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HB 32: "An Act relating to oil and gas and gas only leasing."

00                              HOUSE BILL NO. 32                                                                          
01 "An Act relating to oil and gas and gas only leasing."                                                                  
02 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                
03    * Section 1. AS 31.05.030(k) is amended to read:                                                                   
04            (k)  The commission shall certify to the Department of Natural Resources the                                 
05       volume of oil production from a field or platform for the purposes of                                             
06       AS 38.05.180(f)(6)(A) and (B) [, (C), (E), AND (G)].                                                          
07    * Sec. 2. AS 38.05.180(f) is amended to read:                                                                      
08            (f)  Except as provided by AS 38.05.131 - 38.05.134, the commissioner shall                              
09       [MAY] issue oil and gas leases or leases for gas only on state land to the highest                                
10       responsible qualified bidder as follows:                                                                          
11                 (1)  the commissioner shall issue an oil and gas lease or a gas only                                    
12       lease, as appropriate, to the successful bidder determined by competitive bidding                                 
13       under regulations adopted by the commissioner; bidding may be by sealed bid or                                    
14       according to any other bidding procedure the commissioner determines is in the best                               
15       interests of the state; the commissioner shall issue an oil and gas lease or a gas only                       
01       lease to the successful bidder on the first day of the calendar month that begins                             
02       more than 180 days after the close of bidding, or at an earlier date at the                                   
03       discretion of the commissioner if requested by the successful bidder;                                         
04                 (2)  whenever, under any of the leasing methods listed in this                                          
05       subsection, a royalty share is reserved to the state, it shall be delivered in pipeline                           
06       quality and free of all lease or unit expenses, including but not limited to separation,                          
07       cleaning, dehydration, gathering, salt water disposal, and preparation for transportation                         
08       off the lease or unit area;                                                                                       
09                 (3)  following a pre-sale analysis, the commissioner may choose at least                                
10       one of the following leasing methods:                                                                             
11                      (A)  a cash bonus bid with a fixed royalty share reserved to the                                   
12            state of not less than 12.5 percent in amount or value of the production                                     
13            removed or sold from the lease;                                                                              
14                      (B)  a cash bonus bid with a fixed royalty share reserved to the                                   
15            state of not less than 12.5 percent in amount or value of the production                                     
16            removed or sold from the lease and a fixed share of the net profit derived from                              
17            the lease of not less than 30 percent reserved to the state;                                                 
18                      (C)  a fixed cash bonus with a royalty share reserved to the state                                 
19            as the bid variable but no less than 12.5 percent in amount or value of the                                  
20            production removed or sold from the lease;                                                                   
21                      (D)  a fixed cash bonus with the share of the net profit derived                                   
22            from the lease reserved to the state as the bid variable;                                                    
23                      (E)  a fixed cash bonus with a fixed royalty share reserved to the                                 
24            state of not less than 12.5 percent in amount or value of the production                                     
25            removed or sold from the lease with the share of the net profit derived from the                             
26            lease reserved to the state as the bid variable;                                                             
27                      (F)  a cash bonus bid with a fixed royalty share reserved to the                                   
28            state based on a sliding scale according to the volume of production or other                                
29            factor but in no event less than 12.5 percent in amount or value of the                                      
30            production removed or sold from the lease;                                                                   
31                      (G)  a fixed cash bonus with a royalty share reserved to the state                                 
01            based on a sliding scale according to the volume of production or other factor                               
02            as the bid variable but not less than 12.5 percent in amount or value of the                                 
03            production removed or sold from the lease;                                                                   
04                 (4)  notwithstanding a requirement in the leasing method chosen of a                                    
05       minimum fixed royalty share, on and after March 3, 1997, the lessee under a lease                                 
06       issued in the Cook Inlet sedimentary basin who is the first to file with the                                      
