SF 5048

1st Engrossment - 93rd Legislature (2023 - 2024) Posted on 05/06/2024 09:10am

A bill for an act
relating to natural resources; facilitating oil and gas exploration and production
leases on state-owned land; authorizing rulemaking; developing recommendations
to the legislature for gas and oil regulatory framework; requiring a report on
geologic carbon sequestration within the state; appropriating money; amending
Minnesota Statutes 2022, section 93.25, subdivisions 1, 2; proposing coding for
new law in Minnesota Statutes, chapter 93.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2022, section 93.25, subdivision 1, is amended to read:

Subdivision 1.

Leases.

The commissioner may issue leases to prospect for, mine, and
remove new text begin or extract gas, oil, and new text end minerals other than iron ore deleted text begin upon deleted text end new text begin from new text end any lands owned by
the state, including trust fund lands, lands forfeited for nonpayment of taxes whether held
in trust or otherwise, and lands otherwise acquired, and the beds of any waters belonging
to the state. For purposes of this section, iron ore means iron-bearing material where the
primary product is iron metal. new text begin For purposes of this section, "gas" includes both hydrocarbon
and nonhydrocarbon gases.
new text end

Sec. 2.

Minnesota Statutes 2022, section 93.25, subdivision 2, is amended to read:

Subd. 2.

Lease requirements.

All leases for nonferrous metallic minerals deleted text begin or petroleum deleted text end new text begin ,
gas, or oil new text end must be approved by the Executive Council, and any other mineral lease issued
pursuant to this section that covers 160 or more acres must be approved by the Executive
Council. The rents, royalties, terms, conditions, and covenants of all such leases deleted text begin shall deleted text end new text begin must new text end
be fixed by the commissioner according to rules adopted by the commissioner, but no lease
shall be for a longer term than 50 years, and all rents, royalties, terms, conditions, and
covenants deleted text begin shall deleted text end new text begin must new text end be fully set forth in each lease issued. No new text begin nonferrous metallic mineral
new text end lease shall be canceled by the state for failure to meet production requirements prior to the
36th year of the lease. The rents and royalties deleted text begin shall deleted text end new text begin must new text end be credited to the funds as provided
in section 93.22. new text begin For purposes of this section, "gas" includes both hydrocarbon and
nonhydrocarbon gases.
new text end

Sec. 3.

new text begin [93.513] PROHIBITION ON PRODUCTION OF GAS OR OIL WITHOUT
PERMIT.
new text end

new text begin Except as provided in section 103I.681, a person must not engage in or carry out
production of gas or oil from consolidated or unconsolidated formations in the state unless
the person has first obtained a permit for the production of gas or oil from the commissioner
of natural resources. Any permit under this section must be protective of natural resources
and require a demonstration of control of the extraction area through ownership, lease, or
agreement. For purposes of this section, "gas" includes both hydrocarbon and nonhydrocarbon
gases. For purposes of this section, "production" includes extraction and beneficiation of
gas or oil.
new text end

Sec. 4.

new text begin [93.514] GAS AND OIL PRODUCTION RULEMAKING.
new text end

new text begin (a) The following agencies may adopt rules governing gas and oil exploration or
production, as applicable:
new text end

new text begin (1) the commissioner of the Pollution Control Agency may adopt or amend rules
regulating air emissions; water discharges, including stormwater management; and storage
tanks as it pertains to gas and oil production;
new text end

new text begin (2) the commissioner of health may adopt or amend rules on groundwater and surface
water protection, exploratory boring construction, drilling registration and licensure, and
inspections as it pertains to the exploration and appraisal of gas and oil resources;
new text end

new text begin (3) the Environmental Quality Board may adopt or amend rules to establish mandatory
categories for environmental review as it pertains to gas and oil production; and
new text end

new text begin (4) the commissioner of natural resources must adopt or amend rules pertaining to the
conversion of an exploratory boring to a production well, pooling, spacing, unitization, well
abandonment, siting, financial assurance, and reclamation for the production of gas and oil.
new text end

new text begin (b) An agency adopting rules under this section must use the expedited procedure in
section 14.389. Rules adopted or amended under this authority are exempt from the provisions
of section 14.125. The agency must publish notice of intent to adopt expedited rules within
24 months of the effective date of this act.
new text end

new text begin (c) For purposes of this section, "gas" includes both hydrocarbon and nonhydrocarbon
gases. "Production" includes extraction and beneficiation of gas or oil from consolidated
or unconsolidated formations in the state.
new text end

new text begin (d) Any grant of rulemaking authority in this section is in addition to existing rulemaking
authority and does not replace, impair, or interfere with any existing rulemaking authority.
new text end

