HB 394: "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."
00 HOUSE BILL NO. 394 01 "An Act relating to adjustments to royalty reserved to the state to encourage otherwise 02 uneconomic production of oil and gas; and providing for an effective date." 03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 04 * Section 1. AS 38.05.180(j) is amended to read: 05 (j) The commissioner 06 (1) may provide for modification of [AN INCREASE OR 07 DECREASE OR OTHERWISE MODIFY] royalty [, TO ALLOW FOR 08 PRODUCTION THAT WOULD NOT OTHERWISE BE ECONOMICALLY 09 FEASIBLE,] on individual leases, leases unitized as described in (p) of this section, 10 leases subject to an agreement described in (s) or (t) of this section, or interests 11 unitized under AS 31.05 [; THE COMMISSIONER MAY ACT UNDER THIS 12 SUBSECTION TO MODIFY THE ROYALTY] 13 (A) [AFTER JUNE 20, 1995 AND NOT LATER THAN 14 JULY 1, 2015, SO LONG AS THE AUTHORITY TO MODIFY ROYALTY
01 UNDER THIS SUBPARAGRAPH HAS BEEN AUTHORIZED OR 02 REAUTHORIZED BY LAW WITHIN THE TEN YEARS PRECEDING THE 03 COMMISSIONER'S ACTION TO MODIFY THE ROYALTY,] to allow for 04 production from an oil or gas field, [OR] pool, or portion of a field or pool if 05 (i) the oil or gas field, [OR] pool, or portion of the 06 field or pool has been sufficiently delineated [SUFFICIENTLY] to the 07 satisfaction of [ALLOW] the commissioner [TO CONDUCT THE 08 ANALYSES AND MAKE THE FINDINGS REQUIRED BY THIS 09 SUBSECTION]; [AND] 10 (ii) the field, [OR] pool, or portion of a field or pool 11 has not previously produced oil or gas for sale; and 12 (iii) oil or gas production from the field, pool, or 13 portion of the field or pool would not otherwise be economically 14 feasible; 15 (B) to prolong the economic life of an oil or gas field, [OR] 16 pool, or portion of a field or pool as per barrel or barrel equivalent costs 17 [PER BARREL OR BARREL EQUIVALENT] increase or as the price of oil 18 or gas decreases, and the increase or decrease is sufficient to make future 19 production no longer economically feasible; or 20 (C) to reestablish production of shut-in oil or gas that would 21 not otherwise be economically feasible; 22 (2) may not grant a royalty modification unless the lessee or lessees 23 requesting the change [MODIFICATION] make a clear and convincing showing that 24 a modification of royalty meets the requirements of this subsection and is in the best 25 interests of the state; 26 (3) shall 27 [(A)] condition any royalty modification granted under this 28 subsection in any way necessary to protect the state's best interests; the 29 commissioner shall provide for an increase or decrease or other 30 modification of the state's royalty share by a sliding scale royalty or other 31 mechanism that shall be based on a change in the price of oil or gas and
01 may also be based on other relevant factors such as a change in 02 production rate, projected ultimate recovery, development costs, and 03 operating costs 04 [(B) DESCRIBE, IN THE FINDINGS AND 05 DETERMINATIONS REQUIRED BY THIS SUBSECTION, THE 06 RELEVANT FACTORS, INCLUDING PRICE, PROJECTED 07 PRODUCTION RATE OR VOLUME, PREDICTED ULTIMATE 08 RECOVERY, AND DEVELOPMENT, OPERATING, AND 09 TRANSPORTATION COSTS, UPON WHICH THE MODIFICATION IS 10 BASED; 11 (C) FOR A MODIFICATION UNDER (1)(A) OF THIS 12 SUBSECTION, SET OUT THE TERMS AND CONDITIONS, WHICH 13 (i) MUST INCLUDE A MECHANISM FOR 14 ADJUSTING ROYALTY PERCENTAGE BASED ON PRICE; 15 USING FORECASTS OF THE RANGE OF FUTURE PRICES AND 16 THEIR PROBABILITIES, THE MECHANISM MUST PROVIDE 17 THAT THE VALUE OF THE POTENTIAL REVENUE INCREASES 18 RESULTING FROM ROYALTY PERCENTAGE INCREASES 19 MUST EXCEED THE VALUE OF THE POTENTIAL REVENUE 20 LOSSES RESULTING FROM ROYALTY PERCENTAGE 21 DECREASES; AND 22 (ii) MAY INCLUDE, IN ADDITION TO THE 23 ROYALTY PERCENTAGE ADJUSTMENT BASED ON PRICE, 24 WHICH MUST MEET THE CONDITIONS SPECIFIED IN (i) OF 25 THIS SUBPARAGRAPH, A FURTHER ADJUSTMENT BASED ON 26 PRODUCTION RATE OR VOLUME FROM THE FIELD OR POOL; 27 AND 28 (D) FOR A MODIFICATION UNDER (1)(B) OR (1)(C) OF 29 THIS SUBSECTION, SET OUT THE TERMS AND CONDITIONS, WHICH 30 MAY INCLUDE SUBSTITUTION OF A SLIDING SCALE ROYALTY OR 31 OTHER MECHANISM TO MODIFY THE ROYALTY IF THERE IS A
