1999-01-21                     Senate Journal                      Page 0051
SB 38                                                                        
SENATE BILL NO. 38 BY THE SENATE RULES COMMITTEE                               
BY REQUEST OF THE GOVERNOR, entitled:                                          
                                                                               
An Act relating to certain audits regarding oil and                           
gas royalty and net profits and to audits regarding                            
costs relating to exploration incentive credits and oil                        
and gas exploration licenses; and providing for an                             
effective date.                                                                
                                                                               
was read the first time and referred to the Resources and Finance              
Committees.                                                                    
                                                                               
Fiscal notes published today from Department of Revenue,                       
Department of Natural Resources.                                               
                                                                               
Governors transmittal letter dated January 20                                  
                                                                               
                                                                               

1999-01-21                     Senate Journal                      Page 0052
SB 38                                                                        
Dear President Pearce:                                                         
                                                                               
In the interest of improving efficiency within our state government,           
as well as between government and industry, I am transmitting this             
bill to transfer oil and gas royalty audit functions from the                  
Department of Revenue (DOR) to the Department of Natural                       
Resources (DNR).  It makes sense to put the audit duties in the                
same department that administers, enforces, and is therefore most              
knowledgeable with, the oil and gas leasing program.                           
                                                                               
Ironically, the audit functions used to rest with DNR, but were                
switched to DOR in 1980 based on a legislative audit report.  The              
recommendation stated cost savings would be achieved by having                 
one staff of auditors review both tax and royalty compliance                   
information.  Since 1980, however, the state has entered into royalty          
settlements with the major North Slope producers and has made                  
changes to its tax regulations.  As a result, there is no longer as            
much overlap between royalty and tax audits.  In addition, separating          
DNR's duty to administer and enforce oil and gas contracts,                    
agreements, and leases from the department's ability to conduct audits         
leading to possible enforcement actions, has resulted in inefficiencies        
and other problems.                                                            
                                                                               
The bill specifically authorizes DNR to audit reports and costs                
relating to exploration incentive credits and oil and gas licenses.  It        
also grants DNR audit powers commensurate to those of DOR                      
currently, including the right to subpoena information for audit               
purposes. The two departments would be allowed to exchange                     
confidential information obtained in the course of their respective            
audits; a breach of confidentiality by any agency employee would be            
a felony offense.                                                              
                                                                               
This bill takes a sensible step in how the state does business with            
the oil and gas industry.                                                      
                                                                               
					Sincerely,                                                                
					/s/                                                                       
					Tony Knowles                                                              
					Governor