2013 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.
Download as PDF
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 operator resulting from the mine
licensee's planned mine-through operations. Any compensation
agreement between the mine licensee and operator for each drilling unit
(d)
(e)
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 mine-through 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 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
3.
4.
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 shall be calculated
using a discount rate of twenty percent (20%). The valuation
5.
6.
7.
8.
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 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
(f)
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 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
(g)
(h)
(i)
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.
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
(j)
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 mine-through
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 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.
(k)
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 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,
(3)
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.
Disclaimer: These codes may not be the most recent version. Kentucky may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.