00 SENATE BILL NO. 180 01 "An Act relating to the noncompetitive leasing of state land for oil and gas 02 development." 03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 04 * Section 1. AS 38.05.180(d) is amended to read: 05 (d) The commissioner 06 (1) may annually offer oil and gas leases of the acreage described in 07 AS 38.05.035(e)(6)(F); 08 (2) may issue oil and gas leases in an area that has not been included 09 in a leasing program prepared, in accordance with (b) of this section, if the land to be 10 leased 11 (A) was previously subject to a valid state or federal oil and gas 12 lease; 13 (B) is contiguous to land already under state, federal, or private 14 lease and the commissioner makes a written finding, after hearing, that leasing 01 of the land would result in a substantial probability of early evaluation and 02 development of the land to be leased; 03 (C) is adjacent to land owned or controlled by another party on 04 which a discovery of commercial quantities of oil or gas has been made, and 05 the commissioner finds, after hearing, that there is a reasonable probability that 06 the land to be leased contains oil or gas in communication with the oil or gas 07 discovered on the land of the other party; 08 (D) is adjacent to land included in the federal five-year Outer 09 Continental Shelf leasing program under 43 U.S.C. 1344, and the commissioner 10 makes a written finding, after hearing, that coordinated or simultaneous leasing 11 with the federal government is in the public interest; or 12 (E) is the subject of an oil and gas exploration license issued 13 under AS 38.05.131 - 38.05.134 ; 14 (3) shall offer noncompetitive oil and gas leases under (y) of this 15 section . 16 * Sec. 2. AS 38.05.180(f) is amended to read: 17 (f) Except as provided by AS 38.05.131 - 38.05.134 , and 38.05.177, and (y) 18 of this section, the commissioner may issue oil and gas leases on state land to the 19 highest responsible qualified bidder as follows: 20 (1) the commissioner shall issue an oil and gas lease to the successful 21 bidder determined by competitive bidding under regulations adopted by the 22 commissioner; bidding may be by sealed bid or according to any other bidding 23 procedure the commissioner determines is in the best interests of the state; 24 (2) whenever, under any of the leasing methods listed in this 25 subsection, a royalty share is reserved to the state, it shall be delivered in pipeline 26 quality and free of all lease or unit expenses, including but not limited to separation, 27 cleaning, dehydration, gathering, salt water disposal, and preparation for transportation 28 off the lease or unit area; 29 (3) following a pre-sale analysis, the commissioner may choose at least 30 one of the following leasing methods: 31 (A) a cash bonus bid with a fixed royalty share reserved to the 01 state of not less than 12.5 percent in amount or value of the production 02 removed or sold from the lease; 03 (B) a cash bonus bid with a fixed royalty share reserved to the 04 state of not less than 12.5 percent in amount or value of the production 05 removed or sold from the lease and a fixed share of the net profit derived from 06 the lease of not less than 30 percent reserved to the state; 07 (C) a fixed cash bonus with a royalty share reserved to the state 08 as the bid variable but no less than 12.5 percent in amount or value of the 09 production removed or sold from the lease; 10 (D) a fixed cash bonus with the share of the net profit derived 11 from the lease reserved to the state as the bid variable; 12 (E) a fixed cash bonus with a fixed royalty share reserved to the 13 state of not less than 12.5 percent in amount or value of the production 14 removed or sold from the lease with the share of the net profit derived from 15 the lease reserved to the state as the bid variable; 16 (F) a cash bonus bid with a fixed royalty share reserved to the 17 state based on a sliding scale according to the volume of production or other 18 factor but in no event less than 12.5 percent in amount or value of the 19 production removed or sold from the lease; 20 (G) a fixed cash bonus with a royalty share reserved to the state 21 based on a sliding scale according to the volume of production or other factor 22 as the bid variable but not less than 12.5 percent in amount or value of the 23 production removed or sold from the lease; 24 (4) notwithstanding a requirement in the leasing method