CSSSHB 28(RES): "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."
00 CS FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 28(RES) 01 "An Act relating to adjustments to royalty reserved to the state to encourage otherwise 02 uneconomic production of oil and gas; and providing for an effective date." 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 commissioner 06 (1) may provide for modification of [AN INCREASE OR 07 DECREASE OR OTHERWISE MODIFY] royalty [, TO ALLOW FOR 08 PRODUCTION THAT WOULD NOT OTHERWISE BE ECONOMICALLY 09 FEASIBLE,] on individual leases, leases unitized as described in (p) of this section, 10 leases subject to an agreement described in (s) or (t) of this section, or interests 11 unitized under AS 31.05 [; THE COMMISSIONER MAY ACT UNDER THIS 12 SUBSECTION TO MODIFY THE ROYALTY] 13 (A) [AFTER JUNE 20, 1995 AND NOT LATER THAN JULY 14 1, 2015, SO LONG AS THE AUTHORITY TO MODIFY ROYALTY
01 UNDER THIS SUBPARAGRAPH HAS BEEN AUTHORIZED OR 02 REAUTHORIZED BY LAW WITHIN THE TEN YEARS PRECEDING THE 03 COMMISSIONER'S ACTION TO MODIFY THE ROYALTY,] to allow for 04 production from an oil or gas field or pool if 05 (i) the oil or gas field or pool has been sufficiently 06 delineated [SUFFICIENTLY] to the satisfaction of [ALLOW] the 07 commissioner [TO CONDUCT THE ANALYSES AND MAKE THE 08 FINDINGS REQUIRED BY THIS SUBSECTION]; [AND] 09 (ii) the field or pool has not previously produced oil or 10 gas for sale; and 11 (iii) oil or gas production from the field or pool 12 would not otherwise be economically feasible; 13 (B) to prolong the economic life of an oil or gas field or pool as 14 per barrel or barrel equivalent costs [PER BARREL OR BARREL 15 EQUIVALENT] increase or as the price of oil or gas decreases, and the 16 increase or decrease is sufficient to make future production no longer 17 economically feasible; or 18 (C) to reestablish production of shut-in oil or gas that would 19 not otherwise be economically feasible; 20 (2) may not grant a royalty modification unless the lessee or lessees 21 requesting the change [MODIFICATION] make a clear and convincing showing that 22 a modification of royalty meets the requirements of this subsection and is in the best 23 interests of the state; 24 (3) shall provide for an increase or decrease or other modification 25 of the state's royalty share by a sliding scale royalty or other mechanism that 26 shall be based on a change in the price of oil or gas and may also be based on 27 other relevant factors such as a change in production rate, projected ultimate 28 recovery, development costs, and operating costs 29 [(A) CONDITION ANY ROYALTY MODIFICATION 30 GRANTED UNDER THIS SUBSECTION IN ANY WAY NECESSARY TO 31 PROTECT THE STATE'S BEST INTERESTS;
01 (B) DESCRIBE, IN THE FINDINGS AND 02 DETERMINATIONS REQUIRED BY THIS SUBSECTION, THE 03 RELEVANT FACTORS, INCLUDING PRICE, PROJECTED 04 PRODUCTION RATE OR VOLUME, PREDICTED ULTIMATE 05 RECOVERY, AND DEVELOPMENT, OPERATING, AND 06 TRANSPORTATION COSTS, UPON WHICH THE MODIFICATION IS 07 BASED; 08 (C) FOR A MODIFICATION UNDER (1)(A) OF THIS 09 SUBSECTION, SET OUT THE TERMS AND CONDITIONS, WHICH 10 (i) MUST INCLUDE A MECHANISM FOR 11 ADJUSTING ROYALTY PERCENTAGE BASED ON PRICE; 12 USING FORECASTS OF THE RANGE OF FUTURE PRICES AND 13 THEIR PROBABILITIES, THE MECHANISM MUST PROVIDE 14 THAT THE VALUE OF THE POTENTIAL REVENUE INCREASES 15 RESULTING FROM ROYALTY PERCENTAGE INCREASES 16 MUST EXCEED THE VALUE OF THE POTENTIAL REVENUE 17 LOSSES RESULTING FROM ROYALTY PERCENTAGE 18 DECREASES; AND 19 (ii) MAY INCLUDE, IN ADDITION TO THE 20 ROYALTY PERCENTAGE ADJUSTMENT BASED ON PRICE, 21 WHICH MUST MEET THE CONDITIONS SPECIFIED IN (i) OF 22 THIS SUBPARAGRAPH, A FURTHER ADJUSTMENT BASED ON 23 PRODUCTION RATE OR VOLUME FROM THE FIELD OR POOL; 24 AND 25 (D) FOR A MODIFICATION UNDER (1)(B) OR (1)(C) OF 26 THIS SUBSECTION, SET OUT THE TERMS AND CONDITIONS, WHICH 27 MAY INCLUDE SUBSTITUTION OF A SLIDING SCALE ROYALTY OR 28 OTHER MECHANISM TO MODIFY THE ROYALTY IF THERE IS A 29 CHANGE IN THE RELEVANT FACTORS, SUCH AS PRICE, PROJECTED 30 PRODUCTION RATE OR VOLUME, PREDICTED ULTIMATE 31 RECOVERY, AND DEVELOPMENT, OPERATING, AND
