Draft North Slope Area Plan Available for Public Review and Comment

Stoel Rives is actively monitoring developments in the North Slope Area Plan (NSAP).  This week, the Public Review Draft of the NSAP was issued for public review and comment. Comments must be received by mail, email, fax, or through the online public comment portal by not later than July 15, 2020. Comments may also be hand delivered to the DNR Resource Assessment and Development Section office in Anchorage during normal business hours of operation.

We will continue to monitor developments related to the NSAP and provide updates.  However, should you have questions related to the NSAP or the Public Review Draft, please contact our office.

Alaska’s Mineral Tenure Statutes Amended

Governor Mike Dunleavy signed Senate Bill (“SB”) 155 amending Alaska’s mineral tenure statutes, effective April 30, 2020. The legislation addresses issues regarding qualification to hold state mining claims, location of claims, statements of annual labor, and automatic abandonment of mining claims. The amendments and additions to the statutes clarify a number of issues and assure that state mining claims are not deemed abandoned without due process.

Qualifications

SB 155 amends AS 38.05.190 to clarify who may hold exploration and mining rights. As amended, the law expressly authorizes limited liability companies qualified to do business in Alaska and registered trusts to acquire and hold state mining claims. Previously, it was not clear that these types of entities could hold claims, or what effect such ownership may have on the claims. The amendments include a notice and cure process by which the Department of Natural Resources (“DNR”) may void a mining interest if a qualification defect is not cured within 90 days after notice. The requirement that an owner be a citizen of the United States or a business entity organized in the United States, with limited exceptions, remains in the statute. Continue Reading

Alaska DNR Issues Guidance for Placer Mining Operations During COVID-19

The Department of Natural Resources (“DNR”) Division of Mining, Land and Water has issued guidance for placer mining operations to comply with the state’s COVID-19 health mandates. Mining is identified as “critical infrastructure” in the Alaska Essential Services and Critical Workforce Infrastructure Order. Before traveling to their placer operation, and while at their operation, miners must practice appropriate social distancing and comply with Health Mandate 10 regarding interstate travel and self-quarantine, and Health Mandate 12 regarding intrastate travel.

Miners traveling from outside of the state are required to quarantine for 14 days upon arrival. This quarantine must occur before miners begin to acquire supplies or mobilize their placer operations. Miners who are located in the state and those who have completed the required 14-day quarantine should purchase supplies and provisions in their local home area before traveling to their placer operation. Additionally, if workers are required to travel between communities, a plan must first be submitted to the state outlining how they will avoid spreading COVID-19.

Alaska Suspends Fees for Easements, Rights-of-Way, and Mining Leases

State of Alaska Governor Mike Dunleavy has issued COVID-19 Disaster Order of Suspension No 2, suspending a long list of statutory and regulatory provisions. The list of suspended statutes includes AS 38.05.850 which authorizes the state to grant easements and rights-of-way for roads, pipelines, and other facilities associated with the extraction of minerals. Under such authorizations, payment due dates are suspended and no late fees will be charged. The Order suspends each statute or regulation until 11:59 p.m. on May 11, 2020, unless otherwise noted.

Also, the Division of Mining, Land and Water has issued a finding that payments due under a land sale contract or lease “that are or will be prevented because of the COVID-19 pandemic are prevented by an act of God and may be extended” until 5:00 p.m. on July 10, 2020. The extension expressly applies to an Upland Mining Lease, a Mill Site Lease, and an Offshore Mining Lease. To qualify for the extension, an affected person must submit a written request including an explanation of how the COVID-19 pandemic has prevented or will prevent their compliance with the required land sale contract or lease payment.

AOGCC Implements Electronic Permitting Procedures in Response to Office Shutdowns Caused by COVID-19

tax creditLast month, the Alaska Oil and Gas Conservation Commission (AOGCC) announced that it would be implementing electronic permitting procedures in response to office shutdowns caused by COVID-19. The electronic process will also serve as the initial step in developing a fully electronic permitting and reporting system.

