Legislature(2017 - 2018)GRUENBERG 120

02/16/2018 01:00 PM JUDICIARY

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Audio Topic
01:03:36 PM Start
01:04:08 PM HB330
01:39:47 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 330 DNR: DISCLOSURE OF CONFIDENTIAL INFO TELECONFERENCED
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE JUDICIARY STANDING COMMITTEE                                                                             
                       February 16, 2018                                                                                        
                           1:03 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Matt Claman, Chair                                                                                               
Representative Jonathan Kreiss-Tomkins                                                                                          
Representative Chuck Kopp                                                                                                       
Representative Charisse Millett (alternate)                                                                                     
Representative Louise Stutes (alternate)                                                                                        
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Zach Fansler, Vice Chair                                                                                         
Representative Gabrielle LeDoux                                                                                                 
Representative David Eastman                                                                                                    
Representative Lora Reinbold                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 330                                                                                                              
"An  Act authorizing  the commissioner  of  natural resources  to                                                               
disclose   confidential  information   in  an   investigation  or                                                               
proceeding, including  a lease royalty audit,  appeal, or request                                                               
for  reconsideration and  issue a  protective order  limiting the                                                               
persons who have access to the confidential information."                                                                       
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 330                                                                                                                  
SHORT TITLE: DNR: DISCLOSURE OF CONFIDENTIAL INFO                                                                               
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
02/05/18       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/05/18       (H)       JUD, RES                                                                                               
02/16/18       (H)       JUD AT 1:00 PM GRUENBERG 120                                                                           
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
ED KING, Legislative Liaison                                                                                                    
Commissioner's Office                                                                                                           
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   During the  hearing of  HB 330,  offered a                                                             
PowerPoint presentation  titled, "Protective Orders, HB  330" and                                                               
presented a sectional analysis.                                                                                                 
                                                                                                                                
PETER CALTAGIRONE                                                                                                               
Assistant Attorney General                                                                                                      
Natural Resources Section                                                                                                       
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   During  the hearing  of  HB 330,  answered                                                             
questions.                                                                                                                      
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:03:36 PM                                                                                                                    
                                                                                                                                
CHAIR MATT  CLAMAN called the House  Judiciary Standing Committee                                                             
meeting  to  order at  1:03  p.m.  Representatives Claman,  Kopp,                                                               
Stutes  (alternate  for   Representative  Fansler),  and  Millett                                                               
(alternate for Representative Reinbold)  were present at the call                                                               
to order.   Representative Kreiss-Tomkins arrived  as the meeting                                                               
was in progress.                                                                                                                
                                                                                                                                
          HB 330-DNR: DISCLOSURE OF CONFIDENTIAL INFO                                                                       
                                                                                                                                
1:04:08 PM                                                                                                                    
                                                                                                                                
CHAIR CLAMAN announced  that the only order of  business would be                                                               
HOUSE  BILL NO.  330,  "An Act  authorizing  the commissioner  of                                                               
natural  resources to  disclose  confidential  information in  an                                                               
investigation  or proceeding,  including a  lease royalty  audit,                                                               
appeal,  or request  for reconsideration  and issue  a protective                                                               
order limiting  the persons who  have access to  the confidential                                                               
information."                                                                                                                   
                                                                                                                                
1:04:49 PM                                                                                                                    
                                                                                                                                
ED KING,  Legislative Liaison, Commissioner's  Office, Department                                                               
of  Natural Resources,  advised  that  HB 330  is  viewed as  the                                                               
"Protective  Orders  Bill."   The  title  of  this bill  is  "DNR                                                               
disclosure  of confidential  data," which  may raise  alarm bells                                                               
for some people.  Mr.  King turned to the PowerPoint presentation                                                               
titled, "Protective Orders, HB 330"  slides 1-3, and advised that                                                               
the intent of HB 330 is  not to publish confidential data for the                                                               
general public  to consume.   This protective order  bill directs                                                               
that  the confidential  information  would be  disclosed only  to                                                               
appellants or  participants in an  audit in order to  provide the                                                               
complete administrative record in  the adjudication of an appeal,                                                               
he explained.                                                                                                                   
                                                                                                                                
