HB 220: "An Act relating to the shared use of oil and gas facilities."
00 HOUSE BILL NO. 220 01 "An Act relating to the shared use of oil and gas facilities." 02 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 03 * Section 1. The uncodified law of the State of Alaska is amended by adding a new section 04 to read: 05 LEGISLATIVE FINDINGS AND INTENT. (a) The legislature finds that 06 (1) the development of oil and gas resources requires the use of private 07 infrastructure on land leased from the state; 08 (2) the competitive market has failed to provide reasonable opportunity for 09 producers to develop newly discovered or proven oil and gas reserves because of the cost of 10 building new facilities or the inability to access existing facilities; 11 (3) in the Charter for Development of the Alaskan North Slope, entered into 12 by the state, BP Alaska Exploration (Alaska) Inc., and ARCO Alaska, Inc., on December 2, 13 1999, 14 (A) the state expressed the view that the commissioner of natural 15 resources possesses the power to require working interest owners to provide others
01 access to facilities on terms that are nondiscriminatory, just, and reasonable; and 02 (B) although BP Alaska Exploration (Alaska) Inc. and ARCO Alaska, 03 Inc., did not take a position on the state's view described in (A) of this paragraph, BP 04 Alaska Exploration (Alaska) Inc. and ARCO Alaska, Inc., 05 (i) made a commitment that, after the merger between the two 06 companies, neither BP Alaska Exploration (Alaska) Inc. nor ARCO Alaska, 07 Inc., would unreasonably withhold its voting support as an owner of a facility 08 for allowing nearby fields to have access to existing unit facilities on 09 reasonable commercial terms; and 10 (ii) agreed that, if a nearby field operator reasonably and 11 diligently negotiates to unsuccessful impasse with owners of facilities that 12 include BP Alaska Exploration (Alaska) Inc. and ARCO Alaska, Inc., and after 13 90 days' advance notice to BP Alaska Exploration (Alaska) Inc. and ARCO 14 Alaska, Inc., the two companies would subject themselves to binding 15 arbitration on the question of reasonable commercial terms for that access; and 16 (4) the authority of the Department of Natural Resources to exercise oversight 17 of all oil and natural gas facilities, equipment, infrastructure, and activities on state oil and 18 natural gas units and leases under AS 38.05 and AS 44.37.020(a) was further recognized by 19 the governor in Administrative Order No. 234. 20 (b) The legislature finds that it is in the best interests of the state to 21 (1) maximize the development of oil and gas resources in the state and 22 revenue to the state from the development of those resources; 23 (2) minimize unnecessary duplication of oil and gas facilities to promote 24 safety and economic efficiency, protect the state's royalty interests, and reduce the 25 environmental footprint; 26 (3) encourage and facilitate agreements between the developers of newly 27 discovered or proven oil and gas reserves and the owners and operators of oil and gas 28 facilities that provide for access to the facilities in exchange for a just and reasonable rate of 29 compensation. 30 (c) It is the intent of the legislature that this Act provide a means for the commissioner 31 of natural resources to facilitate the sharing of facilities through negotiation, mediation, and
01 other action necessary to maximize the benefits to the people of the state from the production 02 of the state's oil and gas resources. 03 * Sec. 2. AS 31 is amended by adding a new chapter to read: 04 Chapter 20. Shared Use of Oil and Gas Facilities. 05 Sec. 31.20.010. Promotion of shared use of facilities. (a) The commissioner 06 shall promote and facilitate the shared use of facilities for the purpose of developing 07 oil and gas resources for the maximum benefit of the people of the state. 08 (b) The department shall adopt regulations necessary for the implementation 09 and administration of this chapter. The regulations must include a description of the 10 information required to be submitted by an applicant making an application for 11 assistance in negotiating access to facilities, the information that must be submitted by 12 a facility owner when there is an application to use the owner's capacity, the procedure 13 to be used for mediating shared facility use between the applicant and the owner or 14 operator of the facility, and the procedure to be used for arbitrating an agreement for 15 shared facility use. 16 Sec. 31.20.020. Application for assistance. (a) An operator or working 17 interest owner of a lease or property that has negotiated in good faith during a period 18 of not less than six months to access an existing facility for a different lease or 19 property but has failed to reach an agreement for the use of the existing facility may 20 apply to the commissioner for assistance under this chapter. 21 (b) The operator or working interest owner making an application for 22 assistance shall provide 23 (1) a description of the facility to be shared; including location, 24 estimated capacity, and capacity needed by the applicant; 25 (2) the name of the owner or operator of the facility that has the power 26 to enter into an agreement for the shared use of the facility; 27 (3) an estimate of the time period in which the facility is needed for the 28 applicant's oil or gas; 29 (4) an analysis of the benefit to the state that would result from the use 30 of the shared facility compared with the applicant's development of its own facility; 31 (5) a description of the negotiations between the applicant and the
