2011 Kentucky Revised Statutes CHAPTER 349 COALBED METHANE DEVELOPMENT 349.030 Establishment of rules and procedures for mining through coalbed methane well -- Coalbed Methane Well Review Board to hold hearings and issue orders and mine-through certificates -- Determination of compensation for all parties interested in coalbed methane wells -- Appeal of review board's decisions to Circuit Court -- Escrow of funds.
KY Rev Stat § 349.030 (1996 through Reg Sess) What's This?
349.030 Establishment of rules and procedures for mining through coalbed
methane well -- Coalbed Methane Well Review Board to hold hearings and
issue orders and mine-through certificates -- Determination of compensation
for all parties interested in coalbed methane wells -- Appeal of review board's
decisions to Circuit Court -- Escrow of funds.
(1)
(2)
If a coalbed methane well is permitted and drilled within the boundaries of any coal
mine for which a permit has been issued or an application for a mine permit or a
mine permit modification or amendment has been filed but not issued pursuant to
KRS Chapter 350, the mine licensee shall have the right to mine through that
coalbed methane well and the associated drilling unit in accordance with the
provisions of this subsection.
(a) At least one hundred twenty (120) days prior to mining through a coalbed
methane well and associated drilling unit, the mine licensee shall notify the
review board and operator of its intention to mine through the property. The
notice shall be made on a form prescribed by the review board, and shall
include a plat showing the location of the drilling unit, the coalbed methane
well and associated surface equipment, facilities, infrastructure, and
improvements, and the geographic extent of the mining operations to be
conducted within the drilling unit. The mine licensee shall also submit an
estimated schedule for commencing and completing mining operations within
the drilling unit. After a hearing the review board shall promptly issue a
written determination on whether the continued operation of the coalbed
methane well will impede, interfere with, or present a possible safety hazard
to the mine licensee's planned mining operations. If the review board
determines that the coalbed methane well will impede, interfere with, or
present a safety hazard to the planned mining operations, concurrently an
order shall be issued to the operators, with a copy to the mine licensee,
directing the temporary or permanent plugging of the well at the operator's
cost and such other action as may be appropriate in the circumstances.
Following the issuance of the order, the review board shall promptly issue a
mine-through certificate to the mine licensee, with a copy to the operator,
authorizing the mine licensee to mine-through the coalbed methane well and
associated drilling unit.
(b) The mine licensee and all other coal interest holders having interests in the
coalbed within the drilling unit shall have no duty or obligation to compensate
or pay the operator or other interested coalbed methane parties for any causes
of action, claims, or damages arising from the suspension or loss of coalbed
methane production or the plugging and abandonment of a coalbed methane
well and the removal or relocation of any associated facilities, infrastructure,
and improvements due to mining through the coalbed methane well and
associated drilling unit pursuant to this subsection.
If a mine licensee files an application for a coal mine permit or seeks to modify or
amend an existing coal mine permit so as to include a geographical area containing
one (1) or more existing coalbed methane wells or any well sites for which drilling
permits have been issued or are pending, the mine licensee shall have the right to
mine through those coalbed methane wells or into or through a coalbed methane
well and the associated drilling units and any well sites for which permits to drill
have been issued or applications for permits to drill have been filed but not issued in
accordance with the provisions of this subsection.
(a) At least one hundred eighty (180) days prior to mining into or through one (1)
or more drilling units or permitted well sites operated by a common operator,
the mine licensee shall notify the review board and the operator of its
intention to mine into or through the property. The notice shall be made on a
form prescribed by the review board and shall include a plat showing the
location of the drilling unit, the coalbed methane well and associated surface
equipment, facilities, infrastructure, and improvements, and the geographic
extent of the mining operations to be conducted within the drilling unit. The
mine licensee shall also submit an estimated schedule for commencing and
completing mining operations within the drilling unit.