01 TRANSPORTATION COSTS, UPON WHICH THE MODIFICATION IS 02 BASED]; 03 (4) may not grant a royalty reduction [MODIFICATION] for a field 04 or pool 05 (A) under (1)(A) of this subsection if the royalty modification 06 for the field or pool would establish a royalty rate of less than five percent in 07 amount or value of the production removed or sold from a lease or leases 08 covering the field or pool; 09 (B) under (1)(B) or (1)(C) of this subsection if the royalty 10 modification for the field or pool would establish a royalty rate of less than 11 three percent in amount or value of the production removed or sold from a 12 lease or leases covering the field or pool; 13 (5) [MAY NOT GRANT A ROYALTY MODIFICATION UNDER 14 THIS SUBSECTION WITHOUT INCLUDING AN EXPLICIT CONDITION THAT 15 THE ROYALTY MODIFICATION IS NOT ASSIGNABLE WITHOUT THE PRIOR 16 WRITTEN APPROVAL OF THE COMMISSIONER; THE COMMISSIONER 17 SHALL, IN THE PRELIMINARY AND FINAL FINDINGS AND 18 DETERMINATIONS, SET OUT THE CONDITIONS UNDER WHICH THE 19 ROYALTY MODIFICATION MAY BE ASSIGNED; 20 (6)] shall require the lessee or lessees to submit, with the application 21 for the royalty reduction [MODIFICATION], financial and technical data that 22 demonstrate that the requirements of this subsection are met; the commissioner 23 [SHALL] 24 (A) may require disclosure of only the financial and technical 25 data related to development, production, and transportation of oil and gas from 26 the field or pool that are reasonably available to the applicant 27 [NECESSARY TO MAKE A DETERMINATION AS TO WHETHER OR 28 NOT TO GRANT THE REQUEST FOR ROYALTY MODIFICATION]; and 29 (B) shall keep the data [DESCRIBED IN (A) OF THIS 30 PARAGRAPH] confidential under AS 38.05.035(a)(9) at the request of the 31 lessee or lessees making application for the royalty reduction
01 [MODIFICATION; THE CONFIDENTIAL DATA MAY BE DISCLOSED 02 BY THE COMMISSIONER TO LEGISLATORS AND TO THE 03 LEGISLATIVE AUDITOR AND AS DIRECTED BY THE CHAIR OR 04 VICE-CHAIR OF THE LEGISLATIVE BUDGET AND AUDIT 05 COMMITTEE TO THE DIRECTOR OF THE DIVISION OF LEGISLATIVE 06 FINANCE, THE PERMANENT EMPLOYEES OF THEIR RESPECTIVE 07 DIVISIONS WHO ARE RESPONSIBLE FOR EVALUATING A ROYALTY 08 MODIFICATION, AND TO AGENTS OR CONTRACTORS OF THE 09 LEGISLATIVE AUDITOR OR THE LEGISLATIVE FINANCE DIRECTOR 10 WHO ARE ENGAGED UNDER CONTRACT TO EVALUATE THE 11 ROYALTY MODIFICATION, IF THEY SIGN AN APPROPRIATE 12 CONFIDENTIALITY AGREEMENT]; 13 (6) [(7)] may 14 (A) require the lessee or lessees making application for the 15 royalty reduction under (1)(A) of this subsection [MODIFICATION] to pay 16 for the services of an independent contractor, selected from a list of qualified 17 consultants to evaluate hydrocarbon development, production, transportation, 18 and economics [,WHO IS SELECTED] by the commissioner to assist the 19 commissioner in evaluating the application and financial and technical data; if, 20 under this subparagraph, the commissioner requires payment for the 21 services of an independent contractor, the total cost of the services to be 22 paid for by the lessee or lessees may not exceed $150,000 for each 23 application, and the commissioner shall determine the relevant scope of 24 the work to be performed by the contractor; selection of an independent 25 contractor under this subparagraph [PARAGRAPH] is not subject to 26 AS 36.30; 27 (B) with the mutual consent of the lessee or lessees making 28 application for the royalty reduction under (1)(B) or (1)(C) of this 29 subsection, request payment for the services of an independent 30 contractor, selected from a list of qualified consultants to evaluate 31 hydrocarbon development, production, transportation, and economics by
