CSHB 207(FIN): "An Act relating to adjustments to royalty reserved to the state to encourage otherwise uneconomic production of oil and gas; and providing for an effective date."
00CS FOR HOUSE BILL NO. 207(FIN) 01 "An Act relating to adjustments to royalty reserved to the state to encourage 02 otherwise uneconomic production of oil and gas; and providing for an effective 03 date." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05 * Section 1. AS 38.05.180(j) is amended to read: 06 (j) The [TO PROLONG THE ECONOMIC LIFE OF AN OIL AND GAS 07 FIELD OR TO REESTABLISH COMMERCIAL PRODUCTION OF SHUT-IN OIL 08 OR GAS THAT WOULD NOT OTHERWISE BE ECONOMICALLY FEASIBLE, 09 THE] commissioner 10 (1) may [SHALL ADOPT REGULATIONS TO] allow reduction of 11 royalty on individual leases, leases unitized as described in (p) of this section, 12 leases subject to an agreement described in (s) or (t) of this section, or interests 13 unitized under AS 31.05 14 (A) to allow for production from an oil or gas field, pool, or
01 portion of a field or pool if 02 (i) the oil or gas field, pool, or portion of the field or 03 pool has been sufficiently delineated to the satisfaction of the 04 commissioner; 05 (ii) the field, pool, or portion of the field or pool has 06 not previously produced oil or gas for sale; and 07 (iii) oil or gas production from the field, pool, or 08 portion of the field or pool would not otherwise be economically 09 feasible; 10 (B) to prolong the economic life of an oil or gas field, pool, 11 or portion of a field or pool as per barrel or barrel equivalent costs 12 increase or as the price of oil or gas decreases, and the increase or 13 decrease is sufficient to make future production no longer economically 14 feasible; or 15 (C) to reestablish production of shut-in oil or gas that would 16 not otherwise be economically feasible; 17 (2) [. THE COMMISSIONER] may not grant a reduction of royalty 18 unless the lessee or lessees requesting the reduction make [MAKES] a clear and 19 convincing showing that a reduction of royalty meets the requirements of this 20 subsection and is in the best interests of the state; 21 (3) shall [THE REVENUE FROM THE LESSEE'S SHARE OF ALL 22 HYDROCARBONS PRODUCED FROM THE FIELD IS AND IS LIKELY TO 23 CONTINUE TO BE INSUFFICIENT TO PRODUCE A REASONABLE RATE OF 24 RETURN WITH RESPECT TO THE LESSEE'S TOTAL INVESTMENT IN THE 25 FIELD. THE COMMISSIONER MAY] condition any [A] royalty modification 26 [REDUCTION] granted under this subsection in any way necessary to protect the 27 state's best interests; the commissioner shall provide for an increase or decrease 28 or other modification of the state's royalty share by a sliding scale royalty or 29 other mechanism that shall be based on a change [INTEREST, INCLUDING 30 RESTORATION OF THE STATE'S ROYALTY SHARE IN THE EVENT OF AN 31 INCREASE] in the price of oil or gas and may also be based on other relevant
01 factors such as a change in production rate, projected ultimate recovery, 02 development costs, and operating costs; 03 (4) may not grant a royalty reduction for a field, pool, or portion 04 of a field or pool 05 (A) under (1)(A) of this subsection that exceeds 75 percent 06 of the royalty originally specified in a lease entered into under the 07 provisions of (f) of this section or AS 38.05.134; 08 (B) under (1)(B) or (1)(C) of this subsection that exceeds 90 09 percent of the royalty originally specified in a lease entered into under the 10 provisions of (f) of this section or AS 38.05.134; 11 (5) shall require the lessee or lessees to submit, with the application 12 for the royalty reduction, financial and technical data that demonstrates that the 13 requirements of this subsection are met; the commissioner 14 (A) may require disclosure of only the financial and 15 technical data relating to production that is reasonably available to the 16 applicant; and 17 (B) shall keep the data confidential under AS 38.05.035(a)(9) 18 upon the lessee's request; 19 (6) may require the lessee or lessees making application for the 20 royalty reduction to retain and pay for the services of a contractor, selected by 21 the lessee or lessees from a list of qualified consultants in hydrocarbon production 22 and economics provided by the commissioner, to assist the commissioner in 23 evaluating the application and financial and technical data; when the 24 commissioner requires the lessee or lessees to retain the services of a contractor, 25 the commissioner shall determine the relevant scope of the work to be performed 26 by the contractor; 27 (7) shall make and publish a preliminary findings and 28 determination on the royalty reduction application, give reasonable public notice 29 of the preliminary findings and determination, and invite public comment to the 30 preliminary findings and determination during a 30-day period for receipt of 31 public comment;