(b) Within thirty (30) days after receiving the mine licensee's notice pursuant to
paragraph (a) of this subsection, the mine licensee and operator shall enter
into a confidentiality agreement on a form prescribed by the review board and
the operator shall provide, to the extent available, copies of all data and
information necessary and appropriate to enable the mine licensee to
determine the current value of each drilling unit, well site, and any associated
assets described in the mine licensee's notice in accordance with the criteria
set forth in paragraph (e) of this subsection. The information shall be in a form
prescribed by the review board and shall include, among other things, data,
reports, and information relating to current coalbed methane reserve
calculations, well completions, historic production and sales results, capital
and operating costs, all actual land, legal permitting, survey, title, and any
other costs and expenses directly relating to the acquisition, permitting,
development, and operation of each drilling unit and well site, and estimated
well plugging and abandonment costs of any existing coalbed methane wells.
In addition, the operator shall provide the review board and mine licensee
with copies of all agreements and leases, payment division orders and any
pooling agreements or pooling orders for each drilling unit and well site,
together with a schedule setting forth the name, address, and working interest
and net revenue percentages, royalties and overriding royalties, and all other
interests and rights of all other interested coalbed methane parties. If the
information is not timely filed or is incomplete, the mine licensee may seek an
order from the review board directing the operator to comply with the
provisions of this subsection.
(c) Within thirty (30) days after receiving the information described in paragraph
(b) of this subsection, the mine licensee and operator shall meet and confer at
a mutually agreed upon date, time, and place for the purpose of attempting to
conclude a mutually acceptable agreement as to the compensation due to the
operator for any damage, impairment, or loss to each drilling unit, well site,
and any associated assets described in the information provided by the
(d)
(e)
operator resulting from the mine licensee's planned mine-through operations.
Any compensation agreement between the mine licensee and operator for each
drilling unit or well site shall be approved and executed by all other interested
coalbed methane parties. The mine licensee and operator shall jointly notify
the review board that a compensation agreement has been entered into
between the parties and request that the review board issue a mine-through
certificate for each drilling unit and well site described in the notice. The
notice shall include any terms and conditions set forth in the compensation
agreement that the parties have agreed to incorporate in the applicable minethrough certificates. Upon receipt of the executed compensation agreement,
the review board shall promptly issue the requested mine-through certificates
to the mine licensee, with copies to the operator and all other interested
coalbed methane parties. If the parties are unable to reach an agreement,
within ten (10) days following the expiration of the thirty (30) day meet and
confer period, either party may request a hearing before the review board for
the purpose of determining the compensation due the operator and any terms
and conditions to be imposed upon the mine licensee's proposed mining
operations. Copies of the hearing request shall be sent to all other interested
coalbed methane parties.
Within fifteen (15) days of receiving the hearing request, the review board
shall schedule a hearing to take place within sixty (60) days and shall notify
the mine licensee, the operator and all other interested coalbed methane
parties of the date, time, and location of the hearing. At its election, the review
board may engage a qualified petroleum engineer for the purpose of
conducting an independent evaluation of the compensation to be paid to the
operator and all other interested coalbed methane parties in accordance with
paragraph (e) of this subsection. The mine licensee and the operator shall each
pay one-half (1/2) of the costs and expenses for the petroleum engineer
retained by the review board.
The review board shall determine the value of each drilling unit, well site, and
all associated assets before and after the mine licensee's planned mine-through
operations. In determining the amount of compensation due the operator and
all other interested coalbed methane parties, the review board must consider
all relevant evidence and information submitted and the review board shall
base its decision solely upon the following criteria and procedures:
1.
Except as otherwise expressly provided in this subsection, all coalbed
methane reserve estimates and the valuation of reserves and other assets
damaged, impaired, or lost due to the planned mining operations shall be
consistent with standard oil and gas industry accounting, engineering,
and reserve practices and shall be performed pursuant to the then-current
applicable laws, regulations, policies, and guidelines for determining gas
reserves for public reporting companies in the United States.
2.
At the hearing, the mine licensee and operator, on behalf of itself and all
other interested coalbed methane parties, shall appear and submit
3.
