GENERAL ASSEMBLY OF NORTH CAROLINA

 SESSION 2011

 

 

SESSION LAW 2012-143

SENATE BILL 820

 

 

AN ACT to (1) RECONSTITUTE THE MINING COMMISSION AS THE MINING AND ENERGY COMMISSION, (2) REQUIRE THE Mining and Energy Commission and other regulatory agencies to DEVELOP A MODERN REGULATORY PROGRAM FOR THE MANAGEMENT OF OIL AND GAS EXPLORATION AND DEVELOPMENT ACTIVITIES IN THE state, including the use of horizontal drilling and hydraulic fracturing for that purpose, (3) authorize horizontal drilling and hydraulic fracturing, but prohibit the issuance of permits for these activities pending subsequent legislative action, (4) enhance landowner and public protections related to horizontal drilling and hydraulic fracturing, and (5) establish the Joint Legislative Commission on Energy Policy.

 

PART I. LEGISLATIVE FINDINGS AND INTENT

Whereas, in S.L. 2011-276, the General Assembly directed the Department of Environment and Natural Resources, in conjunction with the Department of Commerce, the Department of Justice, and the Rural Advancement Foundation (RAFI-USA), to study the issue of oil and gas exploration in the State and the use of horizontal drilling and hydraulic fracturing for that purpose, including the study of all of the following:

(1)        Oil and gas resources present in the Triassic Basins and in any other areas of the State.

(2)        Methods of exploration and extraction of oil and gas, including directional and horizontal drilling and hydraulic fracturing.

(3)        Potential environmental, economic, and social impacts arising from such activities, as well as impacts on infrastructure.

(4)        Appropriate regulatory requirements for management of oil and gas exploration activities, with particular attention to regulation of horizontal drilling and hydraulic fracturing for that purpose; and

Whereas, pursuant to S.L. 2011-276, the Department of Environment and Natural Resources, in conjunction with the Department of Commerce, the Department of Justice, and the Rural Advancement Foundation (RAFI-USA), issued a draft report in March of 2012; and

Whereas, pursuant to S.L. 2011-276, the Department of Environment and Natural Resources received public comment regarding the draft report, including public comment received at public meetings held on March 20, March 27, and April 2, 2012; and

Whereas, pursuant to S.L. 2011-276, the Department of Environment and Natural Resources (DENR), in conjunction with the Department of Commerce, the Department of Justice, and the Rural Advancement Foundation (RAFI-USA), issued a final report on April 30, 2012; and

Whereas, the final report set forth a number of recommendations, including recommendations concerning all of the following:

(1)        Development of a modern oil and gas regulatory program, taking into consideration the processes involved in hydraulic fracturing and horizontal drilling technologies, and long-term prevention of physical or economic waste in developing oil and gas resources.

(2)        Collection of baseline data for areas near proposed drill sites concerning air quality and emissions, as well as groundwater and surface water resources and quality.

(3)        Requirements that oil and gas operators prepare and have approved water management plans that limit water withdrawals during times of low-flow conditions and droughts.

(4)        Enhancements to existing oil and gas well construction standards to address the additional pressures of horizontal drilling and hydraulic fracturing.

(5)        Development of setback requirements and identification of areas where oil and gas exploration and development activities should be prohibited.

(6)        Development of a State stormwater regulatory program for oil and gas drilling sites.

(7)        Development of specific standards for management of oil and gas wastes.

(8)        Requirements for disclosure of hydraulic fracturing chemicals and constituents to regulatory agencies and the public.

(9)        Prohibitions on use of certain chemicals or constituents in hydraulic fracturing fluids.

(10)      Improvements to data management capabilities.

(11)      Development of a coordinated permitting program for oil and gas exploration and development activities within the Department of Environment and Natural Resources where it will benefit from the expertise of State geological staff and the ability to coordinate air, land, and water permitting.

(12)      Development of protocols to ensure that State agencies, local first responders, and industry are prepared to respond to a well blowout, chemical spill, or other emergency.

(13)      Adequate funding for any continued work on the development of a State regulatory program for the natural gas industry.

(14)      Appropriate distribution of revenues from any taxes or fees that may be imposed on oil and gas exploration and development activities to support a modern regulatory program for the management of all aspects of oil and gas exploration and development activities using the processes of horizontal drilling and hydraulic fracturing in the State, and to support local governments impacted by the activities, including, but not limited to, sufficient funding for improvements to and repair of roads subject to damage by truck traffic and heavy equipment from these activities.

(15)      Closure of gaps in regulatory authority over the siting, construction, and operation of gathering pipelines.

(16)      Clarifications needed to address local government regulatory authority over oil and gas exploration and development activities, and use of horizontal drilling and hydraulic fracturing for that purpose.

(17)      Additional research required on impacts to local governments and local infrastructure, as well as potential economic impacts from oil and gas exploration and development activities.

(18)      Development of provisions to address liability of the oil and gas industry for environmental contamination caused by exploration and development activities, particularly with regard to groundwater contamination.

(19)      Establishment of a process that affords additional public participation in connection with development of a modern oil and gas regulatory program; and

Whereas, the final report also states "[a]fter reviewing other studies and experiences in oil and gas-producing states, DENR has concluded that information available to date suggests that production of natural gas by means of hydraulic fracturing can be done safely as long as the right protections are in place"; and

Whereas, the General Assembly concurs in the conclusion of the final report that hydraulic fracturing can be done safely as long as the right protective measures are in place before any permits for horizontal drilling and hydraulic fracturing are issued; and

Whereas, it is the intent of the General Assembly to authorize oil and gas exploration and development activities using horizontal drilling and hydraulic fracturing treatments, but to prohibit the issuance of permits for these activities until such time as the General Assembly has determined that a modern regulatory program for the management of oil and gas exploration and development in the State and the use of horizontal drilling and hydraulic fracturing for that purpose has been fully established and takes legislative action to allow the issuance of permits; and

Whereas, it is the intent of the General Assembly to establish a modern regulatory program based on the recommendations of the final report and the following principles:

(1)        Protection of public health and safety.

(2)        Protection of public and private property.

(3)        Protection and conservation of the State's air, water, and other natural resources.

(4)        Promotion of economic development and expanded employment opportunities.

(5)        Productive and efficient development of the State's oil and gas resources; Now, therefore,

 

The General Assembly of North Carolina enacts:

 

 

PART II. RECONSTITUTE THE MINING COMMISSION AS THE MINING AND ENERGY COMMISSION; RENAME THE DIVISION OF LAND RESOURCES AS THE DIVISION OF ENERGY, MINERAL, AND LAND RESOURCES

SECTION 1.(a)  Part 6 of Article 7 of Chapter 143B of the General Statutes is repealed.

SECTION 1.(b)  Article 7 of Chapter 143B of the General Statutes is amended by adding a new Part to read:

"Part 6A. North Carolina Mining and Energy Commission.

" 143B-293.1.  North Carolina Mining and Energy Commission - creation; powers and duties.

(a)        There is hereby created the North Carolina Mining and Energy Commission of the Department of Environment and Natural Resources with the power and duty to adopt rules necessary to administer the Oil and Gas Conservation Act pursuant to G.S. 113-391 and for the development of the oil, gas, and mining resources of the State. The Commission shall make such rules consistent with the provisions of this Chapter. All rules adopted by the Commission shall be enforced by the Department of Environment and Natural Resources.

(b)        The Commission shall have the authority to make determinations and issue orders pursuant to the Oil and Gas Conservation Act to (i) regulate the spacing of wells and to establish drilling units as provided in G.S. 113-393; (ii) require the operation of wells with efficient gas-oil ratios and to fix such ratios; (iii) limit and prorate the production of oil or gas, or both, from any pool or field for the prevention of waste as provided in G.S. 113-394; and (iv) require integration of interests as provided in G.S. 113-393.

(c)        The Commission shall submit quarterly written reports as to its operation, activities, programs, and progress to the Joint Legislative Commission on Energy Policy and the Environmental Review Commission. The Commission shall supplement the written reports required by this subsection with additional written and oral reports as may be requested by the Joint Legislative Commission on Energy Policy and the Environmental Review Commission. The Commission shall submit the written reports required by this subsection whether or not the General Assembly is in session at the time the report is due.

" 143B-293.2.  North Carolina Mining and Energy Commission - members; selection; removal; compensation; quorum; services.

(a)        Members Selection. - The North Carolina Mining and Energy Commission shall consist of 15 members appointed as follows:

(1)        The Chair of the North Carolina State University Minerals Research Laboratory Advisory Committee, or the Chair's designee, ex officio.

(2)        The State Geologist, or the State Geologist's designee, ex officio.

(3)        The Assistant Secretary of Energy for the Department of Commerce, ex officio.

(4)        One appointed by the General Assembly upon recommendation of the Speaker of the House of Representatives who is a member of a nongovernmental conservation interest.

(5)        One appointed by the General Assembly upon recommendation of the Speaker of the House of Representatives who is an elected official of a municipal government located in the Triassic Basin of North Carolina.

(6)        One appointed by the General Assembly upon recommendation of the Speaker of the House of Representatives who is a member of the Environmental Management Commission and knowledgeable in the principles of water and air resources management.

(7)        One appointed by the General Assembly upon recommendation of the Speaker of the House of Representatives who shall be a geologist with experience in oil and gas exploration and development.

(8)        One appointed by the General Assembly upon recommendation of the President Pro Tempore of the Senate who is a member of a nongovernmental conservation interest.

(9)        One appointed by the General Assembly upon recommendation of the President Pro Tempore of the Senate who is a member of a county board of commissioners of a county located in the Triassic Basin of North Carolina.

(10)      One appointed by the General Assembly upon recommendation of the President Pro Tempore of the Senate who is a member of the Commission for Public Health and knowledgeable in the principles of waste management.

(11)      One appointed by the General Assembly upon recommendation of the President Pro Tempore of the Senate who shall be an engineer with experience in oil and gas exploration and development.

(12)      One appointed by the Governor who shall be a representative of a publicly traded natural gas company.

(13)      One appointed by the Governor who shall be a licensed attorney with experience in legal matters associated with oil and gas exploration and development.

(14)      One appointed by the Governor who is a representative of the mining industry.

(15)      One appointed by the Governor who is a representative of the mining industry.

