KRS 349.030: Establishment of rules and procedures for mining through coalbed

methane well -- Coalbed Methane Well Review Board to hold hearings and

issue orders and mine -through certificates -- Determination of compensation

for all parties interested in coalbed m ethane wells -- Appeal of review board's

decisions to Circuit Court -- Escrow of funds.

(1) If a coalbed methane well is permitted and drilled within the boundaries of any coal

mine for which a permit has been issued or an application for a mine permit or a

mine permit modification or amendment has been filed but not issued pursuant to

KRS Chapter 350, the mine licensee shall have the right to mine through that

coalbed methane well and the associated drilling unit in accordance with the

provisions of this subsection.

(a) At least one hundred twenty (120) days prior to mining through a coalbed

methane well and associated drilling unit, the mine licensee shall notify the

review board and operator of its intention to mine through the property. The

notice shall be made on a form prescribed by the review board, and shall

include a plat showing the location of the drilling unit, the coalbed methane

well and associated surface equipment, facilities, infrastructure, and

improvements, and the geographic extent of the mining operations to be

conducted within the drilling unit. The mine licensee shall also submit an

estimated schedule for commencing and completing mining operations within

the drilling unit. After a hearing the review board shall promptly issue a

written determination on whether the continued operation of the coalbed

methane well will impede, interfere with, or present a possible safety hazard

to the mine licensee's planned mining operations. If the review board

determines that the coalbed methane well wil l impede, interfere with, or

present a safety hazard to the planned mining operations, concurrently an

order shall be issued to the operators, with a copy to the mine licensee,

directing the temporary or permanent plugging of the well at the operator's

cost and such other action as may be appropriate in the circumstances.

Following the issuance of the order, the review board shall promptly issue a

mine-through certificate to the mine licensee, with a copy to the operator,

authorizing the mine licensee to mi ne-through the coalbed methane well and

associated drilling unit.

(b) The mine licensee and all other coal interest holders having interests in the

coalbed within the drilling unit shall have no duty or obligation to compensate

or pay the operator or other interested coalbed methane parties for any causes

of action, claims, or damages arising from the suspension or loss of coalbed

methane production or the plugging and abandonment of a coalbed methane

well and the removal or relocation of any associated fac ilities, infrastructure,

and improvements due to mining through the coalbed methane well and

associated drilling unit pursuant to this subsection.

(2) If a mine licensee files an application for a coal mine permit or seeks to modify or

amend an existing co al mine permit so as to include a geographical area containing

one (1) or more existing coalbed methane wells or any well sites for which drilling

permits have been issued or are pending, the mine licensee shall have the right to

mine through those coalbed methane wells or into or through a coalbed methane

well and the associated drilling units and any well sites for which permits to drill

have been issued or applications for permits to drill have been filed but not issued in

accordance with the provisions of this subsection.

(a) At least one hundred eighty (180) days prior to mining into or through one (1)

or more drilling units or permitted well sites operated by a common operator,

the mine licensee shall notify the review board and the operator of its

intention to mine into or through the property. The notice shall be made on a

form prescribed by the review board and shall include a plat showing the

location of the drilling unit, the coalbed methane well and associated surface

equipment, facilities, infras tructure, and improvements, and the geographic

extent of the mining operations to be conducted within the drilling unit. The

mine licensee shall also submit an estimated schedule for commencing and

completing mining operations within the drilling unit.

(b) Within thirty (30) days after receiving the mine licensee's notice pursuant to

paragraph (a) of this subsection, the mine licensee and operator shall enter

into a confidentiality agreement on a form prescribed by the review board and

the operator shall pr ovide, to the extent available, copies of all data and

information necessary and appropriate to enable the mine licensee to

determine the current value of each drilling unit, well site, and any associated

assets described in the mine licensee's notice in a ccordance with the criteria

set forth in paragraph (e) of this subsection. The information shall be in a form

prescribed by the review board and shall include, among other things, data,

reports, and information relating to current coalbed methane reserve

calculations, well completions, historic production and sales results, capital

and operating costs, all actual land, legal permitting, survey, title, and any

other costs and expenses directly relating to the acquisition, permitting,

development, and operati on of each drilling unit and well site, and estimated

well plugging and abandonment costs of any existing coalbed methane wells.

