00 CS FOR HOUSE BILL NO. 271(FIN) 01 "An Act relating to the royalty rate for leases within the Cook Inlet sedimentary basin; 02 relating to a report on leases receiving royalty relief; and providing for an effective 03 date." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05  * Section 1. The uncodified law of the State of Alaska is amended by adding a new section 06 to read: 07 LEGISLATIVE FINDINGS AND INTENT. (a) The legislature finds that 08 (1) the Cook Inlet is an important source of natural gas for the Southcentral 09 region of the state; 10 (2) without a modification of the royalty rate, production from leases in Cook 11 Inlet is not economically feasible because of declining production and rising costs; 12 (3) gas production in Cook Inlet is necessary to ensure reliable and affordable 13 energy supply for Southcentral and Interior utilities and ratepayers, to protect jobs, and to 14 reduce reliance on imported fuels; and 01 (4) granting royalty modification for certain leases in Cook Inlet is in the best 02 interests of the state because a royalty modification is projected to extend gas production from 03 the leases for use by state residents and to maximize economic benefits to the state, when 04 compared with no modification. 05 (b) It is the intent of the legislature that failure to meet the condition set out in sec. 4 06 of this Act not have the effect of annulling or amending a royalty modification under 07 AS 38.05.180(j) that exists on or before the effective date of this Act. 08  * Sec. 2. AS 38.05.180 is amended by adding new subsections to read: 09 (mm) Under (j) of this section, beginning January 1, 2026, the commissioner 10 shall modify the leases within the Kitchen Lights Unit so that the royalty rate for 11 leases within the Kitchen Lights Unit is three percent if the lessee can demonstrate that 12 the royalty rate, as modified under this subsection, will result in cost savings to end 13 users of natural gas. Royalty calculations may be audited by the department at any 14 time. The royalty modification under this subsection may be terminated if the 15 commissioner determines that the royalty modification was assigned without approval 16 of the commissioner, consistent with (j)(5) of this section. In this subsection, "Kitchen 17 Lights Unit" means leases with division of lands numbers 389196, 389197, 389198, 18 389507, 389514, 389515, and 389923. 19 (nn) Under (j) of this section, beginning January 1, 2027, the commissioner 20 shall modify the leases within the Cook Inlet sedimentary basin so that the royalty rate 21 for leases within the Cook Inlet sedimentary basin is five percent if the lessee can 22 demonstrate that the royalty rate, as modified under this subsection, will result in cost 23 savings to end users of natural gas. Royalty calculations may be audited by the 24 department at any time. The royalty modification under this subsection may be 25 terminated if the commissioner determines that the royalty modification was assigned 26 without approval of the commissioner, consistent with (j)(5) of this section. This 27 subsection does not apply to leases modified under (mm) of this section. 28 (oo) Every five years, the commissioner shall prepare a report on the leases 29 receiving royalty relief under this section. Every five years, beginning January 1, 30 2031, the commissioner shall deliver the report not later than the first day of the 31 regular session of the legislature to the senate secretary and the chief clerk of the 01 house of representatives and notify the legislature that the report is available. The 02 commissioner shall certify the accuracy of the information in the report and certify 03 that the report is consistent with information reported to other agencies of the state. 04 The state may audit information published in the report. The report must set out 05 (1) the amount of oil and gas produced from the leases in the preceding 06 five-year period, including the cumulative amounts of oil and gas produced over the 07 five-year period and the annual amount of oil and gas produced for each year covered 08 by the report; 09 (2) unless the information is otherwise confidential, financial and 10 operational information for the leases for the preceding five-year period, including 11 capital expenditures, operating expenditures, average cost of production, average 12 realized sales price for oil and gas produced from the leases, and development activity 13 occurring in the leases, including the number of wells drilled, completed, and 14 producing and other significant capital projects or enhanced recovery efforts occurring 15 in the leases; 16 (3) the amount of royalty revenue received from the leases during the 17 preceding five years; 18 (4) a discussion of the effects on the state of the royalty modification 19 under this section, including the total amount of royalty revenue received by the state 20 under the modified royalty rate, an estimate of royalty revenue that would have been 21 received without the modification, and an analysis of the extent to which the royalty 22 modification has affected production, investment, and continued operation of the 23 leases; 24 (5) a description of the future of the unit, including anticipated 25 production over the next five years, planned development activities, and conditions 26 necessary for continued operation of the leases; and 27 (6) an analysis of the effects on energy costs for state residents 28 resulting from royalty modification under this section and from production from the 29 leases, including, if practicable, the effect on regional energy prices. 30  * Sec. 3. The uncodified law of the State of Alaska is amended by adding a new section to 31 read: 01 RETROACTIVITY. Section 1 of this Act and AS 38.05.180(mm), enacted by sec. 2 02 of this Act, are retroactive to January 1, 2026. 03  * Sec. 4. The uncodified law of the State of Alaska is amended by adding a new section to 04 read: 05 CONDITIONAL EFFECT. (a) Section 2 of this Act takes effect only if, before 06 December 31, 2031, a lessee within the Kitchen Lights Unit transports a jack-up rig to Cook 07 Inlet and uses the jack-up rig to drill a well for the purpose of discovering or extracting gas 08 from the Cook Inlet sedimentary basin. 09 (b) If the commissioner of natural resources determines that the condition in (a) of 10 this section has been met, the commissioner of natural resources shall notify the revisor of 11 statutes in writing within 30 days after making the determination. 12 (c) In this section, "jack-up rig" means a mobile drilling platform with extendible legs 13 for support on the ocean floor. 14  * Sec. 5. If this Act takes effect under sec. 4 of this Act, it takes effect the day after the 15 commissioner of natural resources determines, under sec. 4(b) of this Act, that the condition 16 in sec. 4 has been met.