(b)        Terms. - The term of office of members of the Commission is three years. A member may be reappointed to no more than two consecutive three-year terms. The term of a member who no longer meets the qualifications of their respective appointment, as set forth in subsection (a) of this section, shall terminate but the member may continue to serve until a new member who meets the qualifications is appointed. The terms of members appointed under subdivisions (4), (6), (9), and (12) of subsection (a) of this section shall expire on June 30 of years evenly divisible by three. The terms of members appointed under subdivisions (7), (10), (13), and (14) of subsection (a) of this section shall expire on June 30 of years that precede by one year those years that are evenly divisible by three. The terms of members appointed under subdivisions (5), (8), (11), and (15)  of subsection (a) of this section shall expire on June 30 of years that follow by one year those years that are evenly divisible by three.

(c)        Vacancies; Removal from Office. -

(1)        Any appointment by the Governor to fill a vacancy on the Commission created by the resignation, dismissal, death, or disability of a member shall be for the balance of the unexpired term. The Governor shall have the power to remove any member of the Commission from office for misfeasance, malfeasance, or nonfeasance in accordance with the provisions of G.S. 143B-13 of the Executive Organization Act of 1973.

(2)        Members appointed by the President Pro Tempore of the Senate and the Speaker of the House of Representatives shall be made in accordance with G.S. 120-121, and vacancies in those appointments shall be filled in accordance with G.S. 120-122. In accordance with Section 10 of Article VI of the North Carolina Constitution, a member may continue to serve until a successor is duly appointed.

(d)        Compensation. - The members of the Commission shall receive per diem and necessary traveling and subsistence expenses in accordance with the provisions of G.S. 138-5.

(e)        Quorum. - A majority of the Commission shall constitute a quorum for the transaction of business.

(f)         Staff. - All staff support required by the Commission shall be supplied by the Division of Energy, Mineral, and Land Resources and the North Carolina Geological Survey.

(g)        Committees. - In addition to the Committee on Civil Penalty Remissions required to be established under G.S. 143B-293.6, the chair may establish other committees from members of the Commission to address specific issues as appropriate. No member of a committee may hear or vote on any matter in which the member has an economic interest. A majority of a committee shall constitute a quorum for the transaction of business. At a minimum, the chair shall establish a Committee on Mining, which shall consist of members appointed under subdivisions (1), (4), (6), (8), (10), (14), and (15) of subsection (a) of this section. The Committee on Mining shall have exclusive responsibility and authority over matters pertaining to mining and implementation of the Mining Act of 1971, including all of the following powers and duties.

(1)        To act as the advisory body to the Governor pursuant to Article V(a) of the Interstate Mining Compact, as set out in G.S. 74-37.

(2)        To adopt rules necessary to administer the Mining Act of 1971 pursuant to G.S. 74-63.

(3)        To adopt rules necessary to administer the Control of Exploration for Uranium in North Carolina Act of 1983 pursuant to G.S. 74-86.

(4)        To adopt rules, not inconsistent with the laws of this State, as may be required by the federal government for grants-in-aid for mining resource purposes which may be made available to the State by the federal government. This section is to be liberally construed in order that the State and its citizens may benefit from such grants-in-aid.

" 143B-293.4.  North Carolina Mining and Energy Commission - officers.

The Mining and Energy Commission shall have a chair and a vice-chair. The Commission shall elect one of its members to serve as chair and one of its members to serve as vice-chair. The chair and vice-chair shall serve one-year terms beginning August 1 and ending July 31 of the following year. The chair and vice-chair may serve any number of terms, but not more than two terms consecutively.

" 143B-293.5.  North Carolina Mining and Energy Commission - meetings.

The North Carolina Mining and Energy Commission shall meet at least quarterly and may hold special meetings at any time and place within the State at the call of the chair or upon the written request of at least nine members.

" 143B-293.6.  North Carolina Mining and Energy Commission - quasi-judicial powers; procedures.

(a)        With respect to those matters within its jurisdiction, the Mining and Energy Commission shall exercise quasi-judicial powers in accordance with the provisions of Chapter 150B of the General Statutes.

(b)        The chair shall appoint a Committee on Civil Penalty Remissions from the members of the Commission. No member of the Committee on Civil Penalty Remissions may hear or vote on any matter in which the member has an economic interest. In determining whether a remission request will be approved, the Committee shall consider the recommendation of the Secretary or the Secretary's designee and all of the following factors:

(1)        Whether one or more of the civil penalty assessment factors in subsection (b) of this section were wrongly applied to the detriment of the petitioner.

(2)        Whether the violator promptly abated continuing environmental damage resulting from the violation.

(3)        Whether the violation was inadvertent or a result of an accident.

(4)        Whether the violator had been assessed civil penalties for any previous violations.

(5)        Whether payment of the civil penalty will prevent payment for the remaining necessary remedial actions.

(c)        The Committee on Civil Penalty Remissions may remit the entire amount of the penalty only when the violator has not been assessed civil penalties for previous violations and when payment of the civil penalty will prevent payment for the remaining necessary remedial actions."

SECTION 1.(c)  Pursuant to G.S. 150B-21.7, rules adopted by the North Carolina Mining Commission shall remain in effect until amended or repealed by the North Carolina Mining and Energy Commission established pursuant to subsection (b) of this section.

SECTION 1.(d)  The Revisor of Statutes shall make the conforming statutory changes necessary to reflect the reconstitution of the North Carolina Mining Commission as the North Carolina Mining and Energy Commission as provided in subsection (b) of this section. The Codifier of Rules shall make the conforming rule changes necessary to reflect the reconstitution of the North Carolina Mining Commission to the North Carolina Mining and Energy Commission as provided in subsection (b) of this section.

SECTION 1.(e)  The Division of Land Resources of the Department of Environment and Natural Resources is hereby renamed the Division of Energy, Mineral, and Land Resources.

SECTION 1.(f)  The Revisor of Statutes shall make the conforming statutory changes necessary to reflect the renaming of the Division of Land Resources as the Division of Energy, Mineral, and Land Resources as provided in subsection (e) of this section. The Codifier of Rules shall make the conforming rule changes necessary to reflect the renaming of the Division of Land Resources as the Division of Energy, Mineral, and Land Resources as provided in subsection (e) of this section.

SECTION 1.(g)  In order to maintain continuity and experience of membership, the Governor and the General Assembly should consider the members of the North Carolina Mining Commission, repealed pursuant to subsection (a) of this section, when appointing the members of the North Carolina Mining and Energy Commission, created by G.S. 143B-293.1, as enacted by subsection (b) of this section.

SECTION 1.(h)  The North Carolina Mining and Energy Commission shall submit the first report due under G.S. 143B-293.1(c), as enacted by subsection (b) of this section, on or before January 1, 2013.

 

PART III. MINING AND ENERGY COMMISSION AND OTHER REGULATORY AGENCIES TO ESTABLISH REGULATORY PROGRAM FOR THE MANAGEMENT OF OIL AND GAS EXPLORATION AND DEVELOPMENT IN THE STATE AND THE USE OF HORIZONTAL DRILLING AND HYDRAULIC FRACTURING FOR THAT PURPOSE

SECTION 2.(a)  G.S. 113-380 reads as rewritten:

" 113-380.  Violation a misdemeanor.

Any Except as otherwise provided, any person, firm or officer of a corporation violating any of the provisions of G.S. 113-378 or 113-379,this Article shall upon conviction thereof be guilty of a Class 1 misdemeanor."

SECTION 2.(b)  G.S. 113-389 reads as rewritten:

" 113-389.  Definitions.

Unless the context otherwise requires, the words defined in this section shall have the following meaning when found in this law:

(1)        "Base fluid" shall mean the continuous phase fluid type, such as water, used in a hydraulic fracturing treatment.

(1a)      "Commission" shall mean the North Carolina Mining and Energy Commission.

(1b)      "Department" shall mean the "DepartmentDepartment of Environment and Natural Resources," as created by this law.Resources.

(1c)      "Division" shall mean the Division of Energy, Mineral, and Land Resources of the Department of Environment and Natural Resources.

(2)        "Field" shall mean the general area which is underlaid or appears to be underlaid by at least one pool; and "field" shall include the underground reservoir or reservoirs containing crude petroleum oil or natural gas, or both. The words "field" and "pool" mean the same thing when only one underground reservoir is involved; "field," unlike "pool," may relate to two or more pools.

(3)        "Gas" shall mean all natural gas, including casing-head gas, and all other hydrocarbons not defined as oil in subdivision (7).

(3a)      "Hydraulic fracturing additive" shall mean any chemical substance or combination of substances, including any chemical or proppants, which is intentionally added to a base fluid for purposes of preparing a hydraulic fracturing fluid or treatment of a well.

(3b)      "Hydraulic fracturing fluid" shall mean the fluid, including the applicable base fluid and all hydraulic fracturing additives, used to perform a hydraulic fracturing treatment.

(3c)      "Hydraulic fracturing treatment" shall mean all stages of the treatment of a well by the application of hydraulic fracturing fluid under pressure that is expressly designed to initiate or propagate fractures in a target geologic formation to enhance production of oil and gas.

(6a)      "Lessee" shall mean the person entitled under an oil and gas lease to drill and operate wells.

(6b)      "Lessor" shall mean the owner of subsurface oil or gas resources who has executed a lease and who is entitled to the payment of a royalty on production.

(12a)    "Proppant" shall mean sand or any natural or man-made material that is used in a hydraulic fracturing treatment to prop open the artificially created or enhanced fractures once the treatment is completed.

(12b)    "Surface owner" means the person who holds record title to or has a purchaser's interest in the surface of real property.

(15)      "Water supply" shall mean any groundwater or surface water intended or used for human consumption; household purposes; or farm, livestock, or garden purposes."

SECTION 2.(c)  G.S. 113-391 reads as rewritten:

" 113-391.  Jurisdiction and authority; rules and orders.

(a)        The Mining and Energy Commission, created by G.S. 143B-293.1, in conjunction with rule-making authority specifically reserved to the Environmental Management Commission under subsection (a3) of this section, shall establish a modern regulatory program for the management of oil and gas exploration and development in the State and the use of horizontal drilling and hydraulic fracturing treatments for that purpose. The program shall be designed to protect public health and safety; protect public and private property; protect and conserve the State's air, water, and other natural resources; promote economic development and expand employment opportunities; and provide for the productive and efficient development of the State's oil and gas resources. To establish the program, the Commission shall adopt rules for all of the following purposes:

(1)        Regulation of pre-drilling exploration activities, including seismic and other geophysical and stratigraphic surveys and testing.

(2)        Regulation of drilling, operation, casing, plugging, completion, and abandonment of wells.

(3)        Prevention of pollution of water supplies by oil, gas, or other fluids used in oil and gas exploration and development.

(4)        Protection of the quality of the water, air, soil, or any other environmental resource against injury or damage or impairment.