In addition, the operator shall provide the review board and mine licensee

with copies of all agreements and leases, payment di vision orders and any

pooling agreements or pooling orders for each drilling unit and well site,

together with a schedule setting forth the name, address, and working interest

and net revenue percentages, royalties and overriding royalties, and all other

interests and rights of all other interested coalbed methane parties. If the

information is not timely filed or is incomplete, the mine licensee may seek an

order from the review board directing the operator to comply with the

provisions of this subsection.

(c) Within thirty (30) days after receiving the information described in paragraph

(b) of this subsection, the mine licensee and operator shall meet and confer at

a mutually agreed upon date, time, and place for the purpose of attempting to

conclude a mut ually acceptable agreement as to the compensation due to the

operator for any damage, impairment, or loss to each drilling unit, well site,

and any associated assets described in the information provided by the

operator resulting from the mine licensee's p lanned mine-through operations.

Any compensation agreement between the mine licensee and operator for each

drilling unit or well site shall be approved and executed by all other interested

coalbed methane parties. The mine licensee and operator shall joint ly notify

the review board that a compensation agreement has been entered into

between the parties and request that the review board issue a mine -through

certificate for each drilling unit and well site described in the notice. The

notice shall include any terms and conditions set forth in the compensation

agreement that the parties have agreed to incorporate in the applicable mine -

through certificates. Upon receipt of the executed compensation agreement,

the review board shall promptly issue the requested mine-through certificates

to the mine licensee, with copies to the operator and all other interested

coalbed methane parties. If the parties are unable to reach an agreement,

within ten (10) days following the expiration of the thirty (30) day meet and

confer period, either party may request a hearing before the review board for

the purpose of determining the compensation due the operator and any terms

and conditions to be imposed upon the mine licensee's proposed mining

operations. Copies of the hearing re quest shall be sent to all other interested

coalbed methane parties.

(d) Within fifteen (15) days of receiving the hearing request, the review board

shall schedule a hearing to take place within sixty (60) days and shall notify

the mine licensee, the opera tor and all other interested coalbed methane

parties of the date, time, and location of the hearing. At its election, the review

board may engage a qualified petroleum engineer for the purpose of

conducting an independent evaluation of the compensation to be paid to the

operator and all other interested coalbed methane parties in accordance with

paragraph (e) of this subsection. The mine licensee and the operator shall each

pay one -half (1/2) of the costs and expenses for the petroleum engineer

retained by the review board.

(e) The review board shall determine the value of each drilling unit, well site, and

all associated assets before and after the mine licensee's planned mine-through

operations. In determining the amount of compensation due the operator an d

all other interested coalbed methane parties, the review board must consider

all relevant evidence and information submitted and the review board shall

base its decision solely upon the following criteria and procedures:

1. Except as otherwise expressly provided in this subsection, all coalbed

methane reserve estimates and the valuation of reserves and other assets

damaged, impaired, or lost due to the planned mining operations shall be

consistent with standard oil and gas industry accounting, engineering ,

and reserve practices and shall be performed pursuant to the then-current

applicable laws, regulations, policies, and guidelines for determining gas

reserves for public reporting companies in the United States.

2. At the hearing, the mine licensee and operator, on behalf of itself and all

other interested coalbed methane parties, shall appear and submit

evidence and testimony as to the value of the subject drilling units, well

sites, and any associated assets before and after the mine licensee's

planned m ining operations. The review board shall only consider

coalbed methane reserve estimates or valuation determinations made in

conformity with subparagraph 1. of this paragraph by a professional

petroleum engineer with experience in evaluating coalbed methan e

reserves and operations. All reserve estimates and any valuation analysis

prepared by the mine licensee and operator for use in the review board's

hearing shall be effective thirty (30) days prior to the date of the hearing.

