CSSB 318(RES): "An Act authorizing, approving, and ratifying the amendment of Northstar Unit oil and gas leases between the State of Alaska and BP Exploration (Alaska) Inc.; and providing for an effective date."
00CS FOR SENATE BILL NO. 318(RES) 01 "An Act authorizing, approving, and ratifying the amendment of Northstar Unit 02 oil and gas leases between the State of Alaska and BP Exploration (Alaska) 03 Inc.; and providing for an effective date." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05 * Section 1. LEGISLATIVE FINDINGS AND POLICY. Based upon the findings of fact 06 set out in the "Findings of Fact of the Senate Resources Committee Regarding SB 318," dated 07 April 24, 1996, the legislature finds 08 (1) the production of oil and gas from state land is a matter of statewide 09 interest and effect because it is the principal source of revenue to the state and provides 10 important job opportunities for the people of the state; 11 (2) BP Exploration (Alaska) Inc. holds certain state oil and gas leases in the 12 Northstar Unit that include net profit share provisions; 13 (3) BP Exploration (Alaska) Inc. has refused to develop the Northstar Unit 14 leases unless the leases are amended to eliminate the net profit share provisions;
01 (4) unless the net profit share provisions of the Northstar Unit are amended, 02 production of oil and gas from the unit is highly unlikely to begin before the year 2002; 03 (5) because of the development account provisions of the net profit share 04 leases, the later that these leases are developed, the less "net profits" the state receives; 05 (6) if the net profit share provisions of the Northstar Unit leases are amended, 06 full production of oil and gas from the unit may begin as early as the year 1999; 07 (7) amending the net profit share provisions of the Northstar Unit leases to 08 provide for a supplemental royalty, instead of a share of net profits, will provide economic 09 benefits of oil and gas production to the people of the state by encouraging production from 10 the Northstar Unit earlier than it might otherwise occur under the terms of the Northstar Unit 11 Agreement and the unit's approved Plan of Development; 12 (8) the development of the unit and the associated construction of unit facilities 13 within the state will provide additional revenue to the state and increased job opportunities; 14 (9) the expedited development of the unit may result in increased state revenue 15 from future oil and gas lease sales; 16 (10) the expedited development of the unit may result in technological 17 breakthroughs and other cost savings that may make other development opportunities in the 18 state economically feasible; 19 (11) notwithstanding the anticipated benefits that may result from the 20 amendment of the Northstar Unit's net profit share lease terms, the legislature reaffirms that 21 it is the policy of the state to enforce the competitively bid terms of its oil and gas leases and 22 that the commissioner of natural resources should assure that the state's oil and gas resources 23 are being diligently and timely developed; 24 (12) the public's confidence that the terms of the state's oil and gas leases are 25 being fairly and uniformly administered must be maintained; 26 (13) it is important to assure that there is no appearance of favoritism in the 27 state's administration of its oil and leases; and therefore 28 (14) except as provided under sec. 2 of this Act, the commissioner of natural 29 resources is directed not to negotiate the amendment of the competitively bid terms of any 30 state oil and gas lease without prior explicit authorization by the legislature through the 31 passage of a general act granting the authority to do so.
01 * Sec. 2. (a) The State of Alaska and BP Exploration (Alaska) Inc. are parties to the 02 following leases in the Northstar Unit: 03 (1) ADL 312798, effective February 1, 1980; 04 (2) ADL 312799, effective February 1, 1980; 05 (3) ADL 312808, effective February 1, 1980; 06 (4) ADL 312809, effective February 1, 1980; and 07 (5) ADL 355001, effective August 1, 1983. 08 (b) The commissioner of natural resources may amend the Northstar Unit leases 09 described in (a) of this section as set out below: 10 AMENDMENT TO THE NORTHSTAR UNIT LEASES 11 BETWEEN THE STATE OF ALASKA AND 12 BP EXPLORATION (ALASKA) INC. 13 The State of Alaska ("State") and BP Exploration (Alaska) Inc. 14 ("BPXA") are parties to the following leases in the Northstar Unit: ADL 15 312798, effective February 1, 1980; ADL 312799, effective February 1, 1980; 16 ADL 312808, effective February 1, 1980; and ADL 312809, effective 17 February 1, 1980 (collectively the "1980 Leases"); as well as ADL 355001, 18 effective August 1, 1983 (the "1983 Lease"). The parties agree to amend the 19 1980 Leases and the 1983 Lease as set forth in this amendment to the Northstar 20 Unit leases. 21 1980 Leases 22 (1)Paragraph 6(b) is replaced in its entirety as follows: 23 (b) Annual rental paid in advance is a credit on the royalty or 24 supplemental royalty due under this lease for that year. 25 (2)Paragraph 7 is replaced in its entirety as follows: 26 7. SUPPLEMENTAL ROYALTY. (a) In addition to the 27 royalty paid and computed under paragraphs 8, 10, and 11 below, 28 Lessee shall pay to the State a supplemental royalty ("supplemental 29 royalty"). Lessee shall pay the supplemental royalty, if owed, upon the 30 same production volume for which royalty is paid ("production 31 volume"). The supplemental royalty payment for a given month equals
