Legislature(2021 - 2022)BUTROVICH 205

04/09/2021 03:30 PM RESOURCES

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= SB 97 STATE LAND SALES AND LEASES; RIVERS TELECONFERENCED
<Bill Hearing Canceled>
+= SB 61 OIL/GAS LEASE:DNR MODIFY NET PROFIT SHARE TELECONFERENCED
Heard & Held
*+ SB 104 GEOTHERMAL RESOURCES TELECONFERENCED
Heard & Held
-- Invited Testimony --
**Streamed live on AKL.tv**
                SB 61-OIL/GAS LEASE: DNR MODIFY NET PROFIT SHARE                                                            
                                                                                                                                
4:29:08     PM                                                                                                                
CHAIR       REVAK      reconvened         the      meeting       and      announced        the                                  
consideration         of   SENATE     BILL     NO.    61   "An    Act    authorizing       the                                  
commissioner        of   natural     resources      to   modify     a  net    profit    share                                   
lease."                                                                                                                         
                                                                                                                                
He   recapped     that    the   bill    was   heard    twice    previously       and   public                                   
testimony       was    heard.     He    advised      that    there     was    a   committee                                     
substitute      (CS)    and   two   amendments      for   the   committee      to   consider                                    
before potentially moving the bill.                                                                                             
                                                                                                                                
4:30:05     PM                                                                                                                
SENATOR      MICCICHE      moved    to   adopt     the   committee       substitute       (CS)                                  
for SB 61, work order [32-GS1706\B].                                                                                            
                                                                                                                                
4:30:20     PM                                                                                                                
CHAIR REVAK objected for discussion purposes.                                                                                   
                                                                                                                                
4:30:24     PM                                                                                                                
At ease.                                                                                                                        
                                                                                                                                
4:30:49     PM                                                                                                                
CHAIR    REVAK    reconvened      the   meeting     and   asked    Senator     Micciche      to                                 
restate the motion.                                                                                                             
                                                                                                                                
4:30:54     PM                                                                                                                
SENATOR      MICCICHE      restated       the    motion     to    adopt    the    committee                                     
substitute (CS) for SB 61, work order 32-GS1706\B.                                                                              
                                                                                                                                
4:31:11     PM                                                                                                                
CHAIR     REVAK     objected       for    discussion       purposes.       He    asked     Ms.                                  
Tangeman      to  highlight      the    changes     between     version     A  and   version                                    
B.                                                                                                                              
                                                                                                                                
4:31:22 PM                                                                                                                    
BETTY      TANGEMAN,        Staff,      Senator       Josh      Revak,      Alaska      State                                   
Legislature,        Juneau,      Alaska,     presented       the    summary     of   changes                                    
from    version     A   to   version      B  for    SB   61.   The    prepared      document                                    
read as follows:                                                                                                                
                                                                                                                                
       At    the    request      of    the    Senate      Resources       Committee,                                            
       legislative        legal     was    asked     to   conform      the    initial                                           
       version      of   the   bill,     32-GS1706\A,        to   the   legislative                                             
       drafting      style    and    make   other     changes     consistent      with                                          
       existing law. The follow changes were made:                                                                              
                                                                                                                                
           1. Changes to the Update: In several places, changes                                                               
               were    made    to   the   existing      statutory       language     in                                         
               AS   36.30.850       (b)(32)      and     AS   38.05.180       (j)    to                                         
               increase      readability         and    modernize       usage.      The                                         
               Department      of   Natural      Resources,      Division      of   Oil                                         
               and    Gas    confirmed        that    they     agreed      with     the                                         
               changes.                                                                                                         
                                                                                                                                
           2. Additional Subsections: AS 38.05.180(p), (s), and                                                               
               (t)    all    contain      references       to    modification        of                                         
               royalty     rates    under    AS   38.05.180      (j).    This    draft                                          
               bill    adds     language      related       to   the    net     profit                                          
               share    to   those     subsections,        consistent       with    the                                         
               addition      of   the    net    profit     modification         option                                          
               added     by    the    bill    in    (j).     The    Department       of                                         
               Natural      Resources,         Division       of    Oil     and     Gas                                         
               confirmed       that    the    edits     were     consistent       with                                          
               their intent.                                                                                                    
                                                                                                                                
4:33:03 PM                                                                                                                    
CHAIR    REVAK    removed     his   objection.      Finding     no   further     objection,                                     
version B was adopted.                                                                                                          
                                                                                                                                
4:33:49 PM                                                                                                                    
SENATOR MICCICHE moved Amendment 1.                                                                                             
                                                                                                                                
4:33:54 PM                                                                                                                    
CHAIR REVAK objected for discussion purposes.                                                                                   
                                                                                                                                