The reserve estimates and valuation analysis shall be exchanged between

the mine licensee and operator and copies of the information shall be

provided to the review board and all other interested coalbed methane

parties no less than twenty -one (21) days prior to the hearing date. Any

coalbed methane reserve estimates or valuation analysis prepared at the

review board's request shall be set forth in a written report. Copies of the

report prepared for the review board shall be provided to the mine

licensee, the operator, and all other in terested coalbed methane parties

no less than ten (10) days prior to the review board's hearing date.

3. All estimates of remaining recoverable coalbed methane reserves

immediately before and immediately after the planned mining operations

shall consist of proved developed producing or proved developed

nonproducing reserves as determined pursuant to this subsection. A

drilling unit shall have proved developed producing reserves if the unit

has an operating coalbed methane well, which is completed in one (1) or

more target coal seams and is producing commercial quantities of

coalbed methane. The drilling units total proved developed producing

reserves before and after the planned mining operations shall be

calculated based on the completed coal seams within t he unit well. A

drilling unit shall have proved developed nonproducing reserves if the

unit has a coalbed methane well which is completed in one (1) or more

target coal seams and is fully operational and all associated

infrastructure such as power, gas gat hering, and water management

systems required to produce and sell coalbed methane in commercial

quantities has been constructed, but the well is not producing coalbed

methane in commercial quantities because it either is in the dewatering

stage or is not o perating due to factors beyond the operator's control.

Whether a drilling unit contains proved developed producing reserves or

proved developed nonproducing reserves shall be determined based on

the status of the coalbed methane well and associated infrastructure sixty

(60) days prior to the review board's hearing date.

4. The net present value of proved developed producing reserves projected

immediately before and immediately after the planned mining operations

shall be calculated using a discount rate of twelve percent (12%). The

net present value of proved developed nonpr oducing reserves projected

immediately before and immediately after the planned mining operations

shall be calculated using a discount rate of twenty percent (20%). The

valuation analysis shall also project the net present value of all revenues

received, if any, by the operator during the period in which the planned

mining operations are to be conducted.

5. In determining the compensation due the operator and all other

interested coalbed methane parties for delayed or lost production, if the

total projected production of the coalbed methane well is reduced so as

not to yield a commercially reasonable return on investment to the

operator, but the well is still able to produce coalbed methane in

commercial quantities, the projected difference in the net presen t value

of the recoverable reserves before and after mining shall be included as

part of the compensation due the operator and all other interested

coalbed methane parties.

6. In determining the value of the coalbed methane reserves impaired or

lost due to the planned mining operations, except as expressly provided

herein, no consideration shall be given to undeveloped coalbed methane

resources in coal seams which have not been completed in the subject

coalbed methane well or which are in coal seams below t he total depth

of the well bore. If, however, a coal seam in the same field is producing

coalbed methane but the coal seam is not completed in the subject

coalbed methane well, the operator may submit evidence to the review

board for its consideration as t o the potential net present value of the

resources within the uncompleted seam, but in no event shall the net

present value of those resources be discounted at less than thirty percent

(30%).

7. Except as otherwise provided herein, in determining the value of

coalbed methane for purposes of this subsection, the gas price shall be

the last published price in the gas market closest to the drilling unit sixty

(60) days prior to the review board's hearing date. If the coalbed

methane is sold pursuant to a gas s ales agreement or marketing contract

in which the gas price is determined based on a published price, subject

to any contractual adjustment, in the gas market other than the market

closest to the drilling unit, the gas price shall be determined based on the

last published price in a gas market referred to in the gas sales agreement

or marketing contract, subject to any contractual adjustment set forth

therein, sixty (60) days prior to the review board's hearing date. If the

coalbed methane is sold pursuant to an arms -length firm or fixed price

gas sales agreement or marketing contract, the actual sales price received

by operator for gas sold sixty (60) days prior to the review board's

hearing date shall be used as the gas price in the coalbed methane

valuation.

