1999-01-22                     House Journal                      Page 0065
HB 58                                                                        
HOUSE BILL NO. 58 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."                                                        
                                                                               
was read the first time and referred to the House Special Committee on         
Oil & Gas and the Resources and Finance Committees.                            
                                                                               
                                                                               
The following fiscal notes apply:                                              
                                                                               
Fiscal note, Dept. of Natural Resources, 1/22/99                               
Fiscal note, Dept. of Revenue, 1/22/99                                         
                                                                               
The Governor's transmittal letter dated January 20, 1999, appears below:       

1999-01-22                     House Journal                      Page 0066
HB 58                                                                        
"Dear Speaker Porter:                                                          
                                                                               
In the interest of improving efficiency within our 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 DNR, but were switched       
to DOR in 1980 based on a legislative audit report.  The recommendation        
stated 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, separating DNR's duty to administer and enforce oil      
and gas contracts, agreements, and leases from the department's ability        
to conduct audits leading to possible enforcement actions, has resulted in     
inefficiencies and other problems.                                             
                                                                               
                                                                               
The bill specifically authorizes DNR to audit reports and costs relating       
to exploration incentive credits and oil and gas licenses.  It also grants     
DNR audit powers commensurate to those of DOR currently, including             
the right to subpoena information for audit purposes. The two                  
departments 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 felony offense.              
                                                                               
                                                                               
This bill takes a sensible step in how the state does business with the oil    
and gas industry.                                                              
                                                                               
							Sincerely,                                                              
							/s/                                                                     
							Tony Knowles                                                            
							Governor"