The General Assembly finds and declares that the production and development of oil and gas resources is important to the economic well-being of the State and the nation. The drilling and production of oil and gas should be conducted in a manner that will minimize their effects on the surrounding environment. Furthermore, proper evaluation of a project and the use of the most environmentally sound drilling and production methods are necessary to prevent adverse environmental consequences that would be detrimental to the general welfare, health, safety, and property interests of the citizens of the State. In addition, there are certain circumstances where oil and gas exploration or production should be prohibited, such as when these operations will have a significant adverse effect on the environment. The General Assembly finds that the conduct of exploration or production of oil and gas resources under this subtitle will allow the safe utilization of the State’s natural resources and will provide for the protection of the State’s environment.

In this subtitle the following words have the meanings indicated. “Coalbed methane” means methane and any other gaseous substance occurring in or produced from a coal seam or related, associated, or adjacent rock materials. “County” includes Baltimore City unless otherwise indicated. “Department” means the Department of the Environment. “Field” means the general area underlaid by one or more pools. “Fund” means the Oil and Gas Fund. “Gas” means all natural gas and other fluid hydrocarbons, not defined as oil, which are produced from a natural reservoir. “Oil” means crude petroleum oil and other hydrocarbons, regardless of gravity, which are produced at the wellhead in liquid form, except liquid hydrocarbons known as distillate or condensate recovered or extracted from gas. “Owner” means the person who has the right to drill into and produce from a pool, or to store in a pool, and appropriate the oil or gas the person produces or stores either for the person or others. “Person” means any individual, corporation, association, partnership, receiver, trustee, executor, administrator, guardian, fiduciary, or other representative of any kind. “Pool” means an underground reservoir containing a common accumulation of oil, gas, or both. “Producer” means the owner of a well capable of producing oil, gas, or both. “Product” means any commodity produced in its natural state by an oil or gas well. “Production” means the act or process of producing oil or gas from a natural reservoir. “Production” does not include the sale or distribution of oil or gas. “Underground storage” means the storing of gas or oil in a geological stratum beneath the surface of the earth. “Underground storage” includes the injection of gas or oil into and withdrawal from an underground storage reservoir and any other operation necessary for or convenient to the storage of gas or of oil. “Underground storage reservoir” means the stratum and subsurface area that are used or are to be used for or in connection with the underground storage of gas or of oil.

The Department may enforce effectively the provisions of this subtitle through the adoption and promulgation of rules and regulations. The Department may not prorate or limit the output of any gas or oil well.

A person may not drill any well for the exploration, production, or underground storage of gas or oil in the State without obtaining a permit from the Department of the Environment under the terms and conditions and on the forms the Department prescribes. The Department shall require an applicant to submit an environmental assessment for the purpose of evaluating an application. The Department shall coordinate with the Department of Natural Resources in its evaluation of the environmental assessment. The permit serves as the permit required under the provisions of Title 9, Subtitle 13 of this article, dealing with well drillers. A person may not dispose of any product of a gas or oil well without the necessary permits issued by the Department.

An applicant for a permit to drill a well under § 14–104 of this subtitle shall submit an application in a manner satisfactory to the Department. The application for a permit to drill a well under § 14–104 of this subtitle and each application for a permit renewal shall include a closure cost estimate for the proper sealing and plugging of the gas or oil well and reclamation of the site. The Department shall establish and collect fees for: The issuance of a permit to drill a well under § 14–104 of this subtitle; The renewal of a permit to drill a well under § 14–104 of this subtitle; and The production of oil and gas wells installed after October 1, 2010. The fees imposed under subsection (b) of this section shall be set by the Department at the rate necessary to implement the purposes set forth in § 14–123 of this subtitle. In any fiscal year, if the fee schedule established by the Department generates revenue that exceeds the amount necessary to operate a regulatory program to oversee the drilling of oil and gas wells, the Department shall reduce the fees in the following fiscal year. The fees collected by the Department under this section shall be deposited in the Oil and Gas Fund established under § 14–122 of this subtitle. The Department shall provide public notice, public informational hearings, and judicial review in accordance with the provisions of § 5–204 of this article.