07       commissioner a nonconfidential sworn statement claiming to be the first to have                                   
08       drilled a well discovering oil or gas in a previously undiscovered oil or gas pool and                            
09       who is certified by the commissioner within one year of completion of that discovery                              
10       well to have drilled a well in that pool that is capable of producing in paying quantities                        
11       shall pay a royalty of five percent on all production of oil or gas from that pool                                
12       attributable to that lease for a period of 10 years following the date of discovery of that                       
13       pool, and thereafter the royalty payable on all production of oil or gas from the pool                            
14       attributable to that lease shall be determined and payable as specified in the lease; for                         
15       purposes of this paragraph, the reduced royalty authorized by this paragraph is subject                           
16       to the following:                                                                                                 
17                      (A)  only one reduction of royalty authorized by this paragraph                                    
18            may be allowed on each lease that qualifies for reduction of royalty under this                              
19            paragraph;                                                                                                   
20                      (B)  if, under this paragraph, application is made for a royalty                                   
21            reduction for a lease that was entered into before March 3, 1997, the                                        
22            commissioner may approve the application only if, on that date, the lease was a                              
23            nonproducing lease that was not committed to a unit approved by the                                          
24            commissioner under (m) of this section, that is not part of a unit under (p) or                              
25            (q) of this section, and that has not been made part of a unit under AS 31.05;                               
26                      (C)  if application for a royalty reduction is made under this                                     
27            paragraph for a lease on which a discovery royalty was claimed or may be                                     
28            claimed under the discovery royalty provisions of former AS 38.05.180(a) in                                  
29            effect before May 6, 1969, the commissioner shall disallow the application                                   
30            under this paragraph unless the applicant waives the right to claim the right to                             
31            a reduced royalty under the discovery royalty provisions of former                                           
01            AS 38.05.180(a) in effect before May 6, 1969; and                                                            
02                      (D)  the commissioner shall adopt regulations setting out the                                      
03            standards, criteria, and definitions of terms that apply to implement the filing                             
04            of applications for, and the review and certification of, discovery certifications                           
05            under this paragraph;                                                                                        
06                 (5)  notwithstanding and in lieu of a requirement in the leasing method                                 
07       chosen of a minimum fixed royalty share, or the royalty provision of a lease, for leases                      
08       held by a well certified capable of production, fields with oil or gas wells drilled                          
09       but not produced before December 31, 1997, leases unitized as described in (p) of                             
10       this section, leases subject to an agreement described in (s) or (t) of this section, or                          
11       interests unitized under AS 31.05, the lessee of all or part of an oil or gas field                               
12       identified in this section that has been granted approval of a written plan submitted to                          
13       the Alaska Oil and Gas Conservation Commission under AS 31.05.030(i) shall,                                       
14       subject to (dd) of this section, pay a royalty of five percent on the first 25,000,000                            
15       barrels of oil and the first 35,000,000,000 cubic feet of gas produced for sale from that                         
16       field that occurs after [IN THE 10 YEARS FOLLOWING THE DATE ON WHICH                                          
17       THE] production for sale commences; the fields eligible for royalty reduction under                               
18       this paragraph [, ALL OF WHICH] are located within the Cook Inlet sedimentary                                     
19       basin [, WERE DISCOVERED BEFORE JANUARY 1, 1988,] and have been                                                   
20       abandoned, undeveloped, or shut in from at least January 1, 1988, through                                 
21       December 31, 1997 [, ARE                                                                                          
22                      (A)  FALLS CREEK;                                                                                  
23                      (B)  NICOLAI CREEK;                                                                                
24                      (C)  NORTH FORK;                                                                                   
25                      (D)  POINT STARICHKOF;                                                                             
26                      (E)  REDOUBT SHOAL; AND                                                                            
27                      (F)  WEST FORELAND];                                                                               
28                 (6)  notwithstanding and in lieu of a requirement in the leasing method                                 
