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.