Legislature(1995 - 1996)
1996-03-27 House Journal
Full Journal pdf1996-03-27 House Journal Page 3405 HB 325 The following was read the second time: HOUSE BILL NO. 325 An Act authorizing suspension of payment of a portion of the royalty due the state for initial production of heavy oil from wells on the Arctic Slope. with the: Journal Page O&G RPT CS(O&G) NT 5DP 1DNP 1NR 2522 2 FISCAL NOTES (DNR, REV) 2522 RES RPT CS(O&G) 5DP 2AM 2644 2 FNS (DNR, REV) 1/24/96 2644 FIN RPT CS(FIN) NT 3DP 1DNP 4NR 1AM 3302 FISCAL NOTE (REV) 3302 FISCAL NOTE (DNR) 1/24/96 3302 Representative Vezey moved and asked unanimous consent that the following committee substitute be adopted in lieu of the original bill: CS FOR HOUSE BILL NO. 325(FIN) An Act authorizing exemption from payment of royalty for initial production of a portion of the heavy oil produced from wells on the Arctic Slope; and providing for an effective date. There being no objection, it was so ordered. 1996-03-27 House Journal Page 3406 HB 325 Amendment No. 1 (title amendment) was offered by Representative Green: Page 1, line 1: Delete "exemption from payment of" Insert "adjustment of the" Representative Green moved and asked unanimous consent that Amendment No. 1 be adopted. There being no objection, it was so ordered. Representative Robinson placed a call of the House on the bill. Amendment No. 2 was offered by Representative Davies: Page 1, line 1 (title amendment): Delete exemption from payment of royalty Insert modification of royalty due Page 1, line 8: Delete royalty is not payable Insert a lessee who makes application for and obtains an exemption under this subsection shall be granted a modification of royalty due on production Page 1, line 12: Delete exemption from payment of royalty Insert modification of royalty due Page 1, following line 13: Insert a new subparagraph to read: (A) demonstrates to the satisfaction of the Legislative Budget and Audit Committee, hereinafter committee, that modification of royalty due under this subsection is reasonably necessary to allow for oil production from the lease that would not otherwise be feasible; as a condition of meeting the requirement set out in this subparagraph, the committee may require the lessee making application for the royalty modification to pay for the services of an independent contractor, qualified to evaluate hydrocarbon development, production, transportation, and economics, who is selected by the committee to assist in 1996-03-27 House Journal Page 3407 HB 325 evaluating the application and financial and technical data; selection of an independent contractor under this subparagraph is not subject to AS 36.30.020; if, on the basis of the lessees application, the report of the independent contractor, and other evidence of record, the committee finds a modification from payment of royalty under this subsection is reasonably necessary to allow for the production of the oil from the lease, the committee shall submit a joint resolution authorizing the modification; the modification shall take effect upon adoption of the resolution by both houses of the legislature; and Reletter the following subparagraphs accordingly. Page 2, line 26: Delete exemption from royalty payment Insert modification of royalty due Page 2, line 28: Delete exemption Insert modification Page 3, line 10: Delete exemption from the payment of royalty Insert modification of royalty due Page 3, line 14: Delete exemption Insert modification Page 3, line 15: Delete exemption from payment of royalty Insert modification of royalty due Page 3, line 17: Delete exemption Insert modification Representative Davies moved and asked unanimous consent that Amendment No. 2 be adopted. 1996-03-27 House Journal Page 3408 HB 325 Representative Green objected. The call was satisfied. The question being: Shall Amendment No. 2 be adopted? The roll was taken with the following result: CSHB 325(FIN)(title am) Second Reading Amendment No. 2 YEAS: 15 NAYS: 24 EXCUSED: 1 ABSENT: 0 Yeas: Brice, Brown, Davies, B.Davis, Elton, Finkelstein, Grussendorf, Kubina, Mackie, Moses, Navarre, Nicholia, Robinson, Therriault, Willis Nays: Austerman, Barnes, Bunde, G.Davis, Foster, Green, Hanley, Ivan, Kelly, Kohring, Kott, Long, Martin, Masek, Mulder, Ogan, Parnell, Phillips, Porter, Rokeberg, Sanders, Toohey, Vezey, Williams Excused: James And so, Amendment No. 2 was not adopted. Amendment No. 3 was offered by Representative Brown: Page 1, lines 1- 3 (title amendment): Delete all material and insert: ""An Act relating to modification of royalty to encourage production from an oil pool containing heavy oil; and providing for an effective date."" Page 1, line 5, through page 3, line 29: Delete all material and insert: "* Section 1. AS38.05.180(j) is amended to read: (j) The commissioner (1) may provide for an increase or decrease or otherwise modify royalty, to allow for production that would not otherwise be economically feasible, on individual