MR. KING advised  that the Department of  Natural Resources (DNR)                                                               
is the  land manager of the  lands of the state,  the Division of                                                               
Oil  & Gas  is housed  under DNR  and it  is responsible  for the                                                               
management  and administration  of the  oil &  gas leases  in the                                                               
state.   Within the  Division of  Oil &  Gas, a  section performs                                                               
audits to  make certain  the state receives  its due  share under                                                               
its lease agreements.   He pointed out that  the lease agreements                                                               
contain terms  requiring payments to  the state, and  every month                                                               
the leaseholder  provides a report  to the state  calculating the                                                               
amount of  the royalty or  net profit  share payments due  to the                                                               
state.  The audit section  ascertains whether those payments were                                                               
correctly  calculated  and  the state  received  its  appropriate                                                               
amount of funds, he said.                                                                                                       
                                                                                                                                
1:07:07 PM                                                                                                                    
                                                                                                                                
MR. KING noted that prior to  2003, the royalty audit section was                                                               
housed under  the Department  of Revenue  (DOR), and  under House                                                               
Bill 246  [passed in the Twenty-Third  Alaska State Legislature],                                                               
those  functions were  moved to  DNR to  perform its  own audits.                                                               
Subsequent to  the 2003 move,  91 audits have been  conducted and                                                               
have generated additional payments to  the state in the amount of                                                               
approximately $270  million.  Those  payments, he  explained, are                                                               
usually the result of an error  on one of the reports, usually on                                                               
something  associated with  either  transportation deductions  or                                                               
the  price  used in  the  calculation  of the  royalty  payments.                                                               
There  are four  methods within  the state's  lease contracts  to                                                               
calculate the appropriate payments to  the state, and the highest                                                               
of those four  calculations is the amount due to  the state.  The                                                               
first  method,  he  offered,  is simply  the  price  the  company                                                               
received for  the oil it sold  from the lease; the  second is the                                                               
volume weighted  average of the  three highest  (indisc.) prices;                                                               
and  the other  two calculations  are based  on "posted  prices,"                                                               
which  are not  actually  applicable to  Alaska.   Generally,  he                                                               
remarked,  the first  two computation  methods are  used and  the                                                               
highest  of  those  two  computations  generate  the  appropriate                                                               
payments to the state under its lease terms.                                                                                    
                                                                                                                                
1:08:42 PM                                                                                                                    
                                                                                                                                
MR. KING  turned to  slide 4,  titled "Why  HB 330?"  and advised                                                               
that this legislation  is important to DNR  because the companies                                                               
provide royalty reports to DNR,  and it calculates the average of                                                               
those  highest  three  payments   to  determine  the  appropriate                                                               
payment.  He  explained that when a company  provides its royalty                                                               
reports to  the state, the  company bases those payments  on what                                                               
it received,  and that  is not necessarily  what the  lease terms                                                               
will  dictate.   However, he  explained, because  those contracts                                                               
between  the  leaseholder  and its  purchasers  are  confidential                                                               
under  current   law,  DNR  cannot  provide   those  confidential                                                               
contracts to the company being  audited wherein DNR is evaluating                                                               
these additional  royalty assessments.  Currently,  seven royalty                                                               
audits are  pending in  the commissioner's  office and  are worth                                                               
approximately $39 million, if all  are adjudicated in the state's                                                               
favor.    In  recent  years,  some  of  these  leaseholders  have                                                               
objected to the state disclosing  that confidential data to other                                                               
leaseholders, he  advised. Therefore,  the Department  of Natural                                                               
Resources (DNR)  has experienced situations where  even though it                                                               
believes it  has the authority  to prosecute the lease  terms, if                                                               
there  was a  court ruling  against DNR's  ability to  do so,  it                                                               
would  carry  criminal charges  for  the  person disclosing  that                                                               
confidential data.   Out of an abundance of  caution, he advised,                                                               
DNR   is  asking   for  explicit   authority  to   disclose  that                                                               
information  to certain  parties  during an  appeal because  that                                                               
information is necessary to fully adjudicate that appeal.                                                                       
                                                                                                                                