The Department may bifurcate an application to drill for oil or gas when the drilling will be conducted in geologic formations not yet proven to be productive. If the Department bifurcates the permit process it may issue a permit for exploration only. Production may not commence until the environmental assessment required by § 14–104 of this subtitle has been completed and approved by the Department and the Department has issued a permit for production. An additional opportunity for a public hearing shall be provided in accordance with § 14–105(f) of this subtitle prior to the issuance of any permit for production. If the Department bifurcates the permit process, the environmental assessment required under § 14–104 of this subtitle may also be bifurcated to address separately environmental issues associated with exploration and production. However, prior to granting a permit to conduct exploratory drilling in the coastal plain, the Department shall require the applicant to submit an environmental assessment that contains general information regarding the environmental impacts of possible production, including the potential effects of transporting and storing oil or gas and the potential adverse environmental impacts that may arise due to the environmental characteristics of the drilling site.

Notwithstanding any other law, a person may not drill for oil or gas in the waters of the Chesapeake Bay, any of its tributaries, or in the Chesapeake Bay Critical Area.

In this section, “hydraulic fracturing” means a stimulation treatment performed on oil and natural gas wells in low–permeability oil or natural gas reservoirs through which specially engineered fluids are pumped at high pressure and rate into the reservoir interval to be treated, causing fractures to open. A person may not engage in the hydraulic fracturing of a well for the exploration or production of oil or natural gas in the State.

The Department shall deny the permit if the Department determines that: The proposed operation shall violate a requirement of this subtitle or a regulation adopted under this subtitle; The proposed drilling or well operation poses a substantial threat to public safety or a risk of significant adverse environmental impact to, but not limited to, the following: The Chesapeake Bay; The Chesapeake Bay Critical Area; Tidal or nontidal wetlands; Endangered or threatened species, species in need of conservation, or the habitat of any of them; Historic properties under § 5A–326 of the State Finance and Procurement Article; Populated areas; Freshwater, estuarine, or marine fisheries; or Other significant natural resources; The applicant has failed to receive applicable permits or approvals for the operation from all State and local regulatory units responsible for air and water pollution, sediment control, and zoning; The operation will constitute a significant physical hazard to a neighboring dwelling unit, school, church, hospital, commercial or industrial building, public road, or other public or private property in existence at the time of the application for the permit; The operation will have a significant adverse effect on the uses of a publicly owned park, forest, or recreation area in existence at the time of the application for the permit; or The applicant has not corrected any violations committed by the applicant under any prior permit.

In this section the following words have the meanings indicated. “Explosives” means normal commercial explosives, blasting agents, and detonators. “Seismic operations” means the controlled application of vibratory energy from any source to determine if favorable conditions exist for the subsurface entrapment of oil or gas. “Seismic section” means a graphic, near-vertical display of waveform data that is usually processed by a computer program to facilitate the interpretation of subsurface conditions. Unless a person obtains a permit from the Department, a person may not conduct seismic operations in the State. An applicant for a permit to conduct seismic operations shall submit an application that includes the information required by the Department. In addition to any other information required by the Department, an applicant for a permit to conduct seismic operations on the waters of the Chesapeake Bay and its navigable tributaries shall provide to the Department a written agreement to submit to the Department processed seismic sections for any operation conducted on the waters of the Chesapeake Bay and its navigable tributaries. The Department shall hold processed seismic sections submitted under this subsection confidential. The Department shall determine the terms and conditions for the issuance of a permit to conduct seismic operations. An applicant for a permit to conduct seismic operations shall demonstrate evidence of sufficient liability insurance coverage, in an amount determined by the Department, for any personal injury or property damage resulting from a seismic operation. The Department may deny an application for a permit if: The applicant does not submit the information required by the Department; The proposed activity poses a substantial risk of causing environmental damage that cannot be mitigated by the applicant, particularly to: The Chesapeake Bay; The Chesapeake Bay Critical Area; A nontidal wetland; An endangered or threatened species or the habitat of any of these species; A designated archaeological site; or A populated area; or The proposed operation will violate regulations adopted by the Department in accordance with this section. If the Department decides to deny the permit, the notification of denial shall state the reason, any modification necessary for approval of the application, and the rights of the applicant to appeal the decision as provided in Title 10, Subtitle 2 of the State Government Article. A person may not use explosives in seismic operations conducted on the waters of the Chesapeake Bay and its tributaries. A person may use explosives in seismic operations conducted on land if the person complies with the requirements for the use of explosives established by the Department.

