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