1:10:49 PM                                                                                                                    
                                                                                                                                
MR. KING  explained that the  major issue relates to  those seven                                                               
currently pending and future audits,  and this bill allows DNR to                                                               
more quickly adjudicate those additional  revenues for the state.                                                               
He offered  that DNR realized  that, occasionally, an  appeal was                                                               
before  the  commissioner  and   due  to  the  confidential  data                                                               
contained  within  the record,  the  appeal  could not  be  fully                                                               
adjudicated.     He   described   that  it   is   a  "very   rare                                                               
circumstance," and opined  that it has only taken  place twice in                                                               
the last  10-years.  These  situations, he explained, are  when a                                                               
third party,  outside of  a unit agreement,  brings an  appeal to                                                               
the commissioner's attention because  it had a financial interest                                                               
in the decision.   Thereby, causing DNR to go  to court to obtain                                                               
a  protective order  allowing that  information to  be disclosed.                                                               
The manner in  which HB 330 is written, allows  DNR to issue that                                                               
protective order in those rare circumstances, as well.                                                                          
                                                                                                                                
1:11:58 PM                                                                                                                    
                                                                                                                                
MR. KING turned  to slide 5, titled "What  are Protective Orders"                                                               
noting that  the slide discusses a  confidentiality agreement the                                                               
commissioner  can issue,  and companies  are  compelled to  enter                                                               
into that  agreement.  He  acknowledged that this might  sound as                                                               
though it  is "a very forceful  tool," but it is  actually a tool                                                               
many agencies  utilize within the  state, such as  the Department                                                               
of  Fish &  Game (ADF&G),  and the  Department of  Administration                                                               
(DOA).   He reiterated  that both of  these departments  have the                                                               
ability to issue  these protective orders, and  the Department of                                                               
Revenue (DOR)  has the ability  to disclose confidential  data in                                                               
the same manner  discussed here when adjudicating  appeals on tax                                                               
issues.  Of course, he  said, courts issue protective orders when                                                               
situations arise  where the lack  of the confidential  data would                                                               
prevent the case  from being completed.  It is  a common tool, he                                                               
described, used by courts, arbitrators,  and many other agencies,                                                               
and  DNR is  not asking  for anything  "that is  too much  beyond                                                               
that."   It would  give DNR the  ability to  provide confidential                                                               
information  contained  in the  record  solely  to those  parties                                                               
directly interested  as an appellant  and, he stated,  only under                                                               
the  protective  order  limiting  the  ability  to  utilize  that                                                               
information.    He reiterated  that  DNR  will not  disclose  the                                                               
confidential  information to  the general  public because  DNR is                                                               
under a  strict and limiting  condition.  Under the  current bill                                                               
language,  it is  discretionary  and the  commissioner can  issue                                                               
those protective  orders only when  deemed necessary  to complete                                                               
the appeal process, he related.                                                                                                 
                                                                                                                                
1:13:49 PM                                                                                                                    
                                                                                                                                
MR. KING turned to slide  6, titled, "HB 330" sectional analysis,                                                               
and explained that  Section 1 is the meat of  the bill wherein it                                                               
grants  an additional  duty and  power to  the commissioner.   He                                                               
referred to  HB 330,  [AS 38.05.020(b)(15),  page 3,  lines 25-30                                                               
and page  4, lines 1-4] and  advised that DNR adds  an additional                                                               
paragraph authorizing the commissioner  to issue these protective                                                               
orders if  deemed necessary.   The  paragraph also  provides that                                                               
the company's  confidential data  to be  released to  these other                                                               
parties must have an opportunity  to be heard, which is identical                                                               
language  to   DOR  under  AS   43.55.040.    He  said   that  AS                                                               
38.05.020(b)  allows the  commissioner to  issue that  protective                                                               
order  limiting   the  person   who  may   have  access   to  the                                                               
information, and the  purposes for which that  information can be                                                               
used.                                                                                                                           
                                                                                                                                
1:14:57 PM                                                                                                                    
                                                                                                                                
MR. KING  advised that  Sections 2-3  are conforming  language to                                                               
include that additional provision within the existing statutes.                                                                 
                                                                                                                                