4.
evidence and testimony as to the value of the subject drilling units, well
sites, and any associated assets before and after the mine licensee's
planned mining operations. The review board shall only consider
coalbed methane reserve estimates or valuation determinations made in
conformity with subparagraph 1. of this paragraph by a professional
petroleum engineer with experience in evaluating coalbed methane
reserves and operations. All reserve estimates and any valuation analysis
prepared by the mine licensee and operator for use in the review board's
hearing shall be effective thirty (30) days prior to the date of the hearing.
The reserve estimates and valuation analysis shall be exchanged between
the mine licensee and operator and copies of the information shall be
provided to the review board and all other interested coalbed methane
parties no less than twenty-one (21) days prior to the hearing date. Any
coalbed methane reserve estimates or valuation analysis prepared at the
review board's request shall be set forth in a written report. Copies of the
report prepared for the review board shall be provided to the mine
licensee, the operator, and all other interested coalbed methane parties
no less than ten (10) days prior to the review board's hearing date.
All estimates of remaining recoverable coalbed methane reserves
immediately before and immediately after the planned mining operations
shall consist of proved developed producing or proved developed
nonproducing reserves as determined pursuant to this subsection. A
drilling unit shall have proved developed producing reserves if the unit
has an operating coalbed methane well, which is completed in one (1) or
more target coal seams and is producing commercial quantities of
coalbed methane. The drilling units total proved developed producing
reserves before and after the planned mining operations shall be
calculated based on the completed coal seams within the unit well. A
drilling unit shall have proved developed nonproducing reserves if the
unit has a coalbed methane well which is completed in one (1) or more
target coal seams and is fully operational and all associated
infrastructure such as power, gas gathering, and water management
systems required to produce and sell coalbed methane in commercial
quantities has been constructed, but the well is not producing coalbed
methane in commercial quantities because it either is in the dewatering
stage or is not operating due to factors beyond the operator's control.
Whether a drilling unit contains proved developed producing reserves or
proved developed nonproducing reserves shall be determined based on
the status of the coalbed methane well and associated infrastructure sixty
(60) days prior to the review board's hearing date.
The net present value of proved developed producing reserves projected
immediately before and immediately after the planned mining operations
shall be calculated using a discount rate of twelve percent (12%). The
net present value of proved developed nonproducing reserves projected
immediately before and immediately after the planned mining operations
5.
6.
7.
8.
shall be calculated using a discount rate of twenty percent (20%). The
valuation analysis shall also project the net present value of all revenues
received, if any, by the operator during the period in which the planned
mining operations are to be conducted.
In determining the compensation due the operator and all other
interested coalbed methane parties for delayed or lost production, if the
total projected production of the coalbed methane well is reduced so as
not to yield a commercially reasonable return on investment to the
operator, but the well is still able to produce coalbed methane in
commercial quantities, the projected difference in the net present value
of the recoverable reserves before and after mining shall be included as
part of the compensation due the operator and all other interested
coalbed methane parties.
In determining the value of the coalbed methane reserves impaired or
lost due to the planned mining operations, except as expressly provided
herein, no consideration shall be given to undeveloped coalbed methane
resources in coal seams which have not been completed in the subject
coalbed methane well or which are in coal seams below the total depth
of the well bore. If, however, a coal seam in the same field is producing
coalbed methane but the coal seam is not completed in the subject
coalbed methane well, the operator may submit evidence to the review
board for its consideration as to the potential net present value of the
resources within the uncompleted seam, but in no event shall the net
present value of those resources be discounted at less than thirty percent
(30%).
Except as otherwise provided herein, in determining the value of
coalbed methane for purposes of this subsection, the gas price shall be
the last published price in the gas market closest to the drilling unit sixty
(60) days prior to the review board's hearing date. If the coalbed
methane is sold pursuant to a gas sales agreement or marketing contract
in which the gas price is determined based on a published price, subject
to any contractual adjustment, in the gas market other than the market
closest to the drilling unit, the gas price shall be determined based on the
last published price in a gas market referred to in the gas sales agreement
or marketing contract, subject to any contractual adjustment set forth
therein, sixty (60) days prior to the review board's hearing date. If the
coalbed methane is sold pursuant to an arms-length firm or fixed price
gas sales agreement or marketing contract, the actual sales price received
by operator for gas sold sixty (60) days prior to the review board's
hearing date shall be used as the gas price in the coalbed methane
valuation.
