SB 254: "An Act relating to royalty rates for certain oil and gas; and providing for an effective date."
00 SENATE BILL NO. 254 01 "An Act relating to royalty rates for certain oil and gas; and providing for an effective 02 date." 03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 04 * Section 1. AS 38.05.020(a) is amended to read: 05 (a) The commissioner shall 06 (1) supervise the administration of the division of lands; 07 (2) make the determinations required under AS 38.05.180(mm). 08 * Sec. 2. AS 38.05.180(f) is amended to read: 09 (f) Except as provided by AS 38.05.131 - 38.05.134 and (mm) of this 10 section, the commissioner may issue oil and gas leases or leases for gas only on state 11 land to the highest responsible qualified bidder as follows: 12 (1) the commissioner shall issue an oil and gas lease or a gas only 13 lease, as appropriate, to the successful bidder determined by competitive bidding 14 under regulations adopted by the commissioner; bidding may be by sealed bid or
01 according to any other bidding procedure the commissioner determines is in the best 02 interests of the state; 03 (2) whenever, under any of the leasing methods listed in this 04 subsection, a royalty share is reserved to the state, it shall be delivered in pipeline 05 quality and free of all lease or unit expenses, including but not limited to separation, 06 cleaning, dehydration, gathering, salt water disposal, and preparation for transportation 07 off the lease or unit area; 08 (3) following a pre-sale analysis, the commissioner may choose at least 09 one of the following leasing methods: 10 (A) a cash bonus bid with a fixed royalty share reserved to the 11 state of not less than 12.5 percent in amount or value of the production 12 removed or sold from the lease; 13 (B) a cash bonus bid with a fixed royalty share reserved to the 14 state of not less than 12.5 percent in amount or value of the production 15 removed or sold from the lease and a fixed share of the net profit derived from 16 the lease of not less than 30 percent reserved to the state; 17 (C) a fixed cash bonus with a royalty share reserved to the state 18 as the bid variable but not [NO] less than 12.5 percent in amount or value of 19 the production removed or sold from the lease; 20 (D) a fixed cash bonus with the share of the net profit derived 21 from the lease reserved to the state as the bid variable; 22 (E) a fixed cash bonus with a fixed royalty share reserved to the 23 state of not less than 12.5 percent in amount or value of the production 24 removed or sold from the lease with the share of the net profit derived from the 25 lease reserved to the state as the bid variable; 26 (F) a cash bonus bid with a fixed royalty share reserved to the 27 state based on a sliding scale according to the volume of production or other 28 factor but in no event less than 12.5 percent in amount or value of the 29 production removed or sold from the lease; 30 (G) a fixed cash bonus with a royalty share reserved to the state 31 based on a sliding scale according to the volume of production or other factor
01 as the bid variable but not less than 12.5 percent in amount or value of the 02 production removed or sold from the lease; 03 (4) notwithstanding a requirement in the leasing method chosen of a 04 minimum fixed royalty share, on and after March 3, 1997, the lessee under a lease 05 issued in the Cook Inlet sedimentary basin who is the first to file with the 06 commissioner a nonconfidential sworn statement claiming to be the first to have 07 drilled a well discovering oil or gas in a previously undiscovered oil or gas pool and 08 who is certified by the commissioner within one year of completion of that discovery 09 well to have drilled a well in that pool that is capable of producing in paying quantities 10 shall pay a royalty of five percent on all production of oil or gas from that pool 11 attributable to that lease for a period of 10 years following the date of discovery of that 12 pool, and thereafter the royalty payable on all production of oil or gas from the pool 13 attributable to that lease shall be determined and payable as specified in the lease; for 14 purposes of this paragraph, the reduced royalty authorized by this paragraph is subject 15 to the following: 16 (A) only one reduction of royalty authorized by this paragraph 17 may be allowed on each lease that qualifies for reduction of royalty under this 18 paragraph; 19 (B) if, under this paragraph, application is made for a royalty 20 reduction for a lease that was entered into before March 3, 1997, the 21 commissioner may approve the application only if, on that date, the lease was a 22 nonproducing