(5)        Regulation of horizontal drilling and hydraulic fracturing treatments for the purpose of oil and gas exploration. Such rules shall, at a minimum, include standards or requirements related to the following:

a.         Information and data to be submitted in association with applications for permits to conduct oil and gas exploration and development activities using horizontal drilling and hydraulic fracturing treatments, which may include submission of hydrogeological investigations and identification of mechanisms to prevent and diagnose sources of groundwater contamination in the area of drilling sites. In formulating these requirements, the Commission shall consider (i) how North Carolina's geology differs from other states where oil and gas exploration and development activities using horizontal drilling and hydraulic fracturing treatments are common and (ii) the routes of possible groundwater contamination resulting from these activities and the potential role of vertical geological structures such as dikes and faults as conduits for groundwater contamination.

b.         Collection of baseline data, including groundwater, surface water, and air quality in areas where oil and gas exploration and development activities are proposed. With regard to rules applicable to baseline data for groundwater and surface water, the Commission shall adopt rules that, at a minimum, establish standards to satisfy the pre-drilling testing requirement established under G.S. 113-421(a), including contaminants for which an operator or developer must test and necessary qualifications for persons conducting such tests.

c.         Appropriate construction standards for oil and gas wells, which shall address the additional pressures of horizontal drilling and hydraulic fracturing treatments. These rules, at a minimum, shall include standards for casing and cementing sufficient to handle highly pressurized injection of hydraulic fracturing fluids into a well for purposes of fracturing bedrock and extraction of gas, and construction standards for other gas production infrastructure, such as storage pits and tanks.

d.         Appropriate siting standards for wells and other gas production infrastructure, such as storage pits and tanks, including appropriate setback requirements and identification of areas, such as floodplains, where oil and gas exploration and production activities should be prohibited. Siting standards adopted shall be consistent with any applicable water quality standards adopted by the Environmental Management Commission or by local governments pursuant to water quality statutes, including standards for development in water supply watersheds.

e.         Limits on water use, including, but not limited to, a requirement that oil and gas operators prepare and have a water and wastewater management plan approved by the Department, which, among other things, limits water withdrawals during times of drought and periods of low flows. Rules adopted shall be (i) developed in light of water supply in the areas of proposed activity, competing water uses in those areas, and expected environmental impacts from such water withdrawals and (ii) consistent with statutes, and rules adopted by the Environmental Management Commission pursuant to those statutes, which govern water quality and management of water resources, including, but not limited to, statutes and rules applicable to water withdrawal registration, interbasin transfer requirements, and water quality standards related to wastewater discharges.

f.          Management of wastes produced in connection with oil and gas exploration and development and use of horizontal drilling and hydraulic fracturing treatments for that purpose. Such rules shall address storage, transportation, and disposal of wastes that may contain radioactive materials or wastes that may be toxic or have other hazardous wastes' characteristics that are not otherwise regulated as a hazardous waste by the federal Resource Conservation and Recovery Act (RCRA), such as top-hole water, brines, drilling fluids, additives, drilling muds, stimulation fluids, well servicing fluids, oil, production fluids, and drill cuttings from the drilling, alteration, production, plugging, or other activity associated with oil and gas wells. Wastes generated in connection with oil and gas exploration and development and use of horizontal drilling and hydraulic fracturing treatments for that purpose that constitute hazardous waste under RCRA shall be subject to rules adopted by the Commission for Public Health to implement RCRA requirements in the State.

g.         Prohibitions on use of certain chemicals and constituents in hydraulic fracturing fluids, particularly diesel fuel.

h.         Disclosure of chemicals and constituents used in oil and gas exploration, drilling, and production, including hydraulic fracturing fluids, to State regulatory agencies and to local government emergency response officials, and, with the exception of those items constituting trade secrets, as defined in G.S. 66-152(3), and that are designated as confidential or as a trade secret under G.S. 132-1.2, requirements for disclosure of those chemicals and constituents to the public.

i.          Installation of appropriate safety devices and development of protocols for response to well blowouts, chemical spills, and other emergencies, including requirements for approved emergency response plans and certified personnel to implement these plans as needed.

j.          Measures to mitigate impacts on infrastructure, including damage to roads by truck traffic and heavy equipment, in areas where oil and gas exploration and development activities that use horizontal drilling and hydraulic fracturing technologies are proposed to occur.

k.         Notice, record keeping, and reporting.

l.          Proper well closure, site reclamation, post-closure monitoring, and financial assurance. Rules for financial assurance shall require that an oil or gas developer or operator establish financial assurance that will ensure that sufficient funds are available for well closure, post-closure maintenance and monitoring, any corrective action that the Department may require, and to satisfy any potential liability for sudden and nonsudden accidental occurrences, and subsequent costs incurred by the Department in response to an incident involving a drilling operation, even if the developer or operator becomes insolvent or ceases to reside, be incorporated, do business, or maintain assets in the State.

(6)        To require surveys upon application of any owner who has reason to believe that a well has been unlawfully drilled by another person into land of the owner without permission. In the event such surveys are required, the costs thereof shall be borne by the owner making the request.

(7)        To require the making of reports showing the location of oil and gas wells and the filing of logs and drilling records.

(8)        To prevent "blowouts," "caving," and "seepage," as such terms are generally understood in the oil and gas industry.

(9)        To identify the ownership of all oil or gas wells, producing leases, refineries, tanks, plants, structures, and all storage and transportation equipment and facilities.

(10)      To regulate the "shooting," perforating, and chemical treatment of wells.

(11)      To regulate secondary recovery methods, including the introduction of gas, air, water, or other substances into producing formations.

(12)      To regulate the spacing of wells and to establish drilling units.

(13)      To regulate and, if necessary in its judgment for the protection of unique environmental values, to prohibit the location of wells in the interest of protecting the quality of the water, air, soil, or any other environmental resource against injury, damage, or impairment.

(14)      Any other matter the Commission deems necessary for implementation of a modern regulatory program for the management of oil and gas exploration and development in the State and the use of horizontal drilling and hydraulic fracturing for that purpose.

(a1)      The regulatory program required to be established and the rules required to be adopted pursuant to subsection (a) of this section shall not include a program or rules for the regulation of oil and gas exploration and development in the waters of the Atlantic Ocean and the coastal sounds as defined in G.S. 113A-103.

(a2)      In addition to the matters for which the Commission is required to adopt rules pursuant to subsection (a) of this section, the Commission may adopt rules as it deems necessary for any of the following purposes:

(1)        To require the operation of wells with efficient gas-oil ratios and to fix such ratios.

(2)        To limit and prorate the production of oil or gas, or both, from any pool or field for the prevention of waste as defined in this Article and rules adopted thereunder.

(3)        To require, either generally or in or from particular areas, certificates of clearance or tenders in connection with the transportation of oil or gas.

(4)        To prevent, so far as is practicable, reasonably avoidable drainage from each developed unit which is not equalized by counter-drainage.

(a3)      The Environmental Management Commission shall adopt rules, after consideration of recommendations from the Mining and Energy Commission, for all of the following purposes:

(1)        Stormwater control for sites on which oil and gas exploration and development activities are conducted.

(2)        Regulation of toxic air emissions from drilling operations. In formulating appropriate standards, the Department shall assess emissions from oil and gas exploration and development activities that use horizontal drilling and hydraulic fracturing technologies, including emissions from associated truck traffic, in order to (i) determine the adequacy of the State's current air toxics program to protect landowners who lease their property to drilling operations and (ii) determine the impact on ozone levels in the area in order to determine measures needed to maintain compliance with federal ozone standards.

(a4)      The Department shall have jurisdiction and authority of and over all persons and property necessary to administer and enforce effectively the provisions of this law Article, and rules adopted thereunder, and all other laws relating to the conservation of oil and gas.gas, except for jurisdiction and authority reserved to the Department of Labor and the Mining and Energy Commission, as otherwise provided. The Commission and the Department may issue orders as may be necessary from time to time in the proper administration and enforcement of this Article and rules adopted thereunder.

(b)        The Commission and the Department Department, as appropriate, shall have the authority and it shall be its their duty to make such inquiries as it may think be proper to determine whether or not waste over which it has jurisdiction exists or is imminent.implement the provisions of this Article. In the exercise of such power the Commission and the Department Department, as appropriate, shall have the authority to collect data; to make investigations and inspections; to examine properties, leases, papers, books and records; to examine, check, test and gauge oil and gas wells, tanks, refineries, and means of transportation; to hold hearings; and to provide for the keeping of records and the making of reports; and to take such action as may be reasonably necessary to enforce this law.

(b1)      In the exercise of their respective authority over oil and gas exploration and development activities, the Commission and the Department, as applicable, shall have access to all data, records, and information related to such activities, including, but not limited to, seismic surveys, stratigraphic testing, geologic cores, proposed well bore trajectories, hydraulic fracturing fluid chemicals and constituents, drilling mud chemistry, and geophysical borehole logs. With the exception of information designated as a trade secret, as defined in G.S. 66-152(3), and that is designated as confidential or as a trade secret under G.S. 132-1.2, the Department shall make any information it receives available to the public. The State Geologist shall serve as the custodian of all data, information, and records received by the Department pursuant to this subsection and shall ensure that the information is maintained securely as provided in G.S. 132-7.

(c)        The Department may make rules and orders as may be necessary from time to time in the proper administration and enforcement of this law, including rules or orders for the following purposes:

(1)        To require the drilling, operation, casing and plugging of wells to be done in such manner as to prevent the escape of oil or gas out of one stratum to another; to prevent the intrusion of water into an oil or gas stratum from a separate stratum; to prevent the pollution of freshwater supplies by oil, gas or salt water, or to protect the quality of the water, air, soil or any other environmental resource against injury or damage or impairment; and to require reasonable bond condition for the performance of the duty to plug each dry or abandoned well.

(2)        To require directional surveys upon application of any owner who has reason to believe that a well or wells of others has or have been drilled into the lands owned by him or held by him under lease. In the event such surveys are required, the costs thereof shall be borne by the owners making the request.

(3)        To require the making of reports showing the location of oil and gas wells, and the filing of logs and drilling records.

(4)        To prevent the drowning by water of any stratum or part thereof capable of producing oil or gas in paying quantities, and to prevent the premature and irregular encroachment of water which reduces, or tends to reduce, the total ultimate recovery of oil or gas from any pool.

(5)        To require the operation of wells with efficient gas-oil ratios, and to fix such ratios.

(6)        To prevent "blow-outs," "caving" and "seepage" in the sense that conditions indicated by such terms are generally understood in the oil and gas business.