All capital, operating, and production costs used in the net present value
determinations made pursuant to this subsection shall be based on the
operator's then current reasonable and verifiable actual costs and
(f)
expenses. Copies of all relevant and available cost information shall be
provided by the operator to the review board and mine licensee as
provided in paragraph (b) of this subsection. If actual cost information is
not otherwise available, all calculations shall be made using reasonable
and customary costs for comparable coalbed methane operations in the
Commonwealth and in the surrounding states.
9.
If the planned mining operations will mine through a coalbed methane
well or require the removal, relocation, or suspension of operation of
other facilities, infrastructure, or improvements in a drilling unit, the
operator and any other interested coalbed methane parties shall be
reimbursed for all reasonable actual and direct costs, damages, and
expenses to be incurred due to these mining operations; provided,
however, that in no event shall any replacement costs and expenses
exceed the operator's or any other interested coalbed methane parties'
actual costs and expenses for the affected well, facilities, infrastructure,
and improvements, as the case may be. The operator and any other
interested coalbed methane parties shall not be reimbursed for any
general, administrative, or overhead costs and expenses or any other
costs and expenses not otherwise allocated to the costs of the subject
drilling unit, coalbed methane well and the associated facilities,
infrastructure, and improvements. Any amounts due the operator and
any other interested coalbed methane parties shall be reduced by the
projected then-current market value of such equipment, facilities, and
improvements to the extent that it can be salvaged and sold or used in
other operations.
10. If, prior to drilling a coalbed methane well, the mine licensee submits a
plan to mine into or through any part of the associated drilling unit or
well site for which a drilling permit has been issued or is pending, the
operator shall not proceed with drilling a coalbed methane well pending
a final decision by the review board with respect to the mine licensee's
request for a mine-through certificate. When a mine-through certificate
is issued to the mine licensee, the operator and all other interested
coalbed methane parties shall be reimbursed for all reasonable costs and
verifiable actual land, legal, permitting, surveying, and technical costs
and expenses incurred to acquire or lease and maintain the property and
obtain any permits, approvals, and other agreements required to drill the
coalbed methane well. The operator and all other interested coalbed
methane parties shall not be reimbursed for any general, administrative,
or overhead costs and expenses or any other costs and expenses not
otherwise allocated to the costs to acquire or lease the subject property
or permit the coalbed methane well.
At a hearing, the review board shall take testimony and evidence from the
mine licensee and operator, on behalf of itself and all other interested coalbed
methane parties consistent with the provisions in this subsection. Within
fifteen (15) days following the hearing, the review board shall issue a written
(g)
(h)
decision to the mine licensee and operator determining the compensation due
the operator and each of the other interested coalbed methane parties in the
amount of the difference between the value of each drilling unit, well site, and
any associated assets before and after the mine licensee's planned mining
operations. If the review board determines that the mine licensee's proposed
mining operations will result in a loss or taking of all of either the coalbed
methane reserves in the coal seam to be mined and all coalbed methane
reserves in completed coal seams in the coalbed methane well below the
mined coal seam as provided in paragraph (e)5. of this subsection or the entire
drilling unit, the operator and other interested coalbed methane parties shall be
awarded the full value of the property and assets prior to the proposed mining
operations as determined by the review board. The review board's decision
shall list the compensation amounts to be paid to the operator and each of the
other interested coalbed methane parties for each drilling unit, well site, and
any associated assets. The decision shall also set forth any duties or
obligations to be performed by the parties, such as the temporary or permanent
plugging of any well or the relocation or removal of any surface facilities, to
enable the mine licensee to proceed immediately with the planned mining
operations.
Within fifteen (15) days of receiving the review board's decision, the mine
licensee shall notify the review board and the operator and all other interested
coalbed methane parties of its decision to:
1.
