SB 122: "An Act relating to exemptions to the Pipeline Act; and relating to the calculation of oil and gas royalties."
00 SENATE BILL NO. 122 01 "An Act relating to exemptions to the Pipeline Act; and relating to the calculation of oil 02 and gas royalties." 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 royalty on individual leases, leases 07 unitized as described in (p) of this section, leases subject to an agreement described in 08 (s) or (t) of this section, or interests unitized under AS 31.05 09 (A) to allow for production from an oil or gas field or pool if 10 (i) the oil or gas field or pool has been sufficiently 11 delineated to the satisfaction of the commissioner; 12 (ii) the field or pool has not previously produced oil or 13 gas for sale; and 14 (iii) oil or gas production from the field or pool would
01 not otherwise be economically feasible; 02 (B) to prolong the economic life of an oil or gas field or pool as 03 per barrel or barrel equivalent costs increase or as the price of oil or gas 04 decreases, and the increase or decrease is sufficient to make future production 05 no longer economically feasible; or 06 (C) to reestablish production of shut-in oil or gas that would 07 not otherwise be economically feasible; 08 (2) may not grant a royalty modification unless the lessee or lessees 09 requesting the change make a clear and convincing showing that a modification of 10 royalty meets the requirements of this subsection and is in the best interests of the 11 state; 12 (3) shall provide for an increase or decrease or other modification of 13 the state's royalty share by a sliding scale royalty or other mechanism that shall be 14 based on a change in the price of oil or gas and may also be based on other relevant 15 factors such as a change in production rate, projected ultimate recovery, development 16 costs, and operating costs; 17 (4) may not grant a royalty reduction for a field or pool 18 (A) under (1)(A) of this subsection if the royalty modification 19 for the field or pool would establish a royalty rate of less than five percent in 20 amount or value of the production removed or sold from a lease or leases 21 covering the field or pool; 22 (B) under (1)(B) or (1)(C) of this subsection if the royalty 23 modification for the field or pool would establish a royalty rate of less than 24 three percent in amount or value of the production removed or sold from a 25 lease or leases covering the field or pool; 26 (5) may not grant a royalty reduction under this subsection without 27 including an explicit condition that the royalty reduction is not assignable without the 28 prior written approval, which may not be unreasonably withheld, by the 29 commissioner; the commissioner shall, in the preliminary and final findings and 30 determinations, set out the conditions under which the royalty reduction may be 31 assigned;
01 (6) shall require the lessee or lessees to submit, with the application for 02 the royalty reduction, financial and technical data that demonstrate that the 03 requirements of this subsection are met; the commissioner 04 (A) may require disclosure of only the financial and technical 05 data related to development, production, and transportation of oil and gas or 06 gas only from the field or pool that are reasonably available to the applicant; 07 and 08 (B) shall keep the data confidential under AS 38.05.035(a)(8) 09 at the request of the lessee or lessees making application for the royalty 10 reduction; the confidential data may be disclosed by the commissioner to 11 legislators and to the legislative auditor and as directed by the chair or vice- 12 chair of the Legislative Budget and Audit Committee to the director of the 13 division of legislative finance, the permanent employees of their respective 14 divisions who are responsible for evaluating a royalty reduction, and to agents 15 or contractors of the legislative auditor or the legislative finance director who 16 are engaged under contract to evaluate the royalty reduction, if they sign an 17 appropriate confidentiality agreement; 18 (7) may 19 (A) require the lessee or lessees making application for the 20 royalty reduction under (1)(A) of this subsection to pay for the services of an 21 independent contractor, selected by the lessee or lessees from a list of qualified 22 consultants compiled by the commissioner, to evaluate hydrocarbon 23 development, production, transportation, and economics and to assist the 24 commissioner in evaluating the application and financial and technical data; if, 25 under this subparagraph, the commissioner requires payment for the services of 26 an independent contractor, the total cost of the services to be paid for by the 27 lessee or lessees may not exceed $150,000 for each application, and the 28 commissioner shall determine the relevant scope of the work to be performed 29 by the contractor; selection of an independent contractor under this 30 subparagraph is not subject to AS 36.30; 31 (B) with the mutual consent of the lessee or lessees making
