CSHB 81(RES): "An Act authorizing the commissioner of natural resources to modify a net profit share lease."
00 CS FOR HOUSE BILL NO. 81(RES) 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) a contract [CONTRACTS] between the Department of Natural 06 Resources and a contractor [CONTRACTORS] qualified to evaluate hydrocarbon 07 development, production, transportation, and economics, to assist the commissioner of 08 natural resources in evaluating applications for a royalty or net profit share 09 modification under AS 38.05.180(j) [INCREASES OR DECREASES OR OTHER 10 ROYALTY ADJUSTMENTS,] and evaluating the related financial and technical data 11 [, ENTERED INTO UNDER AS 38.05.180(j)]; 12 * Sec. 2. AS 38.05.180(j) is amended to read: 13 (j) The commissioner 14 (1) may provide for modification of a royalty or net profit share on
01 individual leases, leases unitized as described in (p) of this section, leases subject to an 02 agreement described in (s) or (t) of this section, or interests unitized under AS 31.05 03 (A) to allow for production from an oil or gas field or pool if 04 (i) the oil or gas field or pool has been sufficiently 05 delineated to the satisfaction of the commissioner; 06 (ii) the field or pool has not previously produced oil or 07 gas for commercial sale; and 08 (iii) oil or gas production from the field or pool would 09 not otherwise be economically feasible; 10 (B) to prolong the economic life of an oil or gas field or pool as 11 per barrel or barrel equivalent costs increase or as the price of oil or gas 12 decreases, and the increase or decrease is sufficient to make future production 13 no longer economically feasible; [OR] 14 (C) to reestablish production of shut-in oil or gas that would 15 not otherwise be economically feasible; or 16 (D) to prolong the economic life of an oil or gas field or pool 17 from which, without additional capital expenditures, future production 18 would no longer be economically feasible; a royalty modification may not 19 be made under this subparagraph; 20 (2) may not grant a royalty or net profit share modification unless the 21 lessee or lessees requesting the change make a clear and convincing showing that [A] 22 modification of the royalty or net profit share meets the requirements of this 23 subsection and is in the best interests of the state; 24 (3) shall provide for an increase or decrease or other modification of 25 the state's royalty or net profit share by a fixed royalty, sliding scale royalty, net 26 profit share adjustment, or other mechanism [THAT SHALL BE] based on a change 27 in the price of oil or gas or [AND MAY ALSO BE BASED] on other relevant factors, 28 including [SUCH AS] a change in production rate, projected ultimate recovery, 29 development costs, and operating costs; 30 (4) may not grant a royalty reduction for a field or pool 31 (A) under (1)(A) of this subsection if the royalty modification
01 for the field or pool would establish a royalty rate of less than five percent in 02 amount or value of the production removed or sold from a lease or leases 03 covering the field or pool; 04 (B) under (1)(B) or (1)(C) of this subsection if the royalty 05 modification for the field or pool would establish a royalty rate of less than 06 three percent in amount or value of the production removed or sold from a 07 lease or leases covering the field or pool; 08 (5) may not grant a net profit share modification for a field or pool 09 under (1) of this subsection that would reduce a share reserved to the state to less 10 than 10 percent of the net profit derived from the lease; 11 (6) may not grant a net profit share modification for a field or pool 12 under (1)(D) of this subsection unless 13 (A) the modification requires the lessee or lessees to make 14 the capital expenditures necessary for production to be economically 15 feasible; and 16 (B) the commissioner determines that the capital 17 expenditures made under (A) of this paragraph are sufficient to maximize 18 production from the field or pool; 19 (7) [(5)] may not grant a royalty or net profit share reduction under 20 this subsection without including an explicit condition that the royalty or net profit 21 share reduction is not assignable without the prior written approval, which may not be 22 unreasonably withheld, by the commissioner; the commissioner shall, in the 23 preliminary and final findings and determinations, set out the conditions under which 24 the royalty or net profit share reduction may be assigned; 25 (8) [(6)] shall require the lessee or lessees to submit, with the 26 application for the royalty or net profit share reduction, financial and technical data 27 that demonstrate that the requirements of this subsection are met; the commissioner 28 (A) may require disclosure of only the financial and technical 29 data related to development, production, and transportation of oil and gas or 30 gas only from the field or pool that are reasonably available to the applicant; 31 and
01 (B) shall keep the data confidential under AS 38.05.035(a)(8) 02 at the request of the lessee or lessees making application for the royalty or net 03 profit share reduction; the confidential data may be disclosed by the 04 commissioner to legislators and to the legislative auditor and as directed by the 05 chair or vice-chair of the Legislative Budget and Audit Committee to the 06 director of the division of legislative finance, the permanent employees of their 07 respective divisions who are responsible for evaluating a royalty or net profit 08 share reduction, and to agents or contractors of the legislative auditor or the 09 legislative finance director who are engaged under contract to evaluate the 10 royalty or net profit share reduction, if they sign an appropriate 11 confidentiality agreement; 12 (9) [(7)] may 13 (A) require the lessee or lessees making application for the 14 royalty reduction under (1)(A) of this subsection or a net profit share 15 reduction under (1)(A) or (1)(D) of this subsection to pay for the services of 16 an independent contractor, selected by the lessee or lessees from a list of 17 qualified consultants compiled by the commissioner, to evaluate hydrocarbon 18 development, production, transportation, and economics and 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 services of 21 an independent contractor, the total cost of the services to be paid for by the 22 lessee or lessees may not exceed $150,000 for each application, and the 23 commissioner shall determine the relevant scope of the work to be performed 24 by the contractor; selection of an independent contractor under this 25 subparagraph is not subject to AS 36.30; 26 (B) with the mutual consent of the lessee or lessees making 27 application for the royalty or net profit share reduction under (1)(B) or (1)(C) 28 of this subsection, request payment for the services of an independent 29 contractor, selected from a list of qualified consultants to evaluate hydrocarbon 30 development, production, transportation, and economics by the commissioner 31 to assist the commissioner in evaluating the application and financial and