leases, leases unitized as described in (p) of this section, leases subject to an agreement 1996-03-27 House Journal Page 3409 HB 325 described in (s) or (t) of this section, or interests unitized under AS31.05; the commissioner may act under this subsection to modify the royalty (A) after June 20, 1995, and not later than July 1, 2015, so long as the authority to modify royalty under this subparagraph has been authorized or reauthorized by law within the 10 ªTENß years preceding the commissioner's action to modify the royalty, to allow for production from an oil or gas field or pool if (i) the oil or gas field or pool has been delineated sufficiently to allow the commissioner to conduct the analyses and make the findings required by this subsection; and (ii) the field or pool has not previously produced oil or gas for sale; (B) to prolong the economic life of an oil or gas field or pool as costs per barrel or barrel equivalent increase, or to allow for production from an oil pool containing heavy oil; for purposes of this subparagraph, "heavy oil" means oil production having an American Petroleum Institute weighted average gravity of 20 degrees or less, computed at a temperature of 60 degrees Fahrenheit; or (C) to reestablish production of shut-in oil or gas; (2) may not grant a royalty modification unless the lessee or lessees requesting the modification make a clear and convincing showing that a modification of royalty meets the requirements of this subsection and is in the best interests of the state; (3) shall (A) condition any royalty modification granted under this subsection in any way necessary to protect the state's best interests; (B) describe, in the findings and determinations required by this subsection, the relevant factors, including price, projected production rate or volume, predicted ultimate recovery, and development, operating, and transportation costs, upon which the modification is based; (C) for a modification under (1)(A) of this subsection, set out the terms and conditions, which 1996-03-27 House Journal Page 3410 HB 325 (i) must include a mechanism for adjusting royalty percentage based on price; using forecasts of the range of future prices and their probabilities, the mechanism must provide that the value of the potential revenue increases resulting from royalty percentage increases must exceed the value of the potential revenue losses resulting from royalty percentage decreases; and (ii) may include, in addition to the royalty percentage adjustment based on price, which must meet the conditions specified in (i) of this subparagraph, a further adjustment based on production rate or volume from the field or pool; and (D) for a modification under (1)(B) or (1)(C) of this subsection, set out the terms and conditions, which may include substitution of a sliding scale royalty or other mechanism to modify the royalty if there is a change in the relevant factors, such as price, projected production rate or volume, predicted ultimate recovery, and development, operating, and transportation costs, upon which the modification is based; (4) may not grant a royalty modification for a field or pool (A) under (1)(A) of this subsection if the royalty modification for the field or pool would establish a royalty rate of less than five percent in amount or value of the production removed or sold from a lease or leases covering the field or pool; (B) under (1)(B) or (1)(C) of this subsection if the royalty modification for the field or pool would establish a royalty rate of less than three percent in amount or value of the production removed or sold from a lease or leases covering the field or pool; (5) may not grant a royalty modification under this subsection without including an explicit condition that the royalty modification is not assignable without the prior written approval of the commissioner; the commissioner shall, in the preliminary and final findings and determinations, set out the conditions under which the royalty modification may be assigned; 1996-03-27 House Journal Page 3411 HB 325 (6) shall require the lessee or lessees to submit, with the application for the royalty modification, financial and technical data that demonstrate that the requirements of this subsection are met; the commissioner shall (A) require disclosure of the financial and technical data related to development, production, and transportation of oil and gas from the field or pool that are necessary to make a determination as to whether or not to grant the request for royalty modification; and (B) keep the data described in (A) of this paragraph confidential under AS38.05.035(a)(9) at the request of the lessee or lessees making application for the royalty modification; the confidential data may be disclosed by the commissioner to legislators and to the legislative auditor and as directed by the chair or vice-chair of the Legislative Budget and Audit ªLB&Aß Committee to the