Part I Extension of Rule Development Deadline

Amends Section 2(m) of  S.L. 2012-143 extending the rule development deadline to January 1, 2015 (was October 1, 2014) for the development of a regulatory program for the management of oil and gas.

Part II Exemption from Administrative Procedure Act

Establishes that all rules adopted pursuant to Section 2(m) of SL 2012-143 will be subject to legislative review during the next regular session of the General Assembly that begins after the date the Rules Review Commission (RRC) approved the rule or during the regular session that is in session when the RRC approved the rule (currently, rules adopted by the RRC could only be subject to legislative review if they were adopted 25 days prior to the start of a legislative session).

Provides that any member of the General Assembly can introduce a bill to disapprove any rule adopted by the RRC within the first 30 calendar days of any regular session (was, 30 legislative days).  Provides that rules adopted by the RRC during a legislative session can be disapproved by bill within 30 calendar days from the date the RRC approved the rules pursuant to Section 2(m) of SL 2012-143.

Sets out guidelines that establish when rules for the management of oil and gas can become effective when a disapproval bill has been filed in connection with a rule or a suite of rules. Provides that rules would become effective the earlier of (1) the 31st calendar day of a regular session that begins after the date the RRC approved the rule if a bill that specifically disapproves the rule has not been introduced in either chamber of the General Assembly by that date or (2) when a bill that specifically disapproves the rule is introduced in either chamber of the General Assembly before the 31st calendar day of that session, the rule becomes effective on the earlier of either the day an unfavorable final action on the bill is taken, or the 61st calendar day of the session if by that date a bill that specifically disapproves the rule has not been ratified, or (3) the day the General Assembly adjourns without ratifying a disapproval bill.  Establishes procedure for when rules are approved by the RRC when there is a legislative session.

Requires the RRC to review any permanent rule adopted pursuant to Section 2(m) of SL 2012-143 and submitted to it by the end of the month, by the last day of the next month.

Provides that GS 150B-19.3 does not apply to rules adopted by the Mining and Energy Commission (MEC), the Environmental Management Commission, or the Commission for Public Health when those rules are for the management of oil and gas exploration, development, and production.

Provides that rules for the management of oil and gas exploration and development are exempt from a fiscal note requirement found in GS 150B-19.1(f) of the APA. Provides that the exemption of the fiscal note requirement sunsets on  December 31, 2017.

Part III Create Oil and Gas Commission and Reconstitute Mining Commission

Amends Part 6A of Article 7 of GS Chapter 143B, modifying GS 143B-293.1 and GS 143B-293.2 to create the North Carolina Oil and Gas Commission (Commission) while abolishing the North Carolina Mining and Energy Commission (MEC). Deletes authority of the Commission to adopt rules to require the operation of wells with efficient gas oil ratios and to fix such ratios. Establishes authority for the Commission to classify wells for taxing purposes. Amends reporting frequency. Sets out new membership selection criteria, providing that the Commission will consist of nine members. Directs the Commission to submit an annual written report to the Joint Legislative Commission on Energy Policy and the Environmental Review Commission regarding its operation.  Sets out guidelines for staggered terms of members appointed to the Commission.

Makes conforming changes to GS 143B-293.4, 143B-293.5, and 143B-293.6.

Establishes that all terms of the members serving on the Mining and Energy Commission will expire on July 31, 2015, with the nine members of the Commission being duly appointed no later than August 1, 2015.

Reenacts Part 6 of Article 7 of GS Chapter 143B, reinstating the North Carolina Mining Commission (Mining Commission). Establishes that the Mining Commission will be comprised of seven members (previously repealed commission had nine members). Sets out new member selection criteria. Makes conforming changes to term expiration. Provides that a meeting can be called at the written request of four members (was, five members). The new members of the Mining Commission must be appointed no later than August 1, 2015.

Part III effective July 31, 2015

Part IV Miscellaneous Statutory Amendments related to Shale Gas Exploration, Development, and Production

Makes conforming changes to GS 113-391(a2) and GS 143b-293.1(b).

Enacts new GS 113-391A, Trade secret and confidential information determination; protection; retention; disclosure to emergency personnel, establishing that confidential information should be immediately accessible to first responders and medical personnel  in cases of emergencies for the protection of public health, safety, and the environment.

Provides that information obtained pursuant to Article 27 of GS Chapter 113 is available to the public unless the release of that information, as deemed by the MEC, will divulge methods or processes entitled to protection as confidential information pursuant to GS 132-1.2. 

Includes exceptions to disclosure prohibitions, providing that confidential information can be disclosed to officers and employees of any federal or state agency when disclosure is necessary to carry out the proper function of the agency or department. Provides that confidential information will be disclosed to the Division of Emergency Management of DPS. Disclosure of confidential information is also allowed to a treating health care provider and specified Fire Chiefs, when it is determined that the information is necessary to address an emergency or administer first-aid. Includes regulations for such allowable disclosures and penalties for unlawful disclosure of confidential information. Provides for appeals of Commission decisions concerning trade secret/confidential information to be heard by the Business Court, who has exclusive jurisdiction over the matter. Outlines procedures and regulations for the appeal.

