HOUSE BILL No. 2419

      An Act concerning oil and gas; relating to certain violations of laws relating to oil and gas
      and penalties therefor; requiring certain procedures prior to imposition of penalties;
      providing a credit from income taxes for expenses incurred in plugging certain oil and
      gas wells; relating to certain refunds of Kansas ad valorem tax reimbursements attrib-
      utable to gas royalty interest owners; amending K.S.A. 55-708, 55-904, 55-1004 and
      55-1005 and repealing the existing sections.

Be it enacted by the Legislature of the State of Kansas:

    Section 1. On and after July 1, 1998, K.S.A. 55-708 is hereby
amended to read as follows: 55-708. In addition to any penalty that may
be imposed by the state corporation commission, any person, firm or
corporation, or any officer, agent or employee thereof, violating the pro-
visions of this act, or any valid order, or rules or and regulations of the
commission, shall be guilty of a misdemeanor, and, upon conviction
thereof, shall be punished by a fine in any sum not exceeding $500 $5,000,
or by imprisonment in the county jail not exceeding six months 30 days,
or by both fine and imprisonment.

    Sec. 2. On and after July 1, 1998, K.S.A. 55-904 is hereby amended
to read as follows: 55-904. (a) It shall be unlawful for any person, firm,
corporation, partnership or other association of persons:

    (1) To knowingly and willfully dispose of or cause the disposal of salt
water produced in conjunction with the production of oil or natural gas
except in the manner and locations prescribed by K.S.A. 55-901 and
55-1003, and amendments thereto, and rules and regulations adopted
pursuant to such sections, or as permitted by the commission;

    (2) to dispose of any substance not exempt under 40 C.F.R.
261.4(b)(5), as revised July 1, 1997, in a class II disposal or injection well;

    (2) (3) to knowingly contract for the transportation of such salt water
with a person, firm, corporation, partnership or other association of per-
sons who is not licensed under the provisions of K.S.A. 66-1,114, and
amendments thereto; or

    (3) (4) to own or operate any motor vehicle which, while being used
for the transportation of such salt water, contains an operable ``trip-lever''
or similar device which is installed in such manner as to allow access to
any person while riding in the passenger compartment of such vehicle.

    (b) As used in this section ``salt water'' means water containing more
than 5,000 milligrams per liter chlorides and produced in conjunction
with the production of oil or natural gas.

    (c) This section shall not be construed to prohibit the spreading of
salt water on road beds under construction or maintenance if such spread-
ing of salt water is performed in compliance with rules and regulations
adopted by the secretary of the department of health and environment.
The secretary shall be responsible for enforcing, by appropriate proceed-
ings, such rules and regulations and shall immediately notify the appro-
priate county or district attorney of any actual or suspected violation of
this section.

    (d) Any person, firm, corporation, partnership or other association of
persons who violates any provision of subsection (a) shall be guilty of:

    (1) A class A nonperson misdemeanor and, upon conviction thereof,
shall be fined not less than $500 nor more than $5,000 severity level 9,
nonperson felony; and

    (2) a severity level 10 8, nonperson felony on a second or subsequent
violation of paragraph (1) of subsection (a).

    Sec. 3. On and after July 1, 1998, K.S.A. 55-1004 is hereby amended
to read as follows: 55-1004. It shall be unlawful for any person having
possession, control or the use of any oil-field waste disposal well wherein
salt water, mineralized brine, oil or refuse produced from any oil well is
disposed of below the surface of the earth to inject such salt water, min-
eralized brine, oil or refuse from any oil well therein at a pressure in
excess of the maximum pressure established by the state corporation com-
mission and contained in the permit issued thereby except when noncom-
pliance with this section is due to one or more causes beyond the control
of such person and, once such person knows or should have known of
such noncompliance, such person takes immediate and reasonable steps
to gain prompt and full compliance with the applicable statutes and rules
and regulations. The state corporation commission shall maintain a per-
manent record of the maximum pressure established by it on each such
oil-field waste disposal well.

    Any person violating any of the provisions of this section shall be guilty
of a misdemeanor, and upon conviction thereof, shall be punished by a
fine of not exceeding $1,000, or by imprisonment not exceeding six
months, or by both such fine and imprisonment, and severity level 9,
nonperson felony. Each day any such violation continues shall be deemed
a separate offense.