lease that was not committed to a unit approved by the 23 commissioner under (m) of this section, that is not part of a unit under (p) or 24 (q) of this section, and that has not been made part of a unit under AS 31.05; 25 (C) if application for a royalty reduction is made under this 26 paragraph for a lease on which a discovery royalty was claimed or may be 27 claimed under the discovery royalty provisions of former AS 38.05.180(a) in 28 effect before May 6, 1969, the commissioner shall disallow the application 29 under this paragraph unless the applicant waives the right to claim the right to 30 a reduced royalty under the discovery royalty provisions of former 31 AS 38.05.180(a) in effect before May 6, 1969; and
01 (D) the commissioner shall adopt regulations setting out the 02 standards, criteria, and definitions of terms that apply to implement the filing 03 of applications for, and the review and certification of, discovery certifications 04 under this paragraph; 05 (5) notwithstanding and in lieu of a requirement in the leasing method 06 chosen of a minimum fixed royalty share, or the royalty provision of a lease, for 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, the lessee of all or part of 09 an oil or gas field identified in this section that has been granted approval of a written 10 plan submitted to the Alaska Oil and Gas Conservation Commission under 11 AS 31.05.030(i) shall, subject to (dd) of this section, pay a royalty of five percent on 12 the first 25,000,000 barrels of oil and the first 35,000,000,000 cubic feet of gas 13 produced for sale from that field that occurs in the 10 years following the date on 14 which the production for sale commences; the fields eligible for royalty reduction 15 under this paragraph, all of which are located within the Cook Inlet sedimentary basin, 16 were discovered before January 1, 1988, and have been undeveloped or shut in from at 17 least January 1, 1988, through December 31, 1997, are 18 (A) Falls Creek; 19 (B) Nicolai Creek; 20 (C) North Fork; 21 (D) Point Starichkof; 22 (E) Redoubt Shoal; and 23 (F) West Foreland; 24 (6) notwithstanding and in lieu of a requirement in the leasing method 25 chosen of a minimum fixed royalty share, or the royalty provision of a lease, for leases 26 unitized as described in (p) of this section, leases subject to an agreement described in 27 (s) or (t) of this section, or interests unitized under AS 31.05, the lessee of all or part of 28 an oil field located offshore in Cook Inlet on which an oil production platform 29 specified in (A), (C), or (E) of this paragraph operates, or the lessee of all or part of the 30 field located offshore in Cook Inlet and described in (G) of this paragraph, 31 (A) shall pay a royalty of five percent on oil produced from the
01 platform if oil production that equaled or exceeded a volume of 1,200 barrels a 02 day declines to less than that amount for a period of at least one calendar 03 quarter, as certified by the Alaska Oil and Gas Conservation Commission, for 04 as long as the volume of oil produced from the platform remains less than 05 1,200 barrels a day; the provisions of this subparagraph apply to 06 (i) Dolly; 07 (ii) Grayling; 08 (iii) King Salmon; 09 (iv) Steelhead; and 10 (v) Monopod; 11 (B) shall pay a royalty calculated under this subparagraph if the 12 volume of oil produced from the platform that was certified by the Alaska Oil 13 and Gas Conservation Commission under (A) of this paragraph later increases 14 to 1,200 or more barrels a day and remains at 1,200 or more barrels a day for a 15 period of at least one calendar quarter; until the royalty rate determined under 16 this subparagraph applies, the royalty continues to be calculated under (A) of 17 this paragraph; on and after the first day of the month following the month the 18 increased production exceeds the period specified in this subparagraph, the 19 royalty payable under this subparagraph is 20 (i) for production of at least 1,200 barrels a day but not 21 more than 1,300 barrels a day - seven percent; 22 (ii) for production of more than 1,300 barrels a day but 23 not more than 1,400 barrels a day - 8.5 percent; 24 (iii) for production of more than 1,400 barrels a day but 25 not more than 1,500 barrels a day - 10 percent; and 26 (iv) for production of more than 1,500 barrels a day - 27 12.5 percent; 28 (C) shall pay a royalty of five percent on oil produced from the 29 platform if oil production that equaled or exceeded a volume of 975 barrels a 30 day declines to less than that amount for a period of at least one calendar 31 quarter, as certified by the Alaska Oil and Gas Conservation Commission, for