01 the commissioner to assist the commissioner in evaluating the application 02 and financial and technical data; if, under this subparagraph, the 03 commissioner requires payment for the services of an independent 04 contractor, the total cost of the services that may be paid for by the lessee 05 or lessees may not exceed $150,000 for each application, and the 06 commissioner shall determine the relevant scope of the work to be 07 performed by the contractor; selection of an independent contractor 08 under this subparagraph is not subject to AS 36.30; 09 (7) [(8)] shall 10 [(A)] make and publish a preliminary findings and 11 determination on the royalty reduction [MODIFICATION] application, [; IF 12 THE PRELIMINARY FINDINGS AND DETERMINATION CONCERNS A 13 ROYALTY MODIFICATION UNDER (1)(A) OF THIS SUBSECTION, THE 14 PRELIMINARY FINDINGS AND DETERMINATION SHALL ALSO BE 15 PRESENTED TO THE GOVERNOR FOR THE GOVERNOR'S APPROVAL 16 OR DISAPPROVAL; THE GOVERNOR MAY NOT DELEGATE A 17 DETERMINATION TO APPROVE OR DISAPPROVE A PRELIMINARY 18 FINDINGS AND DETERMINATION UNDER THIS SUBPARAGRAPH; 19 (B) FOR A ROYALTY MODIFICATION UNDER (1)(A) OF 20 THIS SUBSECTION, IF THE GOVERNOR APPROVES THE 21 PRELIMINARY FINDINGS AND DETERMINATION UNDER (A) OF 22 THIS PARAGRAPH, 23 (i)] give reasonable public notice of the preliminary 24 findings and determination, [; 25 (ii) CONCURRENTLY WITH THE ISSUANCE OF 26 THE PUBLIC NOTICE, UNLESS DIRECTED BY THE 27 LEGISLATIVE BUDGET AND AUDIT COMMITTEE TO DO 28 OTHERWISE, MAKE AVAILABLE COPIES OF THE 29 COMMISSIONER'S PRELIMINARY FINDINGS AND 30 DETERMINATION ON THE ROYALTY MODIFICATION 31 APPLICATION AND THE SUPPORTING FINANCIAL AND
01 TECHNICAL DATA, INCLUDING THE WORK PAPERS, 02 ANALYSES, AND RECOMMENDATIONS OF ANY 03 CONTRACTORS RETAINED UNDER (7) OF THIS SUBSECTION, 04 TO PERSONS AUTHORIZED UNDER (6)(B) OF THIS 05 SUBSECTION TO REVIEW THE DATA;] and 06 [(iii)] invite public comment on the preliminary findings 07 and determination during a 30-day period for receipt of public 08 comment; 09 [(C) FOR A ROYALTY MODIFICATION UNDER (1)(B) OR 10 (C) OF THIS SUBSECTION, IF THE PRELIMINARY FINDINGS AND 11 DETERMINATION APPROVES A ROYALTY MODIFICATION, 12 (i) GIVE REASONABLE PUBLIC NOTICE OF THE 13 PRELIMINARY FINDINGS AND DETERMINATION; AND 14 (ii) INVITE PUBLIC COMMENT ON THE 15 PRELIMINARY FINDINGS AND DETERMINATION DURING A 16 30-DAY PERIOD FOR RECEIPT OF PUBLIC COMMENT; 17 (9) SHALL ADDRESS IN ANY FINDINGS AND 18 DETERMINATIONS REQUIRED UNDER THIS SUBSECTION THE 19 REASONABLY FORESEEABLE EFFECTS OF THE PROPOSED ROYALTY 20 MODIFICATION ON THE STATE'S REVENUE;] 21 (8) [(10)] shall offer to appear before the Legislative Budget and Audit 22 Committee on a day that is not earlier than 10 days and not later than 20 days 23 after giving public notice under (7) of this subsection, to provide the committee a 24 review of the commissioner's preliminary findings and determination on the royalty 25 reduction [MODIFICATION] application and administrative process [THE 26 SUPPORTING FINANCIAL AND TECHNICAL DATA]; if the Legislative Budget 27 and Audit Committee accepts the commissioner's offer, the committee shall give 28 notice of the committee's meeting to all members of the legislature; [IF, UNDER 29 (6)(B) OF THIS SUBSECTION, THE FINANCIAL AND TECHNICAL DATA 30 MUST BE KEPT CONFIDENTIAL AT THE REQUEST OF A LESSEE OR 31 LESSEES MAKING APPLICATION FOR THE ROYALTY MODIFICATION, THE
01 COMMISSIONER MAY APPEAR BEFORE THE COMMITTEE IN EXECUTIVE 02 SESSION;] 03 (9) [(11)] shall make copies of the preliminary findings and 04 determination available to 05 (A) the presiding officer of each house of the legislature; 06 (B) the chairs of the legislature's standing committees on 07 resources; and 08 (C) the chairs of the legislature's special committees on oil and 09 gas, if any; 10 (10) [(12)] shall, within 30 days after the close of the public comment 11 period under (7) [(8)] of this subsection, 12 (A) prepare a summary of the public response to the 13 commissioner's preliminary findings and determination; 14 (B) make a final findings and determination [AND PRESENT 15 IT TO THE GOVERNOR FOR THE GOVERNOR'S APPROVAL OR 16 DISAPPROVAL; THE GOVERNOR MAY NOT DELEGATE A DECISION 17 TO APPROVE OR DISAPPROVE A FINAL FINDINGS AND 18 DETERMINATION PRESENTED UNDER THIS SUBPARAGRAPH]; the 19 commissioner's final findings and determination prepared under this 20 subparagraph regarding a royalty reduction [MODIFICATION, IF 21 APPROVED BY THE GOVERNOR,] is final and not appealable to the court; 22 (C) transmit a copy of the final findings and determination 23 [PREPARED UNDER (B) OF THIS PARAGRAPH] to the lessee [OR 24 LESSEES MAKING APPLICATION FOR THE ROYALTY 25 MODIFICATION]; 26 (D) with the applicant's consent [OF THE LESSEE OR 27 LESSEES APPLYING FOR THE ROYALTY MODIFICATION], amend the 28 applicant's lease or unitization agreement [OF THE LESSEE OR LESSEES 29 APPLYING FOR THE ROYALTY MODIFICATION] consistent with the 30 commissioner's [APPROVED] final decision [FINDINGS AND 31 DETERMINATION]; and