director of the division of legislative finance, the permanent employees of their respective divisions who are responsible for evaluating a royalty modification, and to agents or contractors of the legislative auditor or the legislative finance director who are engaged under contract to evaluate the royalty modification, provided they sign an appropriate confidentiality agreement; (7) may require the lessee or lessees making application for the royalty modification to pay for the services of an independent contractor, qualified to evaluate hydrocarbon development, production, transportation, and economics, who is selected by the commissioner to assist the commissioner in evaluating the application and financial and technical data; selection of an independent contractor under this paragraph is not subject to AS36.30; (8) shall (A) make and publish a preliminary findings and determination on the royalty modification application; if the preliminary findings and determination concerns a royalty modification under (1)(A) of this subsection, the preliminary findings and determination shall also be presented to the governor for the governor's approval or disapproval; the governor may not delegate a determination to approve or disapprove a preliminary findings and determination under this subparagraph; 1996-03-27 House Journal Page 3412 HB 325 (B) for a royalty modification under (1)(A) of this subsection, if the governor approves the preliminary findings and determination under (A) of this paragraph, (i) give reasonable public notice of the preliminary findings and determination; (ii) concurrently with the issuance of the public notice, unless directed by the Legislative Budget and Audit Committee to do otherwise, make available copies of the commissioner's preliminary findings and determination on the royalty modification application and the supporting financial and technical data, including the work papers, analyses, and recommendations of any contractors retained under (7) of this subsection, to persons authorized under (6)(B) of this subsection to review the data; and (iii) invite public comment on the preliminary findings and determination during a 30-day period for receipt of public comment; (C) for a royalty modification under (1)(B) or (C) of this subsection, if the preliminary findings and determination approves a royalty modification, (i) give reasonable public notice of the preliminary findings and determination; and (ii) invite public comment on the preliminary findings and determination during a 30-day period for receipt of public comment; (9) shall address in any findings and determinations required under this subsection the reasonably foreseeable effects of the proposed royalty modification on the state's revenue; (10) shall offer to appear before the Legislative Budget and Audit Committee to provide the committee a review of the commissioner's preliminary findings and determination on the royalty modification application and the supporting financial and technical data; if the Legislative Budget and Audit Committee accepts the commissioner's offer, the committee shall give notice of the committee's meeting to all members of the legislature; if, under (6)(B) of this subsection, the financial and technical data must be kept confidential at the request of a lessee or lessees making application for the royalty modification, the commissioner may appear before the committee in executive session; 1996-03-27 House Journal Page 3413 HB 325 (11) shall make copies of the preliminary findings and determination available to (A) the presiding officer of each house of the legislature; (B) the chairs of the legislature's standing committees on resources; and (C) the chairs of the legislature's special committees on oil and gas, if any; (12) shall, within 30 days after the close of the public comment period under (8) of this subsection, (A) prepare a summary of the public response to the commissioner's preliminary findings and determination; (B) make a final findings and determination and present it to the governor for the governor's approval or disapproval; the governor may not delegate a decision to approve or disapprove a final findings and determination presented under this subparagraph; the commissioner's final findings and determination regarding a royalty modification, if approved by the governor, is final and not appealable to the court; (C) transmit a copy of the final findings and determination prepared under (B) of this paragraph to the lessee or lessees making application for the royalty modification; (D) with the consent of the lessee or lessees applying for the royalty modification, amend the lease or unitization agreement of the lessee or lessees applying for the royalty modification consistent with the commissioner's approved final findings and determination; and (E) make copies of the final findings and determination available to each person who submitted comment under (8) of this subsection and who has filed a request for the copies; (13) is not limited by the provisions of AS38.05.134(3) or (f) of this section in the commissioner's determination under this subsection." Representative Brown moved and asked unanimous consent that Amendment No. 3 be adopted. Representative Green objected. 