1:15:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MILLETT  surmised that when  it comes to  what DNR                                                               
would be  using the  protective order  for, it  would be  a lease                                                               
audit, an  appeal on  royalty rights.   She  said she  was unsure                                                               
about the requests for reconsideration,  noting there were two in                                                               
the last 10-years.                                                                                                              
                                                                                                                                
MR.  KING responded  that  there have  been  two rare  situations                                                               
where  a  non-royalty issue  was  brought  forward requiring  the                                                               
disclosure of confidential  data.  Both of  those situations took                                                               
place in the  Ninilchik unit, they went to court  and one case is                                                               
currently  pending litigation,  he  offered.   The royalty  audit                                                               
issue is the real issue DNR  is attempting to address here so DNR                                                               
does not  have to continue to  report when situation do  arise or                                                               
come   back   before   the  legislature   for   this   additional                                                               
authorization at a later date.                                                                                                  
                                                                                                                                
1:16:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MILLETT  surmised that the royalty  audit would be                                                               
when the  state is in dispute  with a company regarding  what the                                                               
company owed  the state.   In the event a  unit had two  or three                                                               
different producers, which is common  in Alaska, that information                                                               
would have  to be compared  in that unit  to other royalty.   She                                                               
asked  whether  there is  any  concern  through this  bill  about                                                               
disclosure  and  what each  producer  is  paying for  competitive                                                               
reasons.                                                                                                                        
                                                                                                                                
MR.  KING answered  that,  from DNR's  perspective,  it does  not                                                               
believe  there  are any  concerns.    The Department  of  Natural                                                               
Resources (DNR) does  not view this idea  as violating anti-trust                                                               
laws,  allowing collusion,  or something  along  those lines,  as                                                               
being a  relevant point here.   These  are audits of  issues that                                                               
happened in the past and are  contracts from the past wherein DNR                                                               
discloses  one contract  to  another party  for  the purposes  of                                                               
determining  how much  royalty  was due  three-to-six years  ago.                                                               
Therefore, he pointed out, the  release of that confidential data                                                               
is different  than getting two  people in  a room to  collude and                                                               
try  to  drive  prices  toward  a certain  market  level.    This                                                               
legislation is  different than what  an anti-trust  type argument                                                               
would require,  and DNR  does not believe  there are  any reasons                                                               
why,  for  competitive reasons,  the  ability  to disclose  would                                                               
somehow  injure one  of  the parties.   In  the  event there  are                                                               
issues, he  advised that the  party has the opportunity  to bring                                                               
those issues to  the attention of the commissioner  prior to that                                                               
protective  order   being  issued   and  the   confidential  data                                                               
disclosed.  He pointed  out that if DNR did have  to go to court,                                                               
this protective  order idea  is how the  court would  resolve the                                                               
issue,  and  when  the  court   issues  a  protective  order,  no                                                               
colluding  or  anti-trust issues  are  brought  forward in  those                                                               
cases.                                                                                                                          
                                                                                                                                
1:18:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MILLETT  related that she understands  how a court                                                               
would  deem a  protective order,  except the  discussion here  is                                                               
about a  commissioner who could  change every four-years  or more                                                               
often.  She surmised that DNR's  problem is that it just does not                                                               
want to  go to court  every time it  wants a protective  order to                                                               
disclose  data.   She asked  whether DNR  is anticipating  higher                                                               
audit disputes  in the  future, and  what is  the genesis  of the                                                               
bill.                                                                                                                           
                                                                                                                                
MR.  KING replied  that DNR  currently has  seven audits  pending                                                               
that are related to this issue,  and that DNR does believe it has                                                               
the authority to disclose the  confidential data that is the part                                                               
of the  audits.  However, he  said, due to a  statute maintaining                                                               
that  the  disclosure of  confidential  data  carries a  criminal                                                               
penalty,  DNR is  hesitant to  enforce that  clause in  the lease                                                               
simply because  it may provide  some type of criminal  charge for                                                               
DNR's employees.   One  way to  resolve this  issue would  be for                                                               
explicit authority  from the legislature to  release confidential                                                               
data, another option is to prosecute  the lease terms and "do it"                                                               
without the  explicit authority, or  DNR could continue  going to                                                               
the court  requesting a  protective order, he  explained.   It is                                                               
DNR's belief that HB 330 is  the most expeditious manner in which                                                               
to resolve the immediate issues, and in the future, he said.                                                                    
                                                                                                                                