01 CHANGE IN THE RELEVANT FACTORS, SUCH AS PRICE, PROJECTED 02 PRODUCTION RATE OR VOLUME, PREDICTED ULTIMATE 03 RECOVERY, AND DEVELOPMENT, OPERATING, AND 04 TRANSPORTATION COSTS, UPON WHICH THE MODIFICATION IS 05 BASED]; 06 (4) may not grant a royalty reduction [MODIFICATION] for a field, 07 [OR] pool, or portion of a field or pool 08 (A) under (1)(A) of this subsection that exceeds 75 percent of 09 the royalty originally specified in a lease entered into under the provisions 10 of (f) of this section or AS 38.05.134 [IF THE ROYALTY MODIFICATION 11 FOR THE FIELD OR POOL WOULD ESTABLISH A ROYALTY RATE OF 12 LESS THAN FIVE PERCENT IN AMOUNT OR VALUE OF THE 13 PRODUCTION REMOVED OR SOLD FROM A LEASE OR LEASES 14 COVERING THE FIELD OR POOL]; 15 (B) under (1)(B) or (1)(C) of this subsection that exceeds 90 16 percent of the royalty originally specified in a lease entered into under the 17 provisions of (f) of this section or AS38.05.134 [IF THE ROYALTY 18 MODIFICATION FOR THE FIELD OR POOL WOULD ESTABLISH A 19 ROYALTY RATE OF LESS THAN THREE PERCENT IN AMOUNT OR 20 VALUE OF THE PRODUCTION REMOVED OR SOLD FROM A LEASE 21 OR LEASES COVERING THE FIELD OR POOL]; 22 (5) [MAY NOT GRANT A ROYALTY MODIFICATION UNDER 23 THIS SUBSECTION WITHOUT INCLUDING AN EXPLICIT CONDITION THAT 24 THE ROYALTY MODIFICATION IS NOT ASSIGNABLE WITHOUT THE PRIOR 25 WRITTEN APPROVAL OF THE COMMISSIONER; THE COMMISSIONER 26 SHALL, IN THE PRELIMINARY AND FINAL FINDINGS AND 27 DETERMINATIONS, SET OUT THE CONDITIONS UNDER WHICH THE 28 ROYALTY MODIFICATION MAY BE ASSIGNED; 29 (6)] shall require the lessee or lessees to submit, with the application 30 for the royalty reduction [MODIFICATION], financial and technical data that 31 demonstrate that the requirements of this subsection are met; the commissioner
01 [SHALL] 02 (A) may require disclosure of only the financial and technical 03 data related to [DEVELOPMENT,] production[, AND TRANSPORTATION 04 OF OIL AND GAS FROM THE FIELD OR POOL] that are reasonably 05 available to the applicant [NECESSARY TO MAKE A DETERMINATION 06 AS TO WHETHER OR NOT TO GRANT THE REQUEST FOR ROYALTY 07 MODIFICATION]; and 08 (B) shall keep the data [DESCRIBED IN (A) OF THIS 09 PARAGRAPH] confidential under AS 38.05.035(a)(9) at the request of the 10 lessee or lessees making application for the royalty modification; [THE 11 CONFIDENTIAL DATA MAY BE DISCLOSED BY THE 12 COMMISSIONER TO LEGISLATORS AND TO THE LEGISLATIVE 13 AUDITOR AND AS DIRECTED BY THE CHAIR OR VICE-CHAIR OF 14 THE LEGISLATIVE BUDGET AND AUDIT COMMITTEE TO THE 15 DIRECTOR OF THE DIVISION OF LEGISLATIVE FINANCE, THE 16 PERMANENT EMPLOYEES OF THEIR RESPECTIVE DIVISIONS WHO 17 ARE RESPONSIBLE FOR EVALUATING A ROYALTY MODIFICATION, 18 AND TO AGENTS OR CONTRACTORS OF THE LEGISLATIVE 19 AUDITOR OR THE LEGISLATIVE FINANCE DIRECTOR WHO ARE 20 ENGAGED UNDER CONTRACT TO EVALUATE THE ROYALTY 21 MODIFICATION, IF THEY SIGN AN APPROPRIATE 22 CONFIDENTIALITY AGREEMENT;] 23 (6) [(7)] may require the lessee or lessees making application for the 24 royalty reduction [MODIFICATION] to retain and pay for the services of a [AN 25 INDEPENDENT] contractor, selected by the lessee or lessees from a list of qualified 26 consultants in [TO EVALUATE] hydrocarbon [DEVELOPMENT,] production[, 27 TRANSPORTATION,] and economics provided by the commissioner, [WHO IS 28 SELECTED BY THE COMMISSIONER] to assist the commissioner in evaluating the 29 application and financial and technical data; when the commissioner requires the 30 lessee or lessees to retain the services of a contractor, the commissioner shall 31 determine the relevant scope of the work to be performed by the contractor