Accept the review board's decision with respect to one (1) or more of the
drilling units, well sites, and associated assets and deposit the
compensation awarded to the operator and each of the other interested
coalbed methane parties for the property;
2.
Appeal all or part of the review board's decision as provided in
paragraph (j) of this subsection; or
3.
Withdraw notice of intent to mine into any of the subject coalbed
methane property and assets. If the mine licensee elects to withdraw
notice of intent to mine into or through all of the drilling units, well
sites, and any associated assets which were the subject of the review
board hearing, upon receiving a statement of costs from the operator, the
mine licensee shall promptly reimburse the operator for all reasonable
out-of-pocket engineering and legal costs and expenses incurred to
prepare for and participate in the review board hearing and shall have no
further obligations to the operator or any of the other interested coalbed
methane parties.
Within fifteen (15) days of receiving the review board's decision, the operator,
on behalf of itself and other interested coalbed methane parties, shall notify
the review board and the mine licensee whether it will accept the amounts
awarded by the review board or file an appeal with the Circuit Court in the
county where the drilling unit or well site is located challenging the review
board's valuation of any of the property or assets.
(i)
(j)
If no appeal of the review board's decision is filed by the parties, upon receipt
of the compensation due the operator and all other interested coalbed methane
parties for each drilling unit and well site selected by the mine licensee for
which a mine-through certificate will be issued, the review board shall
promptly deliver the awarded compensation to the operator and all other
interested coalbed methane parties for the drilling unit and well site and
concurrently issue the appropriate mine-through certificate to the mine
licensee, with copies to the operator and all other interested coalbed methane
parties. If the operator and other interested coalbed methane parties are
awarded either the total net present value of the coalbed methane reserves in
coal seams to be mined by the mine licensee and all coalbed methane reserves
in coal seams completed in a coalbed methane well below such coal seam as
provided in paragraph (e)5. of this subsection or the total value of the entire
drilling unit and associated assets, upon payment of the compensation, the
operator and other interested coalbed methane parties shall simultaneously, if
requested by the mine licensee, assign and transfer free and clear of all
encumbrances to the mine licensee all of their respective rights, title, and
interests in such property and assets, as the case may be, within the drilling
unit on a form to be prescribed by the review board. The review board shall
take whatever other action that may be deemed appropriate or necessary in the
circumstances.
If either party notifies the review board of a decision to appeal the review
board's valuation of any of the subject coalbed methane properties and assets
to the Circuit Court, the mine licensee shall deposit with the review board the
compensation due the operator and each of the other interested coalbed
methane parties for each drilling unit, well site, and any associated assets
selected by the mine licensee for which a mine-through certificate will be
issued. Upon receipt of the funds from the mine licensee, the review board
shall promptly deliver to the operator and the other interested coalbed methane
parties one hundred percent (100%) of the awarded compensation for any
drilling unit, well site, and any associated assets not listed in any notice of
appeal and seventy-five percent (75%) of the awarded compensation to the
operator and other interested coalbed methane parties for any drilling unit,
well site, and any associated assets for which an appeal is to be filed.
Concurrently with delivering the awarded compensation to the operator as
provided herein, the review board shall issue to the mine licensee, with copies
to the operator and all other interested coalbed methane parties, a minethrough certificate for each drilling unit and well site for which compensation
has been received. If the review board's decision with respect to any drilling
unit is not appealed and the operator and other interested coalbed methane
parties are awarded either the total net present value of the coalbed methane
reserves in the coal seam to be mined by the mine licensee and all coalbed
methane reserves in coal seams completed in a coalbed methane well below
that coal seam as provided in paragraph (e)5. of this subsection or the total
value of each drilling unit, well site, and any associated assets, upon payment
(k)
of the compensation, the operator and other interested coalbed methane parties
shall simultaneously if requested by the mine licensee, assign and transfer free
and clear of all encumbrances to the mine licensee all of their respective
rights, title, and interests in that property and assets, as the case may be,
within the drilling unit or well site on a form to be prescribed by the review
board. The review board shall take whatever other action that may be deemed
appropriate or necessary in the circumstances to carry out its decision. All
funds deposited with the review board shall be placed in an interest-bearing
account pending a final resolution of any appeals.