01 the supplemental royalty value times the supplemental royalty 02 percentage rate ("percentage rate") times the production volume for that 03 month. The percentage rate shall be calculated monthly by reference 04 to: (1) an ANS West Coast spot price ("spot price"); and (2) a 05 supplemental royalty trigger price ("trigger price"). If the spot price is 06 equal to or less than the trigger price, then the percentage rate equals 07 zero. If the spot price is greater than the trigger price, then the 08 percentage rate equals [the spot price per barrel minus the trigger price 09 per barrel] times 1.5 percent per dollar per barrel. The percentage rate 10 may never exceed 7.5 percent. 11 (b) The spot price is the price per barrel calculated in Article 12 3.3 of and Exhibit 4 to the ANS Royalty Litigation Settlement 13 Agreement ("ANS Agreement"), dated December 31, 1991, between the 14 State and BPXA, for the crude oil referred to as "ANS (USWC)" in the 15 ANS Agreement. The trigger price is $17.35 per barrel through 16 April 30, 1997. On May 1, 1997, and each May 1 thereafter, the 17 trigger price shall be adjusted by an inflation factor equal to fifty 18 percent of the "inflation rate" defined as the Producer Price Index for 19 Industrial Commodities ("PPI") for December of the previous year, as 20 reported by April 30 of the current year, divided by the PPI for 21 December of 1995, as reported by April 30, 1996. The supplemental 22 royalty value for oil, gas, natural gas liquids and associated substances 23 is defined in paragraphs 10 and 11 below. Exhibit B is a sample 24 calculation to demonstrate the method of calculating supplemental 25 royalty for oil. 26 (3)Paragraph 9 is replaced in its entirety as follows: 27 9. REDUCTION OF ROYALTY. Except as provided in 28 paragraph 7 above, Lessee shall not be entitled to any reduction of 29 royalty paid under paragraph 8 above or supplemental royalty paid 30 under paragraph 7 above based on any current or future agreement, 31 State statute, or State regulation.
01 (4)Paragraph 10 is replaced in its entirety as follows: 02 10. ROYALTY IN VALUE. Unless the State elects to receive 03 all or a portion of its royalty or supplemental royalty in kind as 04 provided in paragraph 12 below, Lessee shall pay to the State the value 05 of all royalty and supplemental royalty oil, gas and associated 06 substances as determined under paragraph 11 below. Royalty and 07 supplemental royalty paid in value shall be free and clear of all lease 08 expenses (and any portion of such expenses which is incurred away 09 from the leased area), including, but not limited to, expenses for 10 separation, cleaning, dehydration, gathering, saltwater disposal, and 11 preparing the oil, gas or associated substances for transportation off the 12 leased area. All royalty and supplemental royalty that may become 13 payable in money to the State shall be paid on or before the last day of 14 the calendar month following the month in which the oil, gas or 15 associated substances are produced. Royalty and supplemental royalty 16 payments shall be accompanied by copies of run tickets or such other 17 information relating to valuation of royalty and supplemental royalty as 18 the State may require, which may include, but is not limited to, 19 evidence of sales, shipments, and amounts of gross oil, gas and 20 associated substances produced. 21 (5)Paragraph 11 is replaced in its entirety as follows: 22 11. VALUE. For purposes of computing supplemental royalty 23 due under this lease, the value of supplemental royalty oil, gas, natural 24 gas liquids and associated substances shall be the value used in 25 computing royalty on said substances. 26 (a) To compute the value of oil for royalty and supplemental 27 royalty purposes, this lease shall be deemed an "ANS Lease" under the 28 terms of the ANS Agreement, irrespective of any provision(s) of such 29 agreement which would otherwise exclude this lease therefrom. 30 (b) To compute the value of gas and natural gas liquids for 31 royalty and supplemental royalty purposes, this lease shall be deemed