(7)        To prevent fires.

(8)        To identify the ownership of all oil or gas wells, producing leases, refineries, tanks, plants, structures and all storage and transportation equipment and facilities.

(9)        To regulate the "shooting," perforating, and chemical treatment of wells.

(10)      To regulate secondary recovery methods, including the introduction of gas, air, water or other substances into producing formations.

(11)      To limit and prorate the production of oil or gas, or both, from any pool or field for the prevention of waste as herein defined.

(12)      To require, either generally or in or from particular areas, certificates of clearance or tenders in connection with the transportation of oil or gas.

(13)      To regulate the spacing of wells and to establish drilling units.

(14)      To prevent, so far as is practicable, reasonably avoidable drainage from each developed unit which is not equalized by counter-drainage.

(15)      To prevent where necessary the use of gas for the manufacture of carbon black.

(16)      To regulate and, if necessary in its judgment for the protection of unique environmental values, to prohibit the location of wells in the interest of protecting the quality of the water, air, soil or any other environmental resource against injury, or damage or impairment.

(d)        The Department of Labor shall develop, adopt, and enforce rules establishing health and safety standards for workers engaged in oil and gas operations in the State, including operations in which hydraulic fracturing treatments are used for that purpose.

(e)        The Department shall submit an annual report on its activities conducted pursuant to this Article and rules adopted thereunder to the Environmental Review Commission, the Joint Legislative Commission on Energy Policy, the Senate and House of Representatives Appropriations Subcommittees on Natural and Economic Resources, and the Fiscal Research Division of the General Assembly on or before October 1 of each year."

SECTION 2.(d)  G.S. 113-392 reads as rewritten:

" 113-392.  Protecting pool owners; drilling units in pools; location of wells; shares in pools.

(a)        Whether or not the total production from a pool be limited or prorated, no rule or order of the Department Commission shall be such in terms or effect.

(1)        That it shall be necessary at any time for the producer from, or the owner of, a tract of land in the pool, in order that he may obtain such tract's just and equitable share of the production of such pool, as such share is set forth in this section, to drill and operate any well or wells on such tract in addition to such well or wells as can produce without waste such share, or

(2)        As to occasion net drainage from a tract unless there be drilled and operated upon such tract a well or wells in addition to such well or wells thereon as can produce without waste such tract's just and equitable share, as set forth in  this section, of the production of such pool.

(b)        For the prevention of waste and to avoid the augmenting and accumulation of risks arising from the drilling of an excessive number of wells, the Commission Department shall, after a hearing, establish a drilling unit or units for each pool. The Commission Department may establish drainage units of uniform size for the entire pool or may, if the facts so justify, divide into zones any pool, establish a drainage unit for each zone, which unit may differ in size from that established in any  other zone; and the Commission Department may from time to time, if the facts so justify, change the size of the unit established for the entire pool or for any zone or zones, or part thereof, establishing new zones and  units if the facts justify their establishment.

(c)        Each well permitted to be drilled upon any drilling unit shall  be drilled approximately in the center thereof, with such exception as may reasonably be necessary where it is shown, after notice and upon hearing, and the Commission Department finds that the unit is partly outside the pool or, for some other reason, a well approximately in the center of the unit would be nonproductive or where topographical conditions are such as to make the drilling approximately in the center of the unit unduly burdensome. Whenever an exception is granted, the Commission Department shall take such action as will offset any advantage which the person securing the exception may have over producers by reason of the drilling of the well as an exception, and so that drainage from developed units to the tract with respect to which the exception is granted will be prevented or minimized and the producer of the well drilled as an exception will be allowed to produce no more than his just and equitable share of the oil and gas in the pool, as such share is set forth in this section.

(d)        Subject to the reasonable requirements for prevention of waste, a producer's just and equitable share of the oil and gas in the pool (also sometimes referred to as a tract's just and equitable share) is that part of the authorized production for the pool (whether it be the total which could be produced without any restriction on the amount of production, or whether it be an amount less than that which the pool could produce if no restriction on the amount were imposed) which is substantially in the proportion that the quantity of recoverable oil and gas in the developed area of his tract in the pool bears to the recoverable oil and gas in the total developed area of the pool, insofar as these amounts can be ascertained practically; and to that end, the rules, permits and orders of the Commission Department shall be such as will prevent or minimize reasonably avoidable net drainage from each developed unit (that is, drainage which is not equalized by counter-drainage), and will give to each producer the opportunity to use his just and equitable share of the reservoir energy."

SECTION 2.(e)  G.S. 113-394 reads as rewritten:

" 113-394.  Limitations on production; allocating and prorating "allowables."

(a)        Whenever the total amount of oil, including condensate, which all the pools in the State can produce, exceeds the amount reasonably required to meet the reasonable market demand for oil, including condensate, produced in this State, then the Department Commission shall limit the total amount of oil, including condensate, which may be produced in the State by fixing an amount which shall be designated "allowable" for this State, which will not exceed the reasonable market demand for oil, including condensate, produced in this State. The Commission Department shall then allocate or distribute the "allowable" for the State among the pools on a reasonable basis and in such manner as to avoid undue discrimination, and so that waste will be prevented. In allocating the "allowable" for the State, and in fixing "allowables" for pools producing oil or hydrocarbons forming condensate, or both oil and such hydrocarbons, the Department Commission shall take into account the producing conditions and other relevant facts with respect to such pools, including the separate needs for oil, gas and condensate, and shall formulate rules setting forth standards or a program for the distribution of the "allowable" for the State, and shall distribute the "allowable" for the State in accordance with such standards or program, and where conditions in one pool or area are substantially similar to those in another pool or area, then the same standards or programs shall be applied to such pools and areas so that as far as practicable a uniform program will be followed; provided, however, the Department Commission shall permit allow the production of a sufficient amount of natural gas from any pool to supply adequately the reasonable market demand for such gas for light and fuel purposes if such production can be obtained without waste, and the condensate "allowable" for such pool shall not be less than the total amount of condensate produced or obtained in connection with the production of the gas "allowable" for light and fuel purposes, and provided further that, if the amount allocated to pool as its share of the "allowable" for the State is in excess of the amount which the pool should produce to prevent waste, then the Department Commission shall fix the "allowable" for the pool so that waste will be prevented.

(b)        The Commission Department shall not be required to determine the reasonable market demand applicable to any single pool except in relation to all pools producing oil of similar kind and quality and in relation to the demand applicable to the State, and in relation to the effect of limiting the production of pools in the State. In allocating "allowables" to pools, the Department Commission shall not be bound by nominations or desires of purchasers to purchase oil from particular fields or areas, and the Commission Department shall allocate the "allowable" for the State in such manner as will prevent undue discrimination against  any pool or area in favor of another or others which would result from selective buying or nominating by purchasers of oil, as such term "selective buying or nominating" is understood in the oil business.

(c)        Whenever the Department Commission limits the total amount of oil or gas which may be produced in any pool in this State to an amount less than that which the pool could produce if no restrictions were imposed (which limitation may be imposed either incidental to, or without, a limitation of the total amount of oil or gas which may be produced in the State), the Department Commission shall prorate or distribute the "allowable" production among the producers in the pool on a reasonable basis, and so that each producer will have the opportunity to produce or receive his just and equitable share, as such share is set forth in subsection G.S. 113-392(d), subject to the reasonable necessities for the prevention of waste.

(d)        Whenever the total amount of gas which can be produced from any pool in this State exceeds the amount of gas reasonably required to meet the reasonable market demand therefrom, the Commission Department shall limit the total amount of gas which may be produced from such pool. The Commission Department shall then allocate or distribute the allowable production among the developed areas in the pool on a reasonable basis, so that each producer will have the opportunity to produce his  just and equitable share, as such share is set forth in subsection G.S. 113-392(d), whether the restriction for the pool as a whole is accomplished by order or by the automatic operation of the prohibitory provisions of this law. As far as applicable, the provisions of subsection (a) of this section shall be followed in allocating any "allowable" of gas for the State.

(e)        After the effective date of any rule or order of the Department Commission fixing the "allowable" production of oil or gas, or both, or condensate, no person shall produce from any well, lease, or  property more than the "allowable" production which is fixed, nor shall such amount be produced in a different manner than that which may be authorized."

SECTION 2.(f)  G.S. 113-410 reads as rewritten:

" 113-410.  Penalties for other violations.

(a)        Any person who fails to secure a permit prior to drilling a well or using hydraulic fracturing treatments, or who knowingly and willfully violates any provision of this law,Article, or any rule or order of the Commission or the Department made hereunder, shall, in the event a penalty for such violation is not otherwise provided for herein, be subject to a penalty of not to exceed one twenty-five thousand dollars ($1,000)($25,000) a day for each and every day of such violation, and for each and every act of violation, such penalty to be recovered in a suit in the superior court of the county where the defendant resides, or in the county of the residence of any defendant if there be more than one defendant, or in the superior court of the county where the violation took place. The place of suit shall be selected by the Department, and such suit, by direction of the Department, shall be instituted and conducted in the name of the Department by the Attorney General. The payment of any penalty as provided for herein shall not have the effect of changing illegal oil into legal oil, illegal gas into legal gas, or illegal product into legal product, nor shall such payment have the effect of authorizing the sale or purchase or acquisition, or the transportation, refining, processing, or handling in any other way, of such illegal oil, illegal gas or illegal product, but, to the contrary, penalty shall be imposed for each prohibited transaction relating to such illegal oil, illegal gas or illegal product.

(b)        Any person knowingly and willfully aiding or abetting any other person in the violation of any statute of this State relating to the conservation of oil or gas, or the violation of any provisions of this law, or any rule or order made thereunder, shall be subject to the same penalties as prescribed herein in subsection (a) of this section for the violation by such other person.

(c)        In determining the amount of a penalty under this section, the Department shall consider all of the following factors:

(1)        The degree and extent of harm to the natural resources of the State, to the public health, or to private property resulting from the violation.

(2)        The duration and gravity of the violation.

(3)        The effect on ground or surface water quantity or quality or on air quality.

(4)        The cost of rectifying the damage.

(5)        The amount of money the violator saved by noncompliance.

(6)        Whether the violation was committed willfully or intentionally.

(7)        The prior record of the violator in complying or failing to comply with this Article or a rule adopted pursuant to this Article.

(8)        The cost to the State of the enforcement procedures.