01 [SELECTION OF AN INDEPENDENT CONTRACTOR UNDER THIS 02 PARAGRAPH IS NOT SUBJECT TO AS 36.30]; 03 (7) [(8)] shall 04 [(A)] make and publish a preliminary findings and 05 determination on the royalty reduction [MODIFICATION] application, [;IF 06 THE PRELIMINARY FINDINGS AND DETERMINATION CONCERNS A 07 ROYALTY MODIFICATION UNDER (1)(A) OF THIS SUBSECTION, THE 08 PRELIMINARY FINDINGS AND DETERMINATION SHALL ALSO BE 09 PRESENTED TO THE GOVERNOR FOR THE GOVERNOR'S APPROVAL 10 OR DISAPPROVAL; THE GOVERNOR MAY NOT DELEGATE A 11 DETERMINATION TO APPROVE OR DISAPPROVE A PRELIMINARY 12 FINDINGS AND DETERMINATION UNDER THIS SUBPARAGRAPH; 13 (B) FOR A ROYALTY MODIFICATION UNDER (1)(A) OF 14 THIS SUBSECTION, IF THE GOVERNOR APPROVES THE 15 PRELIMINARY FINDINGS AND DETERMINATION UNDER (A) OF 16 THIS PARAGRAPH, 17 (i)] give reasonable public notice of the preliminary 18 findings and determination, [; 19 (ii) CONCURRENTLY WITH THE ISSUANCE OF 20 THE PUBLIC NOTICE, UNLESS DIRECTED BY THE 21 LEGISLATIVE BUDGET AND AUDIT COMMITTEE TO DO 22 OTHERWISE, MAKE AVAILABLE COPIES OF THE 23 COMMISSIONER'S PRELIMINARY FINDINGS AND 24 DETERMINATION ON THE ROYALTY MODIFICATION 25 APPLICATION AND THE SUPPORTING FINANCIAL AND 26 TECHNICAL DATA, INCLUDING THE WORK PAPERS, 27 ANALYSES, AND RECOMMENDATIONS OF ANY 28 CONTRACTORS RETAINED UNDER (7) OF THIS SUBSECTION, 29 TO PERSONS AUTHORIZED UNDER (6)(B) OF THIS 30 SUBSECTION TO REVIEW THE DATA;] and 31 [(iii)] invite public comment on the preliminary findings
01 and determination during a 30-day period for receipt of public 02 comment; 03 [(C) FOR A ROYALTY MODIFICATION UNDER (1)(B) OR 04 (C) OF THIS SUBSECTION, IF THE PRELIMINARY FINDINGS AND 05 DETERMINATION APPROVES A ROYALTY MODIFICATION, 06 (i) GIVE REASONABLE PUBLIC NOTICE OF THE 07 PRELIMINARY FINDINGS AND DETERMINATION; AND 08 (ii) INVITE PUBLIC COMMENT ON THE 09 PRELIMINARY FINDINGS AND DETERMINATION DURING A 10 30-DAY PERIOD FOR RECEIPT OF PUBLIC COMMENT; 11 (9) SHALL ADDRESS IN ANY FINDINGS AND 12 DETERMINATIONS REQUIRED UNDER THIS SUBSECTION THE 13 REASONABLY FORESEEABLE EFFECTS OF THE PROPOSED ROYALTY 14 MODIFICATION ON THE STATE'S REVENUE;] 15 (8) [(10)] shall offer to appear before the Legislative Budget and Audit 16 Committee on a day that is not earlier than 10 days and not later that 20 days 17 after giving public notice under (7) of this subsection, to provide the committee a 18 review of the commissioner's preliminary findings and determination on the royalty 19 reduction [MODIFICATION] application and administrative process [THE 20 SUPPORTING FINANCIAL AND TECHNICAL DATA]; if the Legislative Budget 21 and Audit Committee accepts the commissioner's offer, the committee shall give 22 notice of the committee's meeting to all members of the legislature; [IF, UNDER 23 (6)(B) OF THIS SUBSECTION, THE FINANCIAL AND TECHNICAL DATA 24 MUST BE KEPT CONFIDENTIAL AT THE REQUEST OF A LESSEE OR 25 LESSEES MAKING APPLICATION FOR THE ROYALTY MODIFICATION, THE 26 COMMISSIONER MAY APPEAR BEFORE THE COMMITTEE IN EXECUTIVE 27 SESSION;] 28 (9) [(11)] shall make copies of the preliminary findings and 29 determination available to 30 (A) the presiding officer of each house of the legislature; 31 (B) the chairs of the legislature's standing committees on
01 resources; and 02 (C) the chairs of the legislature's special committees on oil and 03 gas, if any; 04 (10) [(12)] shall, within 30 days after the close of the public comment 05 period under (7) [(8)] of this subsection, 06 (A) prepare a summary of the public response to the 07 commissioner's preliminary findings and determination; 08 (B) make a final findings and determination [AND PRESENT 09 IT TO THE GOVERNOR FOR THE GOVERNOR'S APPROVAL OR 10 DISAPPROVAL; THE GOVERNOR MAY NOT DELEGATE A DECISION 11 TO APPROVE OR DISAPPROVE A FINAL FINDINGS AND 12 DETERMINATION PRESENTED UNDER THIS SUBPARAGRAPH]; the 13 commissioner's final findings and determination prepared under this 14 subparagraph regarding a royalty reduction [MODIFICATION, IF 15 APPROVED BY THE GOVERNOR,] is final and not appealable to the court; 16 (C) transmit a copy of the final findings and