00 SENATE BILL NO. 113 01 "An Act authorizing a reduction in coal, oil, and gas royalty for the producers 02 of those minerals used in certain projects." 03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 04 * Section 1. AS 38.05.134 is amended to read: 05  Sec. 38.05.134. CONVERSION TO LEASE. If the licensee requests and the 06 commissioner determines that the work commitment obligation set out in an oil and 07 gas exploration license issued under AS 38.05.132 has been met, the commissioner 08 shall convert to one or more oil and gas leases all or part, as the licensee may indicate, 09 of the area described in the exploration license that remains after the relinquishments, 10 removals, or deletions required by AS 38.05.132(d)(2). A lease issued under this 11 section 12  (1) is subject to the acreage limitations imposed by AS 38.05.140(c); 13  (2) is subject to AS 38.05.180(j) - (m), (o) - (u), and (x) - (z); 14  (3) must be conditioned upon a royalty in amount or value of not less 01 than 12.5 percent of production. except that a lessee who, proceeding under 02 AS 38.05.131 - 38.05.134, produces oil or gas that is used in a project that 03 qualifies under AS 38.05.180(dd) is entitled to the reduction in royalty authorized 04 by that subsection; 05  (4) must include an annual rent of $3 per acre or fraction of an acre 06 initially paid to the state at inception of the lease and payable annually after that until 07 the income to the state from royalty under that lease exceeds the rental income to the 08 state under that lease for that year; and 09  (5) is subject to other conditions and obligations that are specified in 10 the lease. 11 * Sec. 2. AS 38.05.150(d) is amended to read: 12  (d) For the privilege of mining or extracting the coal in the land covered by 13 the lease, the lessee shall pay to the state the royalties specified in the lease. The 14 royalties shall be fixed before offering the lease, except that a lessee who produces 15 coal and sells or delivers it to a project that qualifies under (f) of this section shall 16 pay the royalty determined under that subsection, and shall be effective for a period 17 of not more than 20 years. The royalties shall be not less than five cents a ton of 18 2,000 pounds. The lessee shall also pay an annual rental, payable at the date of the 19 lease and annually thereafter, on the land or coal deposits covered by the lease, at a 20 rate fixed by the commissioner before offering the lease. The annual rental shall be 21 effective for a period of not more than 20 years. The annual rental shall be not less 22 than 25 cents an acre for the first year of the lease, not less than 50 cents an acre for 23 the second year, third year, fourth year and fifth year, and not less than $1 an acre for 24 each year thereafter during the continuance of the lease. The rental for each year shall 25 be credited against the royalties as they accrue for that year. Each lease shall provide 26 that the annual rental payment is subject to adjustment at intervals of no more than 20 27 years and adjustments shall be based on the current rates for properties similarly 28 situated. 29 * Sec. 3. AS 38.05.150 is amended by adding a new subsection to read: 30  (f) For coal produced from a lease and sold or delivered for use in a project 31 that qualifies under this subsection, the commissioner may reduce the royalty on the 01 amount or value of the coal produced and delivered to the project, not to exceed a 02 reduction of 50 percent in the royalty rate, as the commissioner may determine. Sale 03 of coal for a project qualifies for a royalty reduction under this subsection if the 04 commissioner determines that 05  (1) the sale or delivery of the coal for which the reduction in the 06 royalty is sought is to a facility that converts the coal for use as an energy resource 07 by the general public; and 08  (2) the facility to which the coal is sold and delivered is 09  (A) owned or operated by 10  (i) a municipality; or 11  (ii) a village, as that term is defined in AS 46.03.900; 12 and 13  (B) located in the state and not more than 50 miles from the 14 point of production of the coal. 15 * Sec. 4. AS 38.05.180(f) is amended to read: 16  (f) Except as provided by AS 38.05.131 - 38.05.134, the commissioner may 17 issue oil and gas leases on state land to the highest responsible qualified bidder as 18 follows: 19  (1) the commissioner shall issue an oil and gas lease to the 20 successful bidder determined by competitive bidding under regulations adopted by the 21 commissioner; bidding [. BIDDING] may be by sealed bid or according to any other 22 bidding procedure the commissioner determines is in the best interests of the state; 23   (2) whenever [. WHENEVER], under any of the