01 owner of the facility to be shared, including the final offer made by the applicant and 02 the response to that offer by the owner or operator of the facility; 03 (6) the reasons why the applicant concludes that further negotiation 04 with the owner or operator of the facility is expected to be unsuccessful and why the 05 assistance by the commissioner is required; and 06 (7) other information required by a regulation adopted by the 07 department. 08 (c) As soon as practicable after receiving an application for assistance under 09 this section, the commissioner shall provide a copy of the application to the owner or 10 operator identified in accordance with (b)(2) of this section. The owner or operator 11 receiving the copy of the application under this subsection shall have 30 days to 12 evaluate the application and give notice to the commissioner as to whether the owner 13 or operator anticipates that continuing negotiations with the applicant may lead to an 14 agreement for the shared use of the facility. If the owner or operator anticipates that 15 continuing negotiations are not likely to lead to an agreement for the shared use of the 16 facility, the commissioner may require the parties to submit to mediation as provided 17 under (e) of this section. 18 (d) If the commissioner determines that further negotiations between the 19 applicant and the owner or operator of the facility are likely to lead to an agreement 20 for the shared use of the facility, the commissioner shall suspend the application for 21 180 days to allow further negotiation. The commissioner may also suspend the 22 application for 90 days at the request of the applicant and the owner or operator when 23 the applicant and the owner or operator agree that they are close to reaching an 24 agreement. The commissioner may expand the period of suspension after making a 25 finding that additional time is required for continued good faith negotiation between 26 the parties. After the end of the suspension period, or earlier if the parties have reached 27 an impasse, the applicant shall notify the commissioner of the outcome of the 28 negotiation. 29 (e) The commissioner shall require the parties to submit to mediation under 30 AS 31.20.030 if the parties have failed to negotiate an agreement for the shared use of 31 the facility after the end of the 180-day or 90-day period, as applicable, in (d) of this
01 section, or earlier if the commissioner finds that the owner or operator of the facility 02 fails to negotiate in good faith, if the commissioner finds that 03 (1) further negotiations between the applicant and the owner or 04 operator of the facility are not likely to lead to an agreement for the shared use of the 05 facility; and 06 (2) the shared use of the facility provides for the maximum recovery 07 and conservation of the state's oil and gas resources and is in the best interests of the 08 state. 09 Sec. 31.20.030. Mediation. (a) After the commissioner makes a finding under 10 AS 31.20.020(d), the commissioner shall provide written notice of the finding to the 11 owner or operator of the facility and the person making an application for assistance 12 under AS 31.20.020(a). The written notice must 13 (1) state that the parties have 180 days after the date of the notice to 14 negotiate a facility sharing agreement; and 15 (2) require the parties to submit to mediation before the commissioner 16 if an agreement is not reached. 17 (b) If the commissioner finds that the owner or operator of the facility fails to 18 participate in mediation in good faith, or if the owner or operator of the facility and the 19 person making the application for assistance fail to reach an agreement for the shared 20 use of the facility within 180 days after the commissioner provides written notice 21 under (a) of this section or after mediation ordered under AS 31.20.020(c), and the 22 commissioner determines that the shared use of the facility provides for the maximum 23 recovery and conservation of the state's oil and gas resources and is in the best 24 interests of the state, the commissioner shall issue an order that requires the parties to 25 submit to arbitration under AS 31.20.040. 26 (c) A person aggrieved by a determination of the commissioner or the 27 commissioner's delegate under (b) of this section may file an appeal with the 28 commissioner within 30 days after the date of the notice. The appeal shall be 29 conducted using the procedure in AS 44.62.230 - 44.62.630 (Administrative Procedure 30 Act). 31 (d) The commissioner may delegate the commissioner's responsibilities to