29       chosen of a minimum fixed royalty share [,] or the royalty provision of a lease, for                              
30       leases unitized as described in (p) of this section, leases subject to an agreement                               
31       described in (s) or (t) of this section, or interests unitized under AS 31.05, the lessee of                      
01       all or part of an oil or gas field located offshore in Cook Inlet [ON WHICH AN OIL                            
02       PRODUCTION PLATFORM SPECIFIED IN (A), (C), OR (E) OF THIS                                                         
03       PARAGRAPH OPERATES, OR THE LESSEE OF ALL OR PART OF THE FIELD                                                     
04       LOCATED OFFSHORE IN COOK INLET AND DESCRIBED IN (G) OF THIS                                                       
05       PARAGRAPH],                                                                                                       
06                      (A)  shall pay a royalty based on the previous month's                                         
07            production from a facility [OF FIVE PERCENT ON OIL PRODUCED                                              
08            FROM THE PLATFORM IF OIL PRODUCTION THAT EQUALED OR                                                          
09            EXCEEDED A VOLUME OF 1,200 BARRELS A DAY DECLINES TO                                                         
10            LESS THAN THAT AMOUNT FOR A PERIOD OF AT LEAST ONE                                                           
11            CALENDAR QUARTER], as certified by the Alaska Oil and Gas                                                    
12            Conservation Commission as follows:                                                                      
13                           (i)  for oil production less than or equal to 750                                         
14                 barrels a day, zero percent;                                                                        
15                           (ii)  for oil production greater than 750 barrels a day                                   
16                 but not more than 1,500 barrels a day, five percent;                                                
17                           (iii)  for oil production greater than 1,500 barrels a                                    
18                 day but not more than 1,750 barrels a day, six percent;                                             
19                           (iv)  for oil production greater than 1,750 barrels a                                     
20                 day but not more than 2,000 barrels a day, 7.5 percent;                                             
21                           (v)  for oil production greater than 2,000 barrels a                                      
22                 day but not more than 2,500 barrels a day, 10 percent;                                              
23                           (vi)  for oil production greater than 2,500 barrels a                                     
24                 day, 12.5 percent;                                                                                  
25                           (vii)  for gas production less than or equal to                                           
26                 15,000,000 cubic feet a day, zero percent;                                                          
27                           (viii)  for gas production greater than 15,000,000                                        
28                 cubic feet a day but not more than 30,000,000 cubic feet a day, five                                
29                 percent;                                                                                            
30                           (ix)  for gas production greater than 30,000,000 cubic                                    
31                 feet a day but not more than 35,000,000 cubic feet a day, six                                       
01                 percent;                                                                                            
02                           (x)  for gas production greater than 35,000,000 cubic                                     
03                 feet a day but not more than 40,000,000 cubic feet a day, 7.5                                       
04                 percent;                                                                                            
05                           (xi)  for gas production greater than 40,000,000 cubic                                    
06                 feet a day but not more than 50,000,000 cubic feet a day, 10                                        
07                 percent;                                                                                            
08                           (xii)  for gas production greater than 50,000,000                                         
09                 cubic feet a day, 12.5 percent [, FOR AS LONG AS THE VOLUME                                         
10                 OF OIL PRODUCED FROM THE PLATFORM REMAINS LESS                                                          
11                 THAN 1,200 BARRELS A DAY; THE PROVISIONS OF THIS                                                        
12                 SUBPARAGRAPH APPLY TO                                                                                   
13                           (i)  DOLLY;                                                                                   
14                           (ii)  GRAYLING;                                                                               
15                           (iii)  KING SALMON;                                                                           
16                           (iv)  STEELHEAD; AND                                                                          
17                           (v)  MONOPOD];                                                                                
18                      (B)  shall, [PAY A ROYALTY CALCULATED UNDER THIS                                               
19            SUBPARAGRAPH IF THE VOLUME OF OIL PRODUCED FROM THE                                                          
20            PLATFORM THAT WAS CERTIFIED BY THE ALASKA OIL AND GAS                                                        