01 a "Lease" under the terms of the 1995 ANS Gas Royalty Litigation 02 Settlement Agreement between BPXA and the State dated as of April 1, 03 1995, irrespective of any provision(s) of such agreement which would 04 otherwise exclude this lease therefrom. 05 (c) To compute the value of associated substances (which shall 06 be deemed to exclude oil, gas, and natural gas liquids) for royalty and 07 supplemental royalty purposes, the value of such associated substances 08 shall not be less than the highest of: 09 (1) the field price actually received by Lessee for such 10 associated substances; 11 (2) Lessee's posted price in the field for such associated 12 substances; 13 (3) the volume weighted average field price actually 14 received by other producers in the same field or area for associated 15 substances of like kind and quality at the time such associated 16 substances are removed from the leased or unit area; or 17 (4) the volume weighted average posted price in the 18 field of other producers in the same field or area for associated 19 substances of like kind and quality at the time such associated 20 substances are removed from the leased or unit area. 21 If associated substances are sold away from the leased or unit 22 area, the term "field price" above shall be the actual price for such 23 associated substances received from the purchaser thereof less the actual 24 cost of transportation away from the leased or unit area to the point of 25 delivery. 26 Minimum Value Determinations. The State may establish 27 minimum values for purposes of computing royalties on associated 28 substances obtained from this lease, with consideration being given to 29 the price actually received by Lessee, to the price or prices paid in the 30 same field or area for production of like quality, to posted prices, to 31 prices received by Lessee and/or other producers from sales occurring
01 away from the leased area, and to other relevant matters. Each such 02 determination will be made only after Lessee has been given notice and 03 a reasonable opportunity to be heard. Under this provision, it is 04 expressly agreed that the minimum value of royalty associated 05 substances under this lease may not necessarily equal the price of such 06 associated substances. 07 (6)The following provision shall be added to the end of paragraph 12: 08 (e) Supplemental royalty under paragraph 7 above may be taken 09 in kind under the same terms and conditions as royalty may be taken 10 in kind under this paragraph 12. 11 (7)Paragraph 14 is replaced in its entirety as follows: 12 14. APPORTIONMENT OF ROYALTY FROM APPROVED 13 UNIT. The landowner's royalty and supplemental royalty share of the 14 unit production allocated to each separately owned tract shall be 15 regarded as royalty to be distributed to and among, or the proceeds of 16 it paid to, the landowners, free and clear of all unit expense and free of 17 any lien for it. Under this provision, the State's royalty and 18 supplemental royalty share of any unit production allocated to the 19 leased area shall be regarded as royalty to be distributed to, or the 20 proceeds of it paid to, the State, free and clear of all unit expenses (and 21 any portion of such expenses which is incurred away from the unit 22 area), including, but not limited to, expenses for separation, cleaning, 23 dehydration, gathering, saltwater disposal, and preparing oil, gas or 24 associated substances for transportation off the unit area, and free of 25 any lien for it. 26 (8)Paragraph 28 (c) is added as follows: 27 (c) Notwithstanding any other provisions of this lease, the 28 Northstar Unit Agreement, State statute, or State regulation, this lease 29 shall terminate automatically without notice, an opportunity to be heard, 30 or judicial proceeding, if the Lessee fails to comply with the sanction 31 schedule set forth in Exhibit C ("sanction schedule"), attached and
01 incorporated by reference. Automatic termination shall occur whether 02 or not there is a well on the leased area capable of producing oil or gas 03 in paying quantities, the lease is committed to a unit agreement, or the 04 Lessee is drilling or conducting reworking operations, on the date 05 performance under the schedule is due. Furthermore, upon termination 06 BPXA shall promptly file of record appropriate lease relinquishments. 07 The automatic termination shall occur at 11:59 P.M., Alaska Time, on 08 the day performance of the obligation under the sanction schedule is 09 due. 10 (9)Paragraph 32 is replaced in its entirety as follows: 11 32. FORCE MAJEURE. If the State determines that Lessee has 12 been prevented, after diligent efforts made in good faith, from 13 complying with any express or implied promise, term, condition or 14 covenant of this lease (other than the obligation to provide project 15 sanction within twelve (12) months of the passage by the legislature of 16 an Act authorizing an Amendment to the Northstar Unit leases for the 17 project), from conducting drilling operations, or from producing or 18 marketing oil or gas from the leased area, by reason of war, riots, acts 19 of God, unusually severe weather, or any other cause beyond Lessee's 20 reasonable ability to foresee or control (including delays caused by 21 judicial decision or lack thereof or inability to obtain local, State, or 22 federal permits or environmental impact statements), whether similar to 23 those enumerated or not, Lessee's obligation to comply with such 24 provision shall be suspended, but not voided, and Lessee shall not be 25 liable for damages for failure to comply therewith. If Lessee's 26 obligations to conduct drilling or reworking operations are suspended 27 under this paragraph and the continuation of such operations without 28 suspension would have had the effect of preventing the expiration or 29 termination of this lease, this lease shall not terminate during the period 30 which the obligation to perform such operations is suspended. Nothing 31 in this paragraph shall be construed to suspend the obligation to pay