chosen of a 25 minimum fixed royalty share, on and after March 3, 1997, the lessee under a lease 26 issued in the Cook Inlet sedimentary basin who is the first to file with the 27 commissioner a nonconfidential sworn statement claiming to be the first to have drilled 28 a well discovering oil or gas in a previously undiscovered oil or gas pool and who is 29 certified by the commissioner within one year of completion of that discovery well to 30 have drilled a well in that pool that is capable of producing in paying quantities shall 31 pay a royalty of five percent on all production of oil or gas from that pool attributable 01 to that lease for a period of 10 years following the date of discovery of that pool, and 02 thereafter the royalty payable on all production of oil or gas from the pool attributable 03 to that lease shall be determined and payable as specified in the lease; for purposes of 04 this paragraph, the reduced royalty authorized by this paragraph is subject to the 05 following: 06 (A) only one reduction of royalty authorized by this paragraph 07 may be allowed on each lease that qualifies for reduction of royalty under this 08 paragraph; 09 (B) if, under this paragraph, application is made for a royalty 10 reduction for a lease that was entered into before March 3, 1997, the 11 commissioner may approve the application only if, on that date, the lease was 12 a nonproducing lease that was not committed to a unit approved by the 13 commissioner under (m) of this section, that is not part of a unit under (p) or 14 (q) of this section, and that has not been made part of a unit under AS 31.05; 15 (C) if application for a royalty reduction is made under this 16 paragraph for a lease on which a discovery royalty was claimed or may be 17 claimed under the discovery royalty provisions of former AS 38.05.180(a) in 18 effect before May 6, 1969, the commissioner shall disallow the application 19 under this paragraph unless the applicant waives the right to claim the right to 20 a reduced royalty under the discovery royalty provisions of former 21 AS 38.05.180(a) in effect before May 6, 1969; and 22 (D) the commissioner shall adopt regulations setting out the 23 standards, criteria, and definitions of terms that apply to implement the filing 24 of applications for, and the review and certification of, discovery oil and gas 25 royalty certifications under this paragraph; 26 (5) notwithstanding and in lieu of a requirement in the leasing method 27 chosen of a minimum fixed royalty share, or the royalty provision of a lease, for leases 28 unitized as described in (p) of this section, leases subject to an agreement described 29 in (s) or (t) of this section, or interests unitized under AS 31.05, the lessee of all or 30 part of an oil or gas field identified in this section that has been granted approval of 31 a written plan submitted to the Alaska Oil and Gas Conservation Commission under 01 AS 31.05.030(i) shall, subject to (dd) of this section, pay a royalty of five percent on 02 the first 25,000,000 barrels of oil and the first 35,000,000,000 cubic feet of gas 03 produced for sale from that field that occurs in the 10 years following the date on 04 which the production for sale commences; the fields eligible for royalty reduction 05 under this paragraph, all of which are located within the Cook Inlet sedimentary basin, 06 were discovered before January 1, 1988, and have been undeveloped or shut in from 07 at least January 1, 1988, through December 31, 1997, are 08 (A) Falls Creek; 09 (B) Nicolai Creek; 10 (C) North Fork; 11 (D) Point Starichkof; 12 (E) Redoubt Shoal; and 13 (F) West Foreland. 14 * Sec. 3. AS 38.05.180(w) is amended to read: 15 (w) Notwithstanding any other provisions of this section, land that was subject 16 to a best interest finding issued within the previous 10 years may be, at the discretion 17 of the commissioner, immediately offered for lease, under regulations adopted by the 18 commissioner, upon terms appearing most advantageous to the state [; HOWEVER, 19 NONCOMPETITIVE LEASING IS PROHIBITED]. The commissioner shall establish 20 a royalty determined to be in the public interest but not less than 12 1/2 percent. A 21 lease must provide for payment to the state of rental but need not adhere to the rental 22 schedule in (n) of this section nor to the 5,760-acres-per-lease limitation in (m) of this 23 section. The lease term may not exceed 10 years, except as provided in (o) of this 24 section. 