A permit shall be expressly conditioned upon compliance with all requirements of this subtitle and any regulations adopted under this subtitle. The Department may place in a permit conditions which the Department deems reasonable and appropriate to assure that the operation shall fully comply with the requirements of this subtitle, and provide for public safety and the protection of the State’s natural resources. Violation of a permit condition is a violation of this subtitle subject to enforcement and penalties under this subtitle.

In this section, “water supply” means a source of water used for drinking or other domestic purpose or for agriculture, including livestock. For each permit the Department issues under this subtitle to drill a well for the exploration or production of gas in deep shale deposits, there is a presumptive impact area around the gas well in which it is presumed that contamination of a water supply was caused by the activities of gas exploration or production. The presumptive impact area shall be in effect: Within a radius of 2,500 feet from the vertical wellbore; and For 365 days after the last event of well drilling, completion, or hydraulic fracturing. Within a presumptive impact area established under subsections (b) and (c) of this section, the permittee shall replace, at no expense to an owner of real property in the presumptive impact area, a water supply that is contaminated as a result of the permittee’s drilling or operation of the gas well. A water supply within a presumptive impact area that no longer yields potable water as a result of the drilling or operation of a gas well shall be considered to be replaced adequately by a permittee if the permittee provides for the affected property owner a new or retrofitted well or other alternative water supply that is capable of yielding potable water equal to the volume used or needed by the property owner before the contamination of the water supply. The permittee and the property owner may agree on monetary compensation or other mitigation instead of restoration. The Department may not require a permittee to replace a water supply or compensate a property owner, as provided in this section, if the permittee demonstrates to the Department by a preponderance of the evidence that: The contamination is not the result of activities relating to the gas well; or The contamination existed before the commencement of activities allowed by the permit and was not worsened by those activities. The Department may adopt regulations to implement this section. The presumption of causation established under this section does not apply to contamination of a water supply if: The permit applicant requests the permission of the property owner to sample and test the water supply before commencement of activities and to provide the property owner with a complete copy of the test results; and The property owner refuses permission. This section may not be construed to affect any common law remedies available to a property owner. The presumption of causation established under this section shall apply in: A proceeding for judicial review under § 14–117 of this subtitle; An action for an injunction under § 14–118 of this subtitle; or A civil action for damages or equitable relief brought by a property owner against a permittee. The presumption may be rebutted by a preponderance of the evidence.

Except as provided in subsection (d) of this section, every holder of a permit to drill for gas or oil shall: Submit a completion report on forms to be supplied by the Department within 30 days after the drilling of a well has been completed; Submit cutting samples at the request of the Department; Notify the Department when a well is about to be abandoned; Comply with all the requirements of this subtitle, including the proper sealing and plugging of a gas or oil well and reclamation of the site; Provide financial assurance of at least $50,000 for each gas or oil well, including each well on a multiwell pad, but not less than the most recent closure cost estimate provided by the permit holder under § 14–105(a) of this subtitle; Obtain and keep in effect comprehensive general liability insurance coverage in an amount not less than $300,000 for each person and $500,000 for each occurrence or accident to pay damages for injury to persons or damage to property caused by sudden accidental occurrences arising from, or in support of, the activities authorized by a permit issued under § 14–104 of this subtitle, including the costs and expenses incurred in the investigation, defense, or settlement of claims; Obtain and keep in effect environmental pollution liability insurance in an amount not less than $1,000,000 per loss for bodily injury and property damage to persons and natural resource damage, including the costs of cleanup and remediation, caused by the sudden or nonsudden release of pollutants arising from, or in support of, the activities authorized by a permit issued under § 14–104 of this subtitle, including the costs and expenses incurred in the investigation, defense, or settlement of claims; In the event of an assignment or transfer of a permit, maintain the existing financial assurance required under this section until replacement financial assurance is approved by the Department; and Notify the Department of the location of the equipment required by regulation for the prevention and containment of gas leaks and oil spills. The environmental pollution liability insurance required under subsection (a)(7) of this section shall be maintained for 5 years after the Department determines that: The gas or oil well has been properly sealed and plugged; and The site has been reclaimed. The permit holder’s financial assurance required under subsections (a) and (b) of this section shall: Extend to the owner or owners of the surface and subsurface property; and Cover the acts and omissions of the permit holder’s contractors and subcontractors during their activities in connection with the drilling, operation, and closure of the well. Except as provided in paragraph (2) of this subsection, a holder of a permit to drill for gas or oil that has a well in existence on or before October 1, 2013, shall provide financial assurance by maintaining the same performance bond and liability insurance that is required for the holder’s most recent permit or permit renewal issued on or before October 1, 2013. If a gas or oil well is in existence on or before October 1, 2013, and is modified after October 1, 2013, by recompletion, stimulation, deepening, or adding lateral extensions, the holder of the permit for the gas or oil well shall comply with the requirements for financial assurance contained in subsections (a), (b), (c), and (e) of this section. The Department may adopt regulations to: Increase the minimum amounts of financial assurance required under subsection (a) of this section; Enable permit applicants to offer, and the Department to authorize, alternative means for demonstrating financial assurance, including: A performance bond; A blanket bond; Cash; A certificate of deposit; A letter of credit; Self–insurance; A corporate guarantee; or Any other surety the Department determines to be good and sufficient; and Establish alternative financial assurance requirements as appropriate for a new gas storage well and a gas storage well that is modified by recompletion, stimulation, deepening, or adding lateral extensions. The Department shall adopt regulations requiring each holder of a permit to drill for gas or oil to have equipment available for the prevention and containment of gas leaks and oil spills. A permit or the transfer of a permit may not become effective until the financial assurance requirements of this section have been satisfied.