01 rentals, or to suspend the obligation to pay royalties, supplemental 02 royalties or other production payments from operations on the lease area 03 which are not suspended or from operations which are not affected by 04 any such suspension, to the State. 05 (10)Paragraph 41 is replaced in its entirety as follows: 06 41. FABRICATION OF PRODUCTION AND PROCESSING 07 MODULES WITHIN ALASKA AND EMPLOYMENT OF ALASKAN 08 RESIDENTS. Lessee agrees to utilize on-site production and 09 processing modules for development of the Northstar oil field, and 10 agrees to fabricate those modules within Alaska. BP Exploration 11 (Alaska) Inc. will reimburse the State for any public funds expended to 12 prepare, develop or operate any sites or facilities necessary for the 13 fabrication, transportation or installation of the Northstar Unit 14 production and processing modules. All expenses associated with the 15 design, fabrication, transportation and installation of production and 16 processing modules required for the development of the Northstar oil 17 field will be the sole responsibility of BP Exploration (Alaska) Inc. and 18 its contractors. 19 Lessee shall comply with all valid federal, State and local laws 20 in hiring Alaska residents and contractors and shall not discriminate 21 against Alaska residents or contractors. Within the constraints of law, 22 Lessee shall employ Alaska residents and contractors to the extent they 23 are available and qualified. Subject to the foregoing: 24 Lessee voluntarily agrees to hire residents of Alaska. Lessee 25 shall advertise for available positions locally and use Alaska job service 26 organizations to notify the Alaskan public. For work in connection with 27 this lease, Lessee shall purchase materials and services from Alaska 28 vendors, suppliers, and consultants and shall contract with Alaska firms 29 for fabricating the modules for on-site production and processing 30 facilities in Alaska. Lessee shall require its contractors to employ and 31 train, when necessary, residents of Alaska. Lessee shall submit
01 annually to the Director, Division of Oil and Gas, for transmission to 02 the President of the Senate and the Speaker of the House of 03 Representatives, a report that details the specific measures Lessee and 04 its contractors and subcontractors have taken or are planning to take to 05 recruit qualified Alaska residents for available jobs, describes on-the-job 06 training opportunities, and describes Lessee's efforts to hire Alaska 07 firms for work in connection with this lease. Lessee shall furnish the 08 Department of Labor, for transmission to the President of the Senate 09 and the Speaker of the House of Representatives, a quarterly report 10 regarding the employment of Alaska residents on the lease area in 11 compliance with regulations by the Department of Labor. The report 12 must also include statistical data concerning the number of resident 13 personnel hired within the past year for this lease. 14 1983 Lease 15 (1)Paragraph 4(f) and paragraph 34(7) are deleted and replaced in their 16 entirety with the following paragraph 4(f): 17 (f) FORCE MAJEURE. If the State determines that lessee has 18 been prevented, after diligent efforts made in good faith, from 19 complying with any express or implied promise, term, condition or 20 covenant of this lease (other than the obligation to provide project 21 sanction within twelve (12) months of the passage by the legislature of 22 an Act authorizing an Amendment to the Northstar Unit leases for the 23 project), from conducting drilling operations, or from producing or 24 marketing oil or gas from the leased area, by reason of war, riots, acts 25 of God, unusually severe weather, or any other cause beyond lessee's 26 reasonable ability to foresee or control (including delays caused by 27 judicial decision or lack thereof or inability to obtain local, State, or 28 federal permits or environmental impact statements), whether similar to 29 those enumerated or not, lessee's obligation to comply with such 30 provision shall be suspended, but not voided, and lessee shall not be 31 liable for damages for failure to comply therewith. If lessee's
