CSSB 112(RES): "An Act establishing a discovery royalty credit for the lessees of state land drilling exploratory wells and making the first discovery of oil or gas in an oil or gas pool in the Cook Inlet sedimentary basin."
00CS FOR SENATE BILL NO. 112(RES) 01 "An Act establishing a discovery royalty credit for the lessees of state land 02 drilling exploratory wells and making the first discovery of oil or gas in an oil 03 or gas pool in the Cook Inlet sedimentary basin." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05 * Section 1. AS 38.05.134 is amended to read: 06 Sec. 38.05.134. CONVERSION TO LEASE. If the licensee requests and the 07 commissioner determines that the work commitment obligation set out in an oil and 08 gas exploration license issued under AS 38.05.132 has been met, the commissioner 09 shall convert to one or more oil and gas leases all or part, as the licensee may indicate, 10 of the area described in the exploration license that remains after the relinquishments, 11 removals, or deletions required by AS 38.05.132(d)(2). A lease issued under this 12 section 13 (1) is subject to the acreage limitations imposed by AS 38.05.140(c); 14 (2) is subject to AS 38.05.180(j) - (m), (o) - (u), and (x) - (z);
01 (3) must be conditioned upon a royalty in amount or value of not less 02 than 12.5 percent of production, except that the lessee who, proceeding under 03 AS 38.05.131 - 38.05.134, under a lease issued in the Cook Inlet sedimentary basin 04 who is certified by the commissioner to be the first to drill a well discovering oil 05 or gas in a previously undiscovered oil or gas pool shall pay a royalty of five 06 percent on all production of oil or gas from that pool attributable to that lease for 07 a period of 10 years following the date of discovery of that pool, and thereafter 08 the royalty payable on all production of oil or gas from the pool attributable to 09 that lease shall be determined and payable as specified in the lease; the payment 10 of the five percent royalty under this paragraph is authorized only to a holder of 11 a lease who meets the requirements of AS 38.05.180(f)(4); 12 (4) must include an annual rent of $3 per acre or fraction of an acre 13 initially paid to the state at inception of the lease and payable annually after that until 14 the income to the state from royalty under that lease exceeds the rental income to the 15 state under that lease for that year; and 16 (5) is subject to other conditions and obligations that are specified in 17 the lease. 18 * Sec. 2. AS 38.05.180(f) is amended to read: 19 (f) Except as provided by AS 38.05.131 - 38.05.134, the commissioner may 20 issue oil and gas leases on state land to the highest responsible qualified bidder as 21 follows: 22 (1) the commissioner shall issue an oil and gas lease to the successful 23 bidder determined by competitive bidding under regulations adopted by the 24 commissioner; bidding [. BIDDING] may be by sealed bid or according to any other 25 bidding procedure the commissioner determines is in the best interests of the state; 26 (2) whenever [. WHENEVER], under any of the leasing methods listed 27 in this subsection, a royalty share is reserved to the state, it shall be delivered in pipeline 28 quality and free of all lease or unit expenses, including but not limited to separation, 29 cleaning, dehydration, gathering, salt water disposal, and preparation for transportation 30 off the lease or unit area; 31 (3) following [. FOLLOWING] a pre-sale analysis, the commissioner
01 may choose at least one of the following leasing methods: 02 (A) [(1)] a cash bonus bid with a fixed royalty share reserved to 03 the state of not less than 12.5 percent in amount or value of the production 04 removed or sold from the lease; 05 (B) [(2)] a cash bonus bid with a fixed royalty share reserved to 06 the state of not less than 12.5 percent in amount or value of the production 07 removed or sold from the lease and a fixed share of the net profit derived from 08 the lease of not less than 30 percent reserved to the state; 09 (C) [(3)] a fixed cash bonus with a royalty share reserved to the 10 state as the bid variable but no less than 12.5 percent in amount or value of the 11 production removed or sold from the lease; 12 (D) [(4)] a fixed cash bonus with the share of the net profit 13 derived from the lease reserved to the state as the bid variable; 14 (E) [(5)] a fixed cash bonus with a fixed royalty share reserved 15 to the state of not less than 12.5 percent in amount or value of the production 16 removed or sold from the lease with the share of the net profit derived from the 17 lease reserved to the state as the bid variable; 18 (F) [(6)] a cash bonus bid with a fixed royalty share reserved to 19 the state based on a sliding scale according to the volume of production or other 20 factor but in no event less than 12.5 percent in amount or value of the production 21 removed or sold from the lease; 22 (G) [(7)] a fixed cash bonus with a royalty share reserved to the 23 state based on a sliding scale according to the volume of production or other 24 factor as the bid variable but not less than 12.5 percent in amount or value of the 25 production removed or sold from the lease; 26 (4) notwithstanding a requirement in the leasing method chosen of 27 a minimum fixed royalty share, on and after a date that is 180 days following the 28 effective date of this Act, the lessee under a lease issued in the Cook Inlet 29 sedimentary basin who is certified by the commissioner to be the first to drill a well 30 discovering oil or gas in a previously undiscovered oil or gas pool shall pay a 31 royalty of five percent on all production of oil or gas from that pool attributable to
01 that lease for a period of 10 years following the date of discovery of that pool, and 02 thereafter the royalty payable on all production of oil or gas from the pool 03 attributable to that lease shall be determined and payable as specified in the lease; 04 the reduced royalty authorized by this paragraph is subject to the following: 05 (A) a lessee is eligible to pay the reduced royalty authorized 06 by this paragraph only if the lessee is the first to drill a well discovering oil 07 or gas in a previously undiscovered oil or gas pool; 08 (B) only one reduction of royalty authorized by this 09 paragraph may be allowed on each lease that qualifies for reduction of 10 royalty under this paragraph; 11 (C) if, under this paragraph, application is made for a royalty 12 reduction for a lease that was entered into before the date that is 180 days 13 following the effective date of this Act, the commissioner may approve the 14 application only if, on the date referred to in this subparagraph, the lease 15 was a nonproducing lease that was not committed to a unit approved by the 16 commissioner under (m) of this section, that is not part of a unit under (p) 17 or (q) of this section, and that has not been made part of a unit under 18 AS 31.05; 19 (D) if application for a royalty reduction is made under this 20 paragraph for a lease on which a discovery royalty was claimed or may be 21 claimed under the discovery royalty provisions of former AS 38.05.180(a) in 22 effect before May 6, 1969, the commissioner shall disallow the application 23 under this paragraph unless the applicant waives the right to claim the right 24 to a reduced royalty under the discovery royalty provisions of former 25 AS 38.05.180(a) in effect before May 6, 1969; and 26 (E) the commissioner shall adopt regulations setting out the 27 standards, criteria, and definitions of terms that apply to implement the 28 filing of applications for, and the review and certification of, discovery oil 29 and gas royalty certifications under this paragraph.