01 (E) make copies of the final findings and determination 02 available to each person who submitted comment under (7) [(8)] of this 03 subsection and who has filed a request for the copies; 04 (11) [(13)] is not limited by the provisions of AS 38.05.134(3) or (f) of 05 this section in the commissioner's determination under this subsection. 06 * Sec. 2. AS 38.05.180(p) is amended to read: 07 (p) To conserve the natural resources of all or a part of an oil or gas pool, 08 field, or like area, the lessees and their representatives may unite with each other, or 09 jointly or separately with others, in collectively adopting or operating under a 10 cooperative or a unit plan of development or operation of the pool, field, or like area, 11 or a part of it, when determined and certified by the commissioner to be necessary or 12 advisable in the public interest. The commissioner may, with the consent of the 13 holders of leases involved, establish, change, or revoke drilling, producing, and 14 royalty requirements of the leases and adopt regulations with reference to the leases, 15 with like consent on the part of the lessees, in connection with the institution and 16 operation of a cooperative or unit plan as the commissioner determines necessary or 17 proper to secure the proper protection of the public interest. The commissioner may 18 not reduce [DECREASE] royalty on leases in connection with a cooperative or unit 19 plan except as provided in (j) of this section. The commissioner may require oil and 20 gas leases issued under this section to contain a provision requiring the lessee to 21 operate under a reasonable cooperative or unit plan, and may prescribe a plan under 22 which the lessee must operate. The plan must adequately protect all parties in interest, 23 including the state. 24 * Sec. 3. AS 38.05.180(s) is amended to read: 25 (s) When separate tracts cannot be individually developed and operated in 26 conformity with an established well-spacing or development program, a lease, or a 27 portion of a lease, may be pooled with other land, whether or not owned by the state, 28 under a communitization or drilling agreement providing for an apportionment of 29 production or royalties among the separate tracts of land comprising the drilling or 30 spacing unit when determined by the commissioner to be in the public interest. 31 Operations or production under the agreement are considered as operations or
01 production as to each lease committed to the agreement. The commissioner may not 02 reduce [DECREASE] royalty on leases in connection with a communitization or 03 drilling agreement except as provided in (j) of this section. 04 * Sec. 4. AS 38.05.180(t) is amended to read: 05 (t) The commissioner may prescribe conditions and approve, on conditions, 06 drilling, or development contracts made by one or more lessees of oil or gas leases, 07 with one or more persons, when, in the discretion of the commissioner, the 08 conservation of natural resources or the public convenience or necessity requires it or 09 the interests of the state are best served. All leases operated under approved drilling or 10 development contracts and interests under them, are excepted in determining holding 11 or control under AS 38.05.140. The commissioner may not reduce [DECREASE] 12 royalty on a lease or leases that are subject to a drilling or development contract except 13 as provided in (j) of this section. 14 * Sec. 5. This Act takes effect immediately under AS 01.10.070(c).