Bill > SF2490

Introduced Session

This bill relates to oil and gas production, including filing requirements, the authority of the department of natural resources (department), confidential information, pooling orders, negotiation of surface damage, imposition and distribution of a tax, and jurisdiction. The bill provides the director of the department the authority to require yearly filings from every person acting as a principal or agent for another or independently engaged in the production, storage, transportation, except by railroad, refining, reclaiming, treating, marketing, or processing of oil or gas, or engaged in the exploration for or production of metallic minerals that includes names, contact information, and certain organizational details. The bill grants the director the authority to issue variances to any of the department’s rules, regulations, or orders. A variance shall be granted without a hearing. The application for a variance must demonstrate a good faith effort or inability to comply with specific requirements. A variance request must be approved within 14 days and shall be made public. The bill allows an owner to make information submitted to the department confidential for five years, unless otherwise extended by the director for good cause. The bill provides procedures to make information confidential and includes examples of types of information that may be determined confidential. The bill allows the department to establish an exploratory spacing unit to drill one or more exploratory wells to establish the existence of a pool and the appropriate size and shape of the spacing unit if it is unable to determine the existence of a pool and the appropriate acreage and shape to be embraced within a spacing unit based on the evidence introduced at hearing. Under current law, in the absence of voluntary pooling, the director must enter an order pooling all interests upon the application of an interested person. The bill requires the application be submitted by the owner or owners of at least 25 percent of the area of the spacing unit. The bill requires each pooling order to provide for the drilling and operation of a well in the spacing unit and for payment of the cost incurred. The bill authorizes the director to ensure the producers are entitled to all production from the well after payment of royalties and other obligations. The bill requires the director to determine costs if there is a dispute. The bill provides that the pooling order must determine the interest of each owner in the unit, including the owner’s share of the costs, unless otherwise agreed, and entitles the owners the share of production of the well applicable to the tract of the nonconsenting owner, subject to royalties and other obligations. Owners who do not agree to the pooling order are entitled to a share of the production applicable to the owner’s interest after the producer has recovered a certain amount specified in the bill, which includes costs attributed to newly acquired surface equipment beyond the wellhead connections, operation, drilling, reworking, deepening or plugging back, testing, and completing, and newly acquired equipment in the well, up to and including the wellhead connections. The bill provides that a nonconsenting owner of a tract or interest in a spacing unit that is not subject to a lease or other contract for oil and gas development shall be entitled to a cost-free royalty interest equal to 12.5 percent during the time of drilling or operating a well pursuant to the pooling order. After the producer has fully recovered costs as described in the bill, the producer must send a notice within 30 days to any nonconsenting owner to offer participation as a working interest owner under the pooling order. The nonparticipating owner has 60 days after receipt of the notice to accept the offer or may elect to continue receiving the default royalty. If the nonparticipating owner does not respond, the nonparticipating owner will be deemed to have elected to continue receiving the default royalty. The producer must inform the director of the nonparticipating owner’s decision within five business days of receiving an answer or the expiration of time allowed to respond. The bill provides minimum requirements for an application for compulsory pooling and any associated hearing. The bill requires an operator to negotiate with the surface owner for payment of damages caused by drilling operations prior to entering a drilling site with heavy equipment that is subject to a pooling order or within an exploratory spacing unit. If the parties execute a written agreement, the operator may enter the site. If the parties do not reach an agreement or the operator cannot contact all of the surface owners, the bill requires the operator to petition the district court for appointment of licensed real estate appraisers to assess damages. After filing the petition, the bill allows the operator to enter the site to drill. The bill establishes notice requirements to surface owners, including personal service or publication, if necessary. The bill provides that one appraiser is selected by the operator, one by the surface owners, and a third by the other selected appraisers, subject to court appointment, and provides appointment procedures. The bill requires the appraisers to inspect the property and file a report with the court within 30 days that includes the acreage, boundaries, and value of the property entered on or to be utilized for drilling, and the amount of damage done or expected. The appraisers shall make a valuation and recommended compensation. The bill provides that compensation of the appraisers is fixed by the court, with costs shared equally between the operator and surface owners. The bill establishes procedures for providing notice of the appraisers’ report and for filing exceptions. The bill allows a party to file an exception with the court within 30 days after the report is filed, and the court may confirm, reject, modify, or order a new appraisal after a hearing. The bill also allows a party to request a determination of damages by a county compensation commission within 60 days. The bill provides that court costs and reasonable attorney fees shall be assessed against a party depending on whether the final award exceeds or is less than the amount recommended in the appraisers’ report. The bill levies a severance tax on oil and gas production in this state. The bill sets the tax at a rate of 6 percent of the fair market value of the oil or gas upon extraction at the wellhead and provides that expenses incurred prior to valuation are not deductible. When ownership is shared, each owner is responsible for a proportionate share of the tax, and a taxpayer paying the tax may deduct the amount from the royalty or other payments due to other interest owners. The bill allows the department of revenue to adopt rules to administer the tax. The bill provides for the distribution of severance tax revenues. A portion of the revenues shall be distributed to counties based on population and to counties based on production, which distributions must be used to construct and maintain county roads or offset property taxes. The bill also provides for distributions to the road use tax fund, the environment first fund for support of water quality projects, and the taxpayer relief fund. The bill requires distributions to be made quarterly based on revenue estimates, with subsequent adjustments as needed. The bill provides for administration of the severance tax by the department of revenue, including annual valuation and certification of oil and gas production to county assessors. The bill establishes confidentiality requirements for taxpayer information, including returns and return information, with certain exceptions allowing disclosure to specified government entities in identified instances. The bill also provides that units of production and taxable value are not confidential and may be released, and that violations of confidentiality requirements are subject to existing penalties. The bill provides that oil and gas operation is subject to the exclusive jurisdiction of this state. Except for certain exceptions, the bill prohibits a county, city, or other political subdivision from enacting or enforcing any ordinance or other measure that bans, limits, or otherwise regulates oil and gas operation within its jurisdiction. The bill establishes a limited exception allowing a county or city to enact or enforce an ordinance regulating activities of an oil and gas operation that occurs at or above the surface of the ground and concerns fire and emergency response, traffic, lighting, noise, notice requirements, or reasonable setbacks. The bill provides that such ordinance must be commercially reasonable, must not effectively prohibit oil and gas operation conducted by a reasonably prudent operator, and must not otherwise be preempted by state or federal law. The bill further provides that an ordinance is presumed to be commercially reasonable if it has been in effect for at least five years and has allowed the oil and gas operations at issue to continue during that time. Under current law, the department has the authority to determine market demand for oil and gas for each marketing district and to regulate the amount of production. The bill eliminates this authority from the department.

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Placed on Ways and Means calendar. H.J. 975. (on 04/21/2026)

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