00 HOUSE BILL NO. 207 01 "An Act relating to adjustments to royalty reserved to the state to encourage 02 otherwise uneconomic production of oil and gas; relating to the depositing of 03 royalties and royalty sale proceeds in the Alaska permanent fund; and providing 04 for an effective date." 05 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 06 * Section 1. AS 37.13.010(a) is amended to read: 07 (a) Under art. IX, sec. 15 of the state constitution, there is established as a 08 separate fund the Alaska permanent fund. The Alaska permanent fund consists of 09 (1) 25 percent of 10 (A) all mineral lease rentals, royalties, royalty sale proceeds, net 11 profit shares under AS 38.05.180(f) and (g), and federal mineral revenue 12 sharing payments received by the state from mineral leases issued on or before 13 December 1, 1979, except that, regarding royalties and royalty sale 14 proceeds, for leases for which the royalty is reduced or modified under 01 AS 38.05.180(j), the permanent fund shall receive the greater of 02 (i) the royalties and royalty sale proceeds that the 03 fund would have received if a reduction under AS 38.05.180(j) had 04 not been granted; or 05 (ii) 25 percent of the royalties and royalty sale 06 proceeds received by the state under a modified royalty under 07 AS 38.05.180(j); and [25 PERCENT OF] 08 (B) all bonuses received by the state from mineral leases issued 09 on or before February 15, 1980; 10 (2) 50 percent of 11 (A) all mineral lease rentals, royalties, royalty sale proceeds, net 12 profit shares under AS 38.05.180(f) and (g), and federal mineral revenue 13 sharing payments received by the state from mineral leases issued after 14 December 1, 1979, except that, regarding royalties and royalty sale 15 proceeds, for leases for which the royalty is reduced or modified under 16 AS 38.05.180(j), the permanent fund shall receive the greater of 17 (i) the royalties and royalty sale proceeds that the 18 fund would have received if a reduction under AS 38.05.180(j) had 19 not been granted; or 20 (ii) 50 percent of the royalties and royalty sale 21 proceeds received by the state under a modified royalty under 22 AS 38.05.180(j); and [50 PERCENT OF] 23 (B) all bonuses received by the state from mineral leases issued 24 after February 15, 1980; 25 (3) any other money appropriated to or otherwise allocated by law 26 to the Alaska permanent fund. 27 * Sec. 2. AS 38.05.180(j) is amended to read: 28 (j) To allow for production from a delineated but not previously produced 29 field that would not otherwise be economically feasible, to [TO] prolong the 30 economic life of an oil and gas field as per barrel or barrel equivalent costs 31 increase in the later stages of production decline, or to reestablish commercial 01 production of shut-in oil or gas that would not otherwise be economically feasible, 02 the commissioner may [SHALL ADOPT REGULATIONS TO] allow reduction 03 of royalty on individual leases or leases unitized as described in (p) of this 04 section. As part of an application for a reduction under this subsection, the 05 commissioner shall require the lessee requesting the reduction of royalty to 06 disclose financial and technical data that demonstrate that the requirements of 07 this subsection for a reduction are met. Such data shall be kept confidential 08 upon the lessee's request. As a condition of evaluating an application and data, 09 the commissioner may require the lessee to pay the costs of contractors selected 10 by the commissioner to assist in the evaluation. The commissioner may not grant 11 a reduction of royalty unless the lessee requesting the reduction makes a clear and 12 convincing showing that a reduction meets the requirements of this subsection and 13 is in the best interests of the state [THE REVENUE FROM THE LESSEE'S 14 SHARE OF ALL HYDROCARBONS PRODUCED FROM THE FIELD IS 15 AND IS LIKELY TO CONTINUE TO BE INSUFFICIENT TO PRODUCE A 16 REASONABLE RATE OF RETURN WITH RESPECT TO THE LESSEE'S TOTAL 17 INVESTMENT IN THE FIELD]. The commissioner may not grant a reduction 18 that exceeds 75 percent of the royalty originally specified in a lease issued on or 19 before December 1, 1979 under the provisions of (f) of this section, or 50 percent 20 of the royalty originally specified in a lease issued after December 1, 1979 under 21 the provisions of (f) of this section or AS 38.05.134. The commissioner may 22 condition a royalty reduction granted under this subsection in any way necessary to 23 protect the state's best interests [INTEREST], including increasing or otherwise 24 modifying [RESTORATION OF] the state's royalty share if any relevant factor, such 25 as [IN THE EVENT OF AN INCREASE IN] the price of oil or gas, changes. Before 26 approving a royalty reduction, the commissioner shall make public a written finding 27 that the reduction meets the requirements of this subsection and is in the best 28 interests of the state [THE STATE HAS OBTAINED THE MAXIMUM POSSIBLE 29 ECONOMIC RETURN THAT IS COMPATIBLE WITH ALLOWING A 30 REASONABLE RATE OF ECONOMIC RETURN FOR THE LESSEE], and send 31 copies of the finding to all members of the legislature. The commissioner's decision 01 regarding a request for reduction under this subsection is final and not appealable 02 to the court. The provisions of this subsection are not limited by the provisions 03 of (f) of this section or AS 38.05.134(3). 04 * Sec. 3. AS 38.05.180(p) is amended to read: 05 (p) To conserve the natural resources of all or a part of an oil or gas pool, 06 field, or like area, the lessees and their representatives may unite with each other, or 07 jointly or separately with others, in collectively adopting or operating under a 08 cooperative or a unit plan of development or operation of the pool, field, or like area, 09 or a part of it, when determined and certified by the commissioner to be necessary or 10 advisable in the public interest. The commissioner may, with the consent of the 11 holders of leases involved, establish, change, or revoke drilling, producing, and royalty 12 requirements of the leases and adopt regulations with reference to the leases, with like 13 consent on the part of the lessees, in connection with the institution and operation of 14 a cooperative or unit plan as the commissioner determines necessary or proper to 15 secure the proper protection of the public interest. The commissioner may not 16 reduce royalty on leases in connection with a cooperative or unit plan except as 17 provided in (j) of this section. The commissioner may require oil and gas leases 18 issued under this section to contain a provision requiring the lessee to operate under 19 a reasonable cooperative or unit plan, and may prescribe a plan under which the lessee 20 must operate. The plan must adequately protect all parties in interest, including the 21 state. 22 * Sec. 4. This Act takes effect immediately under AS 01.10.070(c).