow gas” with “non-conventional gas” in state leasing laws to specify that such production could include coalbed methane, gas hydrates or shale gas. Myers said it makes more sense to define non-conventional drilling by the type of deposit and production method rather than an arbitrary depth of the wells.
“In reality, the depth is not the relevant factor” in determining if gas is conventional or non-conventional production, he said.
The legislation also would clarify that the Department of Natural Resources can issue leases for gas-only production. And the bill would allow the department to set the state’s royalty share for non-conventional gas production at 6.25 percent instead of the full 12.5 percent for rural areas where the new gas supplies would not compete with existing supplies that pay the full royalty rate.
Senate Bill 312 is one of six shallow gas bills introduced in the first month of the session. Lawmakers face a May 12 adjournment deadline.
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