8. All capital, operating, and production costs used in the net present value

determinations made pursuant to this subsection shall be based on the

operator's then current reasonable and verifiable actual costs and

expenses. Copies of all relevant and available cost information shall be

provided by the operator to the review board and mine licensee as

provided in paragraph (b) of this subsection. If actual cost information is

not otherwise available, all calculations shall be made using reasonable

and customary costs for comparable coalbed methane operations in the

Commonwealth and in the surrounding states.

9. If the planned mining operations will mine through a coalbed methane

well or require the removal, relocation, or suspension of operation of

other facilities, infrastructure, or improvements in a drilling unit, the

operator and any other interested coalbed methane parties shall be

reimbursed for all reasonable actual and direct costs, damages, and

expenses to be incurred due to these mining operatio ns; provided,

however, that in no event shall any replacement costs and expenses

exceed the operator's or any other interested coalbed methane parties'

actual costs and expenses for the affected well, facilities, infrastructure,

and improvements, as the ca se may be. The operator and any other

interested coalbed methane parties shall not be reimbursed for any

general, administrative, or overhead costs and expenses or any other

costs and expenses not otherwise allocated to the costs of the subject

drilling un it, coalbed methane well and the associated facilities,

infrastructure, and improvements. Any amounts due the operator and

any other interested coalbed methane parties shall be reduced by the

projected then -current market value of such equipment, facilitie s, and

improvements to the extent that it can be salvaged and sold or used in

other operations.

10. If, prior to drilling a coalbed methane well, the mine licensee submits a

plan to mine into or through any part of the associated drilling unit or

well site for which a drilling permit has been issued or is pending, the

operator shall not proceed with drilling a coalbed methane well pending

a final decision by the review board with respect to the mine licensee's

request for a mine -through certificate. When a mine-through certificate

is issued to the mine licensee, the operator and all other interested

coalbed methane parties shall be reimbursed for all reasonable costs and

verifiable actual land, legal, permitting, surveying, and technical costs

and expenses incurred to acquire or lease and maintain the property and

obtain any permits, approvals, and other agreements required to drill the

coalbed methane well. The operator and all other interested coalbed

methane parties shall not be reimbursed for any general, administrative,

or overhead costs and expenses or any other costs and expenses not

otherwise allocated to the costs to acquire or lease the subject property

or permit the coalbed methane well.

(f) At a hearing, the review board shall take testimony and ev idence from the

mine licensee and operator, on behalf of itself and all other interested coalbed

methane parties consistent with the provisions in this subsection. Within

fifteen (15) days following the hearing, the review board shall issue a written

decision to the mine licensee and operator determining the compensation due

the operator and each of the other interested coalbed methane parties in the

amount of the difference between the value of each drilling unit, well site, and

any associated assets befor e and after the mine licensee's planned mining

operations. If the review board determines that the mine licensee's proposed

mining operations will result in a loss or taking of all of either the coalbed

methane reserves in the coal seam to be mined and all coalbed methane

reserves in completed coal seams in the coalbed methane well below the

mined coal seam as provided in paragraph (e)5. of this subsection or the entire

drilling unit, the operator and other interested coalbed methane parties shall be

awarded the full value of the property and assets prior to the proposed mining

operations as determined by the review board. The review board's decision

shall list the compensation amounts to be paid to the operator and each of the

other interested coalbed metha ne parties for each drilling unit, well site, and

any associated assets. The decision shall also set forth any duties or

obligations to be performed by the parties, such as the temporary or permanent

plugging of any well or the relocation or removal of any surface facilities, to

enable the mine licensee to proceed immediately with the planned mining

operations.