01 conduct mediation under this section to a professional mediator. If the commissioner 02 delegates authority to a mediator under this subsection, the person making an 03 application for assistance under AS 31.20.020(a) and the facility owner or operator of 04 the facility shall reimburse the department for the cost of employing the mediator in 05 equal shares and shall reimburse the department for other costs incurred by the 06 department in equal shares. 07 Sec. 31.20.040. Arbitration. (a) After ordering the parties to submit to 08 arbitration under AS 31.20.030(b), the commissioner shall conduct arbitration using 09 the procedure established in regulations adopted by the department. 10 (b) The commissioner 11 (1) shall 12 (A) act as arbitrator between the owner or operator of the 13 facility and the person making the application for assistance under 14 AS 31.20.020(a); 15 (B) require the owner or operator of the facility and the person 16 making the application for assistance to submit in good faith their best and 17 final offers for the shared use of the facility, including production capacity and 18 amount of reasonable compensation, within 75 days after an order to submit to 19 arbitration under AS 31.20.030(b) is issued; 20 (C) after conducting arbitration under regulations adopted 21 under (e) of this section and in the discretion of the commissioner, designate 22 the good faith offer submitted under (B) of this paragraph that shall be 23 applicable to the shared use of the facility; the commissioner may not impose 24 terms and conditions that were not in a good faith offer submitted under (B) of 25 this paragraph; in this subparagraph, the failure to submit a good faith offer 26 may be grounds for the commissioner to rule against the party that failed to 27 submit a good faith offer and in favor of a good faith offer submitted to the 28 commissioner; and 29 (2) may require the parties to sign confidentiality agreements to protect 30 information exchanged during the arbitration process. 31 (c) If, during the course of the arbitration, the commissioner determines that
01 the shared use of the facility is not economically feasible or that pursuing the shared 02 use of the facility is not in the best interests of the state, the arbitration shall be 03 terminated. The termination of the arbitration under this subsection does not preclude 04 the parties from independently pursuing an agreement for the shared use of the 05 facility. 06 (d) Each party participating in arbitration shall bear its own costs and shall 07 reimburse the department for costs incurred by the state, including the cost of an 08 arbitrator in equal shares, if the arbitrator is employed by the commissioner under (f) 09 of this section. 10 (e) The department shall adopt regulations for the conduct of arbitration under 11 this section. The regulations must provide procedures for 12 (1) discovery, submission of motions and briefs, holding hearings, and 13 receiving testimony and other evidence related to the shared use of the facility; 14 (2) determining 15 (A) the total capacity of the facility proposed to be shared and 16 the capacity of the facility that is available to be shared; 17 (B) the total cost of operating the facility; 18 (C) an allocation of the total cost of operating the facility to the 19 portion of the facility that is to be shared; 20 (D) the amount of capital investment by the owner or operator 21 of the facility and an amount, if any, to be recovered from the person 22 proposing to access the facility; 23 (E) the commercially reasonable compensation to the owner or 24 operator for the use of the shared facility; 25 (F) the time period for sharing the facility; 26 (G) the cost and availability of an alternative facility to the 27 applicant; 28 (H) the commercially reasonable compensation to the owner 29 and operator of the facility and other working interest owners using that 30 facility for lost or deferred production that results from the shared use of the 31 facility by the person making the application for assistance;