01 obligations to conduct drilling or reworking operations are suspended 02 under this paragraph and the continuation of such operations without 03 suspension would have had the effect of preventing the expiration or 04 termination of this lease, this lease shall not terminate during the period 05 which the obligation to perform such operations is suspended. Nothing 06 in this paragraph shall be construed to suspend the obligation to pay 07 rentals, or to suspend the obligation to pay royalties, supplemental 08 royalties or other production payments from operations on the lease area 09 which are not suspended or from operations which are not affected by 10 any such suspension, to the State. 11 (2)Paragraph 5(b) is replaced in its entirety as follows: 12 (b) Annual rental paid in advance is a credit on the royalty or 13 supplemental royalty due under this lease for that year. 14 (3)Paragraph 7 is replaced in its entirety as follows: 15 7. APPORTIONMENT OF ROYALTY FROM APPROVED 16 UNIT. The State's royalty and supplemental royalty share of the unit 17 production allocated to each separately owned tract must be regarded 18 as royalty to be distributed to or among, or the proceeds of it paid to, 19 the State, free and clear of all unit expenses and free of any lien for 20 them. Under this provision, the State's royalty and supplemental 21 royalty share of any unit production allocated to the leased area will be 22 regarded as royalty to be distributed to, or the proceeds of it paid to, the 23 State, free and clear of all unit expenses (and any portion of those 24 expenses incurred away from the unit area), including, but not limited 25 to, expenses for separating, cleaning, dehydration, gathering, saltwater 26 disposal, and preparing oil, gas, or associated substances for 27 transportation off the unit area, and free of any lien for them. 28 (4)A new paragraph 20(c) is added as follows: 29 (c) Notwithstanding any other provisions of this lease, the 30 Northstar Unit Agreement, State statute, or State regulation, this lease 31 shall terminate automatically without notice, an opportunity to be heard,
01 or judicial proceeding, if the lessee fails to comply with the sanction 02 schedule set forth in Exhibit C ("sanction schedule"), attached and 03 incorporated by reference. Automatic termination shall occur whether 04 or not there is a well on the leased area capable of producing oil or gas 05 in paying quantities, the lease is committed to a unit agreement, or the 06 lessee is drilling or conducting reworking operations, on the date 07 performance under the schedule is due. Furthermore, upon termination 08 BPXA shall promptly file of record appropriate lease relinquishments. 09 The automatic termination shall occur at 11:59 P.M., Alaska Time, on 10 the day performance of an obligation under the sanction schedule is 11 due. 12 (5)Paragraph 31 is replaced in its entirety as follows: 13 31. FABRICATION OF PRODUCTION AND PROCESSING 14 MODULES WITHIN ALASKA AND EMPLOYMENT OF ALASKAN 15 RESIDENTS. Lessee agrees to utilize on-site production and 16 processing modules for development of the Northstar oil field, and 17 agrees to fabricate those modules within Alaska. BP Exploration 18 (Alaska) Inc. will reimburse the state for any public funds expended to 19 prepare, develop or operate any sites or facilities necessary for the 20 fabrication, transportation or installation of the Northstar Unit 21 production and processing modules. All expenses associated with the 22 design, fabrication, transportation and installation of production and 23 processing modules required for the development of the Northstar oil 24 field will be the sole responsibility of BP Exploration (Alaska) Inc. and 25 its contractors. 26 Lessee shall comply with all valid federal, State and local laws 27 in hiring Alaska residents and contractors and shall not discriminate 28 against Alaska residents or contractors. Within the constraints of law, 29 Lessee shall employ Alaska residents and contractors to the extent they 30 are available and qualified. Subject to the foregoing: 31 Lessee voluntarily agrees to hire residents of Alaska. Lessee
01 shall advertise for available positions locally and use Alaska job service 02 organizations to notify the Alaskan public. For work in connection with 03 this lease, Lessee shall purchase materials and services from Alaska 04 vendors, suppliers, and consultants and shall contract with Alaska firms 05 for fabricating the modules for on-site production and processing 06 facilities in Alaska. Lessee shall require its contractors to employ and 07 train, when necessary, residents of Alaska. Lessee shall submit 08 annually to the Director, Division of Oil and Gas, for transmission to 09 the President of the Senate and the Speaker of the House of 10 Representatives, a report that details the specific measures Lessee and 11 its contractors and subcontractors have taken or are planning to take to 12 recruit qualified Alaska residents for available jobs, describes on-the-job 13 training opportunities, and describes Lessee's efforts to hire Alaska 14 firms for work in connection with this lease. Lessee shall furnish the 15 Department of Labor, for transmission to the President of the Senate 16 and the Speaker of the House of Representatives, a quarterly report 17 regarding the employment of Alaska residents on the lease area in 18 compliance with regulations by the Department of Labor. The report 19 must also include statistical data concerning the number of resident 20 personnel hired within the past year for this lease. 