(g) Within fifteen (15) days of receiving the review board's decision, the mine

licensee shall notify the review board and the operator and all othe r interested

coalbed methane parties of its decision to:

1. Accept the review board's decision with respect to one (1) or more of the

drilling units, well sites, and associated assets and deposit the

compensation awarded to the operator and each of the oth er interested

coalbed methane parties for the property;

2. Appeal all or part of the review board's decision as provided in

paragraph (j) of this subsection; or

3. Withdraw notice of intent to mine into any of the subject coalbed

methane property and asset s. If the mine licensee elects to withdraw

notice of intent to mine into or through all of the drilling units, well

sites, and any associated assets which were the subject of the review

board hearing, upon receiving a statement of costs from the operator, the

mine licensee shall promptly reimburse the operator for all reasonable

out-of-pocket engineering and legal costs and expenses incurred to

prepare for and participate in the review board hearing and shall have no

further obligations to the operator or a ny of the other interested coalbed

methane parties.

(h) Within fifteen (15) days of receiving the review board's decision, the operator,

on behalf of itself and other interested coalbed methane parties, shall notify

the review board and the mine licensee w hether it will accept the amounts

awarded by the review board or file an appeal with the Circuit Court in the

county where the drilling unit or well site is located challenging the review

board's valuation of any of the property or assets.

(i) If no appeal of the review board's decision is filed by the parties, upon receipt

of the compensation due the operator and all other interested coalbed methane

parties for each drilling unit and well site selected by the mine licensee for

which a mine -through certific ate will be issued, the review board shall

promptly deliver the awarded compensation to the operator and all other

interested coalbed methane parties for the drilling unit and well site and

concurrently issue the appropriate mine -through certificate to the mine

licensee, with copies to the operator and all other interested coalbed methane

parties. If the operator and other interested coalbed methane parties are

awarded either the total net present value of the coalbed methane reserves in

coal seams to be mined by the mine licensee and all coalbed methane reserves

in coal seams completed in a coalbed methane well below such coal seam as

provided in paragraph (e)5. of this subsection or the total value of the entire

drilling unit and associated assets, upon pa yment of the compensation, the

operator and other interested coalbed methane parties shall simultaneously, if

requested by the mine licensee, assign and transfer free and clear of all

encumbrances to the mine licensee all of their respective rights, title, and

interests in such property and assets, as the case may be, within the drilling

unit on a form to be prescribed by the review board. The review board shall

take whatever other action that may be deemed appropriate or necessary in the

circumstances.

(j) If either party notifies the review board of a decision to appeal the review

board's valuation of any of the subject coalbed methane properties and assets

to the Circuit Court, the mine licensee shall deposit with the review board the

compensation due the operator and each of the other interested coalbed

methane parties for each drilling unit, well site, and any associated assets

selected by the mine licensee for which a mine -through certificate will be

issued. Upon receipt of the funds from the mine licen see, the review board

shall promptly deliver to the operator and the other interested coalbed methane

parties one hundred percent (100%) of the awarded compensation for any

drilling unit, well site, and any associated assets not listed in any notice of

appeal and seventy -five percent (75%) of the awarded compensation to the

operator and other interested coalbed methane parties for any drilling unit,

well site, and any associated assets for which an appeal is to be filed.

Concurrently with delivering the awa rded compensation to the operator as

provided herein, the review board shall issue to the mine licensee, with copies

to the operator and all other interested coalbed methane parties, a mine -

through certificate for each drilling unit and well site for which compensation

has been received. If the review board's decision with respect to any drilling

unit is not appealed and the operator and other interested coalbed methane

parties are awarded either the total net present value of the coalbed methane

reserves in the coal seam to be mined by the mine licensee and all coalbed

methane reserves in coal seams completed in a coalbed methane well below

that coal seam as provided in paragraph (e)5. of this subsection or the total

value of each drilling unit, well site, and any associated assets, upon payment

of the compensation, the operator and other interested coalbed methane parties

shall simultaneously if requested by the mine licensee, assign and transfer free

and clear of all encumbrances to the mine licensee all o f their respective

rights, title, and interests in that property and assets, as the case may be,

within the drilling unit or well site on a form to be prescribed by the review

board. The review board shall take whatever other action that may be deemed

appropriate or necessary in the circumstances to carry out its decision. All

funds deposited with the review board shall be placed in an interest -bearing

account pending a final resolution of any appeals.