Within thirty (30) days following the issuance of the review board's decision,
the mine licensee or the operator, on behalf of itself and any other interested
coalbed methane parties, may file a petition in the Circuit Court of the county
in which the drilling unit or well site is located or in the Franklin County
Circuit Court disputing the review board's valuation of all or any part of any
coalbed methane properties or assets pursuant to this subsection. The parties
filing the petition shall name as parties to the action the following: the review
board, the mine licensee, all other coal interest holders, the operator, and all
other interested coalbed methane parties. Promptly upon receiving notice of
the petition, the review board shall deliver any remaining funds deposited by
the mine licensee as provided in paragraph (j) of this subsection, together with
all interest accrued thereon, to the clerk of the Circuit Court for the county in
which the petition is filed and these funds shall be deposited in an interest
bearing account pending a decision on the petition. The decision of the Circuit
Court shall be made in accordance with the provisions of KRS 349.090. If the
Circuit Court determines the operator and other interested coalbed methane
parties are entitled to greater compensation than the amount awarded by the
review board, the mine licensee shall pay the difference to the clerk of the
Circuit Court within fifteen (15) days of the court's decision. Upon receipt of
the additional funds awarded by the Circuit Court, the clerk shall promptly
deliver to the operator and any other interested coalbed methane parties these
funds together with all interest accrued thereon. If the Circuit Court
determines that the operator is entitled to less compensation than the amount
awarded by the review board, the amount of the reduction shall be refunded to
the mine licensee together with any interest that accrued thereon. If the
escrowed funds are not sufficient to fully reimburse the mine licensee, the
operator and all other interested coalbed methane parties having an interest in
the subject coalbed methane properties and assets shall promptly pay the mine
licensee for the difference between the escrowed funds and the total amount to
be reimbursed pursuant to the Circuit Court's order. If the Circuit Court
determines that the operator and other interested coalbed methane parties are
to receive either the total net present value of the coalbed methane reserves in
the coal seam to be mined by the mine licensee and all coalbed methane
reserves in coal seams completed in a coalbed methane well below such coal
seam as provided in paragraph (e)5. of this subsection or the total value of the
entire drilling unit, well site, and any associated assets, which values may be
(3)
increased or decreased by the Circuit Court, upon receipt of the awarded
compensation, the operator and other interested coalbed methane parties shall
simultaneously if requested by the mine licensee, assign and transfer free and
clear of all encumbrances to the mine licensee all of their respective rights,
title, and interest in such property and assets, as the case may be, within the
drilling unit on a form to be prescribed by the review board.
(l) Subject to obtaining a decision by the Circuit Court with respect to any
appeals initiated pursuant to paragraph (k) of this subsection, the operator and
all of the other interested coalbed methane parties' acceptance of the
compensation awarded by the review board and of the performance of any
duties and obligations by the mine licensee as ordered by the review board
shall constitute full and complete consideration to the operator and all of the
other interested coalbed methane parties for any and all causes of action,
claims, damages, or losses to each drilling unit or any portion thereof, well
site, or any associated assets caused by the mine licensee, or any other coal
interest holder's subsequent mining operations. The mine licensee shall be
liable for any and all injuries, deaths, or damages proximately caused by the
mine licensee on, in, or with respect to that property.
If, after the mine licensee files a notice of intention to mine into or through any
coalbed methane properties or assets pursuant to subsection (1) or (2) of this
section, the mine licensee's coal mining permit or any pending amendment to an
existing permit issued pursuant to KRS Chapter 350 is withdrawn, canceled,
delayed, or modified so as to exclude all or any part of the geographic area covering
any drilling unit or well site described in the mine licensee's notice, the mine
licensee shall promptly advise the review board and operator that it is amending its
request for a mine-through certificate to exclude any property that is no longer
subject to a coal mine permit or a pending coal mine permit application.
Effective: July 13, 2004
History: Created 2004 Ky. Acts ch. 65, sec. 6, effective July 13, 2004.
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