(a) To encourage exploration for oil and gas on state land, the commissioner may issue exploration licenses. The commissioner may limit the exploration licenses under AS 38.05.132 - 38.05.134 to exploration for and recovery of gas only. The commissioner may not issue an exploration license on land that is held under an existing coal lease entered into under AS 38.05.150 that has an active permit for exploration or mining unless the licensee under this subsection is also the lessee under AS 38.05.150 of that land.
(b) An exploration license issued under this section gives the licensee
(1) the exclusive right to explore, for a term not to exceed 10 years, on unleased state land described in the exploration license for deposits of oil and gas, or for deposits of gas only, as appropriate, unless the exploration license is terminated under (d)(1) of this section or the land is earlier relinquished, removed, or deleted under (d)(2) of this section; and
(2) unless the exploration license is terminated under (d)(1) of this section, the option to convert the exploration license for all or part of the state land, except the land that is deleted or removed from the land described in the exploration license under (d)(2) of this section, into an oil and gas lease, or a gas lease only, as appropriate, upon fulfillment of the work commitments contained in the exploration license.
(c) An exploration license awarded under this section
(1) is not subject to the acreage limitations imposed by AS 38.05.140(c) or 38.05.180(m);
(2) may cover, subject to the maximum acreage limitation on exploration licenses by one licensee under AS 38.05.131(e), an area of not less than 10,000 acres and not more than 500,000 acres, that must be reasonably compact and contiguous;
(3) must be conditioned upon an obligation to perform a specified work commitment, in total for the term of the license, expressed in dollars of direct exploration expenditures; the specified work commitment
(A) may include a provision that adjusts the total amount of work commitment, expressed in dollars of direct exploration expenditures, to account for inflation;
(B) must include a requirement that the licensee complete at least 25 percent of the licensee's total specified work commitment by the fourth anniversary of the effective date of the issuance of the exploration license;
(4) must be conditioned upon the posting of a bond or other security acceptable to the commissioner, in favor of the state and subject to the following requirements:
(A) the bond or other security must be renewed annually;
(B) the annual bond or other security shall be calculated as the entire work commitment expressed in dollars, less the cumulative direct exploration expenditures of the licensee as of the last day of the most recent project year, divided by the number of years remaining in the term of the exploration license;
(5) is subject to an annual review and revocation if the commissioner determines that the licensee has failed to provide or maintain in effect the bond or other security required by (4) of this subsection;
(6) must be conditioned upon the licensee's payment to the state of a nonrefundable exploration license fee of $1 for each acre of land or fraction of each acre that is subject to the exploration license; and
(7) must be conditioned upon an agreement that exploration expenditures are subject to audit by the commissioner.
(d) If, on the fourth anniversary of the effective date of the issuance of the exploration license awarded under this section,
(1) the licensee has not completed at least 25 percent of the licensee's total specified work commitment, as measured by the licensee's direct exploration expenditures, the exploration license terminates;
(2) the licensee has completed at least 25 percent but has not completed at least 50 percent of the licensee's total specified work commitment, as measured by the licensee's direct exploration expenditure, the commissioner shall remove or delete or shall require the licensee to relinquish a portion of the area within the exploration license; relinquishment, removal, or deletion of an area from the state land described in the exploration license terminates the licensee's rights under AS 38.05.131 - 38.05.134 in the area that is relinquished, removed, or deleted; a relinquishment, removal, or deletion of a portion of the area described in the exploration license must be in areas that are reasonably compact and contiguous; the areas relinquished from the state land described in the exploration license must be areas identified by the licensee but, if the licensee fails to identify sufficient area, the commissioner may identify any additional acreage required to be removed or deleted from the area under license to meet the requirements of this subsection; within the area described in the exploration license issued under (a) - (c) of this section,
(A) 25 percent must be relinquished, removed, or deleted not later than the fourth anniversary of the effective date of the issuance of the exploration license;
(B) an additional 10 percent of the acreage remaining after relinquishment, removal, or deletion of acreage required by (A) of this paragraph and by previous relinquishments, removals, or deletions under this paragraph must be removed or deleted on each of the succeeding anniversaries of the effective date of the issuance of the exploration license;
(C) the cumulative total of the acreage relinquished, removed, or deleted under (A) and (B) of this paragraph may not be required to exceed 50 percent of the area awarded within the original exploration license area.
(e) If, immediately before the beginning of the period for annual renewal of the bond or other security under (c)(4)(A) of this section, the licensee fails to provide or maintain in effect the bond or other security required by (c) of this section for the period covered by the annual renewal and the commissioner revokes the exploration license, the bond or other security then in effect for the licensee's obligations under the exploration license is forfeited to the state.
(f) In this section,
(1) “direct exploration expenditure” means cash expenses undertaken in performance of a specified work commitment under the provisions of AS 38.05.131 - 38.05.134 and necessarily incurred by the licensee in the permitting, mobilization, conducting, demobilization, and evaluation of geophysical and geological surveys, or the drilling, logging, coring, testing, and evaluation of oil and gas or gas only wells; the term
(A) includes direct labor costs, including the cost of benefits, for employees directly associated with the work commitment programs, the cost of renting or leasing equipment from parties not affiliated with the licensee, the reasonable costs of maintaining and operating equipment, payments to consultants and independent contractors not affiliated with the licensee, and costs of materials and supplies;
(B) does not include noncash expenses such as depreciation and reserves, interest or other costs of borrowed funds, return on investment, overhead, insurance or bond premiums, or any other expense that is unreasonable or that the licensee has not incurred to satisfy the licensee's work commitment;
(2) “work commitment” includes the drilling of one or more exploration wells or the gathering of data from activities described in (1) of this subsection, or both.