01 as long as the volume of oil produced from the platform remains less than 975 02 barrels a day; the provisions of this subparagraph apply to 03 (i) Baker; 04 (ii) Dillon; 05 (iii) XTO.A; and 06 (iv) XTO.C; 07 (D) shall pay a royalty calculated under this subparagraph if the 08 volume of oil produced from the platform that was certified by the Alaska Oil 09 and Gas Conservation Commission under (C) of this paragraph later increases 10 to 975 or more barrels a day and remains at 975 or more barrels a day for a 11 period of at least one calendar quarter; until the royalty rate determined under 12 this subparagraph applies, the royalty continues to be calculated under (C) of 13 this paragraph; on and after the first day of the month following the month the 14 increased production exceeds the period specified in this subparagraph, the 15 royalty payable under this subparagraph is 16 (i) for production of at least 975 barrels a day but not 17 more than 1,100 barrels a day - seven percent; 18 (ii) for production of more than 1,100 barrels a day but 19 not more than 1,200 barrels a day - 8.5 percent; 20 (iii) for production of more than 1,200 barrels a day but 21 not more than 1,350 barrels a day - 10 percent; and 22 (iv) for production of more than 1,350 barrels a day - 23 12.5 percent; 24 (E) shall pay a royalty of five percent on oil produced from the 25 platform if oil production that equaled or exceeded a volume of 750 barrels a 26 day declines to less than that amount for a period of at least one calendar 27 quarter, as certified by the Alaska Oil and Gas Conservation Commission, for 28 as long as the volume of oil produced from the platform remains less than 750 29 barrels a day; the provisions of this subparagraph apply to 30 (i) Granite Point; 31 (ii) Anna; and
01 (iii) Bruce; 02 (F) shall pay a royalty calculated under this subparagraph if the 03 volume of oil produced from the platform that was certified by the Alaska Oil 04 and Gas Conservation Commission under (E) of this paragraph later increases 05 to 750 or more barrels a day and remains at 750 or more barrels a day for a 06 period of at least one calendar quarter; until the royalty rate determined under 07 this subparagraph applies, the royalty continues to be calculated under (E) of 08 this paragraph; on and after the first day of the month following the month the 09 increased production exceeds the period specified in this subparagraph, the 10 royalty payable under this subparagraph is 11 (i) for production of at least 750 barrels a day but not 12 more than 850 barrels a day - seven percent; 13 (ii) for production of more than 850 barrels a day but 14 not more than 1,000 barrels a day - 8.5 percent; 15 (iii) for production of more than 1,000 barrels a day but 16 not more than 1,200 barrels a day - 10 percent; and 17 (iv) for production of more than 1,200 barrels a day - 18 12.5 percent; 19 (G) shall pay a royalty of five percent on oil produced from the 20 field if oil production that equaled or exceeded a volume of 750 barrels a day 21 declines to less than that amount for a period of at least one calendar quarter, 22 as certified by the Alaska Oil and Gas Conservation Commission, for as long 23 as the volume of oil produced from the field remains less than 750 barrels a 24 day; the provisions of this subparagraph apply to the West McArthur River 25 field; 26 (H) shall pay a royalty calculated under this subparagraph if the 27 volume of oil produced from the field that was certified by the Alaska Oil and 28 Gas Conservation Commission under (G) of this paragraph later increases to 29 750 or more barrels a day and remains at 750 or more barrels a day for a period 30 of at least one calendar quarter; until the royalty rate determined under this 31 subparagraph applies, the royalty continues to be calculated under (G) of this
01 paragraph; on and after the first day of the month following the month the 02 increased production exceeds the period specified in this subparagraph, the 03 royalty payable under this subparagraph is 04 (i) for production of at least 750 barrels a day but not 05 more than 850 barrels a day - seven percent; 06 (ii) for production of more than 850 barrels a day but 07 not more than 1,000 barrels a day - 8.5 percent; 08 (iii) for production of more than 1,000 barrels a day but 09 not more than 1,200 barrels a day - 10 percent; and 10 (iv) for production of more than 1,200 barrels a day - 11 12.5 percent; and 12 (I) may obtain the benefits of the royalty adjustments set out in 13 (A) - (H) of this paragraph only if the commissioner determines that the 14 reduction in production from the platform or the field is 15 (i) based on the average daily production during the 16 calendar quarter based on reservoir conditions; and 17 (ii) not the result of short-term production declines due 18 to mechanical or other choke-back factors, temporary shutdowns or 19 decreased production due to environmental or facility constraints, or 20 market conditions. 