01 technical data; if, under this subparagraph, the commissioner requires payment 02 for the services of an independent contractor, the total cost of the services that 03 may be paid for by the lessee or lessees may not exceed $150,000 for each 04 application, and the commissioner shall determine the relevant scope of the 05 work to be performed by the contractor; selection of an independent contractor 06 under this subparagraph is not subject to AS 36.30; 07 (10) [(8)] shall make and publish a preliminary findings and 08 determination on the royalty or net profit share reduction application, give 09 reasonable public notice of the preliminary findings and determination, and invite 10 public comment on the preliminary findings and determination during a 30-day period 11 for receipt of public comment; 12 (11) [(9)] shall offer to appear before the Legislative Budget and Audit 13 Committee, on a day that is not earlier than 10 days and not later than 20 days after 14 giving public notice under (9) [(8)] of this subsection, to provide the committee a 15 review of the commissioner's preliminary findings and determination on the royalty or 16 net profit share reduction application and administrative process; if the Legislative 17 Budget and Audit Committee accepts the commissioner's offer, the committee shall 18 give notice of the committee's meeting to all members of the legislature; 19 (12) [(10)] shall make copies of the preliminary findings and 20 determination available to 21 (A) the presiding officer of each house of the legislature; 22 (B) the chairs of the legislature's standing committees on 23 resources; and 24 (C) the chairs of the legislature's special committees on oil and 25 gas, if any; 26 (13) [(11)] shall, within 30 days after the close of the public comment 27 period under (9) [(8)] of this subsection, 28 (A) prepare a summary of the public response to the 29 commissioner's preliminary findings and determination; 30 (B) make a final findings and determination; the 31 commissioner's final findings and determination prepared under this
01 subparagraph regarding a royalty or net profit share reduction is final and not 02 appealable to the court; 03 (C) transmit a copy of the final findings and determination to 04 the lessee; 05 (D) with the applicant's consent, amend the applicant's lease or 06 unitization agreement consistent with the commissioner's final decision; and 07 (E) make copies of the final findings and determination 08 available to each person who submitted comment under (9) [(8)] of this 09 subsection and who has filed a request for the copies; 10 (14) [(12)] is not limited by the provisions of AS 38.05.134(3) or (f) of 11 this section in the commissioner's determination under this subsection. 12 * Sec. 3. AS 38.05.180(p) is amended to read: 13 (p) To conserve the natural resources of all or a part of an oil or gas pool, 14 field, or like area, the lessees and their representatives may unite with each other, or 15 jointly or separately with others, in collectively adopting or operating under a 16 cooperative or a unit plan of development or operation of the pool, field, or like area, 17 or a part of it, when determined and certified by the commissioner to be necessary or 18 advisable in the public interest. The commissioner may, with the consent of the 19 holders of leases involved, establish, change, or revoke drilling, producing, and 20 royalty requirements of the leases and adopt regulations with reference to the leases, 21 with like consent on the part of the lessees, in connection with the institution and 22 operation of a cooperative or unit plan as the commissioner determines necessary or 23 proper to secure the proper protection of the public interest. The commissioner may 24 not reduce the royalty or net profit share on a lease [LEASES] in connection with a 25 cooperative or unit plan except as provided in (j) of this section. The commissioner 26 may require a lease issued under this section to contain a provision requiring the lessee 27 to operate under a reasonable cooperative or unit plan, and may prescribe a plan under 28 which the lessee must operate. The plan must adequately protect all parties in interest, 29 including the state. 30 * Sec. 4. AS 38.05.180(s) is amended to read: 31 (s) When separate tracts cannot be individually developed and operated in
01 conformity with an established well-spacing or development program, a lease, or a 02 portion of a lease, may be pooled with other land, whether or not owned by the state, 03 under a communitization or drilling agreement providing for an apportionment of 04 production or royalties among the separate tracts of land comprising the drilling or 05 spacing unit when determined by the commissioner to be in the public interest. 06 Operations or production under the agreement are considered as operations or 07 production as to each lease committed to the agreement. The commissioner may not 08 reduce the royalty or net profit share on a lease [LEASES] in connection with a 09 communitization or drilling agreement except as provided in (j) of this section. 10 * Sec. 5. AS 38.05.180(t) is amended to read: 11 (t) The commissioner may prescribe conditions and approve, on conditions, a 12 drilling [,] or development contract [CONTRACTS] made by one or more lessees of 13 oil or gas leases, with one or more persons, when, in the discretion of the 14 commissioner, the conservation of natural resources or the public convenience or 15 necessity requires it or the interests of the state are best served. A lease [ALL 16 LEASES] operated under an approved drilling or development contract, 17 [CONTRACTS] and interests under the contract [THEM], are excepted in 18 determining holding or control under AS 38.05.140. The commissioner may not 19 reduce the royalty or net profit share on a lease [OR LEASES] that is [ARE] subject 20 to a drilling or development contract except as provided in (j) of this section.