00 HOUSE BILL NO. 209                                                                                                      
01 "An Act relating to the authority of the commissioner of natural resources to                                           
02 allow reductions of royalty on oil and gas leases; and providing for an effective                                       
03 date."                                                                                                                  
04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                
05    * Section 1.  AS 38.05.180(j) is amended to read:                                                                    
06  (j)  To prolong or enhance the economic life of an oil or [AND] gas field or                                      
07 to reestablish commercial production of shut-in oil or gas that would not otherwise be                                  
08 economically feasible, the commissioner                                                                                 
09   (1)  shall adopt regulations that are applicable to all bidding methods                                          
10 to allow reduction of royalty on leases; the regulations that are adopted under this                                   
11 paragraph to prolong or enhance the economic life of an oil or gas field shall be                                       
12 developed to compensate for increasing costs or decreasing value of production;                                         
13   (2)  [.  THE COMMISSIONER] may not grant a reduction of royalty                                                     
14   (A)  unless the lessee requesting the reduction makes a clear                                                     
01 showing that the revenue from the lessee's share of all oil and gas                                                   
02 [HYDROCARBONS] produced from the field is and is likely to continue to be                                               
03 insufficient to produce a reasonable rate of return with respect to the lessee's                                        
04 total investment in the field; and                                                                                     
05   (B)  if the royalty reduction is requested to prolong or                                                            
06 enhance the economic life of a field, unless at least two years' initial                                                
07 production from the field has occurred;                                                                                 
08   (3)  [.  THE COMMISSIONER] may condition a royalty reduction                                                        
09 granted under this subsection in any way necessary to protect the state's interest,                                     
10 including restoration of the state's royalty share in the event of an increase in the price                             
11 of oil or gas;                                                                                                         
12   (4)   [.  BEFORE APPROVING A ROYALTY REDUCTION, THE                                                                 
13 COMMISSIONER] shall, before approving a royalty reduction under this                                                   
14 subsection, make a written finding that the state has obtained the maximum possible                                    
15 economic return that is compatible with allowing a reasonable rate of economic return                                   
16 for the lessee, and send copies of the finding to all members of the legislature.                                       
17    * Sec. 2.  APPLICABILITY.  The provisions of AS 38.05.180(j), amended by sec. 1 of this                              
18 Act, apply to leases in production on the effective date of this Act.                                                   
19      * Sec. 3.  This Act takes effect immediately under AS 01.10.070(c).