SCS CSHB 207(FIN) AM S: "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."
00SENATE CS FOR CS FOR HOUSE BILL NO. 207(FIN) am S 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 36.30.850(b) is amended by adding a new paragraph to read: 06 (33) contracts between the Department of Natural Resources and 07 contractors qualified to evaluate hydrocarbon development, production, transportation, 08 and economics, to assist the commissioner of natural resources in evaluating applications 09 for oil and gas royalty increases or decreases or other oil and gas royalty adjustments, 10 and evaluating the related financial and technical data, entered into under 11 AS 38.05.180(j). 12 * Sec. 2. AS 38.05.180(j) is amended to read: 13 (j) The [TO PROLONG THE ECONOMIC LIFE OF AN OIL AND GAS 14 FIELD OR TO REESTABLISH COMMERCIAL PRODUCTION OF SHUT-IN OIL OR
01 GAS THAT WOULD NOT OTHERWISE BE ECONOMICALLY FEASIBLE, THE] 02 commissioner 03 (1) may provide for an increase or decrease or otherwise modify 04 [SHALL ADOPT REGULATIONS TO ALLOW REDUCTION OF] royalty, to allow 05 for production that would not otherwise be economically feasible, on individual 06 leases, leases unitized as described in (p) of this section, leases subject to an 07 agreement described in (s) or (t) of this section, or interests unitized under 08 AS 31.05; the commissioner may act under this subsection to modify the royalty 09 (A) after the effective date of this Act and not later than 10 July 1, 2015, so long as the authority to modify royalty under this 11 subparagraph has been authorized or reauthorized by law within the ten 12 years preceding the commissioner's action to modify the royalty, to allow for 13 production from an oil or gas field or pool if 14 (i) the oil or gas field or pool has been delineated 15 sufficiently to allow the commissioner to conduct the analyses and 16 make the findings required by this subsection; and 17 (ii) the field or pool has not previously produced oil or 18 gas for sale; 19 (B) to prolong the economic life of an oil or gas field or pool 20 as costs per barrel or barrel equivalent increase; or 21 (C) to reestablish production of shut-in oil or gas; 22 (2) [. THE COMMISSIONER] may not grant a [REDUCTION OF] 23 royalty modification unless the lessee or lessees requesting the modification make 24 [REDUCTION MAKES] a clear and convincing showing that a modification of royalty 25 meets the requirements of this subsection and is in the best interests of the state; 26 (3) shall 27 (A) [THE REVENUE FROM THE LESSEE'S SHARE OF ALL 28 HYDROCARBONS PRODUCED FROM THE FIELD IS AND IS LIKELY TO 29 CONTINUE TO BE INSUFFICIENT TO PRODUCE A REASONABLE RATE 30 OF RETURN WITH RESPECT TO THE LESSEE'S TOTAL INVESTMENT IN 31 THE FIELD. THE COMMISSIONER MAY] condition any [A] royalty
01 modification [REDUCTION] granted under this subsection in any way necessary 02 to protect the state's best interests; 03 (B) describe, in the findings and determinations required by 04 this subsection, the relevant factors, including price, projected production 05 rate or volume, predicted ultimate recovery, and development, operating, 06 and transportation costs, upon which the modification is based; 07 (C) for a modification under (1)(A) of this subsection, set out 08 the terms and conditions, which 09 (i) must include a mechanism for adjusting royalty 10 percentage based on price; using forecasts of the range of future 11 prices and their probabilities, the mechanism must provide that the 12 value of the potential revenue increases resulting from royalty 13 percentage increases must exceed the value of the potential revenue 14 losses resulting from royalty percentage decreases; and 15 (ii) may include, in addition to the royalty percentage 16 adjustment based on price, which must meet the conditions 17 specified in (i) of this subparagraph, a further adjustment based on 18 production rate or volume from the field or pool; and 19 (D) for a modification under (1)(B) or (1)(C) of this 20 subsection, set out the terms and conditions, which may include 21 substitution of a sliding scale royalty or other mechanism to modify the 22 royalty if there is a change in the relevant factors, such as price, projected 23 production rate or volume, predicted ultimate recovery, and development, 24 operating, and transportation costs, upon which the modification is based; 25 (4) may not grant a royalty modification for a field or pool 26 (A) under (1)(A) of this subsection if the royalty modification 27 for the field or pool would establish a royalty rate of less than five percent 28 in amount or value of the production removed or sold from a lease or leases 29 covering the field or pool; 30 (B) under (1)(B) or (1)(C) of this subsection if the royalty 31 modification for the field or pool would establish a royalty rate of less than
