SCS CSHB 207(FIN): "An Act relating to adjustments to royalty reserved to the state to encourage otherwise uneconomic production of oil and gas; and providing for an effective date."
00SENATE CS FOR CS FOR HOUSE BILL NO. 207(FIN) 01 "An Act relating to adjustments to royalty reserved to the state to encourage 02 otherwise uneconomic production of oil and gas; and providing for an effective 03 date." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05 * Section 1. AS 36.30.850(b) is amended by adding a new paragraph to read: 06 (33) contracts between the Department of Natural Resources and 07 contractors qualified to evaluate hydrocarbon development, production, transportation, 08 and economics, to assist the commissioner of natural resources in evaluating applications 09 for oil and gas royalty increases or decreases or other oil and gas royalty adjustments, 10 and evaluating the related financial and technical data, entered into under 11 AS 38.05.180(j). 12 * Sec. 2. AS 38.05.180(j) is amended to read: 13 (j) The [TO PROLONG THE ECONOMIC LIFE OF AN OIL AND GAS 14 FIELD OR TO REESTABLISH COMMERCIAL PRODUCTION OF SHUT-IN OIL OR
01 GAS THAT WOULD NOT OTHERWISE BE ECONOMICALLY FEASIBLE, THE] 02 commissioner 03 (1) may provide for an increase or decrease or otherwise modify 04 [SHALL ADOPT REGULATIONS TO ALLOW REDUCTION OF] royalty on 05 individual leases, leases unitized as described in (p) of this section, leases subject to 06 an agreement described in (s) or (t) of this section, or interests unitized under 07 AS 31.05; the commissioner may act under this subsection to modify the royalty 08 (A) after the effective date of this Act and not later than 09 July 1, 2000, to allow for production from an oil or gas field or pool if 10 (i) the oil or gas field or pool has been delineated 11 sufficiently to allow the commissioner to conduct the analyses and 12 make the findings required by this subsection; and 13 (ii) the field or pool has not previously produced oil or 14 gas for sale; 15 (B) to prolong the economic life of an oil or gas field or pool 16 as costs per barrel or barrel equivalent increase such that future production 17 would not otherwise be economically feasible; or 18 (C) to reestablish production of shut-in oil or gas that would 19 not otherwise be economically feasible; 20 (2) [. THE COMMISSIONER] may not grant a [REDUCTION OF] 21 royalty modification unless the lessee or lessees requesting the modification make 22 [REDUCTION MAKES] a clear and convincing showing that a modification of royalty 23 meets the requirements of this subsection and is in the best interests of the state; 24 (3) shall 25 (A) [THE REVENUE FROM THE LESSEE'S SHARE OF ALL 26 HYDROCARBONS PRODUCED FROM THE FIELD IS AND IS LIKELY TO 27 CONTINUE TO BE INSUFFICIENT TO PRODUCE A REASONABLE RATE 28 OF RETURN WITH RESPECT TO THE LESSEE'S TOTAL INVESTMENT IN 29 THE FIELD. THE COMMISSIONER MAY] condition any [A] royalty 30 modification [REDUCTION] granted under this subsection in any way necessary 31 to protect the state's best interests;
01 (B) describe, in the findings and determinations required by 02 this subsection, the relevant factors, including price, projected production 03 rate or volume, predicted ultimate recovery, and development, operating, 04 and transportation costs, upon which the modification is based; 05 (C) for a modification under (1)(A) of this subsection, set out 06 the terms and conditions, which 07 (i) must include a mechanism for adjusting royalty 08 percentage based on price; the mechanism must provide for an 09 increase in royalty percentage resulting from an increase in price 10 from the base assumptions that, at a minimum, fully compensates 11 for any decreases in royalty percentage resulting from a decrease 12 in price from the base assumptions; it is the intent of this provision 13 that the value of the potential percentage increases under the 14 mechanism will, at a minimum, fully compensate for any negative 15 risks the state assumed under the modification; and 16 (ii) may include, in addition to the royalty percentage 17 adjustment based on price, which must meet the conditions 18 specified in (i) of this subparagraph, a further adjustment based on 19 production rate or volume from the field or pool; and 20 (D) for a modification under (1)(B) or (1)(C) of this 21 subsection, set out the terms and conditions, which may include 22 substitution of a sliding scale royalty or other mechanism to modify the 23 royalty if there is a change in the relevant factors, such as price, projected 24 production rate or volume, predicted ultimate recovery, and development, 25 operating, and transportation costs, upon which the modification is based; 26 (4) may not grant a royalty modification for a field or pool 27 (A) under (1)(A) of this subsection if the royalty modification 28 for the field or pool would establish a royalty rate of less than five percent 29 in amount or value of the production removed or sold from a lease or leases 30 covering the field or pool; 31 (B) under (1)(B) or (1)(C) of this subsection if the royalty
