HB 393: "An Act relating to oil and gas leases and royalty shares; and providing for an effective date."
00 HOUSE BILL NO. 393 01 "An Act relating to oil and gas leases and royalty shares; and providing for an effective 02 date." 03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 04 * Section 1. AS 38.05.180(f) is amended to read: 05 (f) Except as provided by AS 38.05.131 - 38.05.134 and (mm) of this 06 section, the commissioner may issue oil and gas leases or leases for gas only on state 07 land to the highest responsible qualified bidder as follows: 08 (1) the commissioner shall issue an oil and gas lease or a gas only 09 lease, as appropriate, to the successful bidder determined by competitive bidding 10 under regulations adopted by the commissioner; bidding may be by sealed bid or 11 according to any other bidding procedure the commissioner determines is in the best 12 interests of the state; 13 (2) whenever, under any of the leasing methods listed in this 14 subsection, a royalty share is reserved to the state, it shall be delivered in pipeline
01 quality and free of all lease or unit expenses, including but not limited to separation, 02 cleaning, dehydration, gathering, salt water disposal, and preparation for transportation 03 off the lease or unit area; 04 (3) following a pre-sale analysis, the commissioner may choose at least 05 one of the following leasing methods: 06 (A) a cash bonus bid with a fixed royalty share reserved to the 07 state of not less than 12.5 percent in amount or value of the production 08 removed or sold from the lease; 09 (B) a cash bonus bid with a fixed royalty share reserved to the 10 state of not less than 12.5 percent in amount or value of the production 11 removed or sold from the lease and a fixed share of the net profit derived from 12 the lease of not less than 30 percent reserved to the state; 13 (C) a fixed cash bonus with a royalty share reserved to the state 14 as the bid variable but not [NO] less than 12.5 percent in amount or value of 15 the production removed or sold from the lease; 16 (D) a fixed cash bonus with the share of the net profit derived 17 from the lease reserved to the state as the bid variable; 18 (E) a fixed cash bonus with a fixed royalty share reserved to the 19 state of not less than 12.5 percent in amount or value of the production 20 removed or sold from the lease with the share of the net profit derived from the 21 lease reserved to the state as the bid variable; 22 (F) a cash bonus bid with a fixed royalty share reserved to the 23 state based on a sliding scale according to the volume of production or other 24 factor but in no event less than 12.5 percent in amount or value of the 25 production removed or sold from the lease; 26 (G) a fixed cash bonus with a royalty share reserved to the state 27 based on a sliding scale according to the volume of production or other factor 28 as the bid variable but not less than 12.5 percent in amount or value of the 29 production removed or sold from the lease; 30 (4) notwithstanding a requirement in the leasing method chosen of a 31 minimum fixed royalty share, on and after March 3, 1997, the lessee under a lease
01 issued in the Cook Inlet sedimentary basin who is the first to file with the 02 commissioner a nonconfidential sworn statement claiming to be the first to have 03 drilled a well discovering oil or gas in a previously undiscovered oil or gas pool and 04 who is certified by the commissioner within one year of completion of that discovery 05 well to have drilled a well in that pool that is capable of producing in paying quantities 06 shall pay a royalty of five percent on all production of oil or gas from that pool 07 attributable to that lease for a period of 10 years following the date of discovery of that 08 pool, and thereafter the royalty payable on all production of oil or gas from the pool 09 attributable to that lease shall be determined and payable as specified in the lease; for 10 purposes of this paragraph, the reduced royalty authorized by this paragraph is subject 11 to the following: 12 (A) only one reduction of royalty authorized by this paragraph 13 may be allowed on each lease that qualifies for reduction of royalty under this 14 paragraph; 15 (B) if, under this paragraph, application is made for a royalty 16 reduction for a lease that was entered into before March 3, 1997, the 17 commissioner may approve the application only if, on that date, the lease was a 18 nonproducing lease that was not committed to a unit approved by the 19 commissioner under (m) of this section, that is not part of a unit under (p) or 20 (q) of this section, and that has not been made part of a unit under AS 31.05; 21 (C) if application for a royalty reduction is made under this 22 paragraph for a lease on which a discovery royalty was claimed or may be 23 claimed under the discovery royalty provisions of former AS 38.05.180(a) in 24 effect before May 6, 1969, the commissioner shall disallow the application 25 under this paragraph unless the applicant waives the right to claim the right to 26 a reduced royalty under the discovery royalty provisions of former 27 AS 38.05.180(a) in effect before May 6, 1969; and 28 (D) the commissioner shall adopt regulations setting out the 29 standards, criteria, and definitions of terms that apply to implement the filing 30 of applications for, and the review and certification of, discovery certifications 31 under this paragraph;