(d)        If any civil penalty has not been paid within 60 days after notice of assessment has been served on the violator or within 30 days after service of the final decision by the administrative law judge in accordance with G.S. 150B-34, a final decision by the Committee on Civil Penalty Remissions established under G.S. 143B-293.6, or a court order, whichever is later, the Secretary or the Secretary's designee shall request the Attorney General to institute a civil action in the superior court of any county in which the violator resides or has his or its principal place of business to recover the amount of the civil penalty.

(e)        The clear proceeds of penalties provided for in this section shall be remitted to the Civil Penalty and Forfeiture Fund in accordance with G.S. 115C-457.2."

SECTION 2.(g)  G.S. 113-415 reads as rewritten:

" 113-415.  Conflicting laws.

No provision of this Article shall be construed to repeal, amend, abridge or otherwise affectaffect: (i) the authority and responsibility vested in the Environmental Management Commission by Article 7 of Chapter 87,87 of the General Statutes, pertaining to the location, construction, repair, operation and abandonment of wells, or the authority and responsibility vested in the Environmental Management Commission related to the control of water and air pollution as provided in Articles 21 and 21A of Chapter 143 of the General Statutes; or or (ii) the authority or responsibility vested in the Department and the Commission for Public Health by Article 10 of Chapter 130A of the General Statutes pertaining to public water-supply requirements.requirements, or the authority and responsibility vested in the Commission for Public Health related to the management of solid and hazardous waste as provided in Article 9 of Chapter 130A of the General Statutes."

SECTION 2.(h)  G.S. 143B-282 reads as rewritten:

" 143B-282.  Environmental Management Commission - creation; powers and duties.

(2)        The Environmental Management Commission shall adopt rules:

l.          For matters within its jurisdiction that allow for and regulate horizontal drilling and hydraulic fracturing for the purpose of oil and gas exploration and development.

."

SECTION 2.(i)  G.S. 130A-29 reads as rewritten:

" 130A-29.  Commission for Public Health - Creation, powers and duties.

(c)        The Commission shall adopt rules:

(11)      For matters within its jurisdiction that allow for and regulate horizontal drilling and hydraulic fracturing for the purpose of oil and gas exploration and development.

."

SECTION 2.(j)  The Mining and Energy Commission, in conjunction with the Department of Environment and Natural Resources, the Department of Transportation, the North Carolina League of Municipalities, and the North Carolina Association of County Commissioners, shall identify appropriate levels of funding and potential sources for that funding, including permit fees, bonds, taxes, and impact fees, necessary to (i) support local governments impacted by the industry and associated activities; (ii) address expected infrastructure impacts, including, but not limited to, repair of roads damaged by truck traffic and heavy equipment; (iii) cover any costs to the State for administering an oil and gas regulatory program, including remediation and reclamation of drilling sites when necessary due to abandonment or insolvency of an oil or gas operator or other responsible party; and (iv) any other issues that may need to be addressed in the Commission's determination.  Any recommendation concerning local impact fees shall be formulated to require that all such fees be used exclusively to address infrastructure impacts from the drilling operation for which a fee is imposed. The Commission shall report its findings and recommendations, including legislative proposals, to the Joint Legislative Commission on Energy Policy, created under Section 6(a) of this act, and the Environmental Review Commission on or before January 1, 2013.

SECTION 2.(k)  The Mining and Energy Commission, in conjunction with the Department of Environment and Natural Resources, the North Carolina League of Municipalities, and the North Carolina Association of County Commissioners, shall examine the issue of local government regulation of oil and gas exploration and development activities, and the use of horizontal drilling and hydraulic fracturing for that purpose.  The Commission shall formulate recommendations that maintain a uniform system for the management of such activities, which allow for reasonable local regulations, including required setbacks, infrastructure placement, and light and noise restrictions, that do not prohibit or have the effect of prohibiting oil and gas exploration and development activities, and the use of horizontal drilling and hydraulic fracturing for that purpose, or otherwise conflict with State law. The Commission shall report its findings and recommendations, including legislative proposals, to the Joint Legislative Commission on Energy Policy, created under Section 6(a) of this act, and the Environmental Review Commission on or before January 1, 2013.

SECTION 2.(l)  The Mining and Energy Commission, in conjunction with the Department of Environment and Natural Resources and the Consumer Protection Division of the North Carolina Department of Justice, shall study the State's current law on the issue of integration or compulsory pooling and other states' laws on the matter.  The Department shall report its findings and recommendations, including legislative proposals, to the Joint Legislative Commission on Energy Policy, created under Section 6(a) of this act, and the Environmental Review Commission on or before January 1, 2013.

SECTION 2.(m)  All rules required to be adopted by the Mining and Energy Commission, the Environmental Management Commission, and the Commission for Public Health pursuant to this act shall be adopted no later than October 1, 2014. In order to provide for the orderly, efficient, and effective development and adoption of rules and to prevent the adoption of duplicative, inconsistent, or inadequate rules by these Commissions, the Department of Environment and Natural Resources shall coordinate the adoption of the rules. The Commissions and the Department shall develop the rules in an open and collaborative process that includes (i) input from scientific and technical advisory groups; (ii) consultation with the North Carolina League of Municipalities, the North Carolina Association of County Commissioners, the Division of Energy of the Department of Commerce, the Department of Transportation, the Division of Emergency Management of the Department of Public Safety, the Consumer Protection Division of the Department of Justice, the Department of Labor, the Department of Health and Human Services, the State Review of Oil and Natural Gas Environmental Regulations (STRONGER), the American Petroleum Institute (API), and the Rural Advancement Foundation (RAFI-USA); and (iii) broad public participation.  During the development of the rules, the Commissions and the Department shall identify changes required to all existing rules and statutes necessary for the implementation of this act, including repeal or modification of rules and statutes. Until such time as all of the rules are adopted pursuant to this act, the Department shall submit quarterly reports to the Joint Legislative Commission on Energy Policy, created under Section 6(a) of this act, and the Environmental Review Commission on its progress in developing and adopting the rules. The quarterly reports shall include recommendations on changes required to existing rules and statutes and any other findings or recommendations necessary for the implementation of this act. The first report required by this subsection is due January 1, 2013.

SECTION 2.(n)  Notwithstanding G.S. 143B-293.5, as enacted by Section 1(b) of this act, the North Carolina Mining and Energy Commission shall meet at least twice quarterly until December 31, 2015, in order to develop a modern regulatory program for the management of oil and gas exploration and development activities in the State, including the use of horizontal drilling and hydraulic fracturing for that purpose.

 

PART IV. AUTHORIZE HORIZONTAL DRILLING AND HYDRAULIC FRACTURING; PROHIBIT ISSUANCE OF PERMITS PENDING SUBSEQUENT LEGISLATIVE ACTION

SECTION 3.(a)  G.S. 113-393 reads as rewritten:

" 113-393.  Development of lands as drilling unit by agreement or order of Department.Commission.

(a)        Integration of Interests and Shares in Drilling Unit. - When two or more separately owned tracts of land are embraced within an established drilling unit, the owners thereof may agree validly to integrate their interests and to develop their lands as a drilling unit. Where, however, such owners have not agreed to integrate their interests, the Department Commission shall, for the prevention of waste or to avoid drilling of unnecessary wells, require such owners to do so and to develop their lands as a drilling unit. All orders requiring such integration shall be made after notice and hearing, and shall be upon terms and conditions that are just and reasonable, and will afford to the owner of each tract the opportunity to recover or receive his just and equitable share of the oil and gas in the pool without unnecessary expense, and will prevent or minimize reasonably avoidable drainage from each developed unit which is not equalized by counter-drainage. The portion of the production allocated to the owner of each tract included in a drilling unit formed by an integration order shall, when produced, be considered as if it had been produced from such tract by a well drilled thereon.

In the event such integration is required, and provided also that after due notice to all the owners of tracts within such drilling unit of the creation of such drilling unit, and provided further that the Department Commission has received no protest thereto, or request for hearing thereon, whether or not 10 days have elapsed after notice has been given of the creation of the drilling unit, the operator designated by the Department Commission to develop and operate the integrated unit shall have the right to charge to each other interested owner the actual expenditures required for such purpose not in excess of what are reasonable, including a reasonable charge for supervision, and the operator shall have the right to receive the first production from the well drilled by him thereon, which otherwise would be delivered or paid to the other parties jointly interested in the drilling of the well, so that the amount due by each of them for his shares of the expense of drilling, equipping, and operating the well may be paid to the operator of the well out of production; with the value of the production calculated at the market price in the field at the time such production is received by the operator or placed to his credit. After being reimbursed for the actual expenditures for drilling and equipping and operating expenses incurred during the drilling operations and until the operator is reimbursed, the operator shall thereafter pay to the owner of each tract within the pool his ratable share of the production calculated at the market price in the field at the time of such production less the reasonable expense of operating the well. In the event of any dispute relative to such costs, the Department Commission shall determine the proper costs.

(b)        When Each Owner May Drill. - Should the owners of separate tracts embraced within a drilling unit fail to agree upon the integration of the tracts and the drilling of a well on the unit, and should it be established that the Department Commission is without authority to require integration as provided for in subsection (a) of this section, then, subject to all other applicable provisions of this law, the owner of each tract embraced within the drilling unit may drill on his tract, but the allowable production from each tract shall be such proportion of the allowable for the full drilling unit as the area of such separately owned tract bears to the full drilling unit.

(c)        Cooperative Development Not in Restraint of Trade. - Agreements made in the interests of conservation of oil or gas, or both, or for the prevention of waste, between and among owners or operators, or both, owning separate holdings in the same oil or gas pool, or in any area that appears from geological or other data to be underlaid by a common accumulation of oil or gas, or both, or between and among such owners or operators, or both, and royalty owners therein, of a pool or area, or any part thereof, as a unit for establishing and carrying out a plan for the cooperative development and operation thereof, when such agreements are approved by the Department, Commission, are hereby authorized and shall not be held or construed to violate any of the statutes of this State relating to trusts, monopolies, or contracts and combinations in restraining of trade.

(d)        Variation from Vertical. - Whenever the Department fixes the location of any well or wells on the surface, the point at which the maximum penetration of such wells into the producing formation is reached shall not unreasonably vary from the vertical drawn from the center of the hole at the surface, provided, that the Department Commission shall prescribe rules and the Department shall prescribe orders governing the reasonableness of such variation. This subsection shall not apply to wells drilled for the purpose of exploration or development of natural gas through use of horizontal drilling in conjunction with hydraulic fracturing treatments."

SECTION 3.(b)  G.S. 143-214.2 reads as rewritten:

" 143-214.2.  Prohibited discharges.

(a)        The discharge of any radiological, chemical or biological warfare agent or high-level radioactive waste to the waters of the State is prohibited.