      Sec. 4. On and after July 1, 1998, K.S.A. 55-1005 is hereby
amended to read as follows: 55-1005. It shall be unlawful to use wells for
the disposal of salt brines or other oil field wastes which do not meet the
requirements for minimum depth established by the rules and regulations
of the corporation commission. The state corporation commission shall
inspect such wells to ascertain whether they meet such requirements for
minimum depth. Any person, firm, partnership, association or corporation
knowingly and willfully violating the provisions of this act section, shall
be deemed guilty of a misdemeanor and upon conviction, shall be pun-
ished by a fine of not less than $50 nor more than $500 severity level 9,
nonperson felony. Each day of violation shall be considered to constitute
a separate offense.

    New Sec. 5. On and after July 1, 1998, no fine or other penalty,
except cease and desist orders for which subsequent hearing is required,
shall be imposed by the state corporation commission pursuant to statutes
or rules and regulations relating to regulation of oil and gas production,
sale or conservation except after notice and an opportunity for hearing in
accordance with the Kansas administrative procedure act.

    New Sec. 6. (a) As used in this section, ``abandoned oil or gas well''
means an abandoned well, as defined by K.S.A. 1997 Supp. 55-191 and
amendments thereto:

    (1) The drilling of which was commenced before January 1, 1970;
and

    (2) which is located on land owned by the taxpayer claiming the tax
credit allowed by this section.

    (b) For any taxable year commencing after December 31, 1997, and
before January 1, 2001, a credit shall be allowed against the tax imposed
by the Kansas income tax act on the Kansas taxable income of a taxpayer
for expenditures made for the purpose of plugging any abandoned oil or
gas well in accordance with rules and regulations of the state corporation
commission applicable thereto, in an amount equal to 50% of such ex-
penditures made in the taxable year.

    (c) If the amount of the tax credit allowed by this section exceeds the
taxpayer's income tax liability for such taxable year, the amount thereof
which exceeds such tax liability may be carried over for deduction from
the taxpayer's income tax liability in the next succeeding taxable year or
years until the total amount of the tax credit has been deducted from tax
liability.

    (d) The total amount of credits allowed taxpayers pursuant to this
section, including the amount of credits carried over under subsection
(c), shall not exceed $250,000 for any one fiscal year.

    (e) The secretary of revenue shall adopt such rules and regulations
as necessary to carry out the purposes of this section.

    New Sec. 7. (a) As used in this act, royalty interest owners include
overriding royalty interest owners and royalty interests include overriding
royalty interests.

    (b) On and after the effective date of this act, no first seller of natural
gas shall maintain any action against royalty interest owners to obtain
refunds of reimbursements for ad valorem taxes attributable to royalty
interests, ordered by the federal energy regulatory commission.

    (c) It is hereby declared that under Kansas law:

    (1) The period of limitation of time for commencing civil actions to
recover such refunds attributable to reimbursements of ad valorem taxes
on royalty interests during the years 1983 through 1988 has expired and
such refunds claimed to be owed by royalty interest owners are uncollec-
tible;

    (2) first sellers of natural gas are prohibited from utilizing billing ad-
justments or other set-offs as a means of recovering from royalty owners
any such claimed refunds; and

    (3) first sellers of natural gas took every opportunity to protect their
rights involving Kansas ad valorem tax reimbursements attributable to
royalty interest owners.

    (d) Upon entry of a final order by a court having jurisdiction, or a
final order of a governmental authority having jurisdiction, that requires
first sellers to make refunds of reimbursements for ad valorem taxes on
royalty interests during the years 1983 through 1988 notwithstanding this
section or if this section is determined to be unconstitutional, in whole
or in part, nothing in this section shall be construed to have affected the
rights and remedies available to any party under the laws of the state of
Kansas, including those applicable in any action that a first seller of natural
gas may bring against a royalty interest owner to obtain such a refund.

    Sec. 8. On and after July 1, 1998, K.S.A. 55-708, 55-904, 55-1004
and 55-1005 are hereby repealed.

    Sec. 9. This act shall take effect and be in force from and after its
publication in the Kansas register.

I hereby certify that the above Bill originated in the
House, and passed that body

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House adopted
Conference Committee Report __________________________

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Speaker of the House.

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Chief Clerk of the House.

Passed the Senate
as amended __________________________

Senate adopted
Conference Committe Report __________________________

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President of the Senate

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Secretary of the Senate.

Approved__________________________

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Governor.