21 (6)Paragraph 35 is replaced in its entirety as follows: 22 35. ROYALTY ON PRODUCTION. Except for oil, gas, and 23 associated substances used on the leased area for development and 24 production or unavoidably lost, the lessee shall pay to the State as a 25 royalty 20 percent in amount or value of the oil, gas, and associated 26 substances saved, removed, or sold from the leased area and of the gas 27 used on the leased area for extraction of natural gasoline or other 28 products from the leased area. 29 (7)Paragraph 36 is replaced in its entirety as follows: 30 36. VALUE. For purposes of computing supplemental royalty 31 due under this lease, the value of supplemental royalty oil, gas, natural
01 gas liquids, and associated substances shall be the value used in 02 computing royalty on said substances. 03 (a) To compute the value of oil for royalty and supplemental 04 royalty purposes, this lease shall be deemed an "ANS Lease" under the 05 terms of the ANS Agreement, irrespective of any provision(s) of such 06 agreement which would otherwise exclude this lease therefrom. 07 (b) To compute value of gas and natural gas liquids for royalty 08 and supplemental royalty purposes, this lease shall be deemed a "Lease" 09 under the terms of the 1995 ANS Gas Royalty Litigation Settlement 10 Agreement between BPXA and the State dated as of April 1, 1995, 11 irrespective of any provision(s) of such agreement which would 12 otherwise exclude this lease therefrom. 13 (c) To compute the value of associated substances (which shall 14 be deemed to exclude oil, gas, and natural gas liquids) for royalty and 15 supplemental royalty purposes, the value of such associated substances 16 shall not be less than the highest of: 17 (1) the field price actually received by lessee for such 18 associated substances; 19 (2) Lessee's posted price in the field for such associated 20 substances; 21 (3) the volume weighted average field price actually 22 received by other producers in the same field or area for associated 23 substances of like kind and quality at the time such associated 24 substances are removed from the leased or unit area; or 25 (4) the volume weighted average posted price in the 26 field of other producers in the same field or area for associated 27 substances of like kind and quality at the time such associated 28 substances are removed from the leased or unit area. 29 If associated substances are sold away from the leased or unit 30 area, the term "field price" above shall be the actual price for such 31 associated substances received from the purchaser thereof less the actual
01 cost of transportation away from the leased or unit area to the point of 02 delivery. 03 Minimum Value Determinations. The State may establish 04 minimum values for purposes of computing royalties on associated 05 substances obtained from this lease, with consideration being given to 06 the price actually received by lessee, to the price or prices paid in the 07 same field or area for production of like quality, to posted prices, to 08 prices received by lessee and/or other producers from sales occurring 09 away from the leased area, and to other relevant matters. Each such 10 determination will be made only after lessee has been given notice and 11 a reasonable opportunity to be heard. Under this provision, it is 12 expressly agreed that the minimum value of royalty associated 13 substances under this lease may not necessarily equal the price of such 14 associated substances. 15 (8)Paragraph 37 is replaced in its entirety as follows: 16 37. ROYALTY IN VALUE. Unless the State elects to receive 17 all or a portion of its royalty or supplemental royalty in kind as 18 provided in paragraph 38, lessee shall pay to the State the value of all 19 royalty and supplemental royalty oil, gas and associated substances as 20 determined under paragraph 36. Royalty and supplemental royalty paid 21 in value shall be free and clear of all lease expenses (and any portion 22 of such expenses which is incurred away from the leased area), 23 including, but not limited to, expenses for separation, cleaning, 24 dehydration, gathering, saltwater disposal, and preparing the oil, gas or 25 associated substances for transportation off the leased area. All royalty 26 and supplemental royalty that may become payable in money to the 27 State shall be paid on or before the last day of the calendar month 28 following the month in which the oil, gas or associated substances are 29 produced. Royalty and supplemental royalty payments shall be 30 accompanied by copies of run tickets or such other information relating 31 to valuation of royalty and supplemental royalty as the State may