21            CONSERVATION COMMISSION UNDER (A) OF THIS PARAGRAPH                                                          
22            LATER INCREASES TO 1,200 OR MORE BARRELS A DAY AND                                                           
23            REMAINS AT 1,200 OR MORE BARRELS A DAY FOR A PERIOD OF AT                                                    
24            LEAST ONE CALENDAR QUARTER; UNTIL THE ROYALTY RATE                                                           
25            DETERMINED UNDER THIS SUBPARAGRAPH APPLIES, THE                                                              
26            ROYALTY CONTINUES TO BE CALCULATED UNDER (A) OF THIS                                                         
27            PARAGRAPH; ON AND AFTER THE FIRST DAY OF THE MONTH                                                           
28            FOLLOWING THE MONTH THE INCREASED PRODUCTION EXCEEDS                                                         
29            THE PERIOD SPECIFIED IN THIS SUBPARAGRAPH, THE ROYALTY                                                       
30            PAYABLE UNDER THIS SUBPARAGRAPH IS                                                                           
31                           (i)  FOR PRODUCTION OF AT LEAST 1,200                                                         
01                 BARRELS A DAY BUT NOT MORE THAN 1,300 BARRELS A                                                         
02                 DAY - SEVEN PERCENT;                                                                                    
03                           (ii)  FOR PRODUCTION OF MORE THAN 1,300                                                       
04                 BARRELS A DAY BUT NOT MORE THAN 1,400 BARRELS A                                                         
05                 DAY - 8.5 PERCENT;                                                                                      
06                           (iii)  FOR PRODUCTION OF MORE THAN 1,400                                                      
07                 BARRELS A DAY BUT NOT MORE THAN 1,500 BARRELS A                                                         
08                 DAY - 10 PERCENT; AND                                                                                   
09                           (iv)  FOR PRODUCTION OF MORE THAN 1,500                                                       
10                 BARRELS A DAY - 12.5 PERCENT;                                                                           
11                      (C)  SHALL PAY A ROYALTY OF FIVE PERCENT ON OIL                                                    
12            PRODUCED FROM THE PLATFORM IF OIL PRODUCTION THAT                                                            
13            EQUALED OR EXCEEDED A VOLUME OF 975 BARRELS A DAY                                                            
14            DECLINES TO LESS THAN THAT AMOUNT FOR A PERIOD OF AT                                                         
15            LEAST ONE CALENDAR QUARTER, AS CERTIFIED BY THE ALASKA                                                       
16            OIL AND GAS CONSERVATION COMMISSION, FOR AS LONG AS THE                                                      
17            VOLUME OF OIL PRODUCED FROM THE PLATFORM REMAINS LESS                                                        
18            THAN 975 BARRELS A DAY; THE PROVISIONS OF THIS                                                               
19            SUBPARAGRAPH APPLY TO                                                                                        
20                           (i)  BAKER;                                                                                   
21                           (ii)  DILLON;                                                                                 
22                           (iii)  XTO.A; AND                                                                             
23                           (iv)  XTO.C;                                                                                  
24                      (D)  SHALL PAY A ROYALTY CALCULATED UNDER                                                          
25            THIS SUBPARAGRAPH IF THE VOLUME OF OIL PRODUCED FROM                                                         
26            THE PLATFORM THAT WAS CERTIFIED BY THE ALASKA OIL AND                                                        
27            GAS CONSERVATION COMMISSION UNDER (C) OF THIS                                                                
28            PARAGRAPH LATER INCREASES TO 975 OR MORE BARRELS A DAY                                                       
29            AND REMAINS AT 975 OR MORE BARRELS A DAY FOR A PERIOD OF                                                     
30            AT LEAST ONE CALENDAR QUARTER; UNTIL THE ROYALTY RATE                                                        
31            DETERMINED UNDER THIS SUBPARAGRAPH APPLIES, THE                                                              
01            ROYALTY CONTINUES TO BE CALCULATED UNDER (C) OF THIS                                                         
02            PARAGRAPH; ON AND AFTER THE FIRST DAY OF THE MONTH                                                           
03            FOLLOWING THE MONTH THE INCREASED PRODUCTION EXCEEDS                                                         
04            THE PERIOD SPECIFIED IN THIS SUBPARAGRAPH, THE ROYALTY                                                       
05            PAYABLE UNDER THIS SUBPARAGRAPH IS                                                                           
06                           (i)  FOR PRODUCTION OF AT LEAST 975                                                           
07                 BARRELS A DAY BUT NOT MORE THAN 1,100 BARRELS A                                                         
08                 DAY - SEVEN PERCENT;                                                                                    
09                           (ii)  FOR PRODUCTION OF MORE THAN 1,100                                                       
10                 BARRELS A DAY BUT NOT MORE THAN 1,200 BARRELS A                                                         
11                 DAY - 8.5 PERCENT;                                                                                      