01 application for the royalty reduction under (1)(B) or (1)(C) of this subsection, 02 request payment for the services of an independent contractor, selected from a 03 list of qualified consultants to evaluate hydrocarbon development, production, 04 transportation, and economics by the commissioner to assist the commissioner 05 in evaluating the application and financial and technical data; if, under this 06 subparagraph, the commissioner requires payment for the services of an 07 independent contractor, the total cost of the services that may be paid for by 08 the lessee or lessees may not exceed $150,000 for each application, and the 09 commissioner shall determine the relevant scope of the work to be performed 10 by the contractor; selection of an independent contractor under this 11 subparagraph is not subject to AS 36.30; 12 (8) shall make and publish a preliminary findings and determination on 13 the royalty reduction application, give reasonable public notice of the preliminary 14 findings and determination, and invite public comment on the preliminary findings 15 and determination during a 30-day period for receipt of public comment; 16 (9) shall offer to appear before the Legislative Budget and Audit 17 Committee, on a day that is not earlier than 10 days and not later than 20 days after 18 giving public notice under (8) of this subsection, to provide the committee a review of 19 the commissioner's preliminary findings and determination on the royalty reduction 20 application and administrative process; if the Legislative Budget and Audit Committee 21 accepts the commissioner's offer, the committee shall give notice of the committee's 22 meeting to all members of the legislature; 23 (10) shall make copies of the preliminary findings and determination 24 available to 25 (A) the presiding officer of each house of the legislature; 26 (B) the chairs of the legislature's standing committees on 27 resources; and 28 (C) the chairs of the legislature's special committees on oil and 29 gas, if any; 30 (11) shall, within 30 days after the close of the public comment period 31 under (8) of this subsection,
01 (A) prepare a summary of the public response to the 02 commissioner's preliminary findings and determination; 03 (B) make a final findings and determination; the 04 commissioner's final findings and determination prepared under this 05 subparagraph regarding a royalty reduction is final and not appealable to the 06 court; 07 (C) transmit a copy of the final findings and determination to 08 the lessee; 09 (D) with the applicant's consent, amend the applicant's lease or 10 unitization agreement consistent with the commissioner's final decision; and 11 (E) make copies of the final findings and determination 12 available to each person who submitted comment under (8) of this subsection 13 and who has filed a request for the copies; 14 (12) is not limited by the provisions of AS 38.05.134(3) or (f) of this 15 section in the commissioner's determination under this subsection; 16 (13) may enter into a contract with a lessee that provides that the 17 lessee may not claim a transportation deduction related to the transportation of 18 oil or gas through a pipeline that is exempt from rate regulation under 19 AS 42.06.601 for the purpose of calculating a royalty or payment obligation for a 20 lease entered into under this section. 21 * Sec. 2. AS 42.06.601 is amended by adding new subsections to read: 22 (b) An eligible pipeline carrier may claim an exemption from AS 42.06.370 23 and 42.06.390 - 42.06.420 by filing a notification of exemption and a certification of 24 revenue with its annual report to the commission under AS 42.06.430. To be eligible 25 for an exemption under this subsection, a pipeline carrier must 26 (1) have been in continuous operation for at least three years; 27 (2) have an annual gross operating revenue of less than $250,000 from 28 the combined interstate and intrastate transportation of oil, gas, oil or gas products, or 29 a combination of oil, gas, or oil and gas products; and 30 (3) obtain, for each party using the pipeline to transport oil or gas for 31 which a royalty is reserved for the state, notice from the commissioner of natural
01 resources that the party has contractually agreed with the state not to claim a 02 transportation deduction related to the pipeline for purposes of calculating its royalty 03 and payment obligations for a lease entered into under AS 38.05.180. 04 (c) Except as provided in (e) of this of this section, the commission may grant 05 an exemption from AS 42.06.370 and 42.06.390 - 42.06.420 to a pipeline carrier not 06 otherwise exempt under (b) of this section for a pipeline carrying oil, gas, oil or gas 07 products, or a combination of oil, gas, or oil and gas products if 08 (1) the commission finds that 09 (A) the pipeline carrier has been in continuous operation for at 10 least three years; 11 (B) the exemption is in the public interest; and 12 (C) granting the exemption is justifiable on the basis of public 13 convenience and necessity; 14 (2) either the 15 (A) shippers on the pipeline carrier are exclusively affiliated 16 interests of the pipeline carrier and each other; or 17 (B) volume of oil, gas, and oil and gas products transported 18 through the pipeline does not consistently or reliably generate sufficient 19 income under a just and reasonable rate to 20 (i) cover reasonable operating, maintenance, and 21 depreciation expenses; and 22 (ii) produce a reasonable return on investment; and 23 (3) the pipeline carrier obtains, for each party using the pipeline to 24 transport oil or gas for which a royalty is reserved for the state, notice from the 25 commissioner of natural resources that the party has contractually agreed with the 26 state not to claim a transportation deduction related to the pipeline for purposes of 27 calculating its royalty and payment obligations for a lease entered into under 28 AS 38.05.180. 29 (d) The commission may terminate an exemption granted under (b) or (c) of 30 this section if the commission finds that the pipeline carrier no longer meets the 31 criteria in (b) or (c) of this section. Notwithstanding AS 42.04.080, and except when
01 making a finding under (c)(2)(B) of this section, the commission may, after providing 02 30 days' notice, terminate an exemption granted under this section without a hearing. 03 (e) When considering whether to terminate an exemption under (d) of this 04 section, the commission may ascertain and set the fair value of the property of a 05 pipeline carrier under AS 42.06.420. 06 (f) Subsections (b) - (e) of this section do not apply to the Trans Alaska 07 Pipeline System.