HCS 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."
00HOUSE CS FOR CS 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 03 oil 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 the first to file with the commissioner a nonconfidential sworn statement 05 claiming to be the first to have drilled a well discovering oil or gas in a previously 06 undiscovered oil or gas pool and who is certified by the commissioner within one 07 year of completion of that discovery well to have drilled a well in that pool that 08 is capable of producing in paying quantities, as that term is defined in 09 AS 38.05.180(f)(4), shall pay a royalty of five percent on all production of oil or 10 gas from that pool attributable to that lease for a period of 10 years following the 11 date of completion of the discovery well in that pool, and thereafter the royalty 12 payable on all production of oil or gas from the pool attributable to that lease 13 shall be determined and payable as specified in the lease; the payment of the five 14 percent royalty under this paragraph is authorized only to a holder of a lease who 15 meets the requirements of AS 38.05.180(f)(4); 16 (4) must include an annual rent of $3 per acre or fraction of an acre 17 initially paid to the state at inception of the lease and payable annually after that until 18 the income to the state from royalty under that lease exceeds the rental income to the 19 state under that lease for that year; and 20 (5) is subject to other conditions and obligations that are specified in 21 the lease. 22 * Sec. 2. AS 38.05.180(f) is amended to read: 23 (f) Except as provided by AS 38.05.131 - 38.05.134, the commissioner may 24 issue oil and gas leases on state land to the highest responsible qualified bidder as 25 follows: 26 (1) the commissioner shall issue an oil and gas lease to the 27 successful bidder determined by competitive bidding under regulations adopted by the 28 commissioner; bidding [. BIDDING] may be by sealed bid or according to any other 29 bidding procedure the commissioner determines is in the best interests of the state; 30 (2) whenever [. WHENEVER], under any of the leasing methods 31 listed in this subsection, a royalty share is reserved to the state, it shall be delivered
01 in pipeline quality and free of all lease or unit expenses, including but not limited to 02 separation, cleaning, dehydration, gathering, salt water disposal, and preparation for 03 transportation off the lease or unit area; 04 (3) following [. FOLLOWING] a pre-sale analysis, the commissioner 05 may choose at least one of the following leasing methods: 06 (A) [(1)] a cash bonus bid with a fixed royalty share reserved 07 to the state of not less than 12.5 percent in amount or value of the production 08 removed or sold from the lease; 09 (B) [(2)] a cash bonus bid with a fixed royalty share reserved 10 to the state of not less than 12.5 percent in amount or value of the production 11 removed or sold from the lease and a fixed share of the net profit derived from 12 the lease of not less than 30 percent reserved to the state; 13 (C) [(3)] a fixed cash bonus with a royalty share reserved to the 14 state as the bid variable but no less than 12.5 percent in amount or value of the 15 production removed or sold from the lease; 16 (D) [(4)] a fixed cash bonus with the share of the net profit 17 derived from the lease reserved to the state as the bid variable; 18 (E) [(5)] a fixed cash bonus with a fixed royalty share reserved 19 to the state of not less than 12.5 percent in amount or value of the production 20 removed or sold from the lease with the share of the net profit derived from 21 the lease reserved to the state as the bid variable; 22 (F) [(6)] a cash bonus bid with a fixed royalty share reserved 23 to the state based on a sliding scale according to the volume of production or 24 other factor but in no event less than 12.5 percent in amount or value of the 25 production removed or sold from the lease; 26 (G) [(7)] a fixed cash bonus with a royalty share reserved to the 27 state based on a sliding scale according to the volume of production or other 28 factor as the bid variable but not less than 12.5 percent in amount or value of 29 the production removed or sold from the lease; 30 (4) notwithstanding a requirement in the leasing method chosen of 31 a minimum fixed royalty share, on and after a date that is 180 days following the
01 effective date of this Act, the lessee under a lease issued in the Cook Inlet 02 sedimentary basin who is the first to file with the commissioner a nonconfidential 03 sworn statement claiming to be the first to have drilled a well discovering oil or 04 gas in a previously undiscovered oil or gas pool and who is certified by the 05 commissioner within one year of completion of that discovery well to have drilled 06 a well in that pool that is capable of producing in paying quantities shall pay a 07 royalty of five percent on all production of oil or gas from that pool attributable 08 to that lease for a period of 10 years following the date of completion of the 09 discovery well in that pool, and thereafter the royalty payable on all production 10 of oil or gas from the pool attributable to that lease shall be determined and 11 payable as specified in the lease; for purposes of this paragraph, 12 (A) the reduced royalty authorized by this paragraph is 13 subject to the following: 14 (i) only one reduction of royalty authorized by this 15 paragraph may be allowed on each lease that qualifies for reduction 16 of royalty under this paragraph; 17 (ii) if, under this paragraph, application is made for 18 a royalty reduction for a lease that was entered into before the date 19 that is 180 days following the effective date of this Act, the 20 commissioner may approve the application only if, on that date, the 21 lease was a nonproducing lease that was not committed to a unit 22 approved by the commissioner under (m) of this section, that is not 23 part of a unit under (p) or (q) of this section, and that has not been 24 made part of a unit under AS 31.05; 25 (iii) if application for a royalty reduction is made 26 under this paragraph for a lease on which a discovery royalty was 27 claimed or may be claimed under the discovery royalty provisions 28 of former AS 38.05.180(a) in effect before May 6, 1969, the 29 commissioner shall disallow the application under this paragraph 30 unless the applicant waives the right to claim the right to a reduced 31 royalty under the discovery royalty provisions of former
01 AS 38.05.180(a) in effect before May 6, 1969; and 02 (iv) the commissioner shall adopt regulations setting 03 out the standards, criteria, and definitions of terms that apply to 04 implement the filing of applications for, and the review and 05 certification of, discovery oil and gas royalty certifications under this 06 paragraph; and 07 (B) "paying quantities" means quantities sufficient to yield 08 a return in excess of operating costs, even if drilling and equipment costs 09 may never be repaid and the undertaking considered as a whole may 10 ultimately result in a loss; quantities are insufficient to yield a return in 11 excess of operating costs unless those quantities, not considering the costs 12 of transportation and marketing, will produce sufficient revenue to induce 13 a prudent operator to produce those quantities.