Legislature(2005 - 2006)
2005-04-28 House JournalFull Journal pdf
2005-04-28 House Journal Page 1333 HB 71 Representative Samuels brought up reconsideration of the vote on CSHB 71(FIN) (page 1231). The following, which had been held on reconsideration (page 1311), was again before the House in third reading: CS FOR HOUSE BILL NO. 71(FIN) "An Act extending and amending the requirements applicable to the credit that may be claimed for certain oil and gas exploration expenses incurred in Cook Inlet against oil and gas properties production (severance) taxes, and amending the credit against those taxes for certain exploration expenditures from leases or properties in the state; and providing for an effective date." Representative Samuels moved and asked unanimous consent that CSHB 71(FIN) be returned to second reading for the specific purpose of considering Amendment No. 1. There being no objection, it was so ordered. Amendment No. 1 was offered by Representative Samuels: 2005-04-28 House Journal Page 1334 Page 1, line 1, following "An Act" (title amendment): Insert "providing standards for the interpretation of certain terms in state oil and gas leases and unit agreements, requiring development, production, processing, and marketing of gas that is determined to meet those standards, and setting a maximum time limit on that activity;" Page 1, following line 6: Insert new bill sections to read: "* Section 1. The uncodified law of the State of Alaska is amended by adding a new section to read: LEGISLATIVE FINDINGS REGARDING AMENDMENT OF AS 38.05.180. The legislature finds that (1) oil and gas leases issued by the state grant to the lessee certain rights in state land and resources for the purposes of exploration, development, production, processing, and marketing oil and gas from state land; (2) those oil and gas leases require the reasonable development of state land for oil and gas as the facts may justify; (3) those oil and gas leases further mandate reasonable diligence in producing oil and gas from state land; (4) those leases also obligate the lessee to act with due regard for the interests of not only the lessee but also the state as lessor; (5) many of those leases have been extended beyond their primary terms by commitment to an oil and gas unit agreement; (6) unit agreements may vary from unit to unit and so do not contain uniform language but generally reinforce the obligations of lessees to timely develop oil and gas resources and to act to protect not only their own interests but also the interests of the state as lessor; (7) unit agreements also require that lessees periodically file their proposed plans for future development of a unit and allow the state, as lessor, to determine the rate of development of the unit and rate and quantity of production from the unit in acting on proposed plans or otherwise; (8) oil and gas leases are interpreted by courts sitting in oil- and-gas-producing states to require that lessees develop and market oil and gas when those lessees could do so for a reasonable profit; (9) the executive branch of state government, under the authority of AS 43.82 (Alaska Stranded Gas Development Act) and with the assistance of outside experts, consultants, and counsel, has 2005-04-28 House Journal Page 1335 developed a sophisticated model that forecasts future gas prices based on the best information currently available to the state; (10) that model incorporates the costs estimated by the state's largest oil and gas producers and others for the construction of an Alaska natural gas pipeline and for upstream facilities required to produce and treat natural gas from the Prudhoe Bay and Point Thomson Units for transportation through an Alaska natural gas pipeline to markets inside and outside the state; (11) the model calculates estimated rates of return on capital invested for the total project, and for separate elements of the project, such as production from the Prudhoe Bay Unit, production from the Point Thomson Unit, and the pipeline itself; (12) the model calculates estimated rates of return on capital invested under a wide range of future gas prices, including a price considered a stress gas price, the mean estimated gas price, and prices considered to have as low as a 10 percent probability and as high as a 90 percent probability; (13) rates of return from the model can be compared to various measures of profitability, including, without limitation, rates of return historically allowed by the Federal Energy Regulatory Commission on gas pipelines, the cost of capital, rates of return on shareholder equity and capital employed for natural gas pipeline companies, and rates of return on shareholder equity and capital employed for oil and gas companies; (14) the oil and gas resources of the state are to be developed for the maximum benefit of the people of the state; and (15) the state's best interests require the earliest reasonable date for construction of an Alaska natural gas pipeline on terms that are both in the best interests of the state and estimated to be reasonably profitable to the state's oil and gas lessees. * Sec. 2. AS 38.05.180 is amended by adding a new subsection to read: (hh) The provisions of this subsection clarify and interpret the obligations of an oil and gas lessee or unit operator where an explicit or implied term of a state oil and gas lease or unit agreement requires the development, production, processing, or marketing of gas meeting