01 (5) notwithstanding and in lieu of a requirement in the leasing method 02 chosen of a minimum fixed royalty share, or the royalty provision of a lease, for leases 03 unitized as described in (p) of this section, leases subject to an agreement described in 04 (s) or (t) of this section, or interests unitized under AS 31.05, the lessee of all or part of 05 an oil or gas field identified in this section that has been granted approval of a written 06 plan submitted to the Alaska Oil and Gas Conservation Commission under 07 AS 31.05.030(i) shall, subject to (dd) of this section, pay a royalty of five percent on 08 the first 25,000,000 barrels of oil and the first 35,000,000,000 cubic feet of gas 09 produced for sale from that field that occurs in the 10 years following the date on 10 which the production for sale commences; the fields eligible for royalty reduction 11 under this paragraph, all of which are located within the Cook Inlet sedimentary basin, 12 were discovered before January 1, 1988, and have been undeveloped or shut in from at 13 least January 1, 1988, through December 31, 1997, are 14 (A) Falls Creek; 15 (B) Nicolai Creek; 16 (C) North Fork; 17 (D) Point Starichkof; 18 (E) Redoubt Shoal; and 19 (F) West Foreland; 20 (6) notwithstanding and in lieu of a requirement in the leasing method 21 chosen of a minimum fixed royalty share, or the royalty provision of a lease, for leases 22 unitized as described in (p) of this section, leases subject to an agreement described in 23 (s) or (t) of this section, or interests unitized under AS 31.05, the lessee of all or part of 24 an oil field located offshore in Cook Inlet on which an oil production platform 25 specified in (A), (C), or (E) of this paragraph operates, or the lessee of all or part of the 26 field located offshore in Cook Inlet and described in (G) of this paragraph, 27 (A) shall pay a royalty of five percent on oil produced from the 28 platform if oil production that equaled or exceeded a volume of 1,200 barrels a 29 day declines to less than that amount for a period of at least one calendar 30 quarter, as certified by the Alaska Oil and Gas Conservation Commission, for 31 as long as the volume of oil produced from the platform remains less than
01 1,200 barrels a day; the provisions of this subparagraph apply to 02 (i) Dolly; 03 (ii) Grayling; 04 (iii) King Salmon; 05 (iv) Steelhead; and 06 (v) Monopod; 07 (B) shall pay a royalty calculated under this subparagraph if the 08 volume of oil produced from the platform that was certified by the Alaska Oil 09 and Gas Conservation Commission under (A) of this paragraph later increases 10 to 1,200 or more barrels a day and remains at 1,200 or more barrels a day for a 11 period of at least one calendar quarter; until the royalty rate determined under 12 this subparagraph applies, the royalty continues to be calculated under (A) of 13 this paragraph; on and after the first day of the month following the month the 14 increased production exceeds the period specified in this subparagraph, the 15 royalty payable under this subparagraph is 16 (i) for production of at least 1,200 barrels a day but not 17 more than 1,300 barrels a day - seven percent; 18 (ii) for production of more than 1,300 barrels a day but 19 not more than 1,400 barrels a day - 8.5 percent; 20 (iii) for production of more than 1,400 barrels a day but 21 not more than 1,500 barrels a day - 10 percent; and 22 (iv) for production of more than 1,500 barrels a day - 23 12.5 percent; 24 (C) shall pay a royalty of five percent on oil produced from the 25 platform if oil production that equaled or exceeded a volume of 975 barrels a 26 day declines to less than that amount for a period of at least one calendar 27 quarter, as certified by the Alaska Oil and Gas Conservation Commission, for 28 as long as the volume of oil produced from the platform remains less than 975 29 barrels a day; the provisions of this subparagraph apply to 30 (i) Baker; 31 (ii) Dillon;
01 (iii) XTO.A; and 02 (iv) XTO.C; 03 (D) shall pay a royalty calculated under this subparagraph if the 04 volume of oil produced from the platform that was certified by the Alaska Oil 05 and Gas Conservation Commission under (C) of this paragraph later increases 06 to 975 or more barrels a day and remains at 975 or more barrels a day for a 07 period of at least one calendar quarter; until the royalty rate determined under 08 this subparagraph applies, the royalty continues to be calculated under (C) of 09 this paragraph; on and after the first day of the month following the month the 10 increased production exceeds the period specified in this subparagraph, the 11 royalty payable under this subparagraph is 12 (i) for production of at least 975 barrels a day but not 13 more than 1,100 barrels a day - seven percent; 14 (ii) for production of more than 1,100 barrels a day but 15 not more than 1,200 barrels a day - 8.5 percent; 16 (iii) for production of more than 1,200 barrels a day but 17 not more than 1,350 barrels a day - 10 percent; and 18 (iv) for production of more than 1,350 barrels a day - 19 12.5 percent; 20 (E) shall pay a royalty of five percent on oil produced from the 21 platform if oil production that equaled or exceeded a volume of 750 barrels a 22 day declines to less than that amount for a period of at least one calendar 23 quarter, as certified by the Alaska Oil and Gas Conservation Commission, for 24 as long as the volume of oil produced from the platform remains less than 750 25 barrels a day; the provisions of this subparagraph apply to 26 (i) Granite Point; 27 (ii) Anna; and 28 (iii) Bruce; 29 (F) shall pay a royalty calculated under this subparagraph if the 30 volume of oil produced from the platform that was certified by the Alaska Oil 31 and Gas Conservation Commission under (E) of this paragraph later increases
