Mineral Law Blog - Insight and information for the industrial mineral, aggregate and hardrock mining industry

The State of Alaska has amended state law to provide for extension of the primary term of oil and gas leases on state lands when such extensions are in the best interests of the state. HB 198 authorizes the Commissioners of the Department of Natural Resources (the “Commissioner”) to extend the primary term of an oil and gas lease such that the total term, with the extension, does not exceed ten years. By its terms, the bill will take effect the day after it is signed by the governor or, if the governor neither signs nor vetoes the bill, on the twenty-first day after delivery to him.

A request for extension must be submitted at least 180 days before expiration of the primary term. The Commissioner may consider the following factors in deciding whether an extension is in the best interests of the state:

• The funds expended to explore and develop the lease;
• The types of work completed; and
• Any other relevant information.

For leases that expire less than 180 days after the bill takes effect, the request must be filed at least 30 days before the expiration of the primary term or within ten days of the effective date of the act.

When a lease is extended, the rent during the last three years of the extension period increases to $250 per acre unless the Commissioner determines that the lessee has exercised reasonable diligence to explore and develop the lease and reduces the rent. The Commissioner may also condition the extension on (1) the posting of a performance bond and/or (2) meeting a minimum work requirement by either establishing a minimum amount to be spent or specifying the type and amount of work to be performed or both.

Previously, a non-producing lease that does not contain a well capable of producing in paying quantities could be extended only by drilling or committing the lease to a unit. Unitization requires state approval based upon a finding that it is in the best interests of the state. Because unitizing a lease holds that lease indefinitely (unless contracted from the unit), demonstrating best interests for purposes of unitization could be a significantly higher burden than would be required for a lease extension of a finite term.

As of May 20, 2013, the bill was awaiting transmittal to the governor.

Last week, the U.S. Environmental Protection Agency (EPA) issued a rule that would require notification to EPA before manufacturing, importing or processing a particular type of chemical commonly used in hydraulic fracturing operations.  These chemicals, described as quaternary ammonium compounds, are used in fracking fluids to eliminate bacteria in the water that produces corrosive by-products.

The new rule, promulgated under the Toxic Substances Control Act (TSCA), finds that the use of quaternary ammonium compounds in drilling fluids is a “significant new use” that may cause adverse environmental effects.  EPA made this determination based on a prediction that the compounds may be toxic to aquatic organisms at concentrations in excess of 11 ppb in surface waters.  EPA indicated that it does not expect releases of the compounds to surface waters but also recommended additional testing regarding the potential effects.

As a result of the new rule, effective July 8, 2013, a premanufacture notice must be submitted to EPA at least 90 days before manufacturing, importing or processing quaternary ammonium compounds for use in drilling fluids.  EPA is accepting “written adverse or critical comments” on the rule until June 10, 2013.

This may be the first of many new rules addressing the chemical components of fracking fluids.  None of the other 14 chemicals addressed in the same rule relate to drilling operations.  However, EPA has indicated in the past that it intends to direct fracking fluid disclosure requirements through TSCA.

Co-authored by Michael N. Mills and Robin B. Seifried.

On March 14, 2013, two bills were introduced in the United States House of Representatives that would amend the Clean Air Act and the Clean Water Act to eliminate certain exclusions for oil and gas operations.  First, the Bringing Reductions to Energy’s Airborne Toxic Health Effects Act, HR 1154 (BREATHE Act), Rep. Jared Polis (D-CO), would eliminate the exemption for aggregation of emissions for oil and gas exploration and production wells.  This would require operators to aggregate emissions from all oil and gas operations in a contiguous area and under common control for the purpose of determining whether the combined operations constitute a major source.  The BREATHE Act would also add hydrogen sulfide, commonly associated with oil and gas operations including fracking techniques, to the list of hazardous air pollutants and add oil and gas wells as regulated source categories.  As a result, EPA would be required to establish emissions standards based on the maximum achievable control technology (MACT) to control hydrogen sulfide emissions from oil and gas operations.

Second, the Focused Reduction of Effluence and Stormwater runoff through Hydrofracking Environmental Regulations Act of 2013, HR 1175 (FRESHER Act), Rep. Matt Cartwright (D-PA), would eliminate the permit exemption for stormwater discharges from oil, gas and mining operations and require a study of stormwater impacts from oil and gas operations.  As a result, oil and gas operators would need to obtain stormwater permits associated with any of their industrial activities.  The FRESHER Act would also require the Secretary of the Interior to study the impacts of stormwater runoff from oil and gas operations, including an analysis of any measurable contamination, groundwater resources and the susceptibility of aquifers to any associated contamination.

In short, these bills would remove current exemptions under federal laws for oil and gas operations, including fracking operations, and would result in further regulation of air emissions and stormwater discharges associated with these activities.

Co-authored by Michael N. Mills and Robin B. Seifried.

On Monday, the U.S. Supreme Court declined to review the Ninth Circuit’s decision in the case of Karuk Tribe of California v. United States Forest Service, 681 F.3d 1006 (9th Cir. 2012).  In that case, the Ninth Circuit held that the Forest Service violated the Endangered Species Act (ESA) by failing to consult with wildlife agencies prior to approving a Notice of Intent (NOI) for small-scale mining activities on federal mining claims.

Under Forest Service regulations, a person may submit a NOI for small-scale mining activities such as exploration on mining claims.  Miners prefer the NOI process because they may proceed with their operations after 15 days if the Forest Service does not require a Plan of Operations, which are much more detailed and time-consuming than NOIs.  By requiring consultation under the ESA, the Ninth Circuit’s decision effectively removes the time savings associated with NOIs for mining operations in Forest Service areas with listed species or critical habitat.

Senate Bill 34 (Carbon Capture and Storage Act of 2013), which would close certain key legal gaps that hinder carbon capture and storage in California, lost its sponsor late last week when Senator Rubio (D - East Bakersfield) suddenly resigned.  Earlier this week the Senate Environmental Quality Committee decided to postpone its hearing on SB-34. 

For futher information, please see the attached blog posted to the California Environmental Law http://www.californiaenvironmentallawblog.com/california-carbon-sequestration-bill-faces-uncertain-future/

Co-authored by Michael Mills, Jerry Fish and Eric Martin.