Sec. 5.

new text begin [93.516] GAS AND OIL LEASING.
new text end

new text begin Subdivision 1. new text end

new text begin Authority to lease. new text end

new text begin With the approval of the Executive Council, the
commissioner of natural resources may enter into leases for gas or oil exploration and
production from lands belonging to the state or in which the state has an interest. For purposes
of this section, "gas or oil exploration and production" includes the exploration and
production of both hydrocarbon and nonhydrocarbon gases. "Production" includes extraction
and beneficiation of gas or oil from consolidated or unconsolidated formations in the state.
new text end

new text begin Subd. 2. new text end

new text begin Application. new text end

new text begin An application for a lease under this section must be submitted
to the commissioner of natural resources. The commissioner must prescribe the information
to be included in the application. The applicant must submit with the application a certified
check, cashier's check, or bank money order payable to the Department of Natural Resources
in the sum of $100 as a fee for filing the application. The application fee must not be refunded
under any circumstances. The right is reserved to the state to reject any or all applications
for an oil or gas lease.
new text end

new text begin Subd. 3. new text end

new text begin Lease terms. new text end

new text begin (a) The commissioner must negotiate the terms of each lease
entered into under this section on a case-by-case basis, taking into account the unique
geological and environmental aspects of each proposal, control of adjacent lands, and the
best interests of the state. A lease entered into under this section must be consistent with
the following:
new text end

new text begin (1) the primary term of the lease may not exceed five years plus the unexpired portion
of the calendar year in which the lease is issued. The commissioner and applicant may
negotiate the conditions by which the lease may be extended beyond the primary term, in
whole or in part;
new text end

new text begin (2) a bonus consideration of not less than $15 per acre must be paid by the applicant to
the Department of Natural Resources before the lease is executed;
new text end

new text begin (3) the commissioner of natural resources may require an applicant to provide financial
assurance to ensure payment of any damages resulting from the production of gas or oil;
new text end

new text begin (4) the rental rates must not be less than $5 per acre per year for the unexpired portion
of the calendar year in which the lease is issued and in years thereafter; and
new text end

new text begin (5) on gas and oil produced and sold by the lessee from the lease area, the lessee must
pay a production royalty to the Department of Natural Resources of not less than 18.75
percent of the gross sales price of the product sold free on board at the delivery point, and
the royalty must be credited as provided in section 93.22. For purposes of this section, "gross
sales price" means the total consideration paid by the first purchaser that is not an affiliate
of the lessee for gas or oil produced from the leased premises.
new text end

Sec. 6. new text begin GAS PRODUCTION TECHNICAL ADVISORY COMMITTEE.
new text end

new text begin (a) The commissioner of natural resources must appoint a Gas Production Technical
Advisory Committee to develop recommendations according to paragraph (c). The
commissioner may appoint representatives from the following entities to the technical
advisory committee:
new text end

new text begin (1) the Pollution Control Agency;
new text end

new text begin (2) the Environmental Quality Board;
new text end

new text begin (3) the Department of Health;
new text end

new text begin (4) the Department of Revenue;
new text end

new text begin (5) the University of Minnesota; and
new text end

new text begin (6) federal agencies.
new text end

new text begin (b) A majority of the committee members must be from state agencies, and all members
must have expertise in at least one of the following areas: environmental review; air quality;
water quality; taxation; mine permitting; mineral, gas, or oil exploration and development;
well construction; or other areas related to gas or oil production.
new text end

