HB 134: "An Act authorizing the commissioner of natural resources to modify a net profit share lease."
00 HOUSE BILL NO. 134 01 "An Act authorizing the commissioner of natural resources to modify a net profit share 02 lease." 03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 04 * Section 1. AS 36.30.850(b)(32) is amended to read: 05 (32) contracts between the Department of Natural Resources and 06 contractors qualified to evaluate hydrocarbon development, production, transportation, 07 and economics, to assist the commissioner of natural resources in evaluating 08 applications for royalty increases or decreases or other royalty adjustments, 09 modifications to net profit share, and evaluating the related financial and technical 10 data, entered into under AS 38.05.180(j); 11 * Sec. 2. AS 38.05.180(j) is amended to read: 12 (j) The commissioner 13 (1) may provide for modification of royalty and net profit share on 14 individual leases, leases unitized as described in (p) of this section, leases subject to an
01 agreement described in (s) or (t) of this section, or interests unitized under AS 31.05 02 (A) to allow for production from an oil or gas field or pool if 03 (i) the oil or gas field or pool has been sufficiently 04 delineated to the satisfaction of the commissioner; 05 (ii) the field or pool has not previously produced oil or 06 gas for commercial sale; and 07 (iii) oil or gas production from the field or pool would 08 not otherwise be economically feasible; 09 (B) to prolong the economic life of an oil or gas field or pool as 10 per barrel or barrel equivalent costs increase or as the price of oil or gas 11 decreases, and the increase or decrease is sufficient to make future production 12 no longer economically feasible; or 13 (C) to reestablish production of shut-in oil or gas that would 14 not otherwise be economically feasible; or 15 (D) to prolong the economic life of an oil or gas field or pool 16 if required additional capital expenditures would make future production 17 no longer economically feasible; 18 (2) may not grant a royalty or net profit share modification unless the 19 lessee or lessees requesting the change make a clear and convincing showing that a 20 modification of royalty or net profit share meets the requirements of this subsection 21 and is in the best interests of the state; 22 (3) shall provide for an increase or decrease or other modification of 23 the state's royalty or net profit share by a fixed royalty, sliding scale royalty, net 24 profit share, or other mechanism that shall be based on a change in the price of oil or 25 gas and may also be based on other relevant factors such as a change in production 26 rate, projected ultimate recovery, development costs, and operating costs; 27 (4) may not grant a royalty reduction for a field or pool 28 (A) under (1)(A) or (1)(D) of this subsection if the royalty 29 modification for the field or pool would establish a royalty rate of less than 30 five percent in amount or value of the production removed or sold from a lease 31 or leases covering the field or pool;
01 (B) under (1)(B) or (1)(C) of this subsection if the royalty 02 modification for the field or pool would establish a royalty rate of less than 03 three percent in amount or value of the production removed or sold from a 04 lease or leases covering the field or pool; 05 (C) under (1)(A) - (D) of this subsection if the net profit 06 share modification for the field or pool would establish a share reserved to 07 the state of less than 10 percent of the net profit derived from the lease; 08 (5) may not grant a royalty or net profit share reduction under this 09 subsection without including an explicit condition that the royalty or net profit share 10 reduction is not assignable without the prior written approval, which may not be 11 unreasonably withheld, by the commissioner; the commissioner shall, in the 12 preliminary and final findings and determinations, set out the conditions under which 13 the royalty or net profit share reduction may be assigned; 14 (6) shall require the lessee or lessees to submit, with the application for 15 the royalty or net profit share reduction, financial and technical data that demonstrate 16 that the requirements of this subsection are met; the commissioner 17 (A) may require disclosure of only the financial and technical 18 data related to development, production, and transportation of oil and gas or 19 gas only from the field or pool that are reasonably available to the applicant; 20 and 21 (B) shall keep the data confidential under AS 38.05.035(a)(8) 22 at the request of the lessee or lessees making application for the royalty or net 23 profit share reduction; the confidential data may be disclosed by the 24 commissioner to legislators and to the legislative auditor and as directed by the 25 chair or vice-chair of the Legislative Budget and Audit Committee to the 26 director of the division of legislative finance, the permanent employees of their 27 respective divisions who are responsible for evaluating a royalty or net profit 28 share reduction, and to agents or contractors of the legislative auditor or the 29 legislative finance director who are engaged under contract to evaluate the 30 royalty or net profit share reduction, if they sign an appropriate 31 confidentiality agreement; and