1:20:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KOPP   asked  whether  this   legislation  solely                                                               
discusses producers.                                                                                                            
                                                                                                                                
MR.  KING  responded  that the  confidential  data  would  almost                                                               
exclusively come  from a leaseholder,  it would be a  producer of                                                               
oil and  gas, and the  language is  general enough that  it could                                                               
include  other  leases   DNR  holds.    This   could  cover  some                                                               
circumstance  in the  future, for  example, a  mining lease  with                                                               
confidential data, and an appeal from  a third party.  He related                                                               
that  that type  of situation  does not  exist currently,  but it                                                               
could theoretically, and  that he guesses he would  say yes, that                                                               
it is the producers' data, generally speaking.                                                                                  
                                                                                                                                
1:20:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KOPP surmised  that  each  producer is  currently                                                               
obligated to share  their price information with  the Division of                                                               
Oil & Gas via the lease provisions.                                                                                             
                                                                                                                                
MR. KING answered in the affirmative.                                                                                           
                                                                                                                                
1:21:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KOPP surmised  that the  discussion here  is what                                                               
value is  used to compute  the royalty due  under the lease.   He                                                               
further surmised that the reason  DNR needs to share confidential                                                               
information with the producer who  "disagreed with the audit," is                                                               
because that determination is made  on the average price of other                                                               
producers   and  those   other  producers   may  not   want  that                                                               
information  disclosed due  to the  competitive advantage  of the                                                               
information.  He  asked whether that is the only  way, set out in                                                               
the law,  for DNR  to establish  what the value  is that  is owed                                                               
under the audit.                                                                                                                
                                                                                                                                
MR. KING answered that Representative Kopp was correct.                                                                         
                                                                                                                                
1:22:15 PM                                                                                                                    
                                                                                                                                
CHAIR  CLAMAN clarified  that  it is  DNR's  routine practice  to                                                               
audit "pretty much  every royalty payment."  In order  to audit a                                                               
company  effectively, DNR  must have  access to  information from                                                               
the producer  being audited  and may  also need  information from                                                               
another  producer  not  being audited.    Information  from  that                                                               
producer's  data  is partially  how  DNR  determines whether  the                                                               
royalty payments were correct for  the producer being audited, he                                                               
commented.                                                                                                                      
                                                                                                                                
MR.   KING  clarified   that  the   division   already  has   the                                                               
confidential  data from  all of  the leaseholders  and it  is not                                                               
compelling a company to provide additional data.                                                                                
                                                                                                                                
1:23:13 PM                                                                                                                    
                                                                                                                                
CHAIR  CLAMAN offered  a scenario  in  which Company  A is  being                                                               
audited and  Company B's information  is important  to performing                                                               
the audit  correctly.  Company  A needs Company  B's information,                                                               
which it otherwise would not  have, to complete the audit process                                                               
correctly, he asked.                                                                                                            
                                                                                                                                
MR. KING answered that Chair Claman was correct.                                                                                
                                                                                                                                
1:23:37 PM                                                                                                                    
                                                                                                                                
CHAIR  CLAMAN  noted that  before  a  protective order  would  be                                                               
entered, he surmised  that these are protective  orders that must                                                               
be  agreed  to  by  the  producers, and  it  not  where  DNR  can                                                               
unilaterally impose the protective order.                                                                                       
                                                                                                                                
MR.  KING explained  that under  current law  and processes,  DNR                                                               
does go  to the producers requesting  a confidentiality agreement                                                               
in order  to share  the data.   The issue  is when  the producers                                                               
refuse  to sign  the confidentiality  agreement that  the problem                                                               
arises,  and  this  bill  would  allow DNR  to  enter  into  that                                                               
protective  order  and  disclose  that  information  without  the                                                               
permission of the producer.                                                                                                     
                                                                                                                                
CHAIR  CLAMAN asked  whether it  is the  producer that  is not  a                                                               
party to the audit.                                                                                                             
                                                                                                                                