01 to 750 or more barrels a day and remains at 750 or more barrels a day for a 02 period of at least one calendar quarter; until the royalty rate determined under 03 this subparagraph applies, the royalty continues to be calculated under (E) of 04 this paragraph; on and after the first day of the month following the month the 05 increased production exceeds the period specified in this subparagraph, the 06 royalty payable under this subparagraph is 07 (i) for production of at least 750 barrels a day but not 08 more than 850 barrels a day - seven percent; 09 (ii) for production of more than 850 barrels a day but 10 not more than 1,000 barrels a day - 8.5 percent; 11 (iii) for production of more than 1,000 barrels a day but 12 not more than 1,200 barrels a day - 10 percent; and 13 (iv) for production of more than 1,200 barrels a day - 14 12.5 percent; 15 (G) shall pay a royalty of five percent on oil produced from the 16 field if oil production that equaled or exceeded a volume of 750 barrels a day 17 declines to less than that amount for a period of at least one calendar quarter, 18 as certified by the Alaska Oil and Gas Conservation Commission, for as long 19 as the volume of oil produced from the field remains less than 750 barrels a 20 day; the provisions of this subparagraph apply to the West McArthur River 21 field; 22 (H) shall pay a royalty calculated under this subparagraph if the 23 volume of oil produced from the field that was certified by the Alaska Oil and 24 Gas Conservation Commission under (G) of this paragraph later increases to 25 750 or more barrels a day and remains at 750 or more barrels a day for a period 26 of at least one calendar quarter; until the royalty rate determined under this 27 subparagraph applies, the royalty continues to be calculated under (G) of this 28 paragraph; on and after the first day of the month following the month the 29 increased production exceeds the period specified in this subparagraph, the 30 royalty payable under this subparagraph is 31 (i) for production of at least 750 barrels a day but not
01 more than 850 barrels a day - seven percent; 02 (ii) for production of more than 850 barrels a day but 03 not more than 1,000 barrels a day - 8.5 percent; 04 (iii) for production of more than 1,000 barrels a day but 05 not more than 1,200 barrels a day - 10 percent; and 06 (iv) for production of more than 1,200 barrels a day - 07 12.5 percent; and 08 (I) may obtain the benefits of the royalty adjustments set out in 09 (A) - (H) of this paragraph only if the commissioner determines that the 10 reduction in production from the platform or the field is 11 (i) based on the average daily production during the 12 calendar quarter based on reservoir conditions; and 13 (ii) not the result of short-term production declines due 14 to mechanical or other choke-back factors, temporary shutdowns or 15 decreased production due to environmental or facility constraints, or 16 market conditions; 17 (7) notwithstanding a requirement in the leasing method chosen of 18 a minimum fixed royalty share, for a lease issued in the Cook Inlet sedimentary 19 basin, a lessee shall pay a royalty of 20 (A) zero on the production of gas produced from a well 21 drilled on the leased property on or after July 1, 2024; 22 (B) five percent on the production of 23 (i) oil produced from a well drilled on the leased 24 property on or after July 1, 2024; 25 (ii) oil and gas produced from a well drilled on the 26 leased property before July 1, 2024. 27 * Sec. 2. AS 38.05.180 is amended by adding a new subsection to read: 28 (mm) Notwithstanding a requirement in the leasing method chosen of a 29 minimum fixed royalty share, for leases issued for a property in the state that does not 30 include land located north of 68 degrees North latitude, the royalty share reserved to 31 the state under a lease issued to a lessee may not exceed zero if the lessee is recovering
01 costs associated with development of oil or gas produced from a well drilled on or 02 after July 1, 2024. In this subsection, "cost associated with development of oil or gas" 03 includes the cost of new drilling, well sidetracks, and workovers, if the activity is 04 intended to produce oil or gas from a well drilled on or after July 1, 2024. 05 * Sec. 3. The uncodified law of the State of Alaska is amended by adding a new section to 06 read: 07 TRANSITION. To comply with AS 38.05.180(f)(7), added by sec. 1 of this Act, and 08 AS 38.05.180(mm), added by sec. 2 of this Act, the commissioner of natural resources shall 09 enter into lease negotiations with a lessee holding a lease issued before the effective date of 10 this Act in the Cook Inlet sedimentary basin to modify the lease to meet the royalty rates 11 required by AS 38.05.180(f)(7) and (mm). No other terms in a lease may be changed in a 12 negotiation described in this section. 13 * Sec. 4. This Act takes effect July 1, 2024.