01 (C) shall require the leasee or leasees to submit, with the 02 application for the royalty or net profit share reduction, a nonconfidential 03 cover letter explaining the rationale for and the terms of requested 04 modification with sufficient detail to allow the commissioner to publish the 05 preliminary and final findings and determinations; 06 (7) may 07 (A) require the lessee or lessees making application for the 08 royalty or net profit share reduction under (1)(A) or (1)(D) of this subsection 09 to pay for the services of an independent contractor, selected by the lessee or 10 lessees from a list of qualified consultants compiled by the commissioner, to 11 evaluate hydrocarbon development, production, transportation, and economics 12 and to assist the commissioner in evaluating the application and financial and 13 technical data; if, under this subparagraph, the commissioner requires payment 14 for the services of an independent contractor, the total cost of the services to be 15 paid for by the lessee or lessees may not exceed $150,000 for each application, 16 and the commissioner shall determine the relevant scope of the work to be 17 performed by the contractor; selection of an independent contractor under this 18 subparagraph is not subject to AS 36.30; 19 (B) with the mutual consent of the lessee or lessees making 20 application for the royalty or net profit share reduction under (1)(B) or (1)(C) 21 of this subsection, request payment for the services of an independent 22 contractor, selected from a list of qualified consultants to evaluate hydrocarbon 23 development, production, transportation, and economics by the commissioner 24 to assist the commissioner in evaluating the application and financial and 25 technical data; if, under this subparagraph, the commissioner requires payment 26 for the services of an independent contractor, the total cost of the services that 27 may be paid for by the lessee or lessees may not exceed $150,000 for each 28 application, and the commissioner shall determine the relevant scope of the 29 work to be performed by the contractor; selection of an independent contractor 30 under this subparagraph is not subject to AS 36.30; 31 (8) shall make and publish a preliminary findings and determination on
01 the royalty or net profit share reduction application, give reasonable public notice of 02 the preliminary findings and determination, and invite public comment on the 03 preliminary findings and determination during a 30-day period for receipt of public 04 comment; 05 (9) shall offer to appear before the Legislative Budget and Audit 06 Committee, on a day that is not earlier than 10 days and not later than 20 days after 07 giving public notice under (8) of this subsection, to provide the committee a review of 08 the commissioner's preliminary findings and determination on the royalty or net 09 profit share reduction application and administrative process; if the Legislative 10 Budget and Audit Committee accepts the commissioner's offer, the committee shall 11 give notice of the committee's meeting to all members of the legislature; 12 (10) shall make copies of the preliminary findings and determination 13 available to 14 (A) the presiding officer of each house of the legislature; 15 (B) the chairs of the legislature's standing committees on 16 resources; and 17 (C) the chairs of the legislature's special committees on oil and 18 gas, if any; 19 (11) shall, within 30 days after the close of the public comment period 20 under (8) of this subsection, 21 (A) prepare a summary of the public response to the 22 commissioner's preliminary findings and determination; 23 (B) make a final findings and determination; the 24 commissioner's final findings and determination prepared under this 25 subparagraph regarding a royalty or net profit share reduction is final and not 26 appealable to the court; 27 (C) transmit a copy of the final findings and determination to 28 the lessee; 29 (D) with the applicant's consent, amend the applicant's lease or 30 unitization agreement consistent with the commissioner's final decision; and 31 (E) make copies of the final findings and determination
01 available to each person who submitted comment under (8) of this subsection 02 and who has filed a request for the copies; 03 (12) is not limited by the provisions of AS 38.05.134(3) or (f) of this 04 section in the commissioner's determination under this subsection.