(b)        The discharge of any wastes to the subsurface or groundwaters of the State by means of wells is prohibited. This section shall not be construed to prohibit prohibit (i) the operation of closed-loop groundwater remediation systems in accordance with G.S. 143-215.1A.G.S. 143-215.1A or (ii) injection of hydraulic fracturing fluid for the exploration or development of natural gas resources.

(c)        Unless permitted by a rule of the Commission, the discharge of wastes, including thermal discharges, to the open waters of the Atlantic Ocean over which the State has jurisdiction are prohibited."

SECTION 3.(c)  G.S. 113-395 reads as rewritten:

" 113-395.  Permits, fees, and notice required for oil and gas activities.Notice and payment of fee to Department before drilling or abandoning well; plugging abandoned well.

(a)        Before any well, in search of oil or gas, shall be drilled, the person desiring to drill the same shall notify submit an application for a permit to the Department upon such form as it the Department may prescribe and shall pay a fee of three thousand dollars ($3,000) for each well. The drilling of any well is hereby prohibited until such notice is given and such fee has been paid and permit granted.unless the Department has issued a permit for the activity.

(b)        Any person desiring to use hydraulic fracturing treatments in conjunction with oil and gas operations or activities shall submit an application for a permit to the Department upon such form as the Department may prescribe. The use of hydraulic fracturing treatments is prohibited unless the Department has issued a permit for the activity.

(c)        Each abandoned well and each dry hole shall be plugged promptly in the manner and within the time required by rules prescribed by the Department, and the owner of such well shall give notice, upon such form as the Department may prescribe, of the abandonment of each dry hole and of the owner's intention to abandon, and shall pay a fee of four hundred fifty dollars ($450.00). No well shall be abandoned until such notice has been given and such fee has been paid."

SECTION 3.(d)  The issuance of permits for oil and gas exploration and development activities using horizontal drilling and hydraulic fracturing treatments in the State pursuant to G.S. 113-395, as amended by subsection (c) of this section, or any other provision of law shall be prohibited in order to allow the Mining and Energy Commission sufficient time for development of a modern regulatory program for the management of oil and gas exploration and development in the State and the use of horizontal drilling and hydraulic fracturing treatments for that purpose, and for adoption of appropriate environmental standards applicable to these activities. No agency of the State, including the Department of Environment and Natural Resources, the Environmental Management Commission, the Commission on Public Health, or the Mining and Energy Commission, shall issue a permit for oil or gas exploration or development activities using horizontal drilling and hydraulic fracturing treatments until the General Assembly takes legislative action to allow the issuance of such permits.

 

PART V. LANDOWNER AND PUBLIC PROTECTIONS

SECTION 4.(a)  G.S. 113-420 reads as rewritten:

" 113-420.  Notice and entry to property.

(a)        Notice Required for Activities That Do Not Disturb Surface of Property. - If an oil and or gas developer or operator is not the surface owner of the property on which oil and gas operations are to occur, before entering the property for oil and or gas operations that do not disturb the surface, including inspections, staking, surveys, measurements, and general evaluation of proposed routes and sites for oil and or gas drilling operations, the developer or operator shall give written notice to the surface owner at least seven 14 days before the desired date of entry to the property. Notice shall be given by certified mail, return receipt requested. The requirements of this subsection may not be waived by agreement of the parties. The notice, at a minimum, shall include all of the following:

(1)        The identity of person(s) requesting entry upon the property.

(2)        The purpose for entry on the property.

(3)        The dates, times, and location on which entry to the property will occur, including the estimated number of entries.

(b)        Notice Required for Land-Disturbing Activities. - If an oil and or gas developer or operator is not the surface owner of the property on which oil and or gas operations are to occur, before entering the property for oil and or gas operations that disturb the surface, the developer or operator shall give written notice to the surface owner at least 14 30 days before the desired date of entry to the property. Notice shall be given by certified mail, return receipt requested. The notice, at a minimum, shall include all of the following:

(1)        A description of the exploration or development plan, including, but not limited to (i) the proposed locations of any roads, drill pads, pipeline routes, and other alterations to the surface estate and (ii) the proposed date on or after which the proposed alterations will begin.

(2)        An offer of the oil and gas developer or operator to consult with the surface owner to review and discuss the location of the proposed alterations.

(3)        The name, address, telephone number, and title of a contact person employed by or representing the oil or gas developer or operator who the surface owner may contact following the receipt of notice concerning the location of the proposed alterations.

(b1)      Persons Entering Land; Identification Required; Presumption of Proper Protection While on Surface Owners' Property. - Persons who enter land on behalf of an oil or gas developer or operator for oil and gas operations shall carry on their person identification sufficient to identify themselves and their employer or principal and shall present the identification to the surface owner upon request. Entry upon land by such a person creates a rebuttable presumption that the surface owner properly protected the person against personal injury or property damage while the person was on the land.

(c)        Venue. - If the oil and or gas developer or operator fails to give notice or otherwise comply with the provisions of as provided in this section, the surface owner may seek appropriate relief in the superior court for the county in which the oil or gas well is located and may receive actual damages."

SECTION 4.(b)  G.S. 113-421 reads as rewritten:

" 113-421.  Compensation for damages.Presumptive liability for water contamination;compensation for other damages; responsibility for reclamation.

(a)        Presumptive Liability for Water Contamination. - It shall be presumed that an oil or gas developer or operator is responsible for contamination of all water supplies that are within 5,000 feet of a wellhead that is part of the oil or gas developer's or operator's activities unless the presumption is rebutted by a defense established as set forth in subdivision (1) of this subsection. If a contaminated water supply is located within 5,000 feet of a wellhead, in addition to any other remedy available at law or in equity, including payment of compensation for damage to a water supply, the developer or operator shall provide a replacement water supply to the surface owner and other persons using the water supply at the time the oil or gas developer's activities were commenced on the property, which water supply shall be adequate in quality and quantity for those persons' use.

(1)        In order to rebut a presumption arising pursuant to subsection (a) of this section, an oil or gas developer or operator shall have the burden of proving by a preponderance of the evidence any of the following:

a.         The contamination existed prior to the commencement of the drilling activities of the oil or gas developer or operator, as evidenced by a pre-drilling test of the water supply in question conducted in conformance with G.S. 113-423(f).

b.         The surface owner or owner of the water supply in question refused the oil or gas developer or operator access to conduct a pre-drilling test of the water supply conducted in conformance with G.S. 113-423(f).

c.         The water supply in question is not within 5,000 feet of a wellhead that is part of the oil or gas developer's or operator's activities.

d.         The contamination occurred as the result of a cause other than activities of the developer or operator.

(a1)      Compensation for Other Damages Required. - The oil and or gas developer or operator shall be obligated to pay the surface owner compensation for all of the following:

(1)        Any damage to a water supply in use prior to the commencement of the activities of the developer or operator which is due to those activities.

(2)        The cost of repair of personal property of the surface owner, which personal property is damaged due to activities of the developer or operator, up to the value of replacement by personal property of like age, wear, and quality.

(3)        Damage to any livestock, crops, or timber determined according to the market value of the resources destroyed, damaged, or prevented from reaching market due to the oil or gas developer's or operator's activities.

(a2)      Reclamation of Surface Property Required. - An oil or gas developer or operator shall reclaim all surface areas affected by its operations no later than two years following completion of the operations. If the developer or operator is not the surface owner of the property, prior to commencement of activities on the property, the oil or gas developer or operator shall provide a bond running to the surface owner sufficient to cover reclamation of the surface owner's property.

(a3)      Remediation Required. - Nothing in this Article shall be construed to obviate or affect the obligation of a developer or operator to comply with any other requirement under law to remediate contamination caused by its activities.

(a4)      Replacement Water Supply Required. - If a water supply belonging to the surface owner or third parties is contaminated due to the activities of the developer or operator, in addition to any other remedy available at law or in equity, the developer or operator shall provide a replacement water supply to persons using the water supply at the time the oil or gas developer's activities were commenced on the property, which water supply shall be adequate in quality and quantity for those persons' use.

(b)        Time Frame for Compensation. - When compensation is required, the surface owner shall have the option of accepting a one-time payment or annual payments for a period of time not less than 10 years.

(c)        Venue. - The surface owner has the right to seek damages pursuant to this section in the superior court for the county in which the oil or gas well is located. The superior court for the county in which the oil or gas well is located has jurisdiction over all proceedings brought pursuant to this section. If the surface owner or the surface owner's assignee is the prevailing party in an action to recover unpaid royalties,royalties or other damages owed due to activities of the developer or operator, the court shall award any court costs and reasonable attorneys' fees to the surface owner or the surface owner's assignee.

(d)        Conditions precedent, notice provisions, or arbitration clauses included in lease documents that have the effect of limiting access to the superior court in the county in which the oil or gas well is located are void and unenforceable."

SECTION 4.(c)  G.S. 113-422 reads as rewritten:

" 113-422.  Indemnification.

An oil or gas developer or operator shall indemnify and hold harmless a surface owner against any claims related to the developer's or operator's activities on the surface owner's property, including, but not limited to, (i) claims of injury or death to any person; (ii) for damage to impacted infrastructure or water supplies; (iii) damage to a third party's property that is adjacent to property on which drilling occurs, as well asreal or personal property;  adjacent infrastructure, and wells.and (iv) violations of any federal, State, or local law, rule, regulation, or ordinance, including those for protection of the environment."

SECTION 4.(d)  G.S. 113-423 reads as rewritten:

" 113-423.  Maximum Required lease terms.

(a)        Required Information to be Provided to Potential Lessors and Surface Owners. - Prior to executing a lease for oil and gas rights or any other conveyance of any kind separating rights to oil or gas from the freehold estate of surface property, an oil or gas developer or operator, or any agent thereof, shall provide the lessor with a copy of this Part and a publication produced by the Consumer Protection Division of the North Carolina Department of Justice entitled "Oil & Gas Leases: Landowners' Rights." If the lessor is not the surface owner of the property, the oil or gas developer or operator shall also provide the surface owner with a copy of this Part and the publication prior to execution of a lease for oil and gas rights.

(b)        Maximum Duration. - Any lease of oil or gas rights or any other conveyance of any kind separating rights to oil or gas from the freehold estate of surface property shall expire at the end of 10 years from the date the lease is executed, unless, at the end of the 10-year period, oil or gas is being produced for commercial purposes from the land to which the lease applies. If, at any time after the 10-year period, commercial production of oil or gas is terminated for a period of six months or more, all rights to the oil or gas shall revert to the surface owner of the property to which the lease pertains. No assignment or agreement to waive the provisions of this subsection shall be valid or enforceable. As used in this subsection, the term "production" includes the actual production of oil or gas by a lessee, or when activities are being conducted by the lessee for injection, withdrawal, storage, or disposal of water, gas, or other fluids, or when rentals or royalties are being paid by the lessee. No force majeure clause shall operate to extend a lease beyond the time frames set forth in this subsection.