01 (8) shall make copies of the preliminary findings and determination 02 available to 03 (A) the presiding officer of each house [. BEFORE 04 APPROVING A ROYALTY REDUCTION, THE COMMISSIONER SHALL 05 MAKE A WRITTEN FINDING THAT THE STATE HAS OBTAINED THE 06 MAXIMUM POSSIBLE ECONOMIC RETURN THAT IS COMPATIBLE 07 WITH ALLOWING A REASONABLE RATE OF ECONOMIC RETURN FOR 08 THE LESSEE, AND SEND COPIES OF THE FINDING TO ALL MEMBERS] 09 of the legislature; 10 (B) the chairs of the legislature's standing committees on 11 resources; and 12 (C) the chairs of the legislature's special committees on oil 13 and gas, if any; 14 (9) shall, within 30 days after the close of the public comment period 15 under (7) of this subsection, 16 (A) prepare a summary of the public response to the 17 commissioner's preliminary findings and determination; 18 (B) make a final findings and determination; the 19 commissioner's final findings and determination prepared under this 20 subparagraph regarding royalty reduction is final and not appealable to the 21 court; and 22 (C) with the applicant's consent, amend the applicant's lease 23 or unitization agreement consistent with the commissioner's final decision; 24 (10) shall 25 (A) transmit a copy of the final findings and determination 26 to the lessee; and 27 (B) make copies of the final findings and determination 28 available to a person who submitted comment under (7) of this subsection 29 and who has filed a request for the copies; 30 (11) is not limited by the provisions of AS 38.05.134(3) or (f) of this 31 section in the commissioner's determination under this subsection.
01 * Sec. 2. AS 38.05.180(p) is amended to read: 02 (p) To conserve the natural resources of all or a part of an oil or gas pool, 03 field, or like area, the lessees and their representatives may unite with each other, or 04 jointly or separately with others, in collectively adopting or operating under a 05 cooperative or a unit plan of development or operation of the pool, field, or like area, 06 or a part of it, when determined and certified by the commissioner to be necessary or 07 advisable in the public interest. The commissioner may, with the consent of the 08 holders of leases involved, establish, change, or revoke drilling, producing, and royalty 09 requirements of the leases and adopt regulations with reference to the leases, with like 10 consent on the part of the lessees, in connection with the institution and operation of 11 a cooperative or unit plan as the commissioner determines necessary or proper to 12 secure the proper protection of the public interest. The commissioner may not 13 reduce royalty on leases in connection with a cooperative or unit plan except as 14 provided in (j) of this section. The commissioner may require oil and gas leases 15 issued under this section to contain a provision requiring the lessee to operate under 16 a reasonable cooperative or unit plan, and may prescribe a plan under which the lessee 17 must operate. The plan must adequately protect all parties in interest, including the 18 state. 19 * Sec. 3. AS 38.05.180(s) is amended to read: 20 (s) When separate tracts cannot be individually developed and operated in 21 conformity with an established well-spacing or development program, a lease, or a 22 portion of a lease, may be pooled with other land, whether or not owned by the state, 23 under a communication or drilling agreement providing for an apportionment of 24 production or royalties among the separate tracts of land comprising the drilling or 25 spacing unit when determined by the commissioner to be in the public interest. 26 Operations or production under the agreement are considered as operations or 27 production as to each lease committed to the agreement. The commissioner may not 28 reduce royalty on leases in connection with a communization or drilling 29 agreement except as provided in (j) of this section. 30 * Sec. 4. AS 38.05.180(t) is amended to read: 31 (t) The commissioner may prescribe conditions and approve, on conditions,
01 drilling, or development contracts made by one or more lessees of oil or gas leases, 02 with one or more persons, when, in the discretion of the commissioner, the 03 conservation of natural resources or the public convenience or necessity requires it or 04 the interests of the state are best served. All leases operated under approved drilling 05 or development contracts and interests under them, are excepted in determining holding 06 or control under AS 38.05.140. The commissioner may not reduce royalty on a 07 lease or leases that are subject to a drilling or development contract except as 08 provided in (j) of this section. 09 * Sec. 5. This Act takes effect immediately under AS 01.10.070(c).