01 require, which may include, but is not limited to, evidence of sales, 02 shipments, and amounts of gross oil, gas and associated substances 03 produced. 04 (9)The following provisions shall be added to the end of paragraph 38: 05 (f) Supplemental royalty under this lease may be taken in kind 06 under the same terms and conditions as royalty may be taken in kind 07 under this paragraph 38. 08 (10)Paragraph 39 is replaced in its entirety as follows: 09 39. REDUCTION OF ROYALTY. Except as provided in 10 paragraph 40 below, lessee shall not be entitled to any reduction of 11 royalty paid under paragraph 35 above or supplemental royalty paid 12 under paragraph 40 below based on any current or future agreement, 13 State statute, or State regulation. 14 (11)Paragraph 40 is replaced in its entirety as follows: 15 40. SUPPLEMENTAL ROYALTY. (a) In addition to the 16 royalty paid and computed under paragraphs 35, 36, 37 above, lessee 17 shall pay to the State a supplemental royalty ("supplemental royalty"). 18 Lessee shall pay the supplemental royalty, if owed, upon the same 19 production volume for which royalty is paid ("production volume"). 20 The supplemental royalty payment for a given month equals the 21 supplemental royalty value times the supplemental royalty percentage 22 rate ("percentage rate") times the production volume for that month. 23 The percentage rate shall be calculated monthly by reference to: (1) an 24 ANS West Coast spot price ("spot price"); and (2) a supplemental 25 royalty trigger price ("trigger price"). If the spot price is equal to or 26 less than the trigger price, then the percentage rate equals zero. If the 27 spot price is greater than the trigger price, then the percentage rate 28 equals [the spot price per barrel minus the trigger price per barrel] times 29 1.5 percent per dollar per barrel. The percentage rate may never exceed 30 7.5 percent. 31 (b) The spot price is the price per barrel calculated in Article
01 3.3 of and Exhibit 4 to the ANS Royalty Litigation Settlement 02 Agreement ("ANS Agreement"), dated December 31, 1991, between the 03 State and BP Exploration (Alaska) Inc. for the crude oil referred to as 04 "ANS (USWC)" in the ANS Agreement. The trigger price is $17.35 05 per barrel through April 30, 1997. On May 1, 1997, and each May 1 06 thereafter, the trigger price shall be adjusted by an inflation factor equal 07 to fifty percent of the "inflation rate" defined as the Producer Price 08 Index for Industrial Commodities ("PPI") for December of the previous 09 year, as reported by April 30 of the current year, divided by the PPI for 10 December of 1995, as reported by April 30, 1996. The supplemental 11 royalty value for oil, gas, natural gas liquids and associated substances 12 is defined in paragraphs 36 and 37 above. Exhibit B is a sample 13 calculation to demonstrate the method of calculating supplemental 14 royalty for oil. 15 These amendments do not affect: (1) any future agreements which may 16 be reached for the handling of outside substances as that term is used in the 17 Northstar Unit Agreement effective January 24, 1990, or (2) the current 18 valuation methodology for royalty for any other Alaska Net Profit Share leases 19 between the State and BP Exploration (Alaska) Inc. or any affiliates or any 20 future agreements which may be reached regarding a future valuation 21 methodology for Alaska Net Profit Share leases. These amendments take effect 22 on the first day following delivery of a letter from the commissioner of the 23 Department of Natural Resources to the Revisor of Statutes, with copies to the 24 President of the Senate and the Speaker of the House of Representatives, 25 confirming that BP Exploration (Alaska) Inc. or its parent entity has made an 26 irrevocable commitment of full funding (project sanction) to develop the North 27 Star Oil Field. This amendment is dated for reference purposes as of 28 (Date). 29 LESSEE: LESSOR: 30 BP EXPLORATION (ALASKA), INC. STATE OF ALASKA 31 ________________________________ ________________________________
01 , Vice President , Commissioner 02 Department of Natural Resources 03 STATE OF ALASKA ) 04 ) ss. 05 Third Judicial District ) 06 On __________, 1996, before me appeared , 07 Commissioner, State of Alaska, Department of Natural Resources, and who 08 executed this lease and acknowledged voluntarily signing it on behalf of the 09 State of Alaska, as lessor. 10 _____________________________________ 11 Notary Public in and for the State of Alaska 12 My Commission expires: _______________ 13 STATE OF ALASKA ) 14 ) ss. 15 Third Judicial District ) 16 On __________, 1996, before me appeared , 17 Vice President of BP Exploration (Alaska), Inc. and who executed this lease 18 and acknowledged voluntarily signing it on behalf of the BP Exploration 19 (Alaska), Inc. as lessee. 20 _____________________________________ 21 Notary Public in and for the State of Alaska 22 My Commission expires: _______________ 23 Exhibit B 24 Calculation of the Supplemental Royalty Payment for Oil 25 (1) The calculation of the ANS West Coast spot price is derived 26 from Platt's "Oilgram Price Report" Spot Crude Price Assessments: 27 Platt's Reported Daily 28 Assessment ($/barrel) 29 Date ANSWC ANSWC ANSWC ANSWC 30 Low High Daily Average Daily Average 31 (After Rounding)