12                           (iii)  FOR PRODUCTION OF MORE THAN 1,200                                                      
13                 BARRELS A DAY BUT NOT MORE THAN 1,350 BARRELS A                                                         
14                 DAY - 10 PERCENT; AND                                                                                   
15                           (iv)  FOR PRODUCTION OF MORE THAN 1,350                                                       
16                 BARRELS A DAY - 12.5 PERCENT;                                                                           
17                      (E)  SHALL PAY A ROYALTY OF FIVE PERCENT ON OIL                                                    
18            PRODUCED FROM THE PLATFORM IF OIL PRODUCTION THAT                                                            
19            EQUALED OR EXCEEDED A VOLUME OF 750 BARRELS A DAY                                                            
20            DECLINES TO LESS THAN THAT AMOUNT FOR A PERIOD OF AT                                                         
21            LEAST ONE CALENDAR QUARTER, AS CERTIFIED BY THE ALASKA                                                       
22            OIL AND GAS CONSERVATION COMMISSION, FOR AS LONG AS THE                                                      
23            VOLUME OF OIL PRODUCED FROM THE PLATFORM REMAINS LESS                                                        
24            THAN 750 BARRELS A DAY; THE PROVISIONS OF THIS                                                               
25            SUBPARAGRAPH APPLY TO                                                                                        
26                           (i)  GRANITE POINT;                                                                           
27                           (ii)  ANNA; AND                                                                               
28                           (iii)  BRUCE;                                                                                 
29                      (F)  SHALL PAY A ROYALTY CALCULATED UNDER                                                          
30            THIS SUBPARAGRAPH IF THE VOLUME OF OIL PRODUCED FROM                                                         
31            THE PLATFORM THAT WAS CERTIFIED BY THE ALASKA OIL AND                                                        
01            GAS CONSERVATION COMMISSION UNDER (E) OF THIS                                                                
02            PARAGRAPH LATER INCREASES TO 750 OR MORE BARRELS A DAY                                                       
03            AND REMAINS AT 750 OR MORE BARRELS A DAY FOR A PERIOD OF                                                     
04            AT LEAST ONE CALENDAR QUARTER; UNTIL THE ROYALTY RATE                                                        
05            DETERMINED UNDER THIS SUBPARAGRAPH APPLIES, THE                                                              
06            ROYALTY CONTINUES TO BE CALCULATED UNDER (E) OF THIS                                                         
07            PARAGRAPH; ON AND AFTER THE FIRST DAY OF THE MONTH                                                           
08            FOLLOWING THE MONTH THE INCREASED PRODUCTION EXCEEDS                                                         
09            THE PERIOD SPECIFIED IN THIS SUBPARAGRAPH, THE ROYALTY                                                       
10            PAYABLE UNDER THIS SUBPARAGRAPH IS                                                                           
11                           (i)  FOR PRODUCTION OF AT LEAST 750                                                           
12                 BARRELS A DAY BUT NOT MORE THAN 850 BARRELS A DAY                                                       
13                 - SEVEN PERCENT;                                                                                        
14                           (ii)  FOR PRODUCTION OF MORE THAN 850                                                         
15                 BARRELS A DAY BUT NOT MORE THAN 1,000 BARRELS A                                                         
16                 DAY - 8.5 PERCENT;                                                                                      
17                           (iii)  FOR PRODUCTION OF MORE THAN 1,000                                                      
18                 BARRELS A DAY BUT NOT MORE THAN 1,200 BARRELS A                                                         
19                 DAY - 10 PERCENT; AND                                                                                   
20                           (iv)  FOR PRODUCTION OF MORE THAN 1,200                                                       
21                 BARRELS A DAY - 12.5 PERCENT;                                                                           
22                      (G)  SHALL PAY A ROYALTY OF FIVE PERCENT ON OIL                                                    
23            PRODUCED FROM THE FIELD IF OIL PRODUCTION THAT EQUALED                                                       
24            OR EXCEEDED A VOLUME OF 750 BARRELS A DAY DECLINES TO                                                        
25            LESS THAN THAT AMOUNT FOR A PERIOD OF AT LEAST ONE                                                           
26            CALENDAR QUARTER, AS CERTIFIED BY THE ALASKA OIL AND                                                         
27            GAS CONSERVATION COMMISSION, FOR AS LONG AS THE                                                              
28            VOLUME OF OIL PRODUCED FROM THE FIELD REMAINS LESS                                                           
29            THAN 750 BARRELS A DAY; THE PROVISIONS OF THIS                                                               
30            SUBPARAGRAPH APPLY TO THE WEST MCARTHUR RIVER FIELD;                                                         
31                      (H)  SHALL PAY A ROYALTY CALCULATED UNDER                                                          
01            THIS SUBPARAGRAPH IF THE VOLUME OF OIL PRODUCED FROM                                                         
02            THE FIELD THAT WAS CERTIFIED BY THE ALASKA OIL AND GAS                                                       