(c)        Minimum Royalty Payments. - Any lease of oil or gas rights or any other conveyance of any kind separating rights to oil or gas from the freehold estate of surface property shall provide that the lessor shall receive a royalty payment of not less than twelve and one-half percent (12.5%) of the proceeds of sale of all oil or gas produced from the lessor's just and equitable share of the oil and gas in the pool, which sum shall not be diminished by pre-production or post-production costs, fees, or other charges assessed by the oil or gas developer or operator against the property owner. Royalty payments shall commence no later than six months after the date of first sale of product from the drilling operations subject to the lease and thereafter no later than 60 days after the end of the calendar quarter within which subsequent production is sold. At the time each royalty payment is made, the oil or gas developer or operator shall provide documentation to the lessor on the time period for which the royalty payment is made, the quantity of product sold within that period, and the price received, at a minimum. If royalty payments have not been made within the required time frames, the lessor shall be entitled to interest on the unpaid royalties commencing on the payment due date at the rate of twelve and one-half percent (12.5%) per annum on the unpaid amounts. Upon written request, the lessor shall be entitled to inspect and copy records of the oil or gas developer or operator related to production and royalty payments associated with the lease.

(d)        Bonus Payments. - Any bonus payments, or other initial payments, due under a lease of oil or gas rights or any other conveyance of any kind separating rights to oil or gas from the freehold estate of surface property shall be paid by the lessee to the lessor within 60 days of execution of a lease. If a bonus payment or other initial payment has not been made within the required time frame, the lessor shall be entitled to interest on the unpaid amount commencing on the payment due date at the rate of ten percent (10%) per annum on the unpaid amount.

(e)        Agreements for Use of Other Resources; Associated Payments. - Any lease of oil or gas rights or any other conveyance of any kind separating rights to oil or gas from the freehold estate of surface property shall clearly state whether the oil or gas developer or operator shall use groundwater or surface water supplies located on the property and, if so, shall clearly state the estimated amount of water to be withdrawn from the supplies on the property, and shall require permission of the surface owner therefore. At a minimum, water used by the developer or operator shall not restrict the supply of water for domestic uses by the surface owner. The lease shall provide for full compensation to the surface owner for water used from the property by the developer or operator in an amount not less than the fair market value of the water consumed based on water sales in the area at the time of use.

(f)         Pre-Drilling Testing of Water Supplies. - Any lease of oil or gas rights or any other conveyance of any kind separating rights to oil or gas from the freehold estate of surface property shall include a clause that requires the oil or gas developer or operator to conduct a test of all water supplies within 5,000 feet from a wellhead that is part of the oil or gas developer's or operator's activities at least 30 days prior to initial drilling activities and at least two follow-up tests within a 24-month period after production has commenced. The Department shall identify the location of all water supplies, including wells, on a property on which drilling operations are proposed to occur. A surface owner may elect to have the Department sample wells located on their property, in lieu of sampling conducted by the oil or gas developer or operator, in which case the developer or operator shall reimburse the Department for the reasonable costs involved in testing of the wells in question. Nothing in this subsection shall be construed to preclude or impair the right of any surface owner to refuse pre-drilling testing of wells located on their property.

(g)        Recordation of Leases. - Any lease of oil or gas rights or any other conveyance of any kind separating rights to oil or gas from the freehold estate of surface property, including assignments of such leases, shall be recorded within 30 days of execution in the register of deeds office in the county that the land that is subject to the lease is located.

(h)        Notice of Assignment Required. - Written notice of assignment of any lease of oil or gas rights or any other conveyance of any kind separating rights to oil or gas from the freehold estate of surface property shall be provided to the lessor within 30 days of such assignment. If the surface owner of the property is not the lessor, written notice of assignment of any lease of oil or gas rights shall also be given to the surface owner of the property to which the lease pertains within 30 days of such assignment.

(i)         Lender Approval of Lease. - Any lease for oil or gas rights or any other conveyance of any kind separating rights to oil or gas from the freehold estate of surface property with a surface owner shall include a conspicuous boldface disclosure concerning notification to lenders, which shall be initialed by the surface owner, and state the following:

 

NOTICE TO LENDER(S) PRIOR TO EXECUTION OF LEASE:

 

Surface owners are advised to secure written approval from any lender who holds a mortgage or deed of trust on any portion of the surface property involved in the lease prior to execution of the lease and obtain written confirmation that execution of the lease will not violate any provision associated with any applicable mortgage or deed of trust, which could potentially result in foreclosure.

                                                                                                           

                              I have read and understood the                               __________               

                              terms of this provision.                                            Surface Owner's Initials

(j)         Three-Day Right of Rescission. - Any lease of oil or gas rights or any other conveyance of any kind separating rights to oil or gas from the freehold estate of surface property shall be subject to a three-day right of rescission in which the lessor or lessee may cancel the lease. A bold and conspicuous notice of this right of rescission shall be included in all such leases. In order to cancel the lease, the lessor or lessee shall notify the other party in writing within three business days of execution of the lease, and the lessor shall return any sums paid by the lessee to the lessor under the terms of the lease."

SECTION 4.(e)  Part 3 of Article 27 of Chapter 113 of the General Statutes is amended by adding a new section to read:

" 113-423.1.  Surface activities.

(a)        Agreements on Rights and Obligations of Parties. - The developer or operator and the surface owner may enter into a mutually acceptable agreement that sets forth the rights and obligations of the parties with respect to the surface activities conducted by the developer or operator.

(b)        Minimization of Intrusion Required. - An oil or gas developer or operator shall conduct oil and gas operations in a manner that accommodates the surface owner by minimizing intrusion upon and damage to the surface of the land. As used in this subsection, "minimizing intrusion upon and damage to the surface" means selecting alternative locations for wells, roads, pipelines, or production facilities, or employing alternative means of operation that prevent, reduce, or mitigate the impacts of the oil and gas operations on the surface, where such alternatives are technologically sound, economically practicable, and reasonably available to the operator. The standard of conduct set forth in this subsection shall not be construed to (i) prevent an operator from entering upon and using that amount of the surface as is reasonable and necessary to explore for, develop, and produce oil and gas and (ii) abrogate or impair a contractual provision binding on the parties that expressly provides for the use of the surface for the conduct of oil and gas operations or that releases the operator from liability for the use of the surface. Failure of an oil or gas developer or operator to comply with the requirements of this subsection shall give rise to a cause of action by the surface owner. Upon a determination by the trier of fact that such failure has occurred, a surface owner may seek compensatory damages and equitable relief. In any litigation or arbitration based upon this subsection, the surface owner shall present evidence that the developer's or operator's use of the surface materially interfered with the surface owner's use of the surface of the land. After such showing, the developer or operator shall bear the burden of proof of showing that it minimized intrusion upon and damage to the surface of the land in accordance with the provisions of this subsection. If a developer or operator makes that showing, the surface owner may present rebuttal evidence. A developer or operator may assert, as an affirmative defense, that it has conducted oil or gas operations in accordance with a regulatory requirement, contractual obligation, or land-use plan provision that is specifically applicable to the alleged intrusion or damage. Nothing in this subsection shall do any of the following:

(1)        Preclude or impair any person from obtaining any and all other remedies allowed by law.

(2)        Prevent a developer or operator and a surface owner from addressing the use of the surface for oil and gas operations in a lease, surface use agreement, or other written contract.

(3)        Establish, alter, impair, or negate the authority of local governments to regulate land use related to oil and gas operations."

SECTION 4.(f)  G.S. 113-424 is repealed.

SECTION 4.(g)  Part 3 of Article 27 of Chapter 113 of the General Statutes is amended by adding a new section to read:

" 113-425.  Registry of landmen required.

(a)        Establishment of Registry. - The Department of Environment and Natural Resources, in consultation with the Consumer Protection Division of the North Carolina Department of Justice,  shall establish and maintain a registry of landmen operating in this State. As used in this section, "landman" means a person that, in the course and scope of the person's business, does any of the following:

(1)        Acquires or manages oil or gas interests.

(2)        Performs title or contract functions related to the exploration, exploitation, or disposition of oil or gas interests.

(3)        Negotiates for the acquisition or divestiture of oil or gas rights, including the acquisition or divestiture of land or oil or gas rights for a pipeline.

(4)        Negotiates business agreements that provide for the exploration for or development of oil or gas.

(b)        Registration Required. - A person may not act, offer to act, or hold oneself out as a landman in this State unless the person is registered with the Department in accordance with this section. To apply for registration as a landman, a person shall submit an application to the Department on a form to be provided by the Department, which shall include, at a minimum, all of the following information:

(1)        The name of the applicant or, if the applicant is not an individual, the names and addresses of all principals of the applicant.

(2)        The business address, telephone number, and electronic mail address of the applicant.

(3)        The social security number of the applicant or, if the applicant is not an individual, the federal employer identification number of the applicant.

(4)        A list of all states and other jurisdictions in which the applicant holds or has held a similar registration or license.

(5)        A list of all states and other jurisdictions in which the applicant has had a similar registration or license suspended or revoked.

(6)        A statement whether any pending judgments or tax liens exist against the applicant.

(c)        The Department may deny registration to an applicant, reprimand a registrant, suspend or revoke a registration, or impose a civil penalty on a registrant if the Department determines that the applicant or registrant does any of the following:

(1)        Fraudulently or deceptively obtains, or attempts to obtain, a registration.

(2)        Uses or attempts to use an expired, suspended, or revoked registration.

(3)        Falsely represents oneself as a registered landman.

(4)        Engages in any other fraud, deception, misrepresentation, or knowing omission of material facts related to oil or gas interests.

(5)        Had a similar registration or license denied, suspended, or revoked in another state or jurisdiction.

(6)        Otherwise violates this section.

(d)        An applicant may challenge a denial, suspension, or revocation of a registration or a reprimand issued pursuant to subsection (c) of this section, as provided in Chapter 150B of the General Statutes.

(e)        The Department shall adopt rules as necessary to implement the provisions of this section."

SECTION 4.(h)  Part 3 of Article 27 of Chapter 113 of the General Statutes is amended by adding a new section to read:

" 113-426.  Publication of information for landowners.

