1998-02-18                     House Journal                      Page 2357
HB 440                                                                       
HOUSE BILL NO. 440 by the House Rules Committee by request of                  
the Governor, entitled:                                                        
                                                                               
"An Act relating to certain audits regarding oil and gas royalty and          
net profits and to audits regarding costs relating to exploration              
incentive credits and oil and gas exploration licenses; and                    
providing for an effective date."                                              

1998-02-18                     House Journal                      Page 2358
HB 440                                                                       
was read the first time and referred to the House Special Committee            
on Oil & Gas and the Resources Committee.                                      
                                                                               
The following fiscal notes apply:                                              
                                                                               
Fiscal notes (2), Dept. of Natural Resources, 2/18/98                          
Fiscal note, Dept. of Revenue, 2/18/98                                         
                                                                               
                                                                               
The Governor's transmittal letter dated February 16, 1998, appears             
below:                                                                         
                                                                               
"Dear Speaker Phillips:                                                        
                                                                               
In the interest of improving efficiency within state government as well        
as between government and industry, I am transmitting this bill to             
transfer oil and gas royalty audit functions from the Department of            
Revenue (DOR) to the Department of Natural Resources (DNR).  It                
makes sense to put the audit duties in the same department that                
administers, enforces, and is therefore most knowledgeable with, the           
oil and gas leasing program.                                                   
                                                                               
Ironically, the audit functions used to rest with the DNR, but were            
switched to the DOR in 1980 based on a legislative audit report.  The          
recommendation stated that cost savings would be achieved by having            
one staff of auditors review both tax and royalty compliance                   
information.  Since 1980, however, the state has entered into royalty          
settlements with the major North Slope producers and has made                  
changes to its tax regulations.  As a result, there is no longer as much       
overlap between royalty and tax audits.  In addition, the separation of        
the DNR's duty to administer and enforce oil and gas contracts,                
agreements, and leases from the ability to conduct audits leading to           
possible enforcement actions, has resulted in inefficiencies and other         
problems.                                                                      
                                                                               
The bill specifically authorizes the DNR to audit reports and costs            
relating to exploration incentive credits and oil and gas licenses.  It        
also grants the DNR audit powers commensurate to the DOR's current             
audit powers, including the right to subpoena information for audit            
purposes.  The  DNR  and  DOR  would  be  allowed  to  exchange                

1998-02-18                     House Journal                      Page 2359
HB 440                                                                       
confidential information obtained in the course of their respective            
audits; a breach of confidentiality by any agency employee would be            
a misdemeanor offense.                                                         
                                                                               
This bill makes a sensible step in how the state does business with the        
oil and gas industry.                                                          
                                                                               
							Sincerely,                                                              
							/s/                                                                     
							Tony Knowles                                                            
							Governor"