00HOUSE BILL NO. 325                                                                                                      
01 "An Act authorizing suspension of payment of a portion of the royalty due the                                           
02 state for initial production of heavy oil from wells on the Arctic Slope."                                              
03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                
04    * Section 1.  AS 38.05.180(j) is amended to read:                                                                    
05  (j)  The provisions of this subsection apply to modify the payment of                                                
06 royalty on oil and gas produced from oil and gas leases:                                                                
07   (1)  To prolong the economic life of an oil and gas field or to                                                     
08 reestablish commercial production of shut-in oil or gas that would not otherwise be                                     
09 economically feasible, the commissioner shall adopt regulations to allow reduction of                                   
10 royalty on leases.  The commissioner may not grant a reduction of royalty unless the                                    
11 lessee requesting the reduction makes a clear showing that the revenue from the                                         
12 lessee's share of all hydrocarbons produced from the field is and is likely to continue                                 
13 to be insufficient to produce a reasonable rate of return with respect to the lessee's                                  
14 total investment in the field.  The commissioner may condition a royalty reduction                                      

01 granted under this paragraph [SUBSECTION] in any way necessary to protect the                                         
02 state's interest, including restoration of the state's royalty share in the event of an                                 
03 increase in the price of oil or gas.  Before approving a royalty reduction, the                                         
04 commissioner shall make a written finding that the state has obtained the maximum                                       
05 possible economic return that is compatible with allowing a reasonable rate of                                          
06 economic return for the lessee, and send copies of the finding to all members of the                                    
07 legislature.                                                                                                           
08   (2)  Notwithstanding any other provision of this section or any                                                      
09 provision in a lease, unit agreement, or other agreement between a lessee and the                                       
10 state that establishes an obligation to pay royalty on the production of oil, the                                       
11 obligation to pay a royalty on the amount or value of the production removed or                                         
12 sold from an oil well on a lease or leases located north of the Umiat baseline is                                       
13 suspended for the production of the first 500 barrels of daily production from a                                        
14 well producing heavy oil.  The suspension of payment of royalty under this                                              
15 paragraph is available only if the actual drilling of the well on which the royalty                                     
16 payment may be suspended began on or after July 1, 1995, and only for the first                                         
17 1,825 days of production after the start of production of oil from the well.  For                                       
18 each well for which a lessee claims the benefit of suspension of the royalty under                                      
19 this paragraph, the lessee shall maintain records of production that show the                                           
20 actual date that drilling of the well started, the daily production from the well,                                      
21 and the API degree gravity well test data that the commissioner may, by                                                 
22 regulation, require, shall retain the records for a period of at least two years after                                  
23 the last day of royalty suspension authorized by this paragraph, and shall allow                                        
24 the department to inspect the data and records during regular business hours.                                           
25 In this paragraph, "heavy oil" means oil having a weighted average API gravity                                          
26 that meets the definition of heavy oil in 26 U.S.C. 613A(c)(6)(F).                                                     
27    * Sec. 2.  If this Act takes effect after July 1, 1995, it is retroactive to July 1, 1995.