01 modification for the field or pool would establish a royalty rate of less than 02 three percent in amount or value of the production removed or sold from a 03 lease or leases covering the field or pool; 04 (5) may not grant a royalty modification under this subsection 05 without including an explicit condition that the royalty modification is not 06 assignable without the prior written approval of the commissioner; the 07 commissioner shall, in the preliminary and final findings and determinations, set out 08 the conditions under which the royalty modification may be assigned; 09 (6) shall require the lessee or lessees to submit, with the application 10 for the royalty modification, financial and technical data that demonstrate that the 11 requirements of this subsection are met; the commissioner shall 12 (A) require disclosure of the financial and technical data 13 related to development, production, and transportation of oil and gas from 14 the field or pool that are necessary to make a determination as to whether 15 or not to grant the request for royalty modification; and 16 (B) keep the data described in (A) of this paragraph 17 confidential under AS 38.05.035(a)(9) at the request of the lessee or lessees 18 making application for the royalty modification; the confidential data shall 19 be disclosed by the commissioner to legislators who sign an appropriate 20 confidentiality agreement, to the legislative auditor, the director of the 21 division of legislative finance, and the permanent employees of their 22 respective divisions, and to agents or contractors of the legislative auditor or 23 the legislative finance division director who are engaged under contract to 24 evaluate the royalty modification; 25 (7) may require the lessee or lessees making application for the 26 royalty modification to pay for the services of an independent contractor, qualified 27 to evaluate hydrocarbon development, production, transportation, and economics, 28 who is selected by the commissioner to assist the commissioner in evaluating the 29 application and financial and technical data; selection of an independent contractor 30 under this paragraph is not subject to AS 36.30; 31 (8) shall
01 (A) make and publish a preliminary findings and 02 determination on the royalty modification application; if the preliminary 03 findings and determination concerns a royalty modification under (1)(A) 04 of this subsection, the preliminary findings and determination shall also be 05 presented to the governor for the governor's approval or disapproval; the 06 governor may not delegate a determination to approve or disapprove a 07 preliminary findings and determination under this subparagraph; 08 (B) for a royalty modification under (1)(A) of this 09 subsection, if the governor approves the preliminary findings and 10 determination under (A) of this paragraph, 11 (i) give reasonable public notice of the preliminary 12 findings and determination; 13 (ii) concurrently with the issuance of the public 14 notice, unless directed by the Legislative Budget and Audit 15 Committee to do otherwise, make available copies of the 16 commissioner's preliminary findings and determination on the 17 royalty modification application and the supporting financial and 18 technical data, including the work papers, analyses, and 19 recommendations of any contractors retained under (7) of this 20 subsection, to persons authorized under (6)(B) of this subsection to 21 review the data; and 22 (iii) invite public comment on the preliminary 23 findings and determination during a 30-day period for receipt of 24 public comment; 25 (C) for a royalty modification under (1)(B) or (C) of this 26 subsection, if the preliminary findings and determination approves a 27 royalty modification, 28 (i) give reasonable public notice of the preliminary 29 findings and determination; and 30 (ii) invite public comment on the preliminary findings 31 and determination during a 30-day period for receipt of public
01 comment; 02 (9) shall address in any findings and determinations required under 03 this subsection the reasonably foreseeable effects of the proposed royalty 04 modification on the state's revenue; 05 (10) shall offer to appear before the Legislative Budget and Audit 06 Committee to provide the committee a review of the commissioner's preliminary 07 findings and determination on the royalty modification application and the 08 supporting financial and technical data; if the Legislative Budget and Audit 09 Committee accepts the commissioner's offer, the committee shall give notice of the 10 committee's meeting to all members of the legislature; if, under (6)(B) of this 11 subsection, the financial and technical data must be kept confidential at the 12 request of a lessee or lessees making application for the royalty modification, the 13 commissioner may appear before the committee in executive session; 14 (11) shall make copies of the preliminary findings and determination 15 available to 16 (A) the presiding officer of each house [INTEREST, 17 INCLUDING RESTORATION OF THE STATE'S ROYALTY SHARE IN THE 18 EVENT OF AN INCREASE IN THE PRICE OF OIL OR GAS. BEFORE 19 APPROVING A ROYALTY REDUCTION, THE COMMISSIONER SHALL 20 MAKE A WRITTEN FINDING THAT THE STATE HAS OBTAINED THE 21 MAXIMUM POSSIBLE ECONOMIC RETURN THAT IS COMPATIBLE 22 WITH ALLOWING A REASONABLE RATE OF ECONOMIC RETURN FOR 23 THE LESSEE, AND SEND COPIES OF THE FINDING TO ALL MEMBERS] 24 of the legislature; 25 (B) the chairs of the legislature's standing committees on 26 resources; and 27 (C) the chairs of the legislature's special committees on oil 28 and gas, if any; 29 (12) shall, within 30 days after the close of the public comment 30 period under (8) of this subsection, 31 (A) prepare a summary of the public response to the