01 (I) the allocation of costs necessary for improvements to the 02 facility between the person making the application for assistance, the owner or 03 operator of the facility, and other working interest owners using the facility if 04 the commissioner finds that benefits of access across rights-of-way and 05 improvements to the facility required to accommodate the use by the person 06 making application for assistance outweigh the alternative of lost or deferred 07 production that would result from failing to provide access or make the 08 improvements; 09 (J) the need for indemnification and the liability of each party 10 under the agreement; and 11 (K) the form and type of evidence that must be produced 12 during arbitration; 13 (3) requiring the owner or operator of the facility and the person 14 proposing to share the facility to file with the commissioner the terms and conditions 15 under which the facility would be shared and the compensation to be provided to the 16 owner or operator of the facility; 17 (4) issuing an order following the completion of arbitration and the 18 contents of that order, including the determination of the amount of capacity to be 19 shared and the consideration to be paid to the owner or operator for the shared use of 20 the facility; 21 (5) reconsidering an order to share or not to share the facility; 22 (6) preserving the confidentiality of the information produced by each 23 party in the course of arbitration; 24 (7) maintaining a record of the arbitration proceeding; and 25 (8) appealing the final order following arbitration to the superior court. 26 (f) The commissioner may delegate the commissioner's responsibilities to 27 conduct arbitration under (b) and (c) of this section to a professional arbitrator. 28 Sec. 31.20.050. Order after arbitration. (a) Except as provided in (b) of this 29 section, after the completion of the arbitration under AS 31.20.040, the commissioner 30 shall issue an order 31 (1) rejecting all best and final offers submitted under
01 AS 31.20.040(b)(1)(B) or in the course of the arbitration and giving the parties 60 02 days to resubmit best and final offers for the shared use of the facility; an order under 03 this paragraph must include the reasons for finding that the offers are inadequate to 04 support a decision to order or deny the shared use of the facility; 05 (2) rejecting the shared use of the facility based on written findings and 06 a determination that the shared use of the facility is not economically feasible or that 07 the shared use is not in the best interests of the state; or 08 (3) requiring the shared use of the facility if the owner or operator of 09 the facility has not agreed to share the facility and the commissioner finds that the 10 shared use of the facility provides for the maximum recovery and conservation of the 11 state's oil and gas resources, is economically feasible, and is in the best interests of the 12 state. 13 (b) The commissioner may issue an order described in (a)(2) or (a)(3) of this 14 section only after completion of an arbitration under AS 31.20.040 that considered 15 best and final offers resubmitted in response to an order issued under (a)(1) of this 16 section. 17 (c) An order issued under (a) of this section is a final administrative action for 18 purposes of appeal to the superior court in the state. An order under (a)(1) of this 19 section is final on the earlier of the date the parties notify the commissioner that best 20 and final offers will not be resubmitted or the first day after the end of the period for 21 resubmitting best and final offers. An order under (a)(2) or (a)(3) of this section is 22 final on the date determined under regulations adopted under AS 31.20.040(e). 23 Sec. 31.20.060. Confidentiality. Information required to be submitted to the 24 commissioner or the department under this chapter is confidential. 25 Sec. 31.20.900. Definitions. In this chapter, 26 (1) "commissioner" means the commissioner of natural resources; 27 (2) "department" means the Department of Natural Resources; 28 (3) "facility" means roads, drilling rigs, flow lines, a flow station, a 29 gathering center, a pump station, a storage tank, related appurtenances, and other 30 facilities that gather, clean, dehydrate, condition, or store crude oil, natural gas, or 31 associated hydrocarbons and are located on a lease or property leased from the state.
01 * Sec. 3. The uncodified law of the State of Alaska is amended by adding a new section to 02 read: 03 REPORTING OF FACILITY SHARING AGREEMENTS. (a) As soon as practicable 04 after the effective date of this Act, the commissioner of natural resources shall issue a notice 05 requiring an owner or operator of a facility to report whether the facility is or has been subject 06 to an agreement for the shared use of more than one lease or property. The report and any 07 agreement for the shared use of a facility shall be filed within 60 days after the date the notice 08 is issued by the commissioner of natural resources. 09 (b) Notwithstanding (a) of this section, the owner or operator of a facility is not 10 required to file a report under (a) of this section if the only leases or properties served by the 11 facility are or have been included in a unit and the facility is owned or operated by the 12 operator for the unit. 13 (c) A report filed with the commissioner of natural resources under this section is 14 required to be kept confidential and not subject to disclosure under AS 40.25.110 - 40.25.220. 15 (d) In this section, 16 (1) "facility" has the meaning given in AS 31.20.900, enacted in sec. 2 of this 17 Act; 18 (2) "unit" has the meaning given in AS 43.55.900.