Legislature(2021 - 2022)ADAMS 519
04/30/2021 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB28 | |
| HB81 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 151 | TELECONFERENCED | |
| += | HB 28 | TELECONFERENCED | |
| += | HB 81 | TELECONFERENCED | |
HOUSE BILL NO. 81
"An Act authorizing the commissioner of natural
resources to modify a net profit share lease."
2:27:46 PM
Representative Josephson MOVED to ADOPT Amendment 1 (copy
on file):
Page 7, following line 20:
Insert a new bill section to read:
"* Sec. 6. AS 38.05. I 80 is amended by adding a
new subsection to read:
(mm) The commissioner may not grant a net
profit share modification under (j) of this
section unless the net profit share
modification is approved by the
legislature."
Co-Chair Merrick OBJECTED for discussion.
Representative Josephson explained that the net profit
share leasing program was not well known until the
introduction of HB 81 and the Senate companion bill. He
explained that the administration wanted more latitude to
negotiate certain items embedded into royalty contracts.
They were binding bilateral contracts that did not need to
be revisited. The proposal could be rejected summarily. The
administration's position was that by giving it the liberty
to modify a net profit share lease (NPSL), it could help
prevent field assets from being stranded. It begged the
question about the nature of a lease and the duty to
develop. He noted that previous legislators, Eric Croft and
Harry Crawford, had introduced an initiative on the topic
of the obligation to develop.
Representative Josephson continued that fundamentally, his
amendment would allow for agreements to be reached but
would not bind them by law until they were approved by the
legislature. His reason for offering the amendment had to
do with trust. He suggested that legislators wanted
reassurance that the administration would negotiate in an
arms-length way, as the state was sovereign. He was unsure
the administration was willing to negotiate in such a
manner. He noted, for example, there were reports about
press releases involving a large metallic mine Southwest of
Anchorage. It was difficult to tell where the industry's
words ended, and the state's words began. Separation was
lacking and parroting occurred giving him pause.
Representative Josephson continued that the legislature had
given the industry substantial breaks. The legislature was
looking at reforms of SB 21 [Oil and gas production tax
legislation passed in 2013] in the form of HB 247 [Tax,
credits, interest, refunds, and oil and gas legislation
that passed in 2016] and HB 111 [Legislation passed in 2017
regarding oil and gas production tax, payments, and
credits]. The legislature realized how complicated SB 21
had been. He argued that the punitive floor on gross tax
was not really a floor except in narrow circumstances. The
bill [SB 21] was favorable to the oil industry.
Representative Josephson was torn because Mr. Fitzpatrick
had presented evidence that the legislation could result in
a solution where everyone benefited, with the state
potentially benefiting in the long-run. He suggested there
was no harm in the legislature looking at the contracts for
approval. It had been done in 1996 with the North Star oil
and gas lease in HB 548. The bill was vetted and passed
within 6 weeks and gave the state the right to modify a
NPSL. He thought the legislature should do the same.
Representative Josephson noted a memo that indicated it
might be unconstitutional or inappropriate. However, there
were instances in current law where a royalty in-kind
contract was accepted. He had voted on a couple of such
contracts in the House Resources Committee then on the
House Floor. Also, there were terms in the Alaska Gasline
Inducement Act (AGIA) that required acceptance of an
agreement related to AGIA and ratification by a bill from
the House Rules Committee. There was some background for
the requirement of legislative approval.
Representative Josephson reiterated that he was unsure if
he wanted to give the administration leeway. He relayed
that the House resources Committee modified the bill so
that it would not apply to royalty modification. He had
been told that without the modification, Prudhoe Bay, where
the state had seen $13 billion of royalties since it was
developed, could have been modified without the
legislature's participation. The Senate version did not
include the same modification. He suggested that if there
was not an easy concurrence between the bodies, the bill
would go to conference committee where the legislature
could be in a position of modifying Prudhoe Bay's royalty
which he did not want to do. He thanked the committee.