01 01/02/96 $17.97 $18.06 $18.015 $18.02 02 01/03/96 $17.94 $18.03 $17.985 $17.98 03 01/04/96 $17.96 $18.03 $17.995 $18.00 04 01/05/96 $18.60 $18.64 $18.620 $18.62 05 01/09/96 $18.23 $18.29 $18.260 $18.26 06 01/10/96 $17.99 $18.05 $18.020 $18.02 07 01/11/96 $17.10 $17.17 $18.135 $17.14 08 01/12/96 $16.64 $16.71 $18.675 $16.68 09 01/15/96 $16.75 $16.83 $16.690 $16.79 10 01/16/96 $16.60 $16.66 $16.730 $16.63 11 01/17/96 $16.91 $16.97 $16.940 $16.94 12 01/18/96 $17.46 $17.54 $17.500 $17.50 13 01/19/96 $17.28 $17.37 $17.325 $17.32 14 01/22/96 $17.02 $17.08 $17.050 $17.05 15 01/23/96 $17.10 $17.16 $17.150 $17.13 16 01/24/96 $17.35 $17.41 $17.380 $17.38 17 01/25/96 $16.76 $16.81 $17.785 $16.78 18 01/26/96 $16.43 $16.53 $17.480 $16.48 19 01/29/96 $16.16 $16.24 $16.200 $16.20 20 01/30/96 $16.30 $16.38 $16.340 $16.34 21 01/31/96 $16.46 $16.56 $16.510 $16.51 22 Monthly Average calculated from ANSWC Daily 23 Average (After Rounding) = $17.2271 per barrel 24 ANS West Coast spot price for the January 1996 25 month of production = $17.23 per barrel 26 (2) The inflation factor shall be calculated as follows: Assume 27 that by April 30, 1996, the U.S. Department of Labor reports a PPI for 28 December 1995 as 126.2. Assume that by April 30, 1998, the PPI for 29 December 1997 is 134.2. The inflation factor for 1998 is calculated according 30 to the following formula: 31 Inflation Factor for May 1, 1998, through April 30, 1999
01 = [(PPI December of the previous year PPI December 1995) - 1] x 0.5 02 = [(134.2 126.2) - 1] x 0.5 = 0.0317 = 3.17 percent 03 (3) The trigger price for May 1, 1998, through April 30, 1999, 04 is calculated by adjusting $17.35 per barrel by the inflation factor as follows: 05 Trigger price for the current year = $17.35 per barrel x (1 + inflation factor) 06 = $17.35 per barrel x (1 - 3.17 percent) 07 = $17.35 x 1.0317 08 = $17.90 per barrel 09 (4) Assuming the current month ANSWC spot price is $21.40, 10 the supplemental royalty percentage rate is calculated as: 11 Supplemental royalty percentage rate = (ANSWC spot price - trigger price for the current year) x (1.5 12 percent per dollar per barrel) 13 = ($21.40 per barrel - $17.90 per barrel) x 1.5 percent per dollar per barrel 14 = (21.40 - 17.90) x 0.015 15 = 0.05250 = 5.25 percent 16 (5) The calculation of the supplemental royalty payment for the 17 current month is the product of the production volume times the royalty value 18 and the supplemental royalty percentage rate. Assume that 1,550,000 barrels 19 of oil were produced in the Northstar unit in the current month and that the 20 royalty value is $17.71. The supplemental royalty is: 21 Supplemental royalty payment = production volume x royalty value x supplemental royalty percentage 22 rate 23 = 1,550,000 barrels x $17.71 per barrel x 5.25 percent 24 = $1,441,151.25 25 EXHIBIT C 26 SANCTION SCHEDULE 27 The Northstar Development Project ("the Project") is described in the 28 document titled "Northstar Development Project, Conceptual Engineering 29 Report" dated February 1996. BPXA shall comply with the following sanction 30 schedule for the Project and shall provide satisfactory evidence of compliance 31 within fifteen (15) days of the date performance is due under the schedule:
01 BPXA shall receive Project sanction within twelve (12) months after 02 passage by the legislature of an Act approving the Amendment to the Northstar 03 Unit Leases for the Project. "Project sanction" means approval in writing by 04 the highest appropriate authority in BPXA or its parent entity necessary for the 05 total amount of expenditures required for the Project. Satisfactory evidence of 06 receipt of sanction shall be tendered to the State in the form of the sanctioning 07 entity's documents approving the expenditure of funds for the Project. If 08 project sanction is withdrawn for any reason whatsoever, BPXA shall notify the 09 State within three working days by letter from an authorized officer and BPXA 10 shall be deemed to have failed to comply with this schedule. 11 (c) Notwithstanding any other provision of law, the "Amendment to the Northstar Unit 12 Leases Between the State of Alaska and BP Exploration (Alaska) Inc." as described in (b) of 13 this section, if voluntarily agreed to by the commissioner of natural resources and BP 14 Exploration (Alaska) Inc., is approved and ratified. 15 * Sec. 3. This Act takes effect on the first day following delivery of a letter from the 16 commissioner of natural resources to the revisor of statutes, with copies to the president of the 17 senate and the speaker of the house of representatives, confirming that BP Exploration 18 (Alaska) Inc. or its parent entity has made a commitment of full funding (projection sanction) 19 to develop the Northstar Oil Field.