21 * Sec. 3. AS 38.05.180 is amended by adding new subsections to read: 22 (mm) Notwithstanding a requirement in the leasing method chosen of a 23 minimum fixed royalty share, for leases issued for a property in the state that does not 24 include land located north of 68 degrees North latitude, the royalty share reserved to 25 the state 26 (1) for the period beginning July 1, 2024, and ending July 1, 2030, 27 (A) for qualified new oil or qualified new gas may not exceed 28 zero if the qualified new oil or qualified new gas is first offered to an in-state 29 electric or heating utility regulated under AS 42.05 under a firm contract; a 30 reduction in the royalty share under this subparagraph does not apply until on 31 and after the date the well producing the qualified new oil or qualified new gas
01 is spudded; 02 (B) may not exceed 10.5 percent for oil or gas that does not 03 qualify under (1)(A) or (2) of this subsection if the oil or gas is first offered to 04 an in-state electric or heating utility regulated under AS 42.05 under a firm 05 contract; 06 (2) under a lease issued to a lessee may not exceed zero if the lessee is 07 recovering costs associated with development of qualified new oil or qualified new 08 gas and the qualified new oil or qualified new gas is first offered to an in-state electric 09 or heating utility regulated under AS 42.05 under a firm contract; the reduction in the 10 royalty share under this paragraph applies to the cost of new drilling, well sidetracks, 11 and workovers only if the department determines that the activity is intended to 12 produce qualified new oil or qualified new gas. 13 (nn) In (mm) of this section, 14 (1) "firm contract" means a contract that requires the delivery and 15 purchase of fixed amounts of oil or gas over a designated period; 16 (2) "qualified new gas" means gas produced from a pool that the 17 commissioner determines has not previously produced gas for commercial sale before 18 July 1, 2024; 19 (3) "qualified new oil" means oil produced from a pool that the 20 commissioner determines has not previously produced oil for commercial sale before 21 July 1, 2024. 22 * Sec. 4. AS 38.95 is amended by adding new sections to read: 23 Article 6A. Overriding Royalty Interests. 24 Sec. 38.95.280. Overriding oil or gas royalty interests; condemnation. (a) 25 The department may exercise the right of eminent domain to acquire a private 26 overriding royalty interest in oil or gas produced from land that does not include land 27 located north of 68 degrees North latitude if the commissioner determines that the 28 (1) acquisition is in the best interest of the state; and 29 (2) acquisition will promote the development of oil or gas resources. 30 (b) The department shall provide just compensation and damages for the 31 acquisition of a private overriding royalty interest under this section. Unless otherwise
01 determined by a court, for purposes of this section, compensation and damages are 02 equal to the average annual income generated by the overriding royalty interest over 03 the preceding five years, multiplied by two. 04 (c) In this section, 05 (1) "commissioner" means the commissioner of natural resources; 06 (2) "department" means the Department of Natural Resources. 07 Sec. 38.95.285. Limitation on overriding oil or gas royalty interests. The 08 Department of Natural Resources may approve an overriding royalty interest only if, 09 when combined with the royalty share of the state, the total royalties on the unit would 10 not exceed 20 percent. 11 * Sec. 5. The uncodified law of the State of Alaska is amended by adding a new section to 12 read: 13 APPLICABILITY. AS 38.95.285, added by sec. 4 of this Act, applies to overriding 14 royalty interests approved after the effective date of this Act. 15 * Sec. 6. The uncodified law of the State of Alaska is amended by adding a new section to 16 read: 17 TRANSITION. To comply with AS 38.05.180(mm), added by sec. 3 of this Act, the 18 commissioner of natural resources shall enter into lease negotiations with a lessee holding a 19 lease issued before the effective date of this Act to modify the lease to meet the maximum 20 royalty share required by AS 38.05.180(mm). No other terms in a lease may be changed in a 21 negotiation described in this section. 22 * Sec. 7. This Act takes effect immediately under AS 01.10.070(c).