MR. KING replied that it is the owner of the confidential data.                                                                 
                                                                                                                                
1:24:26 PM                                                                                                                    
                                                                                                                                
CHAIR  CLAMAN surmised  that  this is  confidential  data of  the                                                               
party that is  not being audited.  Under this  law, he commented,                                                               
the  company not  being audited  would  be able  to register  its                                                               
objections with DNR and the  department would decide as it deemed                                                               
fit.                                                                                                                            
                                                                                                                                
MR. KING said that Chair Claman was correct.                                                                                    
                                                                                                                                
1:24:48 PM                                                                                                                    
                                                                                                                                
CHAIR  CLAMAN   added  that  this  legislation   would  give  DNR                                                               
authority  to  [release  the confidential  data],  and  he  asked                                                               
whether,  before the  protective order  took effect,  the company                                                               
not  being  audited  would  have the  option  of  appealing  that                                                               
decision to the court.                                                                                                          
                                                                                                                                
MR. KING deferred to Peter Caltagirone, Department of Law (DOL).                                                                
                                                                                                                                
1:25:28 PM                                                                                                                    
                                                                                                                                
PETER CALTAGIRONE, Assistant  Attorney General, Natural Resources                                                               
Section,  explained that  when  the  information being  discussed                                                               
here is to  be disclosed, the unaudited  producer receives notice                                                               
that its information  will be disclosed pursuant to  the terms of                                                               
a protective order.  He explained  that there is a period of time                                                               
between  when   it  received  notice  and   the  information  was                                                               
disclosed,  and   within  which   time  it  could   register  its                                                               
objections to the division.                                                                                                     
                                                                                                                                
CHAIR  CLAMAN  asked  that  after   the  company  registered  its                                                               
objection with the division, and  the division decided to proceed                                                               
with  the protective  order  allowing the  use  of the  unaudited                                                               
company's confidential  information, whether the company  had the                                                               
option of appealing that decision.                                                                                              
                                                                                                                                
MR. CALTAGIRONE  responded that the unaudited  company would have                                                               
to petition the court.                                                                                                          
                                                                                                                                
CHAIR CLAMAN agreed, and he  asked whether the company would have                                                               
the option, if unhappy with  the division's decision, to petition                                                               
the court for a review of that administrative decision by DNR.                                                                  
                                                                                                                                
MR. CALTAGIRONE said that Chair Claman was correct.                                                                             
                                                                                                                                
1:27:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MILLETT  said, "That's  what  they  do now,"  and                                                               
noted confusion because that is the current process.                                                                            
                                                                                                                                
CHAIR CLAMAN said that he  thought DNR was not issuing protective                                                               
orders currently  and it had  to go to  the court each  time, and                                                               
this bill gives it the authority to issue a protective order.                                                                   
                                                                                                                                
MR. KING opined that Representative  Millett was referring to the                                                               
fact that  if DNR followed  the chain  of events "that  were just                                                               
laid  out, then  we  might not  be  any better  off  than we  are                                                               
today."  He then deferred to Mr. Caltagirone.                                                                                   
                                                                                                                                
MR. CALTAGIRONE asked Chair Claman to repeat the question.                                                                      
                                                                                                                                
CHAIR CLAMAN asked  what happens today when  an unaudited company                                                               
refuses to  agree to allow  confidential information  shared with                                                               
the company being audited.                                                                                                      
                                                                                                                                
MR.  CALTAGIRONE  responded  that today,  the  unaudited  company                                                               
receives a notice letter that  its information will be disclosed.                                                               
In the  event the  unaudited company so  chose, it  could contact                                                               
the Division  of Oil &  Gas, state  its objections, and  if those                                                               
objections  could not  be resolved,  the unaudited  company would                                                               
seek  an injunction  from the  court  preventing its  information                                                               
from being disclosed.                                                                                                           
                                                                                                                                
1:29:18 PM                                                                                                                    
                                                                                                                                
CHAIR CLAMAN surmised that the department  does not have to go to                                                               
the  court  to   obtain  the  protective  order,   and  that  the                                                               
department  is  essentially  going  forward.    It  is  simply  a                                                               
question as  to whether the  company wants  to file suit  to stop                                                               
the department from going forward, he commented.                                                                                
                                                                                                                                