The initial system will utilize “AOGCC-designed fillable PDF and Excel forms, emails, and secure FTP sites provided by each Operator.” The Industry Guidance Bulletin 20-001, released by AOGCC, provides guidance on how to complete permit to drill and sundry applications. The Industry Guidance Bulletin 20-002 includes instructions for filling out and submitting AOGCC-designed forms for sundry and well completion reports.

As of April 1, all sundry reports and well completion reports must be submitted via digital formal. Also effective April 1, “Operators shall hold data submittals until a secure, operator-hosted FTP server is available for AOGCC access, which shall be no later than April 20, 2020.” All materials submitted electronically will be stored in accordance with AOGCC’s confidential documents protocols.

Reversing 30-Year Policy, U.S. DOJ Says Settlements Can No Longer Include Supplemental Environmental Projects (SEPs)

This post was co-authored by Beth Ginsberg & Krista McIntyre.

The U.S. Department of Justice (U.S. DOJ) recently issued a memorandum stating that settlements, including consent decrees, entered by the Environmental Protection Agency (EPA) and other federal agencies can no longer include a Supplemental Environmental Project (SEP), unless the SEP is expressly authorized by Congress. Companies and individuals accused of violating environmental laws and permits, like Clean Air Act and Clean Water Act permits, commonly agree to perform SEPs to fund projects that go beyond compliance instead of paying a higher cash penalty to the U.S. Treasury. Going forward, companies, individuals, and local governments will no longer have SEPs as a settlement option.

To support this policy reversal after more than 30 years, U.S. DOJ cites to the Miscellaneous Receipts Act, which grants only Congress the authority to decide how to appropriate federal funds. The U.S. DOJ views SEPs as federal funds, and, in U.S. DOJ’s opinion, the EPA and other federal agencies lack the authority to divert those funds to third party recipients and to select the projects that should receive the funds. The power of the purse rests squarely with Congress. “[W]ith SEPs, money otherwise destined for the Treasury finds its way to another destination, not at the insistence of Congress, where the Constitution puts that authority, but instead at the insistence of an administrative agency, or a non-federal entity, or some combination thereof.” Continue Reading

PHMSA Issues Guidance on Enforcement During COVID-19 Outbreak

Like many other regulators, on March 20, 2020 the Pipeline and Hazardous Materials Safety Administration (PHMSA) released guidance on enforcement activity during the novel coronavirus (COVID-19) outbreak. The guidance states that “PHMSA does not intend to take any enforcement action with regard to [operator qualification] and [control room management] requirements, and will consider exercising its enforcement discretion with regard to Part 199 drug testing requirements.” PHMSA is “taking into consideration the exigent circumstances” that may cause regulated operators difficulty in compliance with:

  • 49 C.F.R. §§ 192.801-.809, 193.2707-.2709, 193.2713-.2717, and 195.501-.509 (operator requirements); and
  • 49 C.F.R. §§ 192.631(d)(4) and 195.446(d)(4) and (h) (control room requirements).

PHMSA’s guidance provides that operators unable to maintain compliance with the regulations should communicate with their regulator and maintain documentation explaining:

  • what specific requirements are not being met;
  • how the noncompliance is related to COVID-19; and
  • what alternative measures are being taken to ensure safety.

Continue Reading

Update on Alaska’s Ongoing Budget, Regulatory and Tax Disputes

tax creditIn my latest State Tax Notes column, I provide an update on H.B. 331, which was passed by the State Legislature in 2018 to create a mechanism to finance the purchase of some $700 million in outstanding rebatable tax credits. I also look at continuing budget tensions in the state, efforts to reduce and simplify various regulations, and the Alaska ‘Fair Share Act’ Initiative, which if enacted would impose a sizable tax increase on some North Slope oil producers.