SENATOR     MICCICHE      explained      that    the    amendment      makes    a   language                                    
change    for   clarity.      It  changes     "net    profit    share"     to  "royalty      or                                 
net   profit     share    on   a  lease".     On   page    2,   line   17-18     it  revises                                    
that     language       as   well     to    clarify      that     "without       additional                                     
capital      expenditures,         future      production        would     no    longer      be                                 
economically feasible."                                                                                                         
                                                                                                                                
He said the amendment makes no substantive change; it adds                                                                      
clarifying language.                                                                                                            
                                                                                                                                
4:34:38 PM                                                                                                                    
CHAIR REVAK removed his objection; finding no further objection,                                                                
Amendment 1 passed.                                                                                                             
                                                                                                                                
4:34:53 PM                                                                                                                    
SENATOR KIEHL moved Amendment 2, work order 32-GS1706\B.4.                                                                      
                                                                                                                                
                                                                        32-GS1706\B.4                                           
                                                                                 Nauman                                         
                                                                               3/15/21                                          
                                                                                                                                
                                                                                                                                
                                  AMENDMENT 2                                                                               
                                                                                                                                
                                                                                                                                
       OFFERED IN THE SENATE                                 BY SENATOR KIEHL                                                   
               TO:  CSSB 61(RES), Draft Version "B"                                                                             
                                                                                                                                
                                                                                                                                
       Page 3, following line 9:                                                                                                
       Insert a new paragraph to read:                                                                                          
                      "(6)  may not grant a net profit share modification for a field or                                      
pool under (1) of this subsection unless the modification requires the lessee or                                              
       lessees to calculate separate  net profit shares  for oil and  for gas, including                                      
       separately  accounting  for oil and for gas for profit, costs, and expenditures;"                                      
                                                                                                                                
       Page 3, line 10:                                                                                                         
               Delete "(6)"                                                                                                   
               Insert "(7)"                                                                                                   
                                                                                                                                
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SENATOR     KIEHL    explained      that   Amendment      2  requires      the   department                                     
to   decouple      oil   and   gas    if   it   enters    into    an   agreement      with    a                                 
leaseholder       to  modify     a  net   profit    share    contract.      He   noted    that                                  
the   legislature       had   begun     the   decoupling      process     for    some   taxes                                   
and   it   could     continue     to   do   so   in   the   future,      but   because     the                                  
net   profit     share    lease    is   a  contract,       it  can    only   be   opened     by                                 
mutual     agreement.       The   amendment      clarifies       that    if  the    contract                                    
is   opened    for   modification,        the   state    needs    to  get   decoupling       as                                 
part of that agreement.                                                                                                         
                                                                                                                                
4:36:09 PM                                                                                                                    
CHAIR     REVAK     asked     Mr.    Fitzpatrick        or    Mr.    Meza    from     DNR    to                                 
comment on the amendment.                                                                                                       
                                                                                                                                
4:36:29 PM                                                                                                                    
RYAN    FITZPATRICK,        Commercial      Analyst,      Division      of   Oil   and    Gas,                                  
Department        of     Natural      Resources        (DNR),      Anchorage,        Alaska,                                    
thanked     Senator      Kiehl    for   taking     time    to   discuss     the   amendment                                     
with    the   division.      He   offered     his   understanding        that    the   intent                                   
of   Amendment      2   was   to   require      separate      accounting      for    oil   and                                  
gas    for    the    purpose      of    calculating        net    profit     shares      if   a                                 
contract modification is granted.                                                                                               
                                                                                                                                
He    opined     that     the    analogous       provision       in   the    oil    and    gas                                  
production       tax   statutes      was    different      in   that    that    it   creates                                    
different      tax   rates    for   oil   and    gas.   Oil   is   taxed    at   35  percent                                    
of   the   production       tax   value     and   gas   is   taxed     at   13   percent     of                                 
the   gross    value.    By   contrast,      oil   and   gas   would    still    be  subject                                    
to   the    same    net   profit     share     percentage.       The    percentage      would                                   
not   be   an   issue     but   there     is  potential       for   some    timing     issues                                   
with    regard     to    when    the    revenues      are    received.       Nevertheless,                                      
they should equate over time.                                                                                                   
                                                                                                                                
MR.    FITZPATRICK       said    the    division      does    not    have    a   particular                                     
opinion     on   the    amendment      but   it   does    not   create     complications.                                       
He   added    that   he   did   want    to   clarify     his   understanding        that   the                                  
intent    was   that    the   division     would    be   expected     to   include     in  the                                  
Best     Interest       Finding      the     mechanism       for     dividing       the    oil                                  
expenses       from     the    gas     expenses       when     a   contract       is    being                                   
modified.                                                                                                                       
                                                                                                                                