economic standards such as "reasonable profit," "economically recoverable," "reasonable development as the facts may justify," "reasonable diligence," "covenant to develop as a reasonably prudent operator in a reasonably prudent 2005-04-28 House Journal Page 1336 manner," "good and diligent oil and gas production practices," "economically feasible," or "having due regard for the interests of lessor as well as the interests of lessee." If the terms of the lease or unit agreement so provide, (1) the standards shall be interpreted to require, at a minimum, development, production, processing, and marketing of gas from the lease or unit area as part of a project placing gas into one or more commercial markets if the commissioner determines, after review of relevant information then available to and in the possession of the department, that the estimated revenue from the project, based on the department's mean gas price forecast for that project, minus the currently estimated new costs of that project, appears sufficient to allow for a rate of return on new capital invested (A) in the portions of the project regulated as to tariffs by either the Federal Energy Regulatory Commission or the Regulatory Commission of Alaska; the rate of return allowed under this subparagraph must be equal to or greater than the department's estimate of the rate of return that would be approved by the governing regulatory body; and (B) in the portions of the project that are not subject to tariff regulation; the rate of return allowed under this subparagraph must be equal to or greater than the most recent 10-year simple average of overall company returns on capital employed for a sample group of oil and gas companies; in this subparagraph, the sample group of oil and gas companies may include, without limitation and subject to the availability of publicly reported information, the four largest international petroleum companies and the parent companies of the three largest petroleum companies operating in the state; (2) whenever the commissioner determines that development, production, processing, or marketing of gas is required from a lease or unit area, the lessee or unit operator shall develop, produce, process, or market the gas, as determined by the commissioner, from the lease or unit area by a date determined by the commissioner, but in no event may that compliance date be later than seven years after the commissioner's initial determination; if a lessee or unit operator fails to comply with the commissioner's order, approval, decision, or determination, the remedies for the failure shall be as provided for in the controlling 2005-04-28 House Journal Page 1337 lease, unit agreement, other agreement, or operative document, or as provided by law." Page 1, line 7: Delete "Section 1" Insert "Sec. 3" Renumber the following bill sections accordingly. Representative Samuels moved and asked unanimous consent that Amendment No. 1 be adopted. Representative Rokeberg objected. The question being: "Shall Amendment No. 1 be adopted?" The roll was taken with the following result: CSHB 71(FIN)--RECONSIDERATION Second Reading Amendment No. 1 YEAS: 28 NAYS: 11 EXCUSED: 1 ABSENT: 0 Yeas: Anderson, Berkowitz, Cissna, Coghill, Crawford, Croft, Gara, Gardner, Gruenberg, Guttenberg, Harris, Holm, Joule, Kapsner, Kelly, Kerttula, LeDoux, Lynn, McGuire, Moses, Neuman, Olson, Ramras, Salmon, Samuels, Seaton, Thomas, Wilson Nays: Chenault, Dahlstrom, Elkins, Foster, Gatto, Hawker, Kohring, Kott, Meyer, Rokeberg, Weyhrauch Excused: Stoltze Gatto changed from "Yea" to "Nay". And so, Amendment No. 1 was adopted, and the new title follows: CS FOR HOUSE BILL NO. 71(FIN) am "An Act providing standards for the interpretation of certain terms in state oil and gas leases and unit agreements, requiring development, production, processing, and marketing of gas that is determined to meet those standards, and setting a maximum time limit on that activity; extending and amending the requirements applicable to the credit that may be claimed for certain oil and gas 2005-04-28 House Journal Page 1338 exploration expenses incurred in Cook Inlet against oil and gas properties production (severance) taxes, and amending the credit against those taxes for certain exploration expenditures from leases or properties in the state; and providing for an effective date." Representatives Meyer and Hawker moved and asked unanimous consent that they be allowed to abstain from voting because of a conflict of interest. Objection was heard, and the members were required to vote. The question to be reconsidered: "Shall CSHB 71(FIN) am pass the House?" The roll was taken with the following result: CSHB 71(FIN) am--RECONSIDERATION Third Reading Final Passage YEAS: 32 NAYS: 4 EXCUSED: 1 ABSENT: 3 Yeas: Anderson, Chenault, Coghill, Croft, Dahlstrom, Elkins, Foster, Gara, Gardner, Gatto, Gruenberg, Guttenberg, Harris, Hawker, Holm, Joule, Kapsner, Kohring, Kott, LeDoux, McGuire, Meyer, Moses, Neuman, Olson, Ramras, Rokeberg, Salmon, Samuels, Seaton, Thomas, Wilson Nays: Berkowitz, Cissna, Kerttula, Weyhrauch Excused: Stoltze Absent: Crawford, Kelly, Lynn And so, CSHB 71(FIN) am passed the House on reconsideration. Representative Coghill moved and asked unanimous consent that the roll call on the passage of the bill be considered the roll call on the effective date clause. There being no objection, it was so ordered. CSHB 71(FIN) am was referred to the Chief Clerk for engrossment.