03            CONSERVATION COMMISSION UNDER (G) OF THIS PARAGRAPH                                                          
04            LATER INCREASES TO 750 OR MORE BARRELS A DAY AND                                                             
05            REMAINS AT 750 OR MORE BARRELS A DAY FOR A PERIOD OF AT                                                      
06            LEAST ONE CALENDAR QUARTER; UNTIL THE ROYALTY RATE                                                           
07            DETERMINED UNDER THIS SUBPARAGRAPH APPLIES, THE                                                              
08            ROYALTY CONTINUES TO BE CALCULATED UNDER (G) OF THIS                                                         
09            PARAGRAPH; ON AND AFTER THE FIRST DAY OF THE MONTH                                                           
10            FOLLOWING THE MONTH THE INCREASED PRODUCTION EXCEEDS                                                         
11            THE PERIOD SPECIFIED IN THIS SUBPARAGRAPH, THE ROYALTY                                                       
12            PAYABLE UNDER THIS SUBPARAGRAPH IS                                                                           
13                           (i)  FOR PRODUCTION OF AT LEAST 750                                                           
14                 BARRELS A DAY BUT NOT MORE THAN 850 BARRELS A DAY                                                       
15                 - SEVEN PERCENT;                                                                                        
16                           (ii)  FOR PRODUCTION OF MORE THAN 850                                                         
17                 BARRELS A DAY BUT NOT MORE THAN 1,000 BARRELS A                                                         
18                 DAY - 8.5 PERCENT;                                                                                      
19                           (iii)  FOR PRODUCTION OF MORE THAN 1,000                                                      
20                 BARRELS A DAY BUT NOT MORE THAN 1,200 BARRELS A                                                         
21                 DAY - 10 PERCENT; AND                                                                                   
22                           (iv)  FOR PRODUCTION OF MORE THAN 1,200                                                       
23                 BARRELS A DAY - 12.5 PERCENT; AND                                                                       
24                      (I)  MAY OBTAIN THE BENEFITS OF THE ROYALTY                                                        
25            ADJUSTMENTS SET OUT IN (A) - (H) OF THIS PARAGRAPH ONLY] if                                                  
26            the commissioner determines that the reduction in production is [FROM THE                                
27            PLATFORM OR THE FIELD IS                                                                                     
28                           (i)  BASED ON THE AVERAGE DAILY                                                               
29                 PRODUCTION DURING THE CALENDAR QUARTER BASED ON                                                         
30                 RESERVOIR CONDITIONS; AND                                                                               
31                           (ii)  NOT] the result of short-term production declines                                       
01                 due to the voluntary application of mechanical or other choke-back                                  
02                 factors, temporary shutdowns, [OR DECREASED PRODUCTION                                              
03                 DUE TO] environmental [OR FACILITY] constraints, or market                                              
04                 conditions, pay a royalty based on production certified by the                                      
05                 Alaska Oil and Gas Conservation Commission for the most recent                                      
06                 month in which none of the constraints listed in this subparagraph                                  
07                 applied;                                                                                            
08                      (C)  may not be prohibited by a provision in this paragraph                                    
09            from applying for a royalty rate reduction or modification, nor shall the                                
10            commissioner be prohibited under this paragraph from approving a                                         
11            royalty rate reduction or modification, under (j) of this section.                                       
12    * Sec. 3. AS 38.05.180(m) is amended to read:                                                                      
13            (m)  An oil and gas lease or a gas only lease must cover a reasonably compact                                
14       area not exceeding 5,760 acres, and may not be for a primary term of more than                                
15       [BE FOR A MAXIMUM PERIOD OF] 10 years. The commissioner shall determine                                       
16       the primary term of the lease based on a finding that the term of the lease [,                                
17       EXCEPT THAT THE COMMISSIONER MAY ISSUE A LEASE FOR A PERIOD                                                       
18       NOT LESS THAN FIVE YEARS UPON A FINDING THAT IT] is in the best                                                   
19       interests of the state. The primary term of an [AN] oil and gas lease shall be (1)                        
20       extended at the request of the lessee for a period of not more than two years                                 
21       beyond the original primary term of the lease if the request is made in writing                               
22       more than 180 days before the expiration of the original primary term and the                                 
23       lessee submits a payment equal to a prorated bonus payment based on the                                       
24       original bonus payment for the original lease; (2) extended at the request of the                             
25       lessee to the latest expiration date of the primary term of a lease within an                                 