Except as provided in paragraph (2) of this subsection, a well for the production or underground storage of gas or oil may not be drilled on any property nearer than 1,000 feet to the boundary of the property except by agreement with the owners of the gas and oil on adjacent lands. A well for the production of coalbed methane may not be drilled on any property nearer than 500 feet to the boundary of the property except by agreement with the owners of coalbed methane on adjacent lands. On property on which it is impossible to locate a well the required minimum distance from the boundary, and where no agreement with the owners of the gas and oil or coalbed methane on adjacent lands has been made, a well may be located nearer than the required minimum distance under subsection (a) of this section to the boundary with the consent of the Department. However, when any permit to drill a well nearer than the required minimum distance to the boundary has been applied for, the Department shall notify every landowner, royalty owner, or leaseholder within the required minimum distance of the location of the proposed well, giving them a reasonable opportunity to file objections to the issuance of the permit. The Department then shall hold a hearing. If the Department determines that it is necessary for the well to be located nearer than the required minimum distance to the boundary, it may issue the permit. If a permit is issued, any landowner, royalty owner, or leaseholder within the required minimum distance of the proposed well has the right to a rehearing and appeal to the courts provided in this subtitle. A request for a rehearing or an appeal to the courts stays the authority granted under the permit until final determination of the issued permit is made. The Department, by rule or regulation, shall prescribe the distance between any two wells on any property.

On completion of a well producing gas or oil on any leased lands included under a unit operation agreement, royalties from the producing well shall be paid on all lands originally included within the unit operation agreement. Within six months after the completion of the producing well, the lands within the unit operation agreement not included as “in pool” acreage and on which no royalties are payable, shall be released, unless the owner of the lands has otherwise agreed in writing. This section does not extend to any leases and unit operation agreements in effect on June 1, 1956.

Except in an emergency, a rule, regulation, order, or amendment may not be made by the Department without a public hearing upon at least ten days’ notice. The public hearing shall be held at the time and place prescribed by the Department. Any interested person is entitled to be heard by the Department. When an emergency requiring immediate action exists, the Department is authorized to issue an emergency order without notice or hearing. An emergency order takes effect upon promulgation. An emergency order may not remain effective for more than 15 days. All rules, regulations, and orders issued by the Department shall be in writing, entered and indexed in books kept by the Department as public documents open for inspection during normal office hours. A copy of any rule, regulation, or order certified by the Secretary of the Department or the Secretary’s designee shall be received in evidence in all courts with the same effect as the original. The Department may act either upon its own motion or the petition of any interested person. On the filing of a petition concerning any matter within its jurisdiction, it shall promptly fix a date for a hearing and cause notice of the hearing to be given. The hearing shall be held promptly after the filing of the petition. If the hearing relates to the issuance of a permit for or with respect to a specific well, it shall be held in the county or municipal corporation where the well is located. The Department shall enter its order within ten days after the hearing.

The Department may summon witnesses, administer oaths, and require the production of records, books, and documents for examination at any hearing or investigation it conducts. If any person fails or refuses to comply with a subpoena issued by the Department, or if any witness refuses to testify as to any matter regarding which the witness may be interrogated, any court of competent jurisdiction, upon the application of the Department, may issue an attachment for the person and compel the person to comply with the subpoena, and appear before the Department and produce records, books, and documents for examination and give testimony. If a person disobeys a subpoena or refuses to testify, the court may punish the person for contempt.