25 * Sec. 4. AS 38.05.180(y) is amended to read: 26 (y) The provisions of this subsection apply to oil and gas leases on state 27 land that are issued on a noncompetitive basis. Under this subsection, 28 (1) except as to state land that must be competitively leased for oil 29 and gas development, the commissioner shall lease state land noncompetitively 30 when the commissioner determines that noncompetitive leases for oil and gas 31 development are in the best interests of the state; the commissioner 01 (A) shall issue noncompetitive leases under general 02 regulations adopted by the commissioner; 03 (B) shall issue noncompetitive leases in units of no more 04 than 2,560 acres in one lease; 05 (C) shall issue a noncompetitive lease conditioned upon the 06 lessee's payment of 07 (i) an annual rent of 50 cents an acre or fraction of 08 an acre in advance, except that, beginning on the date of the 09 discovery of oil or gas in paying quantities on the land that is 10 leased, a minimum royalty of $1 an acre is payable at the expiration 11 of each lease year instead of rent; and 12 (ii) a royalty of 12 1/2 percent in amount or value of 13 the production removed or sold from the lease; 14 (D) shall, subject to (F) of this paragraph, issue a 15 noncompetitive lease for a primary term of five years; at the end of the 16 five-year term of the lease, 17 (i) the lease shall continue in effect so long thereafter 18 as oil or gas is produced from the lease in paying quantities; 19 (ii) if drilling, including redrilling, sidetracking, or 20 other measures that the lessee believes are necessary to reach the 21 originally proposed bottom hole location, has commenced and is 22 continued with reasonable diligence, the lease shall continue in 23 effect until 90 days after drilling has ceased and for so long 24 thereafter as oil or gas is produced in paying quantities; 25 (E) shall, at the end of the period described in (D) of this 26 paragraph and subject to (F) of this paragraph, if the lease has been 27 maintained in accordance with applicable requirements and regulations, 28 provide to the record titleholder of the lease a single extension of the lease, 29 unless otherwise provided by law; an extension of a lease under this 30 subparagraph is subject to the regulations in effect at the expiration of the 31 initial term of the lease; if the extension is for a lease of land 01 (i) that the commissioner reasonably believes to be 02 capable of producing oil or gas, the extension is for a period of two 03 years and for so long thereafter as oil or gas is produced in paying 04 quantities; or 05 (ii) other than land described in (i) of this 06 subparagraph, the extension is for a period of five years and for so 07 long thereafter as oil or gas is produced in paying quantities; 08 (F) may extend a lease under (D) or (E) of this paragraph 09 only if, within a period of 90 days before the expiration date of the 10 primary term of the lease, the record titleholder, an assignee whose 11 assignment has been submitted for approval, or an operator whose 12 operating agreement has been submitted for approval files an application 13 for the extension; 14 (G) may, notwithstanding the conditions of (D) - (F) of this 15 paragraph, provide for extension of the term of a lease entered into 16 under this paragraph if all or part of the lease is 17 (i) included in an approved unit plan under (p) or (q) 18 of this section or in a development program under (s) of this 19 section; 20 (ii) subject to conditions made under (t) of this 21 section; or 22 (iii) included in a secondary recovery operation to 23 bring about or restore oil or gas production; 24 (2) notwithstanding (1) of this subsection, a [A] noncompetitive lease 25 existing at October 10, 1978 , shall be extended for a period of two years and so long 26 thereafter as oil and gas is produced in paying quantities ; a [. A] noncompetitive lease 27 extended under this paragraph [SUBSECTION] is subject to the regulations in force 28 at the expiration of the initial five-year term of the lease ; an [. NO] extension may 29 not be granted, however, unless , within a period of 90 days before the expiration date , 30 an application for extension is filed by the record titleholder [TITLE HOLDER] or 31 an assignee whose assignment has been filed for approval, or an operator whose 01 operating agreement has been filed for approval.