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SB 113: "An Act authorizing a reduction in coal, oil, and gas royalty for the producers of those minerals used in certain projects."

00 SENATE BILL NO. 113                                                                                                     
01 "An Act authorizing a reduction in coal, oil, and gas royalty for the producers                                         
02 of those minerals used in certain projects."                                                                            
03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                
04    * Section 1.  AS 38.05.134 is amended to read:                                                                       
05  Sec. 38.05.134.  CONVERSION TO LEASE.  If the licensee requests and the                                               
06 commissioner determines that the work commitment obligation set out in an oil and                                       
07 gas exploration license issued under AS 38.05.132 has been met, the commissioner                                        
08 shall convert to one or more oil and gas leases all or part, as the licensee may indicate,                              
09 of the area described in the exploration license that remains after the relinquishments,                                
10 removals, or deletions required by AS 38.05.132(d)(2). A lease issued under this                                        
11 section                                                                                                                 
12   (1)  is subject to the acreage limitations imposed by AS 38.05.140(c);                                               
13   (2)  is subject to AS 38.05.180(j) - (m), (o) - (u), and (x) - (z);                                                  
14   (3)  must be conditioned upon a royalty in amount or value of not less                                               
01 than 12.5 percent of production. except that a lessee who, proceeding under                                            
02 AS 38.05.131 - 38.05.134, produces oil or gas that is used in a project that                                            
03 qualifies under AS 38.05.180(dd) is entitled to the reduction in royalty authorized                                     
04 by that subsection;                                                                                                    
05   (4)  must include an annual rent of $3 per acre or fraction of an acre                                               
06 initially paid to the state at inception of the lease and payable annually after that until                             
07 the income to the state from royalty under that lease exceeds the rental income to the                                  
08 state under that lease for that year; and                                                                               
09   (5)  is subject to other conditions and obligations that are specified in                                            
10 the lease.                                                                                                              
11    * Sec. 2.  AS 38.05.150(d) is amended to read:                                                                       
12  (d)  For the privilege of mining or extracting the coal in the land covered by                                        
13 the lease, the lessee shall pay to the state the royalties specified in the lease.  The                                 
14 royalties shall be fixed before offering the lease, except that a lessee who produces                                  
15 coal and sells or delivers it to a project that qualifies under (f) of this section shall                               
16 pay the royalty determined under that subsection, and shall be effective for a period                                  
17 of not more than 20 years.  The royalties shall be not less than five cents a ton of                                    
18 2,000 pounds.  The lessee shall also pay an annual rental, payable at the date of the                                   
19 lease and annually thereafter, on the land or coal deposits covered by the lease, at a                                  
20 rate fixed by the commissioner before offering the lease.  The annual rental shall be                                   
21 effective for a period of not more than 20 years.  The annual rental shall be not less                                  
22 than 25 cents an acre for the first year of the lease, not less than 50 cents an acre for                               
23 the second year, third year, fourth year and fifth year, and not less than $1 an acre for                               
24 each year thereafter during the continuance of the lease.  The rental for each year shall                               
25 be credited against the royalties as they accrue for that year.  Each lease shall provide                               
26 that the annual rental payment is subject to adjustment at intervals of no more than 20                                 
27 years and adjustments shall be based on the current rates for properties similarly                                      
28 situated.                                                                                                               
29    * Sec. 3.  AS 38.05.150 is amended by adding a new subsection to read:                                               
30  (f)  For coal produced from a lease and sold or delivered for use in a project                                        
31 that qualifies under this subsection, the commissioner may reduce the royalty on the                                    
01 amount or value of the coal produced and delivered to the project, not to exceed a                                      
02 reduction of 50 percent in the royalty rate, as the commissioner may determine.  Sale                                   
03 of coal for a project qualifies for a royalty reduction under this subsection if the                                    
04 commissioner determines that                                                                                            
05   (1)  the sale or delivery of the coal for which the reduction in the                                                 
06 royalty is sought is to a facility that converts the coal for use as an energy resource                                 
07 by the general public; and                                                                                              
08   (2)  the facility to which the coal is sold and delivered is                                                         
09   (A)  owned or operated by                                                                                           
10   (i)  a municipality; or                                                                                            
11   (ii)  a village, as that term is defined in AS 46.03.900;                                                          
12 and                                                                                                                     
13   (B) located in the state and not more than 50 miles from the                                                        
14 point of production of the coal.                                                                                        
15    * Sec. 4.  AS 38.05.180(f) is amended to read:                                                                       
16  (f)  Except as provided by AS 38.05.131 - 38.05.134, the commissioner may                                             
17 issue oil and gas leases on state land to the highest responsible qualified bidder as                                  
18 follows:                                                                                                                
19   (1)  the commissioner shall issue an oil and gas lease to the                                                        
20 successful bidder determined by competitive bidding under regulations adopted by the                                   
21 commissioner; bidding [.  BIDDING] may be by sealed bid or according to any other                                     