new text begin (c) The technical advisory committee must make recommendations to the commissioner
relating to the production of gas and oil in the state to guide the creation of a temporary
regulatory framework that will govern permitting before the rules authorized in Minnesota
Statutes, section 93.514, are adopted. The temporary framework must include
recommendations on statutory and policy changes that govern permitting requirements and
processes, financial assurance, taxation, boring monitoring and inspection protocols,
environmental review, and other topics that provide for gas and oil production to be
conducted in a manner that will reduce environmental impacts to the extent practicable,
mitigate unavoidable impacts, and ensure that the production area is left in a condition that
protects natural resources and minimizes the need for maintenance. The temporary framework
must consider input from stakeholders and Tribes. Recommendations must include draft
legislative language.
new text end

new text begin (d) By January 15, 2025, the commissioner must submit to the chairs and ranking minority
members of the legislative committees and divisions with jurisdiction over environment
recommendations for statutory and policy changes to facilitate gas and oil exploration and
production in this state and to support the issuance of temporary permits in a manner that
benefits the people of Minnesota while adequately protecting the state's natural resources.
new text end

new text begin (e) For purposes of this section, "gas" includes both hydrocarbon and nonhydrocarbon
gases. For purposes of this section, "production" includes extraction and beneficiation from
consolidated or unconsolidated formations in the state.
new text end

Sec. 7. new text begin REPORT ON GEOLOGIC CARBON SEQUESTRATION.
new text end

new text begin (a) The commissioner of natural resources must prepare a report on geologic carbon
sequestration within the state to guide future decision-making and legislation that will assist
in achieving goals for carbon neutrality by 2050 as established in Minnesota's Climate
Action Framework. The report must identify geologic carbon sequestration opportunities
and include recommendations on statutory and policy changes that govern any geologic
carbon sequestration activity while benefiting the people of Minnesota and adequately
protecting the state's natural resources.
new text end

new text begin (b) The commissioner of natural resources must appoint a Geologic Carbon Sequestration
Technical Advisory Committee to advise on the preparation of the report required by
paragraph (a). The commissioner may appoint representatives from the following entities
to the technical advisory committee:
new text end

new text begin (1) the Pollution Control Agency;
new text end

new text begin (2) the Environmental Quality Board;
new text end

new text begin (3) the Department of Health;
new text end

new text begin (4) the Department of Revenue;
new text end

new text begin (5) the University of Minnesota; and
new text end

new text begin (6) federal agencies.
new text end

new text begin (c) A majority of the committee members must be from state agencies, and all members
must have expertise in at least one of the following areas: geology, hydrogeology, mineralogy,
air emissions, well and boring construction and monitoring, direct air capture technology,
mineral carbonization, Underground Injection Control class VI permitting and primacy
programming, environmental review, property law, or taxation. The committee must hold
a meeting to gather and consider input from industry, environmental groups, other
stakeholders, and Tribes.
new text end

new text begin (d) By January 15, 2025, the commissioner must submit the report to the chairs and
ranking minority members of the legislative committees and divisions with jurisdiction over
the environment. The report must include recommendations for draft legislative language.
new text end

Sec. 8. new text begin APPROPRIATIONS; NONPETROLEUM GAS REGULATORY
FRAMEWORK.
new text end

new text begin (a) $750,000 in fiscal year 2024 is appropriated from the minerals management account
in the natural resources fund to the commissioner of natural resources for the Gas Production
Technical Advisory Committee in section 6. This is a onetime appropriation and is available
until spent.
new text end

new text begin (b) $1,252,800 in fiscal year 2024 is appropriated from the minerals management account
in the natural resources fund to the commissioner of natural resources to adopt a regulatory
framework for gas and oil production in Minnesota and for rulemaking and is available until
spent. The base amount for this appropriation is $0 in fiscal year 2027 and thereafter.
new text end

Sec. 9. new text begin APPROPRIATION; LEGISLATIVE REPORT ON GEOLOGIC CARBON
SEQUESTRATION.
new text end

new text begin $300,000 in fiscal year 2024 is appropriated from the minerals management account in
the natural resources fund to the commissioner of natural resources to develop a geologic
carbon sequestration report and chair the Geologic Carbon Sequestration Technical Advisory
Committee in section 7. This is a onetime appropriation and is available until spent.
new text end

Sec. 10. new text begin EFFECTIVE DATE.
new text end

new text begin Sections 1 to 9 are effective the day following final enactment.
new text end