Amends GS 113-391(b1), to establish that the State Geologist will serve as the custodian of trade secret information as defined or designated in GS 66-152(3) or GS 132-1.2, with a duty to keep such information securely maintained pursuant to GS 132-7.

Repeals GS 113-391(a)(6), concerning the Commission’s involvement in an owner’s request for surveys of alleged unlawfully drilled wells.

Repeals GS 113-392(c), concerning requirements that wells be drilled in the center of a drilling unit.

Amends GS 113-395(a), changing the fee structure for drilling wells, providing that a fee of $3,000 will be assessed for the first well drilled on a pad and a fee of $1,500 for each additional well drilled on the same pad (previously, a $3,000 fee was assessed for each well drilled).

Adds new subsection GS 113-420(b2) requiring oil and gas developers to issue a 30 day written notice to owners of subsurface oil and gas resources before the Initiation of exploration, development, or production activities.  Includes what, at a minimum, the notice must include.

Amends GS 113-421, concerning an oil and gas operator’s presumptive liability for water contamination, providing that the liability extends to water supplies located within a ½ mile radius of any wellhead (was, within 5,000 feet of a wellhead). Makes conforming changes.

Adds new GS 113-421(e), a joint and several liability clause, providing that actions for recovery of cleanup costs, damages, or civil penalties can be brought against any person having control over the activities that contributed to the damage or other violations, and that such persons would be jointly and severally liable.  Provides that ultimate liability can be determined by common-law principles.

Amends GA 113-423(f), concerning pre-drilling testing of water supplies at least 30 days before initial drilling activities, providing that the required testing must be of all water supplies located within ½ mile radius of a proposed wellhead (was, required testing of water supplies within 5,000 feet of proposed wellhead). Establishes that a surface owner can elect to have an independent third-party, certified by DENR’s Wastewater/groundwater Laboratory Certification program sample wells in lieu of sampling conducted by the oil and gas operator (previously, surface owners could only choose to have DENR perform the sampling in place of the operator).  Requires developers and operators to provide results of any testing conducted within 30 days of sampling to DENR. Allows developers and operators to share testing results with other operators and developers.

Enacts new GS 113-415A, Local ordinances prohibiting oil and gas exploration, development, and production activities invalid; petition to preempt local ordinance, placing limitation on the regulatory power of local governments, thus invalidating local ordinances that prohibit or have the effect of prohibiting oil and gas exploration, development, and production activities. Prohibition includes ordinances that would impose taxes, fees, or those that regulate health, environment, or land use with an outcome of prohibiting oil and gas exploration, development, and production activities. Sets out four specific classes of local ordinances that are prohibited.  Includes further provisions discussing when local government development would interrupt oil and gas exploration activities, providing that the operator can petition the MEC to review the matter.  Then requires the MEC to hold a public hearing  within 60 days after receipt of the petition.  Sets out requirements for public notice.  Allows any interested person to appear at the hearing to offer testimony.  Provides that written comment about the petition in question will be accepted for 20 days after the hearing. Establishes that local zoning or land-use ordinances from local governments are presumed to be valid and enforceable.  Sets out limitations for this presumption. Provides process by which the MEC can preempt local ordinances, which must be done by making a finding of fact to the contrary.  Provides that preemption only occurs after the MEC makes a finding of four specific facts. Sets out the required fact findings, including that they are local ordinances that prohibit or have the effect of prohibiting oil and gas exploration, development, and production activities and local citizens and officials have had opportunity to participate in the permitting process. Sets out rules for appeals from MEC finding, which can only occur through a written appeal under GS Chapter 150B, Article 4. Provides further appeals procedures and regulations.

Enacts new sections GS 113-395A, 113-395B, 113-395C, and 113-395D, which requires all natural gas compressor stations associated with oil and gas drilling operations to be located inside a baffled building.  Also prohibits injection of wastes produced in connection with oil and gas drilling operations to the subsurface or groundwaters by means of wells.  Requires DENR to conduct an environmental compliance review of each applicant for a new permit for oil and gas activities.  Sets out what the review must include and evaluate, including compliance history for a five year period before application and compliance with applicable laws for the protection of the environment.  Sets out further review processes and requirements.  Provides that no liability for trespass would arise from activities conducted for the purpose of seismic or geophysical data collection if a person has a landowner’s written consent to enter for such activities or does not physically enter the private land.  Physical entry, without written consent to conduct such activities would constitute a Class 1 misdemeanor.  Provides for civil liability for people that are collecting such information and physical or property damage results.  

Amends GS 87-98.4, to exempt persons engaged in activities involving the construction, repair, or abandonment of a well used for the exploration or development of oil or gas from the water well contractor certification requirements under GS Chapter 87.