22 bidding procedure the commissioner determines is in the best interests of the state;                                  
23   (2)  whenever [.  WHENEVER], under any of the leasing methods                                                      
24 listed in this subsection, a royalty share is reserved to the state, it shall be delivered                              
25 in pipeline quality and free of all lease or unit expenses, including but not limited to                                
26 separation, cleaning, dehydration, gathering, salt water disposal, and preparation for                                  
27 transportation off the lease or unit area;                                                                            
28   (3)  following [.  FOLLOWING] a pre-sale analysis, the commissioner                                                
29 may choose at least one of the following leasing methods:                                                               
30   (A) [(1)]  a cash bonus bid with a fixed royalty share reserved                                                   
31 to the state of not less than 12.5 percent in amount or value of the production                                         
01 removed or sold from the lease;                                                                                         
02   (B) [(2)]  a cash bonus bid with a fixed royalty share reserved                                                   
03 to the state of not less than 12.5 percent in amount or value of the production                                         
04 removed or sold from the lease and a fixed share of the net profit derived from                                         
05 the lease of not less than 30 percent reserved to the state;                                                            
06   (C) [(3)]  a fixed cash bonus with a royalty share reserved to the                                                
07 state as the bid variable but no less than 12.5 percent in amount or value of the                                       
08 production removed or sold from the lease;                                                                              
09   (D) [(4)]  a fixed cash bonus with the share of the net profit                                                    
10 derived from the lease reserved to the state as the bid variable;                                                       
11   (E) [(5)]  a fixed cash bonus with a fixed royalty share reserved                                                 
12 to the state of not less than 12.5 percent in amount or value of the production                                         
13 removed or sold from the lease with the share of the net profit derived from                                            
14 the lease reserved to the state as the bid variable;                                                                    
15   (F) [(6)]  a cash bonus bid with a fixed royalty share reserved                                                   
16 to the state based on a sliding scale according to the volume of production or                                          
17 other factor but in no event less than 12.5 percent in amount or value of the                                           
18 production removed or sold from the lease;                                                                              
19   (G) [(7)]  a fixed cash bonus with a royalty share reserved to the                                                
20 state based on a sliding scale according to the volume of production or other                                           
21 factor as the bid variable but not less than 12.5 percent in amount or value of                                         
22 the production removed or sold from the lease;                                                                       
23   (4)  notwithstanding a requirement, in the leasing method chosen,                                                    
24 of a minimum fixed royalty share, a lessee who produces oil or gas and sells or                                         
25 delivers it to a project that qualifies under (dd) of this section shall pay the                                        
26 royalty determined under that subsection.                                                                              
27    * Sec. 5.  AS 38.05.180(w) is amended to read:                                                                       
28  (w)  Notwithstanding any other provisions of this section, land that [WHICH]                                        
29 has been offered for lease within the previous five years and that [WHICH] received                                   
30 no bids at competitive sale or for which no bid was accepted may be, at the discretion                                  
31 of the commissioner, immediately offered for lease, under regulations adopted by the                                    
01 commissioner, upon terms appearing most advantageous to the state; however,                                             
02 noncompetitive leasing is prohibited.  The commissioner shall establish a royalty                                       
03 determined to be in the public interest but not less than 12.5 [12 1/2] percent, subject                             
04 to reduction under (dd) of this section.  A lease must provide for payment to the                                      
05 state or rental but need not adhere to the rental schedule in (n) of this section nor to                                
06 the 5,760-acres-per-lease limitation in (m) of this section.  The lease term may not                                    
07 exceed 10 years, except as provided in (o) of this section.                                                             
08    * Sec. 6.  AS 38.05.180 is amended by adding a new subsection to read:                                               
09  (dd)  For oil or gas produced from a lease and sold or delivered for use in a                                         
10 project that qualifies under this subsection, the commissioner may reduce the royalty                                   
11 on the amount or value of oil or gas produced and delivered to the project, not to                                      
12 exceed a reduction of 50 percent in the royalty rate, as the commissioner may                                           
13 determine.  Sale of oil or gas for a project qualifies for a royalty reduction under this                               
14 subsection if the commissioner determines that                                                                          
15   (1)  the sale or delivery of the oil or gas for which the reduction in the                                           
16 royalty is sought is to a facility that converts the oil and gas for use as an energy                                   
17 resource by the general public; and                                                                                     
18   (2)  the facility to which the oil or gas is sold and delivered is                                                   
19   (A)  owned or operated by                                                                                           
20   (i)  a municipality; or                                                                                            
21   (ii)  a village, as that term is defined in AS 46.03.900;                                                          
22   (B) located in the state and not more than 50 miles from the                                                        
23 point of production of the oil or gas; and                                                                              
24   (C)  not connected to a pipeline that exists on the effective date                                                  
25 of this Act and, in the judgment of the commissioner, could not be connected                                            
26 to a pipeline that existed on the effective date of this Act because the law does                                       
27 not permit the connection or because the connection would not be economically                                           
28 feasible.