26       exploration block of contiguous leases if the request is made in writing more than                            
27       180 days before the expiration date of the primary term or automatic extension of                             
28       the primary term under this subsection for the first lease issued in the                                      
29       exploration block of contiguous leases; and (3) automatically extended if and for so                          
30       long thereafter as oil or gas is produced in paying quantities from the lease or if the                           
31       lease is committed to a unit approved by the commissioner. In addition to the                                 
01       extensions authorized by (1) - (3) of this subsection, a [, AND A GAS ONLY                                    
02       LEASE SHALL BE AUTOMATICALLY EXTENDED IF AND FOR SO LONG                                                          
03       THEREAFTER AS GAS IS PRODUCED IN PAYING QUANTITIES FROM THE                                                       
04       LEASE OR IF THE LEASE IS COMMITTED TO A UNIT APPROVED BY THE                                                      
05       COMMISSIONER. A] lease issued under this section covering land on which there is                                  
06       a well capable of producing oil or gas in paying quantities does not expire because the                           
07       lessee fails to produce oil or gas unless the lessee is allowed reasonable time to place                          
08       the well on a producing status. Upon extension, the commissioner may increase lease                               
09       rentals so long as the increased rental rate does not exceed 150 percent of the rate for                          
10       the preceding year. If drilling has commenced on the expiration date of the primary                               
11       term of the lease and is continued with reasonable diligence, including such operations                           
12       as redrilling, sidetracking, or other means necessary to reach the originally proposed                            
13       bottom hole location, the lease continues in effect until 180 [90] days after drilling has                    
14       ceased and for so long thereafter as oil or gas is produced in paying quantities. An oil                          
15       and gas lease or a gas only lease issued under this section that [WHICH] is subject to                        
16       termination by reason of cessation of production does not terminate if, within 180 [60]                       
17       days after production ceases, reworking or drilling operations are commenced on the                               
18       land under lease and are thereafter conducted with reasonable diligence during the                                
19       period of nonproduction.                                                                                          
20    * Sec. 4. AS 38.05.180(w) is amended to read:                                                                      
21            (w)  Notwithstanding any other provisions of this section, land that was subject                             
22       to a best interest finding issued within the previous 10 years may be, at the discretion                          
23       of the commissioner, immediately offered for lease, under regulations adopted by the                              
24       commissioner, upon terms appearing most advantageous to the state; however,                                       
25       noncompetitive leasing is prohibited. The commissioner shall establish a royalty                                  
26       determined to be in the public interest but not less than 12 1/2 percent. A lease must                            
27       provide for payment to the state of rental but need not adhere to the rental schedule in                          
28       (n) of this section nor to the 5,760-acres-per-lease limitation in (m) of this section. The                       
29       primary lease term may not exceed 10 years, except as provided in (m) and (o) of                          
30       this section.                                                                                                     
31    * Sec. 5. AS 38.05.180(dd) is amended to read:                                                                     
01            (dd)  A lessee is entitled to [ELIGIBLE FOR] the royalty in (f)(5) of this                               
02       section only if production of oil or gas for sale begins from the eligible field before                           
03       December 31, 2020 [JANUARY 1, 2004]. However, if the state or an agency of the                                
04       state is a party to a suit, other than a suit brought by the lessee or agent of the lessee,                       
05       and if the suit challenges (f)(5) of this section or AS 31.05.030(i) or an act under (f)(5)                       
06       of this section or AS 31.05.030(i), the December 31, 2020 [JANUARY 1, 2004],                                  
07       deadline is extended by the number of days the state or agency of the state is a party to                         
08       the suit, including any appeals.                                                                                  
09    * Sec. 6. The uncodified law of the State of Alaska is amended by adding a new section to                          
10 read:                                                                                                                   
11       APPLICABILITY. (a) The amendments to AS 38.05.180(f), made in sec. 2 of this Act                                  
12 are applicable to a lease entered into, renewed, or amended on or after the effective date of                           
13 this Act.                                                                                                               
14       (b)  The extensions to a lease authorized by the amendments to AS 38.05.180(m),                                   
15 made in by sec. 3 of this Act, are applicable to a lease entered into on or after the effective                         
16 date of this Act and to a lease the primary term of which has not expired before the effective                          
17 date of this Act.