A lawsuit was filed in 2018 challenging the constitutionality of H.B. 331, and the Department of Revenue is waiting to proceed with the bond program until after the litigation is completed. In January 2019, a judge of the Juneau Superior Court dismissed the complaint, the plaintiff filed an appeal to the Alaska Supreme Court, and oral arguments were held before the court in September. The court has not issued its decision, but once it does, it will likely be several months for the DOR to start the bond program and a few more before it begins purchasing tax credits.

Alaska’s budget tensions have also continued, with higher oil production costs, the threat of production declines and reduced prices continuing to affect state revenues, already highly dependent on the oil and gas industry. The DOR noted that unrestricted general fund revenue was $2.6 billion in fiscal year 2019 and is projected to be $2.1 billion in fiscal 2020 and $2 billion in fiscal 2021.

My next column will include an update on legislative and agency activity surrounding Alaska’s fiscal regime and any tax measures, and a status report on the Alaska Supreme Court appeal concerning H.B. 331. Depending on the status of the Fair Share Act initiative, I may also include a more in-depth discussion about the initiative process in Alaska and the proposal itself.

Read the article here.

Originally published as “Alaska: Preparing for a Tumultuous Year” on January 20, 2020, by State Tax Notes.

EPA Proposes Changes to the Multisector General Permit That Will Affect Oil and Gas Extraction Permittees

The Environmental Protection Agency (EPA) has proposed a draft Multisector General Permit (MSGP) under the National Pollutant Discharge Elimination System (NPDES) program for stormwater discharges related to industrial activity. In Alaska, EPA has jurisdiction over NPDES permitting on federal property within Denali National Park, in federal waters (three miles or more offshore), and on certain Indian Country lands. In California, EPA has jurisdiction over NPDES permitting under the MSGP on Indian Country lands.

EPA’s draft MSGP proposes several notable changes for oil and gas extraction permittees, referred to as “Sector I” permittees in the MSGP. The most notable is that oil and gas extraction permittees must now sample their discharges for pH, total suspended solids (TSS), chemical oxygen demand (COD), ammonia, nickel, total recoverable lead, nitrate-nitrogen, total recoverable zinc, and hardness. The samples must then be compared to benchmark values. For facilities that exceed a benchmark value, the permittee will be required to follow a set of “additional implementation measures,” which are progressive improvements that include, potentially, stormwater treatment. While benchmark exceedances are not permit violations, failing to follow an additional implementation measure would be a permit violation subject to EPA enforcement and citizen suits. Adding benchmark sampling to the MSGP substantially increases the regulatory burden and cost for oil and gas extraction permittees and creates new risk for permit violations. The draft MSGP also proposes other changes, including posting a sign regarding permit coverage, allowing composite sampling, and addressing major storm events and extreme flooding. Comments on the draft MSGP are due to EPA by May 1, 2020.

Coming Attractions: Section 45Q Carbon Sequestration Guidance, Part II

The IRS’s much anticipated new guidance (here and here) for Section 45Q carbon sequestration tax credits was rather anticlimactic in that it focused on just two of the many issues for which the IRS had solicited comments in May 2019.  Largely patterned after existing IRS guidance for renewable energy tax credits, the new guidance addressed (1) Section 45Q’s requirement that facility construction commence before January 1, 2024, and (2) tax credit allocation within partnerships.

While the new guidance is certainly useful, it unfortunately did not address some of the larger issues, such as whether the IRS would change its approach to Section 45Q’s “secure geological storage” requirement.  For example, carbon sequestration under a Class VI underground injection control (UIC) permit is currently eligible for Section 45Q tax credits, and 50 years is the default post-injection time horizon for the UIC Class VI program.  However, a minimum 100-year time horizon is now required under the carbon sequestration protocol for California’s low carbon fuel standard program.

Another key outstanding issue concerns recapture of Section 45Q tax credits should some leakage occur over time.  For example, how should leakage be measured and at what point would recapture be triggered?  Answers to these sort of questions are critical for project developers and investors.  The IRS’s press release indicates that guidance on at least some of the other issues, including geologic storage security and recapture, is in the works.

LexBlog