Part V Establish Severance Tax

Repeals GS 113-387 and GS 113-388, the current severance tax system, under which no tax is currently collected.

Enacts new GS Chapter 105, Article 51, Severance Tax, providing for a new severance tax structure on the removal of energy minerals from the soil and water of NC.  Sets out and defines terms to be used in this Article, including energy mineral which is defined to include all forms of natural gas, oil, and related condensates.

Tax structure is created and imposed on all energy minerals when sold.  Energy minerals are categorized as condensates, gas, or oil. Oil and condensates will be taxed at the same rate with gas and marginal gas receiving two different rates, and taxed on the delivered to market value of the gas. Includes provisions detailing how to calculate delivered to market value as well as recordkeeping requirements and deductions allowable to the delivered to market value.  Also provides that on-site use of energy minerals are exempt from the several tax up to a yearly delivered to market value of $1,200.

Sets out a graduated tax structure for energy mineral beginning in 2015 with 2% (oil and condensates), .4% (marginal gas), and .9%(gas), culminates  in 2023 with the following rates 5% (oil and condensates), .8% (marginal gas), and a scale based on delivered to market value price per mcf(gas).

Sets out procedures and regulations for payment of the tax, including that the producer of the gas is liable for the tax and tax is due when the specified returns are due. Defines producer as the entity that extracts the mineral from the soil or water.   Provides for suspension of permits for any producer that fails to file a return or make a payment for severance taxes.  Also requires producer to file a bond or irrevocable letter of credit if the producer does not file a return.

Provides that local governments are not authorized to impose any additional taxes on the severance of energy minerals.   Also exempts the value of real property attributable to the presence of energy minerals from taxation when no permit for drilling in the property has been issued. Provides that local governments property tax revenues cannot exceed 8% of what the property tax revenues were for the prior fiscal year.

Part VI Studies

Directs the Local Government Division to study how other states are valuing energy minerals for property taxation and to establish guidelines for counties to ensure consistent and fair taxation.  Findings must be reported to the Joint Legislative Commission on Energy Policy by January 1, 2015.

Directs the Department of Commerce, with DENR, the NC Ports Authority, and the Department of Administration, to study the desirability and feasibility of siting and constructing a liquefied natural gas export terminal in NC. Findings and recommendation are to be reported to the Joint Legislative Commission on Energy Policy and Environmental Review Commission by January 1, 2015.

Directs the DOT to study statewide traffic, safety, and transportation issues surrounding energy-related traffic and road use, including the consideration of fees, road use agreements, and performance bonding or other surety mechanisms.  DOT is to reports its findings and recommendations to the Joint Legislative Commission on Energy Policy and the Joint Legislative Transportation Oversight Committee by January 1, 2015.

Directs the State Board of Community Colleges to study the desirability and feasibility of developing programs to prepare students in regards to employment in oil and gas drilling, gathering, and field operations industry, especially in Community Colleges located in areas where shale gas resources are of great potential.  Findings and recommendations are due to the Joint Legislative Commission on Energy Policy and the Joint Legislative Education Oversight Committee by January 1, 2015.

Directs DENR to (1) examine MEC’s rules relating to oil and gas exploration as well as all rules DENR determines will affect the regulation of compulsory pooling in NC, (2) study, in conjunction with other specified agencies, the issue of amending current dormant mineral statutes about extinguishment and other protection issues related to split estates, and (3) issue recommendations for legislative action related to compulsory pooling and dormant mineral statutes with findings reported  to the Joint Legislative Commission on Energy Policy and the Environmental Review Commission by October 1, 2015.

Directs the MEC and DENR to study the development of midstream infrastructure in NC. Sets out what infrastructure should be studied. MEC will report the findings to the Joint Legislative Commission on Energy Policy March 1, 2015.

Directs the State Energy Office to study and make legislative recommendation on a comprehensive long-range energy policy to achieve maximum effective use of present and future sources of energy. Sets out specific factors the study should include. Findings are to be reported to the Joint Legislative Commission on Energy Policy by January 1, 2015.

Directs the Division of Purchase and Contract, with DPI, to allow any fuel option to be considered for the award of a school bus contract. Also directs the agencies to study the infrastructure necessary to support school bus fleets operating on natural gas. Findings are to be reported to the Joint Legislative Commission on Energy Policy by January 1, 2015.

Part VII Miscellaneous Provisions Unrelated to Shale Gas

Repeals GS 114.4.2D, a provision that required the Energy Policy Council to use an attorney assigned by the AG’s office. Amends GS 113b-11(e), to allow the council to have legal support provided by DENR.

Amends GS 105-449.130 to adopt the gas gallon equivalent for compressed natural gas and the diesel gas equivalent for liquid natural gas for the purposes of motor fuel taxation. Equivalents are 5.66 pounds of compressed gas and 6.06 pounds of liquefied natural gas. Makes conforming changes.

Part VIII Severability and Effective Date

Provides a severability clause.