01 commissioner's preliminary findings and determination; 02 (B) make a final findings and determination and present it 03 to the governor for the governor's approval or disapproval; the governor 04 may not delegate a decision to approve or disapprove a final findings and 05 determination presented under this subparagraph; the commissioner's final 06 findings and determination regarding a royalty modification, if approved 07 by the governor, is, as to the lessee or lessees applying for the royalty 08 modification, final and not appealable to the court; 09 (C) transmit a copy of the final findings and determination 10 prepared under (B) of this paragraph to the lessee or lessees making 11 application for the royalty modification; 12 (D) with the consent of the lessee or lessees applying for the 13 royalty modification, amend the lease or unitization agreement of the lessee 14 or lessees applying for the royalty modification consistent with the 15 commissioner's approved final findings and determination; and 16 (E) make copies of the final findings and determination 17 available to each person who submitted comment under (8) of this subsection 18 and who has filed a request for the copies; 19 (13) is not limited by the provisions of AS 38.05.134(3) or (f) of this 20 section in the commissioner's determination under this subsection. 21 * Sec. 3. AS 38.05.180(p) is amended to read: 22 (p) To conserve the natural resources of all or a part of an oil or gas pool, field, 23 or like area, the lessees and their representatives may unite with each other, or jointly 24 or separately with others, in collectively adopting or operating under a cooperative or a 25 unit plan of development or operation of the pool, field, or like area, or a part of it, when 26 determined and certified by the commissioner to be necessary or advisable in the public 27 interest. The commissioner may, with the consent of the holders of leases involved, 28 establish, change, or revoke drilling, producing, and royalty requirements of the leases 29 and adopt regulations with reference to the leases, with like consent on the part of the 30 lessees, in connection with the institution and operation of a cooperative or unit plan as 31 the commissioner determines necessary or proper to secure the proper protection of the
01 public interest. The commissioner may not decrease royalty on leases in connection 02 with a cooperative or unit plan except as provided in (j) of this section. The 03 commissioner may require oil and gas leases issued under this section to contain a 04 provision requiring the lessee to operate under a reasonable cooperative or unit plan, and 05 may prescribe a plan under which the lessee must operate. The plan must adequately 06 protect all parties in interest, including the state. 07 * Sec. 4. AS 38.05.180(s) is amended to read: 08 (s) When separate tracts cannot be individually developed and operated in 09 conformity with an established well-spacing or development program, a lease, or a 10 portion of a lease, may be pooled with other land, whether or not owned by the state, 11 under a communication or drilling agreement providing for an apportionment of 12 production or royalties among the separate tracts of land comprising the drilling or 13 spacing unit when determined by the commissioner to be in the public interest. 14 Operations or production under the agreement are considered as operations or production 15 as to each lease committed to the agreement. The commissioner may not decrease 16 royalty on leases in connection with a communication or drilling agreement except 17 as provided in (j) of this section. 18 * Sec. 5. AS 38.05.180(t) is amended to read: 19 (t) The commissioner may prescribe conditions and approve, on conditions, 20 drilling, or development contracts made by one or more lessees of oil or gas leases, with 21 one or more persons, when, in the discretion of the commissioner, the conservation of 22 natural resources or the public convenience or necessity requires it or the interests of the 23 state are best served. All leases operated under approved drilling or development 24 contracts and interests under them, are excepted in determining holding or control under 25 AS 38.05.140. The commissioner may not decrease royalty on a lease or leases that 26 are subject to a drilling or development contract except as provided in (j) of this 27 section. 28 * Sec. 6. This Act takes effect immediately under AS 01.10.070(c).