Legislature(1997 - 1998)

1998-05-07 House Journal

Full 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.                         
							Tony Knowles