Legislators scramble to create tax, environmental plan for Minnesota's first helium operation

As Pulsar Helium inches closer to building Minnesota's first helium drilling operation near the Iron Range, lawmakers and other officials are scrambling to make sure the government can make money if the new and potentially lucrative industry touches state land.

State officials also hope environmental rules pass the Legislature because there is little regulatory oversight on this new type of gas extraction.

Sen. Grant Hauschild, DFL-Hermantown, introduced a bill that would block companies like Canada-based Pulsar from extracting gas without first obtaining a permit from the state Department of Natural Resources (DNR) and would direct state regulators to adopt rules for environmental review, production and reclamation.

It would also give the DNR power to require royalties for gas production that draws from state-managed lands.

"There is a fear that Pulsar would be able to drill and suck out helium at a commercial level from private land, and we would get no royalties," Hauschild said Friday.

In a written statement, Pulsar CEO Tom Abraham-James said he and his company "welcome the introduction of the bill and look forward to continuing to work with the State and people of Minnesota on this exciting development."

Pulsar is operating on 40 acres of privately owned land in Lake County, according to the DNR. The company said lab results showed helium content of samples from the underground reservoir up to 13.8%, far above a 0.3% threshold for helium projects to be potentially economically viable.

With a shortage of the gas that is a key ingredient in space exploration, semiconductor chip manufacturing and some medical imaging, an extraction site southeast of Babbitt, Minn., appears promising.

Even though the extraction work would be on private land, state-managed lands surround it on three sides, the DNR said. Since gas does not stay within property lines, it's possible, and perhaps likely, that as Pulsar draws helium underground, it would collect helium from beneath those public lands.

Without a taxing structure, the state would not receive royalties — like it does from taconite mining — that can benefit state government, local governments and schools, said Joe Henderson, director of the DNR's Lands and Minerals Division.

The DNR also can't lease public land for helium exploration or drilling. So if Pulsar or other companies are interested in more exploration around the site, they'll look to private land.

"That's in part why this is so important, because if we do nothing, have no fear they're still going to move," Henderson said of extraction companies.

Hauschild's bill would set a minimum production royalty of 18.75% of gross sales prices. Henderson said the bill based the price on research of how other U.S. states and other countries tax gas production. He said it would put Minnesota in the upper 50% of fees in the country but not at the top of the scale.

"We've been in the minerals world for over a century," Henderson said. "I think we have staff in our Hibbing office that have looked at this, and they have negotiated some really strong mineral rates. What we've found is, maybe you don't want to be at the exact top of the royalty scheme, but surely you could be in that upper quarter or upper half and then you can negotiate from there."

It's too soon to say how lucrative the helium industry could be for the state. The bill also applies to other oil and gas extraction, such as hydrogen.

But the DNR estimated Pulsar could produce $1 million worth of helium per day at its site. Aaron Vande Linde, director of the Minnesota Office of School Trust Lands, said it could potentially help diversify school trust funds that taconite mining largely generates.

In the short term, the bill amounts to a temporary moratorium on Pulsar running a commercial operation. The company is still a ways off from that as it works on a feasibility study, Henderson said, which the DNR expects to run into 2025.

The DNR and other state agencies would work on environmental regulations and other rules for gas and oil production in the state and adopt them within two years of the bill passing. Before that, the state could still lease land to companies for exploration. The bill would also create an advisory committee to recommend temporary permit rules the Legislature could approve next year ahead of the final rules.

Henderson said if the bill doesn't pass, Pulsar would face some environmental requirements like stormwater protections, but there is nothing specific to gas or helium.

"There are rules, but what we're seeking to do is put a very deliberate structure around it," Henderson said.

Aaron Klemz, chief strategy officer at the Minnesota Center for Environmental Advocacy, said there is a lot of potential for the helium industry, "and the early returns suggest there's a need for state involvement and regulation of this industry."

Klemz also urged more public input duringan impending expedited rulemaking process.

Hauschild and other local officials said the potential economic benefits of the helium industry excite them. Still, Hauschild said it's wise for the state to step in soon.

"If we don't do this bill, the ramifications are that drilling continues and extraction on a commercial level on private land could occur and take from state land," he said. "That's a deep, deep concern, I think, among all stakeholders from pro-extraction people to environmentalists. I think everybody kind of agrees we need a plan."