2:37:12 PM
Representative Thompson was apprehensive about the
legislature having to approve any NPSL modifications. He
was concerned with a potential timeline issue if a
modification was need when the legislature was not in
session. He trusted the Department of Natural Resources
(DNR) to make modifications based on their history with
previous modifications. He did not want to see a well shut
down because of the legislature not meeting in a timely
manner.
Representative Carpenter relayed that the amendment stated
that profit share modifications would have to be approved
by the legislature. He thought the complexity of the issue
would take a long time to properly vet in the legislative
process. He also pointed out the need to take politics out
of the decision about whether a NPSL modification should
advance. He did not think it would contribute to setting an
example of being business friendly in the state.
Co-Chair Merrick agreed with Representative Carpenter's
comment.
2:40:10 PM
Representative Wool agreed the subject matter was
complicated. He shared Representative Josephson's concerns
about the amendments adopted in the House Resources
Committee being removed from the committee substitute. He
would be especially concerned with limiting the capital
expenditure language to NPSLs only. The state had 26
leases, 2 of which were currently in production. Most of
the leases had sat dormant for their existence - some
leases were decades long. He would not comment on his trust
level of the administration but shared some of the same
concerns as Representative Josephson. There were several
triggers that could influence production depending on the
price of oil. Producers wanted to keep their wells in
production, and he wanted to see the wells continue to
produce oil. He suggested that future administrations could
potentially negotiate new terms. The state had the ability
to renegotiate royalty rates, although it occurred
infrequently. He was concerned with the amendment's
potential question of constitutionality.
Representative Edgmon concurred with Representative Wool's
comments. He appreciated the efforts of the maker of the
amendment but could not support it.
2:43:03 PM
Representative LeBon disagreed with the notion of
politicizing the issue. He did not think the legislature
was geared to weigh in on the issue. He had confidence the
department would be motivated to negotiate the best
possible settlement for the state.
Representative Josephson did not know how it was possible
to keep politics out of the issue. He explained that when
producers were profitable, they paid a portion under a
NPSL. It was essentially a contract that was entered into
willingly by both parties. The legislature was being asked
to trust that the industry would do something. He did not
see himself as "Anti-industry." However, the most recent
promises of record had not been great. He did not have
confidence in the administration because of the lack of
separation between the two institutions. He did not think
that looking at the issue through a political lens would
color it in a detrimental way. He suggested if the
administration could make its case to the legislature, the
legislature would approve it, just like it happened in
1996. His constituents were dissatisfied with the share of
taxes and royalties the state received for its assets.
Co-Chair Merrick MAINTAINED the OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Josephson, Ortiz
OPPOSED: Edgmon, Johnson, LeBon, Thompson, Wool,
Carpenter, Merrick, Foster
The MOTION to ADOPT Amendment 1 FAILED (2/8).
2:46:21 PM
Representative Wool MOVED to ADOPT Amendment 2 (copy on
file):
Page 1, line 1:
Delete "authorizing the commissioner of natural
resources to modify a net profit share"
Insert "relating to the modification of a royalty
or net profit share in an oil and gas or gas
only"
Page 7, following line 20:
Insert new bill sections to read:
"*Sec.6.AS.38.05.180 is amended by adding a new
subsection to read:
(mm)The commissioner may grant a royalty or net
profit share modification under U) of this
section only if the Alaska Royalty Oil and Gas
Development Advisory Board recommends that the
commissioner approve the royalty or net profit
share modification.
