1998-02-17                     Senate Journal                      Page 2544
SB 327                                                                       
SENATE BILL NO. 327 BY THE SENATE 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.                                                                
                                                                               
was read the first time and referred to the Resources and Finance              
Committees.                                                                    
                                                                               
Fiscal notes published today from Department of Revenue,                       
Department of Natural Resources (2).                                           
                                                                               
Governors transmittal letter dated February 16:                                
                                                                               
                                                                               

1998-02-17                     Senate Journal                      Page 2545
SB 327                                                                       
Dear President Miller:                                                         
                                                                               
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                   
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