leasing methods 24 listed in this subsection, a royalty share is reserved to the state, it shall be delivered 25 in pipeline quality and free of all lease or unit expenses, including but not limited to 26 separation, cleaning, dehydration, gathering, salt water disposal, and preparation for 27 transportation off the lease or unit area; 28   (3) following [. FOLLOWING] a pre-sale analysis, the commissioner 29 may choose at least one of the following leasing methods: 30   (A) [(1)] a cash bonus bid with a fixed royalty share reserved 31 to the state of not less than 12.5 percent in amount or value of the production 01 removed or sold from the lease; 02   (B) [(2)] a cash bonus bid with a fixed royalty share reserved 03 to the state of not less than 12.5 percent in amount or value of the production 04 removed or sold from the lease and a fixed share of the net profit derived from 05 the lease of not less than 30 percent reserved to the state; 06   (C) [(3)] a fixed cash bonus with a royalty share reserved to the 07 state as the bid variable but no less than 12.5 percent in amount or value of the 08 production removed or sold from the lease; 09   (D) [(4)] a fixed cash bonus with the share of the net profit 10 derived from the lease reserved to the state as the bid variable; 11   (E) [(5)] a fixed cash bonus with a fixed royalty share reserved 12 to the state of not less than 12.5 percent in amount or value of the production 13 removed or sold from the lease with the share of the net profit derived from 14 the lease reserved to the state as the bid variable; 15   (F) [(6)] a cash bonus bid with a fixed royalty share reserved 16 to the state based on a sliding scale according to the volume of production or 17 other factor but in no event less than 12.5 percent in amount or value of the 18 production removed or sold from the lease; 19   (G) [(7)] a fixed cash bonus with a royalty share reserved to the 20 state based on a sliding scale according to the volume of production or other 21 factor as the bid variable but not less than 12.5 percent in amount or value of 22 the production removed or sold from the lease; 23  (4) notwithstanding a requirement, in the leasing method chosen, 24 of a minimum fixed royalty share, a lessee who produces oil or gas and sells or 25 delivers it to a project that qualifies under (dd) of this section shall pay the 26 royalty determined under that subsection. 27 * Sec. 5. AS 38.05.180(w) is amended to read: 28  (w) Notwithstanding any other provisions of this section, land that [WHICH] 29 has been offered for lease within the previous five years and that [WHICH] received 30 no bids at competitive sale or for which no bid was accepted may be, at the discretion 31 of the commissioner, immediately offered for lease, under regulations adopted by the 01 commissioner, upon terms appearing most advantageous to the state; however, 02 noncompetitive leasing is prohibited. The commissioner shall establish a royalty 03 determined to be in the public interest but not less than 12.5 [12 1/2] percent, subject 04 to reduction under (dd) of this section. A lease must provide for payment to the 05 state or rental but need not adhere to the rental schedule in (n) of this section nor to 06 the 5,760-acres-per-lease limitation in (m) of this section. The lease term may not 07 exceed 10 years, except as provided in (o) of this section. 08 * Sec. 6. AS 38.05.180 is amended by adding a new subsection to read: 09  (dd) For oil or gas produced from a lease and sold or delivered for use in a 10 project that qualifies under this subsection, the commissioner may reduce the royalty 11 on the amount or value of oil or gas produced and delivered to the project, not to 12 exceed a reduction of 50 percent in the royalty rate, as the commissioner may 13 determine. Sale of oil or gas for a project qualifies for a royalty reduction under this 14 subsection if the commissioner determines that 15  (1) the sale or delivery of the oil or gas for which the reduction in the 16 royalty is sought is to a facility that converts the oil and gas for use as an energy 17 resource by the general public; and 18  (2) the facility to which the oil or gas is sold and delivered is 19  (A) owned or operated by 20  (i) a municipality; or 21  (ii) a village, as that term is defined in AS 46.03.900; 22  (B) located in the state and not more than 50 miles from the 23 point of production of the oil or gas; and 24  (C) not connected to a pipeline that exists on the effective date 25 of this Act and, in the judgment of the commissioner, could not be connected 26 to a pipeline that existed on the effective date of this Act because the law does 27 not permit the connection or because the connection would not be economically 28 feasible.