01 three percent in amount or value of the production removed or sold from a 02 lease or leases covering the field or pool; 03 (5) may not grant a royalty modification under this subsection 04 without including an explicit condition that the royalty modification is not 05 assignable without the prior written approval of the commissioner; the 06 commissioner shall, in the preliminary and final findings and determinations, set out 07 the conditions under which the royalty modification may be assigned; 08 (6) shall require the lessee or lessees to submit, with the application 09 for the royalty modification, financial and technical data that demonstrate that the 10 requirements of this subsection are met; the commissioner shall 11 (A) require disclosure of the financial and technical data 12 related to development, production, and transportation of oil and gas from 13 the field or pool that are necessary to make a determination as to whether 14 or not to grant the request for royalty modification; and 15 (B) keep the data described in (A) of this paragraph 16 confidential under AS 38.05.035(a)(9) at the request of the lessee or lessees 17 making application for the royalty modification; the confidential data may 18 be disclosed by the commissioner to legislators and to the legislative auditor 19 and as directed by the chair or vice-chair of the LB&A Committee to the 20 director of the division of legislative finance, the permanent employees of 21 their respective divisions who are responsible for evaluating a royalty 22 modification, and to agents or contractors of the legislative auditor or the 23 legislative finance director who are engaged under contract to evaluate the 24 royalty modification, provided they sign an appropriate confidentiality 25 agreement; 26 (7) may require the lessee or lessees making application for the 27 royalty modification to pay for the services of an independent contractor, qualified 28 to evaluate hydrocarbon development, production, transportation, and economics, 29 who is selected by the commissioner to assist the commissioner in evaluating the 30 application and financial and technical data; selection of an independent contractor 31 under this paragraph is not subject to AS 36.30;
01 (8) shall 02 (A) make and publish a preliminary findings and 03 determination on the royalty modification application; if the preliminary 04 findings and determination concerns a royalty modification under (1)(A) 05 of this subsection, the preliminary findings and determination shall also be 06 presented to the governor for the governor's approval or disapproval; the 07 governor may not delegate a determination to approve or disapprove a 08 preliminary findings and determination under this subparagraph; 09 (B) for a royalty modification under (1)(A) of this 10 subsection, if the governor approves the preliminary findings and 11 determination under (A) of this paragraph, 12 (i) give reasonable public notice of the preliminary 13 findings and determination; 14 (ii) concurrently with the issuance of the public 15 notice, unless directed by the Legislative Budget and Audit 16 Committee to do otherwise, make available copies of the 17 commissioner's preliminary findings and determination on the 18 royalty modification application and the supporting financial and 19 technical data, including the work papers, analyses, and 20 recommendations of any contractors retained under (7) of this 21 subsection, to persons authorized under (6)(B) of this subsection to 22 review the data; and 23 (iii) invite public comment on the preliminary 24 findings and determination during a 30-day period for receipt of 25 public comment; 26 (C) for a royalty modification under (1)(B) or (C) of this 27 subsection, if the preliminary findings and determination approves a 28 royalty modification, 29 (i) give reasonable public notice of the preliminary 30 findings and determination; and 31 (ii) invite public comment on the preliminary findings
01 and determination during a 30-day period for receipt of public 02 comment; 03 (9) shall address in any findings and determinations required under 04 this subsection the reasonably foreseeable effects of the proposed royalty 05 modification on the state's revenue; 06 (10) shall offer to appear before the Legislative Budget and Audit 07 Committee to provide the committee a review of the commissioner's preliminary 08 findings and determination on the royalty modification application and the 09 supporting financial and technical data; if the Legislative Budget and Audit 10 Committee accepts the commissioner's offer, the committee shall give notice of the 11 committee's meeting to all members of the legislature; if, under (6)(B) of this 12 subsection, the financial and technical data must be kept confidential at the 13 request of a lessee or lessees making application for the royalty modification, the 14 commissioner may appear before the committee in executive session; 15 (11) shall make copies of the preliminary findings and determination 16 available to 17 (A) the presiding officer of each house [INTEREST, 18 INCLUDING RESTORATION OF THE STATE'S ROYALTY SHARE IN THE 19 EVENT OF AN INCREASE IN THE PRICE OF OIL OR GAS. BEFORE 20 APPROVING A ROYALTY REDUCTION, THE COMMISSIONER SHALL 21 MAKE A WRITTEN FINDING THAT THE STATE HAS OBTAINED THE 22 MAXIMUM POSSIBLE ECONOMIC RETURN THAT IS COMPATIBLE 23 WITH ALLOWING A REASONABLE RATE OF ECONOMIC RETURN FOR 24 THE LESSEE, AND SEND COPIES OF THE FINDING TO ALL MEMBERS] 25 of the legislature; 26 (B) the chairs of the legislature's standing committees on 27 resources; and 28 (C) the chairs of the legislature's special committees on oil 29 and gas, if any; 30 (12) shall, within 30 days after the close of the public comment 31 period under (8) of this subsection,