Any person adversely affected by any rule, regulation, determination, or order of the Department may within 15 days after its effective date apply to the Department in writing for a rehearing. The application shall be acted upon within 15 days after its filing. The rehearing, if granted, shall be held promptly.

Except as provided in § 14–105 of this subtitle, any person aggrieved by any action of the Department may apply to the circuit court of the county in which the person resides or the well is located for review of its decision. Any other interested party may intervene. The Department may become a party to the appeal. The case shall be docketed at once but may not take precedence over any other civil cause, action, or proceeding on the docket. The court shall hear the proceedings de novo, determine all matters of law and fact without a jury, and render its decision approving, setting aside, or modifying the Department’s action. Any party aggrieved by the final decision of the court may appeal to the Appellate Court of Maryland.

Upon application of the Department, verified by oath or affirmation, the circuit court of the county where the well is located, sitting in equity, may by injunction enforce compliance with, or restrain the violation of any order, notice, rule or regulation made under the provisions of this subtitle or restrain the violation or attempted violation of any of the provisions of this subtitle.

A person who is the owner or operator of any gas well may not willfully take gas from the well unless the gas is metered by a standard metering system. The cleaning or blowing of a well is not construed as a “taking” within the meaning of this section. If any person or operator producing gas from any well violates the terms of this section, the person’s or operator’s interest in the lease under which the well is being produced shall be void and subject to cancellation at the suit of the owners of the royalty interest in the leased premises on which the violation occurs. The Department shall inspect, read, or test any meters, through which natural gas is being measured upon the request of any lessor, lessee, operator, or royalty owner from whose land, lease, or royalty interest, natural gas is being produced.

For each offense, any person who willfully violates any provision of this subtitle is guilty of a misdemeanor and upon conviction in a court of competent jurisdiction is subject to a fine of: Up to $50,000; An amount sufficient to cover the cost of damages resulting from all of the following caused by the permittee, including a contractor of the permittee: Any oil or gas spill; Any other discharge; and Any violation of this subtitle; and Costs imposed in the discretion of the court. Any penalty imposed under this subtitle is in addition to any other penalties provided by law.

The Department may make inspections as it determines necessary to ensure compliance with this subtitle. In order to carry out an inspection in accordance with this section, the Department, or its authorized agents, may: Conduct tests or sampling, or examine books, papers, and records that relate to any matter under an investigation in accordance with this subtitle; and At reasonable times, enter and examine any property, facility, operation, or activity.

There is an Oil and Gas Fund. The Fund consists of: Fees collected by the Department under § 14–105 of this subtitle; Funds appropriated by the General Assembly for deposit to the Fund; Fines and proceeds from financial assurance instruments collected by the Department in accordance with this subtitle that exceed the amount necessary to reclaim a site; and Any additional money made available from any sources, public or private, for the purposes for which the Fund has been established. The Fund is a special, nonlapsing fund that is not subject to § 7–302 of the State Finance and Procurement Article. Notwithstanding any law to the contrary, unused money in the Fund may not revert to the General Fund. The Fund shall be maintained and administered by the Department in accordance with the provisions of this subtitle and any regulations the Department adopts.

The Department shall use money in the Fund solely to administer and implement programs to oversee the drilling, development, production, and storage of oil and gas wells, and other requirements related to the drilling of oil and gas wells, including all costs incurred by the State to: Review, inspect, and evaluate monitoring data, applications, licenses, permits, analyses, and reports; Perform and oversee assessments, investigations, and research; Conduct permitting, inspection, and compliance activities; and Develop, adopt, and implement regulations, programs, or initiatives to address risks to public safety, human health, and the environment related to the drilling and development of oil and gas wells, including the method of hydrofracturing.

Beginning November 1, 2010, the Department shall report each year to the General Assembly, in accordance with § 2–1257 of the State Government Article, on: The status of the Fund; Revenues of and expenditures from the Fund; The efficiency of the regulatory program under this subtitle; Compliance rates within the regulatory program under this subtitle; and Based on the factors listed in items (1) through (4) of this section, the necessity to review and adjust the fee in accordance with § 14–105(d) of this subtitle.

The Department shall adopt regulations: To carry out this subtitle; and To establish procedures for imposing and collecting the fees established in accordance with § 14–105 of this subtitle.