MR. CALTAGIRONE clarified  that the Division of Oil &  Gas is not                                                               
simply  going  forward,  the  division issues  a  letter  to  the                                                               
audited company advising  that the information at  issue from the                                                               
other  producers  will be  disclosed,  but  only if  the  audited                                                               
company executes  a confidentiality  agreement.   Essentially, he                                                               
explained, the confidentiality agreement  lays out the same terms                                                               
and protections as a protective  order.  The division advises the                                                               
unaudited  company that  its information  will only  be disclosed                                                               
"if they sign  a confidentiality agreement."  In  short, he said,                                                               
the   confidentiality   agreement   limits  who   can   see   the                                                               
information, the purpose the information  can be used for, and it                                                               
limits  the  state's liability  if  the  audited company  somehow                                                               
missuses the information that is disclosed.                                                                                     
                                                                                                                                
1:30:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  STUTES   asked  for  clarification   because  she                                                               
thought Mr. King  had said that the contracts  with the producers                                                               
currently have  that clause in  it, but  there is a  statute that                                                               
precludes  that clause,  and the  concern was  the effect  of the                                                               
statute even  though the division  has the ability, based  on the                                                               
contracts, to  disclose.  She  said she was under  the impression                                                               
that HB  330 would  address the  concern with  the clause  in the                                                               
statute,  even  though,  currently  the  contracts  the  division                                                               
enters into allow it to disclose information.                                                                                   
                                                                                                                                
MR. KING said  he believes Representative Stutes  is correct, the                                                               
contracts do have the clause  and enforcing the contract requires                                                               
that  this disclosure  be  allowed.   He  explained  that when  a                                                               
company  paid the  division  a  royalty payment  based  on a  $50                                                               
barrel  of  oil, and  another  leaseholder  paid the  division  a                                                               
royalty payment based on a $60  barrel of oil, the division would                                                               
then send a bill for the  difference to the company that received                                                               
$50  per barrel.   He  offered  a scenario  of the  $50 a  barrel                                                               
company going to  the division and asking how it  would know that                                                               
what  the division  billed it  was accurate,  the division  would                                                               
respond that  the bill is based  on the contract from  this other                                                               
company, and the  billed company would ask to  see that contract,                                                               
but  the  division   cannot  show  it  to  them   because  it  is                                                               
confidential  data.   It is  the  division's belief  that it  has                                                               
authority,  under  enforcement  of that  contract,  to  disclose.                                                               
Except,  he  reiterated,  a  confidentiality  clause  in  statute                                                               
carries  a  criminal penalty  and  if  for  some reason  a  court                                                               
decided against  the division, then the  division's employees may                                                               
be  subjected  to  a  criminal  penalty.   He  offered  that  the                                                               
Department of Revenue  (DPR) has a statute that  read, "for these                                                               
circumstances you  have explicit authority from  the legislature"                                                               
to get around that statute.   The Department of Natural Resources                                                               
(DNR) does not  have that provision in its statutes,  and that is                                                               
what it is trying to clean up today.                                                                                            
                                                                                                                                
1:33:52 PM                                                                                                                    
                                                                                                                                
CHAIR  CLAMAN  opened   public  testimony  on  HB   330.    After                                                               
ascertaining no  one wished to  testify, closed  public testimony                                                               
on HB 330.                                                                                                                      
                                                                                                                                
1:34:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KOPP commented  that he  would have  preferred to                                                               
have heard  from someone in  the industry and the  producers, but                                                               
"apparently, they did  not feel that was necessary."   He related                                                               
that he is glad to see that the  [Division of Oil & Gas] has this                                                               
fiduciary  duty  to  make  certain  the  appropriate  revenue  is                                                               
collected  in  every   lease  agreement.    He   pointed  to  the                                                               
sensitivity in  this issue, commenting  that if the  only vehicle                                                               
available  to come  to  an appropriate  evaluation  of the  state                                                               
royalty  owed  requires  a competitive  disclosure,  and  if  the                                                               
company's competitor  knows the  price point, the  competitor can                                                               
pretty much build the first  company's whole portfolio.  Frankly,                                                               
he said, "we  all benefit" from a competitive  environment and he                                                               
understands why  this is a  sensitive issue.   When the  court is                                                               
involved,  he pointed  out,  it  is a  neutral  decider of  facts                                                               
whereas perhaps the individual could  be considered favorable one                                                               
time and unfavorable  another time.  He said he  guessed there is                                                               
some  weighing  of the  balance  in  how to  de-politicize  these                                                               
orders, and  also how to  protect the private  market information                                                               
of these companies so they are not compromised.                                                                                 
                                                                                                                                