In order to effect the pre-lease publication distribution requirement as set forth in G.S. 113-423(a), and to otherwise inform the public, the Consumer Protection Division of the North Carolina Department of Justice, in consultation with the North Carolina Real Estate Commission, shall develop and make available a publication entitled "Oil & Gas Leases: Landowners' Rights" to provide general information on consumer protection issues and landowner rights, including information on leases of oil or gas rights, applicable to exploration and extraction of gas or oil. The Division and the Commission shall update the publication as necessary."

SECTION 4.(i)  Part 3 of Article 27 of Chapter 113 of the General Statutes is amended by adding a new section to read:

" 113-427.  Additional remedies.

The remedies provided by this Part are not exclusive and do not preclude any other remedies that may be allowed by law."

SECTION 5.  G.S. 47E-4 reads as rewritten:

" 47E-4.  Required disclosures.

(a)        With regard to transfers described in G.S. 47E-1, the owner of the real property shall furnish to a purchaser a residential property disclosure statement. The disclosure statement shall:

(1)        Disclose those items which are required to be disclosed relative to the characteristics and condition of the property and of which the owner has actual knowledge; or

(2)        State that the owner makes no representations as to the characteristics and condition of the real property or any improvements to the real property except as otherwise provided in the real estate contract.

(b)        The North Carolina Real Estate Commission shall develop and require the use of a standard disclosure statement to comply with the requirements of this section. The disclosure statement shall specify that certain transfers of residential property are excluded from this requirement by G.S. 47E-2, including transfers of residential property made pursuant to a lease with an option to purchase where the lessee occupies or intends to occupy the dwelling, and shall include at least the following characteristics and conditions of the property:

(1)        The water supply and sanitary sewage disposal system;

(2)        The roof, chimneys, floors, foundation, basement, and other structural components and any modifications of these structural components;

(3)        The plumbing, electrical, heating, cooling, and other mechanical systems;

(4)        Present infestation of wood-destroying insects or organisms or past infestation the damage for which has not been repaired;

(5)        The zoning laws, restrictive covenants, building codes, and other land-use restrictions affecting the real property, any encroachment of the real property from or to adjacent real property, and notice from any governmental agency affecting this real property; and

(6)        Presence of lead-based paint, asbestos, radon gas, methane gas, underground storage tank, hazardous material or toxic material (whether buried or covered), and other environmental contamination.

The disclosure statement shall provide the owner with the option to indicate whether the owner has actual knowledge of the specified characteristics or conditions, or the owner is making no representations as to any characteristic or condition.

(b1)      With regard to transfers described in G.S. 47E-1, the owner of the real property shall furnish to a purchaser an owners' association and mandatory covenants disclosure statement.

(1)        The North Carolina Real Estate Commission shall develop and require the use of a standard disclosure statement to comply with the requirements of this subsection. The disclosure statement shall specify that certain transfers of residential property are excluded from this requirement by G.S. 47E-2, including transfers of residential property made pursuant to a lease with an option to purchase where the lessee occupies or intends to occupy the dwelling. The standard disclosure statement shall require disclosure of whether or not the property to be conveyed is subject to regulation by one or more owners' association(s) and governing documents which impose various mandatory covenants, conditions, and restrictions upon the property, including, but not limited to, obligations to pay regular assessments or dues and special assessments. The statement required by this subsection shall include information on all of the following:

a.         The name, address, telephone number, or e-mail address for the president or manager of the association to which the lot is subject.

b.         The amount of any regular assessments or dues to which the lot is subject.

c.         Whether there are any services that are paid for by regular assessments or dues to which the lot is subject.

d.         Whether, as of the date the disclosure is signed, there are any assessments, dues, fees, or special assessments which have been duly approved as required by the applicable declaration or bylaws, payable to an association to which the lot is subject.

e.         Whether, as of the date the disclosure is signed, there are any unsatisfied judgments against or pending lawsuits involving the lot, the planned community or the association to which the lot is subject, with the exception of any action filed by the association for the collection of delinquent assessments on lots other than the lot to be sold.

f.          Any fees charged by an association or management company to which the lot is subject in connection with the conveyance or transfer of the lot to a new owner.

(2)        The owners' association and mandatory covenants disclosure statement shall provide the owner with the option to indicate whether the owner has actual knowledge of the specified characteristics, or conditions or the owner is making no representations as to any characteristic or condition contained in the statement.

(b2)      With regard to transfers described in G.S. 47E-1, the owner of the real property shall include in any real estate contract, an oil and gas rights mandatory disclosure as provided in this subsection.

(1)        Transfers of residential property set forth in G.S. 47E-2 are excluded from this requirement, except that the exemptions provided under subdivisions (9) and (11) of G.S. 47E-2 specifically are not excluded from this requirement.

(2)        The disclosure shall be conspicuous, shall be in boldface type, and shall be as follows:

 

OIL AND GAS RIGHTS DISCLOSURE

 

Oil and gas rights can be severed from the title to real property by conveyance (deed) of the oil and gas rights from the owner or by reservation of the oil and gas rights by the owner. If oil and gas rights are or will be severed from the property, the owner of those rights may have the perpetual right to drill, mine, explore, and remove any of the subsurface oil or gas resources on or from the property either directly from the surface of the property or from a nearby location. With regard to the severance of oil and gas rights, Seller makes the following disclosures:

                                                                                                Yes      No       No Representation

__________          1.   Oil and gas rights were severed from     __        __        __

Buyer Initials                 the property by a previous owner.

                                                                                                Yes      No

__________          2.   Seller has severed the oil and gas          __        __

Buyer Initials                 rights from the property.

                                                                                                Yes      No

__________          3.   Seller intends to sever the oil and           __        __

Buyer Initials                 gas rights from the property prior to

                                    transfer of title to Buyer."

 

PART VI. CREATE ENERGY POLICY OVERSIGHT COMMISSION

SECTION 6.(a)  Chapter 120 of the General Statutes is amended by adding a new Article to read:

"Article 33.

"Joint Legislative Commission on Energy Policy.

" 120-285.  Creation and membership of Joint Legislative Commission on Energy Policy.

(a)        The Joint Legislative Commission on Energy Policy is established.

(b)        The Commission shall consist of 10 members as follows:

(1)        Five members of the Senate appointed by the President Pro Tempore of the Senate, at least one of whom is a member of the minority party.

(2)        Five members of the House of Representatives appointed by the Speaker of the House of Representatives, at least one of whom is a member of the minority party.

(c)        Terms on the Commission are for two years and begin on the convening of the General Assembly in each odd-numbered year. Members may complete a term of service on the Commission even if they do not seek reelection or are not reelected to the General Assembly, but resignation or removal from service in the General Assembly constitutes resignation or removal from service on the Commission. A member continues to serve until the member's successor is appointed.

" 120-286.  Purpose and powers and duties of Commission.

(a)        The Joint Legislative Commission on Energy Policy shall exercise legislative oversight over energy policy in the State. In the exercise of this oversight, the Commission may do any of the following:

(1)        Monitor and evaluate the programs, policies, and actions of the Mining and Energy Commission established pursuant to G.S. 143B-293.1, the Energy Policy Council established pursuant to G.S. 113B-2, the Energy Division in the Department of Commerce, the Utilities Commission and Public Staff established pursuant to Chapter 62 of the General Statutes, and of any other board, commission, department, or agency of the State or local government with jurisdiction over energy policy in the State.

(2)        Review and evaluate existing and proposed State statutes and rules affecting energy policy and determine whether any modification of these statutes or rules is in the public interest.

(3)        Monitor changes in federal law and court decisions affecting energy policy.

(4)        Monitor and evaluate energy-related industries in the State and study measures to promote these industries.

(5)        Study any other matters related to energy policy that the Commission considers necessary to fulfill its mandate.

(b)        The Commission may make reports and recommendations, including proposed legislation, to the General Assembly from time to time as to any matter relating to its oversight and the powers and duties set out in this section.

" 120-287.  Organization of Commission.

(a)        The President Pro Tempore of the Senate and the Speaker of the House of Representatives shall each designate a cochair of the Joint Legislative Commission on Energy Policy. The Commission may meet at any time upon the call of either cochair, whether or not the General Assembly is in session.

(b)        A quorum of the Commission is six members.

(c)        While in the discharge of its official duties, the Commission has the powers of a joint committee under G.S. 120-19 and G.S. 120-19.1 through G.S. 120-19.4. The Commission may contract for consultants or hire employees in accordance with G.S. 120-32.02.

(d)        From funds available to the General Assembly, the Legislative Services Commission shall allocate monies to fund the Joint Legislative Commission on Energy Policy. Members of the Commission receive subsistence and travel expenses as provided in G.S. 120-3.1. The Legislative Services Commission, through the Legislative Services Officer, shall assign professional staff to assist the Commission in its work. Upon the direction of the Legislative Services Commission, the Supervisors of Clerks of the Senate and of the House of Representatives shall assign clerical staff to the Commission. The expenses for clerical employees shall be borne by the Commission."

SECTION 6.(b)  Notwithstanding G.S. 120-285(c), as enacted by Section 6(a) of this act, the President Pro Tempore of the Senate and the Speaker of the House of Representatives may appoint members to the Joint Legislative Commission on Energy Policy to terms that begin prior to the convening of the 2013 General Assembly.  The terms of members appointed pursuant to this section shall end upon the convening of the 2013 General Assembly.  Members appointed pursuant to this section who are otherwise qualified to serve on the Commission may be reappointed to the Commission upon the convening of the 2013 General Assembly.

 

PART VII. EFFECTIVE DATE

SECTION 7.  Sections 4(a) through 4(f), 4(h), and 4(i) of this act are effective when this act becomes law and apply to wells drilled and leases or contracts entered into on or after that date.  Sections 1(a) through 1(h), Sections 2(a) through 2(n), Sections 3(a) through 3(d), and Sections 6(a) and 6(b) of this act become effective August 1, 2012. Section 4(g) and Section 5 become effective October 1, 2012, and Section 5 applies to real estate transfers or dispositions occurring on or after that date.  All other sections of this act are effective when this act becomes law.

In the General Assembly read three times and ratified this the 21st day of June, 2012.

 

 

                                                                    s/  Walter H. Dalton

                                                                         President of the Senate

 

 

                                                                    s/  Thom Tillis

                                                                         Speaker of the House of Representatives

 

 

                                                            VETO  Beverly E. Perdue

                                                                         Governor

 

 

Became law notwithstanding the objections of the Governor at 11:04 p.m. this 2nd day of July, 2012.

 

                                                                    s/  Denise Weeks

                                                                         House of Representatives Principal Clerk