determination 17 [PREPARED UNDER (B) OF THIS PARAGRAPH] to the lessee [OR 18 LESSEES MAKING APPLICATION FOR THE ROYALTY 19 MODIFICATION]; 20 (D) with the applicant's consent [OF THE LESSEE OR 21 LESSEES APPLYING FOR THE ROYALTY MODIFICATION], amend the 22 applicant's lease or unitization agreement [OF THE LESSEE OR LESSEES 23 APPLYING FOR THE ROYALTY MODIFICATION] consistent with the 24 commissioner's [APPROVED] final decision [FINDINGS AND 25 DETERMINATION]; and 26 (E) make copies of the final findings and determination 27 available to each person who submitted comment under (7) [(8)] of this 28 subsection and who has filed a request for the copies; 29 (11) [(13)] is not limited by the provisions of AS 38.05.134(3) or (f) of 30 this section in the commissioner's determination under this subsection. 31 * Sec. 2. AS 38.05.180(p) is amended to read:
01 (p) To conserve the natural resources of all or a part of an oil or gas pool, 02 field, or like area, the lessees and their representatives may unite with each other, or 03 jointly or separately with others, in collectively adopting or operating under a 04 cooperative or a unit plan of development or operation of the pool, field, or like area, 05 or a part of it, when determined and certified by the commissioner to be necessary or 06 advisable in the public interest. The commissioner may, with the consent of the 07 holders of leases involved, establish, change, or revoke drilling, producing, and 08 royalty requirements of the leases and adopt regulations with reference to the leases, 09 with like consent on the part of the lessees, in connection with the institution and 10 operation of a cooperative or unit plan as the commissioner determines necessary or 11 proper to secure the proper protection of the public interest. The commissioner may 12 not reduce [DECREASE] royalty on leases in connection with a cooperative or unit 13 plan except as provided in (j) of this section. The commissioner may require oil and 14 gas leases issued under this section to contain a provision requiring the lessee to 15 operate under a reasonable cooperative or unit plan, and may prescribe a plan under 16 which the lessee must operate. The plan must adequately protect all parties in interest, 17 including the state. 18 * Sec. 3. AS 38.05.180(s) is amended to read: 19 (s) When separate tracts cannot be individually developed and operated in 20 conformity with an established well-spacing or development program, a lease, or a 21 portion of a lease, may be pooled with other land, whether or not owned by the state, 22 under a communitization or drilling agreement providing for an apportionment of 23 production or royalties among the separate tracts of land comprising the drilling or 24 spacing unit when determined by the commissioner to be in the public interest. 25 Operations or production under the agreement are considered as operations or 26 production as to each lease committed to the agreement. The commissioner may not 27 reduce [DECREASE] royalty on leases in connection with a communitization or 28 drilling agreement except as provided in (j) of this section. 29 * Sec. 4. AS 38.05.180(t) is amended to read: 30 (t) The commissioner may prescribe conditions and approve, on conditions, 31 drilling, or development contracts made by one or more lessees of oil or gas leases,
01 with one or more persons, when, in the discretion of the commissioner, the 02 conservation of natural resources or the public convenience or necessity requires it or 03 the interests of the state are best served. All leases operated under approved drilling or 04 development contracts and interests under them, are excepted in determining holding 05 or control under AS 38.05.140. The commissioner may not reduce [DECREASE] 06 royalty on a lease or leases that are subject to a drilling or development contract except 07 as provided in (j) of this section. 08 * Sec. 5. AS 36.30.850(b)(33) is repealed. 09 * Sec. 6. This Act takes effect immediately under AS 01.10.070(c).