1:36:32 PM                                                                                                                    
                                                                                                                                
CHAIR CLAMAN  noted that there  is an oil  company representative                                                               
in  the audience  who, obviously,  prefers  not to  testify.   He                                                               
commented  that   the  perspective   of  the  industry   on  this                                                               
legislation   is   important   and  his   office   will   contact                                                               
representatives as to whether they  have an objection to the bill                                                               
and address  the confidential information issue.   Previously, he                                                               
said, he  had conversation with folks,  including industry folks,                                                               
who commented that the  price information, although confidential,                                                               
is  not especially  sensitive because  it is  pretty well  known.                                                               
Although,  when getting  into things  such as  geologic data  and                                                               
proprietary information, it starts  becoming more important as to                                                               
what is known and not known, he said.                                                                                           
                                                                                                                                
1:38:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MILLETT suggested  asking  someone  from DOR  Tax                                                               
Division  to speak  to  the committee  about  how it  adjudicates                                                               
decisions on appeal.                                                                                                            
                                                                                                                                
1:38:43 PM                                                                                                                    
                                                                                                                                
CHAIR CLAMAN related  that DOR would be asked to  attend the next                                                               
hearing.  He said that one of the  points of this bill is for DNR                                                               
to  be on  the same  footing as  other departments  when pursuing                                                               
these  types of  audits.   The  Department  of Natural  Resources                                                               
(DNR) is  not attempting  to be  put in a  position that  is more                                                               
advantageous  than other  departments  in the  state, he  pointed                                                               
out.                                                                                                                            
                                                                                                                                
1:39:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KREISS-TOMKINS said  he would  appreciate hearing                                                               
the   industry's   perspective   on    this   bill   and   echoed                                                               
Representative  Millett's comments.   Particularly,  he said,  if                                                               
DNR is  trying to create a  parallel in the statutes  between DNR                                                               
and DOR, it would  be helpful to learn how this  works at DOR and                                                               
to possibly extrapolate any potential pitfalls.                                                                                 
                                                                                                                                
[HB 330 was held over.]                                                                                                         
                                                                                                                                
1:39:47 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Judiciary Standing Committee meeting was adjourned at 1:39 p.m.                                                                 

Document Name Date/Time Subjects
HB330 ver A 2.16.18.pdf HJUD 2/16/2018 1:00:00 PM
HJUD 2/21/2018 1:00:00 PM
HJUD 2/23/2018 1:30:00 PM
HJUD 2/26/2018 1:00:00 PM
HRES 3/9/2018 1:00:00 PM
HRES 3/12/2018 1:00:00 PM
HRES 3/14/2018 1:00:00 PM
HB 330
HB330 Transmittal Letter 2.16.18.pdf HJUD 2/16/2018 1:00:00 PM
HJUD 2/21/2018 1:00:00 PM
HRES 3/9/2018 1:00:00 PM
HRES 3/12/2018 1:00:00 PM
HRES 3/14/2018 1:00:00 PM
HB 330
HB330 Presentation 2.16.18.pdf HJUD 2/16/2018 1:00:00 PM
HRES 3/12/2018 1:00:00 PM
HRES 3/14/2018 1:00:00 PM
HB 330
HB330 Fiscal Note DNR-DOG 2.16.18.pdf HJUD 2/16/2018 1:00:00 PM
HJUD 2/21/2018 1:00:00 PM
HRES 3/9/2018 1:00:00 PM
HRES 3/12/2018 1:00:00 PM
HRES 3/14/2018 1:00:00 PM
HB 330