Legislature(1997 - 1998)
1998-05-07 House JournalFull Journal pdf
1998-05-07 House Journal Page 3596 HB 380 The following letter, dated May 6, 1998, was received: "Dear Speaker Phillips: Under authority of art. II, sec. 15 of the Alaska Constitution, I have vetoed the following bill: SENATE CS FOR CS FOR HOUSE BILL NO. 380(FIN) am S "An Act relating to a temporary reduction of royalty on oil and gas produced for sale from certain fields described as being located within the Cook Inlet sedimentary basin, as having been discovered before January 1, 1988, and as having been undeveloped or shut in from at least January 1, 1988, through December 31, 1997." I have vetoed this bill because it violates the two fundamental principles necessary to protect the state's interest as contained in current state law. It grants arbitrary relief from lease terms without a thorough evaluation of the economic need for the relief, and it does not allow the state to adjust these royalties upward should oil prices rise during the life of the reduction. 1998-05-07 House Journal Page 3597 HB 380 I must also note 50 percent of the royalties from these fields would go into the principal of the Permanent Fund. A royalty reduction unwarranted by market conditions and allowing no adjustments for increased prices shortchanges Alaskans' Permanent Fund. A successful partnership between industry and the state means providing economic incentives when necessary and sharing in benefits, including those that were unanticipated. This bill reduces Alaska's oil royalty for six specific fields in Cook Inlet without knowing whether those reductions are necessary. The provisions in this bill are not required to promote sound oil and gas development in Cook Inlet, have not been carefully considered, and are not an example of "doing it right." Three years ago, the Legislature approved my proposal to allow for modification of state oil and gas leases "for production that would not otherwise be economically feasible." That law, now contained in AS 38.05.180(j), is the method the state should use to provide development incentives because it requires an in-depth economic analysis of leases and protects the state by adjusting royalty upward if the price of oil and gas should increase after the modification. This Administration developed the current law with thorough analysis, long and hard negotiations, and extensive public debate. That level of analysis, especially by the Department of Natural Resources, the state agency with expertise in this area, has not been undertaken in these Cook Inlet cases because no data was provided to do so. The resurgence in exploration and development in Alaska is based on a favorable business climate and new technology to drive down the costs of exploration, development, and production. We have the adequate tools to encourage development and protect the state's interest without arbitrarily giving away the state's resources. Sincerely, /s/ Tony Knowles Governor"