4:39:36 PM                                                                                                                    
SENATOR     KIEHL     confirmed      the   intent     is   that    the   mechanism      would                                   
be   part   of   the   Best   Interest     Finding     that    the   public    can   see   and                                  
is   presented     to   LB&A.    He  said    it   is  important      to  understand       that                                  
DNR's     Commercial        Analysis       Section      will     set    it    up    after     a                                 
thorough      commercial      and    fiscal    analysis      and   negotiation       process                                    
with    the   leaseholder.        He   said    the   bill    provides      the   commercial                                     
analysts      tremendous      say   in   the   structure      and    the   amendment      does                                  
not   change     that    except    to   say    the   lease    would    need    to   decouple                                    
oil   and    gas.   He   opined     that   the    timing    of   when    the   money    comes                                   
is important when trying to pay for state services.                                                                             
                                                                                                                                
4:40:35 PM                                                                                                                    
SENATOR     STEVENS     asked    if  there    was   a  fiscal     note   attached      to  the                                  
CS, and whether the amendment would require one.                                                                                
                                                                                                                                
MS.   TANGEMAN      said   the   CS   did   not   have    a  new   fiscal     note   but   one                                  
will likely be forthcoming.                                                                                                     
                                                                                                                                
CHAIR    REVAK    noted    the   bill    goes    to  finance     next    and   he   believes                                    
it will pick up a fiscal note.                                                                                                  
                                                                                                                                
SENATOR     MICCICHE      commented       that   the    reason     for   the    bill    is   to                                 
prolong     the    life    of   a  very    marginal      development,        and   he   views                                   
the    amendment       as   an    unnecessary        complication        that    would     add                                  
costs.                                                                                                                          
                                                                                                                                
4:42:54 PM                                                                                                                    
CHAIR     REVAK    stated     agreement       and   maintained       his    objection.       He                                 
asked for a roll call vote.                                                                                                     
                                                                                                                                
4:43:23 PM                                                                                                                    
A  roll    call   vote    was   taken.    Senators     Kawasaki      and   Kiehl    voted    in                                 
favor    of   Amendment      2   and   Senators      Stevens,      Micciche,      and   Chair                                   
Revak    voted     against     it.   Therefore,       Amendment      2  failed     by   a  2:3                                  
vote.                                                                                                                           
                                                                                                                                
CHAIR    REVAK     found    no   further      amendments      and    asked    the    will    of                                 
the committee.                                                                                                                  
                                                                                                                                
4:44:11 PM                                                                                                                    
SENATOR     MICCICHE      moved    to   report     the    CS   for   SB   61,   work    order                                   
32-GS1706\B         as     amended,        from       committee        with      individual                                     
recommendations and attached fiscal note(s).                                                                                    
                                                                                                                                
4:44:29 PM                                                                                                                    
SENATOR     KAWASAKI     objected.      He   said   he   tried    to  figure     out   how   to                                 
improve      the   bill    and    he   though      Senator     Kiehl's      amendment      was                                  
appropriate.       He   said   there    are   26   active    net   profit     share    leases                                   
on   the   North    Slope,    and   at   a  time   when    the   legislature      is   trying                                   
to   balance      the    budget,     it   is    difficult      to   relinquish       control                                    
over    future     net   profit     share    leases     to   a  commissioner        and   then                                  
the    Legislative       Budget     and    Audit     Committee.       He   said    he   would                                   
continue to object to the bill.                                                                                                 
                                                                                                                                
4:45:31 PM                                                                                                                    
SENATOR      MICCICHE       withdrew      the    motion      to    report     SB    61    from                                  
committee.       He    said    this     will    give     members      time    for    further                                    
discussion and perhaps the bill could move at a later date.                                                                     
                                                                                                                                
4:45:48 PM                                                                                                                    
CHAIR     REVAK     announced      he    would     hold    SB    61   in    committee      for                                  
future consideration.                                                                                                           

Document Name Date/Time Subjects
SB 97 Generally Allowed Uses Fact Sheet.pdf SRES 4/9/2021 3:30:00 PM
SB 97
SB 97 Legislatively Designated Areas Factsheet.pdf SRES 4/9/2021 3:30:00 PM
SB 97
SB 97 Letter of Opp Becky Long 4.2.21.pdf SRES 4/9/2021 3:30:00 PM
SB 97
SB 97 Rec Rivers Comparison - 3.30.2021.pdf SRES 4/9/2021 3:30:00 PM
SB 97
SB 61 Amendment Kiehl b.4(004).pdf SRES 4/9/2021 3:30:00 PM
SB 61
SB 104 Fiscal Note 1 & 2 dated 3.5.21.pdf SRES 4/9/2021 3:30:00 PM
SB 104
SB 104 Sponsor Statement 3.9.21.pdf SRES 4/9/2021 3:30:00 PM
SB 104
SB 104 Sectional Analysis Version A 3.11.21.pdf SRES 4/9/2021 3:30:00 PM
SB 104
SB 104 Geothermal Resources Presentation 4.9.21.pdf SRES 4/9/2021 3:30:00 PM
SB 104
SB 61 Summary of Changes for CS SRES Work Draft 32-GS1706.B 3.8.21.pdf SRES 4/9/2021 3:30:00 PM
SB 61