01 (A) prepare a summary of the public response to the 02 commissioner's preliminary findings and determination; 03 (B) make a final findings and determination and present it 04 to the governor for the governor's approval or disapproval; the governor 05 may not delegate a decision to approve or disapprove a final findings and 06 determination presented under this subparagraph; the commissioner's final 07 findings and determination regarding a royalty modification, if approved 08 by the governor, is final and not appealable to the court; 09 (C) transmit a copy of the final findings and determination 10 prepared under (B) of this paragraph to the lessee or lessees making 11 application for the royalty modification; 12 (D) with the consent of the lessee or lessees applying for the 13 royalty modification, amend the lease or unitization agreement of the lessee 14 or lessees applying for the royalty modification consistent with the 15 commissioner's approved final findings and determination; and 16 (E) make copies of the final findings and determination 17 available to each person who submitted comment under (8) of this subsection 18 and who has filed a request for the copies; 19 (13) is not limited by the provisions of AS 38.05.134(3) or (f) of this 20 section in the commissioner's determination under this subsection. 21 * Sec. 3. AS 38.05.180(p) is amended to read: 22 (p) To conserve the natural resources of all or a part of an oil or gas pool, field, 23 or like area, the lessees and their representatives may unite with each other, or jointly 24 or separately with others, in collectively adopting or operating under a cooperative or a 25 unit plan of development or operation of the pool, field, or like area, or a part of it, when 26 determined and certified by the commissioner to be necessary or advisable in the public 27 interest. The commissioner may, with the consent of the holders of leases involved, 28 establish, change, or revoke drilling, producing, and royalty requirements of the leases 29 and adopt regulations with reference to the leases, with like consent on the part of the 30 lessees, in connection with the institution and operation of a cooperative or unit plan as 31 the commissioner determines necessary or proper to secure the proper protection of the
01 public interest. The commissioner may not decrease royalty on leases in connection 02 with a cooperative or unit plan except as provided in (j) of this section. The 03 commissioner may require oil and gas leases issued under this section to contain a 04 provision requiring the lessee to operate under a reasonable cooperative or unit plan, and 05 may prescribe a plan under which the lessee must operate. The plan must adequately 06 protect all parties in interest, including the state. 07 * Sec. 4. AS 38.05.180(s) is amended to read: 08 (s) When separate tracts cannot be individually developed and operated in 09 conformity with an established well-spacing or development program, a lease, or a 10 portion of a lease, may be pooled with other land, whether or not owned by the state, 11 under a communication or drilling agreement providing for an apportionment of 12 production or royalties among the separate tracts of land comprising the drilling or 13 spacing unit when determined by the commissioner to be in the public interest. 14 Operations or production under the agreement are considered as operations or production 15 as to each lease committed to the agreement. The commissioner may not decrease 16 royalty on leases in connection with a communization or drilling agreement except 17 as provided in (j) of this section. 18 * Sec. 5. AS 38.05.180(t) is amended to read: 19 (t) The commissioner may prescribe conditions and approve, on conditions, 20 drilling, or development contracts made by one or more lessees of oil or gas leases, with 21 one or more persons, when, in the discretion of the commissioner, the conservation of 22 natural resources or the public convenience or necessity requires it or the interests of the 23 state are best served. All leases operated under approved drilling or development 24 contracts and interests under them, are excepted in determining holding or control under 25 AS 38.05.140. The commissioner may not decrease royalty on a lease or leases that 26 are subject to a drilling or development contract except as provided in (j) of this 27 section. 28 * Sec. 6. This Act takes effect immediately under AS 01.10.070(c).