1996-03-27 House Journal Page 3414 HB 325 The call was lifted. Representative Brown placed a call of the House. The call was satisfied. The question being: Shall Amendment No. 3 be adopted? The roll was taken with the following result: CSHB 325(FIN)(title am) Second Reading Amendment No. 3 YEAS: 15 NAYS: 24 EXCUSED: 1 ABSENT: 0 Yeas: Brice, Brown, Davies, B.Davis, Elton, Finkelstein, Grussendorf, Kubina, Mackie, Moses, Navarre, Nicholia, Robinson, Therriault, Willis Nays: Austerman, Barnes, Bunde, G.Davis, Foster, Green, Hanley, Ivan, Kelly, Kohring, Kott, Long, Martin, Masek, Mulder, Ogan, Parnell, Phillips, Porter, Rokeberg, Sanders, Toohey, Vezey, Williams Excused: James And so, Amendment No. 3 was not adopted. Amendment No. 4 was offered by Representative Brown: Page 2, line 30: Delete "royalty report" Insert "oil gravity test" Page 2, line 32: Delete "royalty report" Insert "oil gravity test" Page 3, line 1: Delete "prepared" Insert "conducted" 1996-03-27 House Journal Page 3415 HB 325 Page 3, lines 2 and 3: Delete "royalty report" Insert "oil gravity test" Page 3, line 3: Delete "prepared" Insert "conducted" Representative Brown moved and asked unanimous consent that Amendment No. 4 be adopted. There being no objection, it was so ordered. Amendment No. 5 was offered by Representative Finkelstein: Page 1, line 8: Delete "royalty is not payable" Insert "when the commissioner determines that it is in the best interests of the state to do so, the commissioner may suspend a lessee's obligation to pay the royalty" Representative Finkelstein moved and asked unanimous consent that Amendment No. 5 be adopted. Representative Green objected. The question being: Shall Amendment No. 5 be adopted? The roll was taken with the following result: CSHB 325(FIN) am Second Reading Amendment No. 5 YEAS: 15 NAYS: 24 EXCUSED: 1 ABSENT: 0 Yeas: Brice, Brown, Davies, B.Davis, Elton, Finkelstein, Grussendorf, Kubina, Long, Mackie, Moses, Navarre, Nicholia, Robinson, Willis Nays: Austerman, Barnes, Bunde, G.Davis, Foster, Green, Hanley, Ivan, Kelly, Kohring, Kott, Martin, Masek, Mulder, Ogan, Parnell, Phillips, Porter, Rokeberg, Sanders, Therriault, Toohey, Vezey, Williams 1996-03-27 House Journal Page 3416 HB 325 Excused: James And so, Amendment No. 5 was not adopted. Amendment No. 6 was offered by Representative Navarre: Page 1, line 1 (title amendment): Delete "exemption from payment of" Insert "adjustment of the" Page 1, line 8: Delete "royalty is not payable" Insert "royalty is payable at a rate of one-half the rate set out in the section or provision of the lease, unit agreement, or other agreement that establishes the obligation to pay royalty on production" Page 1, line 12: Delete "exemption from" Insert "reduction in" Page 2, line 19: Delete 1,825" Insert 3,650" Page 2, line 26: Delete "exemption from" Insert "reduction in" Page 2, line 28: Delete "exemption" Insert "reduction" Page 3, line 5: Delete "exemption" Insert "reduction" Page 3, line 10: Delete "an exemption from" Insert "a reduction in" 1996-03-27 House Journal Page 3417 HB 325 Page 3, line 14: Delete "exemption" Insert "reduction" Page 3, line 15: Delete "an exemption" Insert "a reduction" Page 3, line 17: Delete "exemption" Insert "reduction" Page 3, line 24, following "(5)": Insert "the entire amount of royalty received by the state under the reduction authorized by this subsection is subject to deposit into the Alaska permanent fund (AS37.13.010); (6)" Representative Navarre moved and asked unanimous consent that Amendment No. 6 be adopted. Representative Green objected. Representative Kelly placed a call of the House and lifted the call. Representative Mackie placed a call of the House and lifted the call. Representative Brown placed a call of the House. Representative Toohey was excused due to illness. Representative Brown lifted the call. The question being: Shall Amendment No. 6 be adopted? The roll was taken with the following result: CSHB 325(FIN) am Second Reading Amendment No. 6 YEAS: 17 NAYS: 21 EXCUSED: 2 ABSENT: 0 1996-03-27 House Journal Page 3418 HB 325 Yeas: Brice, Brown, Davies, B.Davis, Elton, Finkelstein, Grussendorf, Kelly, Kubina, Long, Mackie, Moses, Navarre, Nicholia, Ogan, Robinson, Willis Nays: Austerman, Barnes, Bunde, G.Davis, Foster, Green, Hanley, Ivan, Kohring, Kott, Martin, Masek, Mulder, Parnell, Phillips, Porter, Rokeberg, Sanders, Therriault, Vezey, Williams Excused: James, Toohey And so, Amendment No. 6 was not adopted. The Speaker stated that, without objection, CSHB 325(FIN) am, with all pending amendments, would be held in second reading until the March 28, 1996, calendar.