"*Sec. 7. AS 38.06.040(a) is amended to read:
(a) The board shall
(1) in accordance with the criteria set out
in AS 38.06.070, develop a plan for the wise
development of the state's oil and gas
royalty interests; the plan of development
shall be consistent with
(A) growth of the private sector of
the economy;
(B) environmental standards required
by law: and
(C) public fiscal stability;
(2)hold public hearings on proposed sales,
exchanges, or other disposals of royalty oil
or gas to determine whether the proposals
comply with AS 38.06.070;
(3) examine proposed sales, exchanges, or
other disposal of, and recommend to the
legislature that it approve or disapprove a
proposed sale, exchange, or other disposal
of
(A) the oil or gas that is obtained by
the stale as royalty under AS
38.05.182; or
(B) the rights to receive future oil or
gas production under slate leases;
[and]
(4) recommend to the commissioner of natural
resources the conditions relating to the
sale, delivery, transportation, refining, or
processing of oil or gas that [WI-IICI IJ
the commissioner may include in the offer
and sale of oil or gas obtained by the state
as royalty under AS 38.05.182; and
(5) review a royalty or net profit share
modification under AS 38.05.180 and
recommend that the commissioner approve or
disapprove the modification."
Co-Chair Merrick OBJECTED FOR DISCUSSION.
Representative Wool explained that the amendment required
any change to a NPSL or royalty (currently allowable under
law) be approved by the Alaska Royalty Oil and Gas
Development Advisory Board. The board currently helped to
facilitate the wise development of Alaska's oil and gas
royalty interests by providing means and procedures for
sales, exchanges, or other disposition of those interests
in ways calculated to promote private economic growth
consistent with applicable environmental standards and
public fiscal stability and in accordance with
AS.38.05.183. The amendment would add the requirement that
any change in royalty and NPSLs would have to be approved
by the board. He thought it provided an extra safeguard
layer.
Representative Josephson supported the amendment. He spoke
of the referral of royalty in-kind from the administration
to the legislature. He argued that royalty in-kind was
already politicized. He noted that the amendment would
further politicize the advisory board. He did not know
whether it would be a meaningful layer of protection.
However, he admitted that public input would be a plus.
Co-Chair Merrick WITHDREW the OBJECTION.
Representative Carpenter OBJECTED without comment.
Representative Carpenter MAINTAINED the OBJECTION.
A ROLL CALL VOTE WAS TAKEN ON THE MOTION.
IN FAVOR: Ortiz, Wool, Edgmon, Josephson, Foster
OPPOSED: LeBon, Thompson, Carpenter, Johnson, Merrick
The MOTION to ADOPT Amendment 2 FAILED (5/5).
2:51:04 PM
AT EASE
2:52:16 PM
RECONVENNED
Vice-Chair Ortiz MOVED to report CSHB 81(RES) out of
Committee with individual recommendations and the
accompanying fiscal note.
Representative Carpenter OBJECTED with no comment.
A roll call vote was taken on the motion.
IN FAVOR: LeBon, Ortiz, Thompson, Wool, Carpenter, Edgmon,
Johnson, Foster, Merrick
OPPOSED: Josephson
The MOTION PASSED (9/1).
CSHB 81(RES) was REPORTED out of committee with a "do pass"
recommendation and with two previously published fiscal
impact notes: FN1(DFG) FN2(REV).
2:53:38 PM
AT EASE
2:55:10 PM
RECONVENNED
Co-Chair Merrick reviewed the agenda for the next meeting
scheduled on Monday, May 3, 2021 at 9:00 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 81 Amendment 1 Josephson.pdf |
HFIN 4/30/2021 1:30:00 PM |
HB 81 |
| HB 81 Amendment 2 Wool.pdf |
HFIN 4/30/2021 1:30:00 PM |
HB 81 |
| HB 81 Legal Memo Josephson 042921.pdf |
HFIN 4/30/2021 1:30:00 PM |
HB 81 |
| HB 28 Amendment 1 Ortiz.pdf |
HFIN 4/30/2021 1:30:00 PM |
HB 28 |
| HB 28 Amendment 2 Carpenter.pdf |
HFIN 4/30/2021 1:30:00 PM |
HB 28 |
| HB 28 Conceptual Amendment 1 to Amendment 1.pdf |
HFIN 4/30/2021 1:30:00 PM |
HB 28 |