(k) Within thirty (30) days following the issuance of t he review board's decision,

the mine licensee or the operator, on behalf of itself and any other interested

coalbed methane parties, may file a petition in the Circuit Court of the county

in which the drilling unit or well site is located or in the Frankli n County

Circuit Court disputing the review board's valuation of all or any part of any

coalbed methane properties or assets pursuant to this subsection. The parties

filing the petition shall name as parties to the action the following: the review

board, the mine licensee, all other coal interest holders, the operator, and all

other interested coalbed methane parties. Promptly upon receiving notice of

the petition, the review board shall deliver any remaining funds deposited by

the mine licensee as provided in paragraph (j) of this subsection, together with

all interest accrued thereon, to the clerk of the Circuit Court for the county in

which the petition is filed and these funds shall be deposited in an interest

bearing account pending a decision on the petition. The decision of the Circuit

Court shall be made in accordance with the provisions of KRS 349.090. If the

Circuit Court determines the operator and other interested coalbed methane

parties are entitled to greater compensation than the amount awarded by the

review board, the mine licensee shall pay the difference to the clerk of the

Circuit Court within fifteen (15) days of the court's decision. Upon receipt of

the additional funds awarded by the Circuit Court, the clerk shall promptly

deliver to the operator and any other interested coalbed methane parties these

funds together with all interest accrued thereon. If the Circuit Court

determines that the operator is entitled to less compensation than the amount

awarded by the review board, the amount of the reduction shall be refunded to

the mine licensee together with any interest that accrued thereon. If the

escrowed funds are not sufficient to fully reimburse the mine licensee, the

operator and all other interested coalbed methane parties having an int erest in

the subject coalbed methane properties and assets shall promptly pay the mine

licensee for the difference between the escrowed funds and the total amount to

be reimbursed pursuant to the Circuit Court's order. If the Circuit Court

determines that the operator and other interested coalbed methane parties are

to receive either the total net present value of the coalbed methane reserves in

the coal seam to be mined by the mine licensee and all coalbed methane

reserves in coal seams completed in a coal bed methane well below such coal

seam as provided in paragraph (e)5. of this subsection or the total value of the

entire drilling unit, well site, and any associated assets, which values may be

increased or decreased by the Circuit Court, upon receipt of t he awarded

compensation, the operator and other interested coalbed methane parties shall

simultaneously if requested by the mine licensee, assign and transfer free and

clear of all encumbrances to the mine licensee all of their respective rights,

title, and interest in such property and assets, as the case may be, within the

drilling unit on a form to be prescribed by the review board.

(l) Subject to obtaining a decision by the Circuit Court with respect to any

appeals initiated pursuant to paragraph (k) of this subsection, the operator and

all of the other interested coalbed methane parties' acceptance of the

compensation awarded by the review board and of the performance of any

duties and obligations by the mine licensee as ordered by the review board

shall constitute full and complete consideration to the operator and all of the

other interested coalbed methane parties for any and all causes of action,

claims, damages, or losses to each drilling unit or any portion thereof, well

site, or any associated ass ets caused by the mine licensee, or any other coal

interest holder's subsequent mining operations. The mine licensee shall be

liable for any and all injuries, deaths, or damages proximately caused by the

mine licensee on, in, or with respect to that property.

(3) If, after the mine licensee files a notice of intention to mine into or through any

coalbed methane properties or assets pursuant to subsection (1) or (2) of this

section, the mine licensee's coal mining permit or any pending amendment to an

existing permit issued pursuant to KRS Chapter 350 is withdrawn, canceled,

delayed, or modified so as to exclude all or any part of the geographic area covering

any drilling unit or well site described in the mine licensee's notice, the mine

licensee shall promptly advise the review board and operator that it is amending its

request for a mine -through certificate to exclude any property that is no longer

subject to a coal mine permit or a pending coal mine permit application.