Legislature(2021 - 2022)BUTROVICH 205
02/10/2021 03:30 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| SB61 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 61 | TELECONFERENCED | |
SB 61-OIL/GAS LEASE: DNR MODIFY NET PROFIT SHARE
3:34:52 PM
CHAIR REVAK announced the consideration of Senate Bill 61 "An
Act authorizing the commissioner of natural resources to modify
a net profit share lease."
He noted that the Department of Natural Resources (DNR) will
provide a presentation on Senate Bill 61 (SB 61)Oil/Gas Lease:
DNR Modifying Net Profit Shares.
3:35:45 PM
JHONNY MEZA, Commercial Manager, Division of Oil and Gas,
Department of Natural Resources, Anchorage, Alaska, explained SB
61 would modify certain aspects of the existing statutes for
royalty modifications.
He addressed slide 2, Outline, noting the department's goal is
to provide the committee with a brief description of what net
profit share leases (NPSLs) are, and where they are on the North
Slope.
MR. MEZA detailed in section 2 of his overview, the department
explain its rationale for proposing that the ability to modify
NPSLs and all the changes present in the bill; section 3, the
department will provide another view of the modification process
for royalty and how its proposed changes will reflect within it;
and section 4, contains appendices with more detailed
information.
3:37:31 PM
He referenced slides 3 and 4 regarding an overview of NPSL. He
explained by statute, the DNR commissioner has the authority to
issue oil and gas leases via competitive bidding. In doing so,
the commissioner has a series of lease sale methods available,
allowing the offer of different types of oil and gas leases.
Most frequently, the leases that the state offers have only a
royalty component as a revenue source in its role as lessor.
However, in some cases in the North Slope, DNR has also offered
other leases which in addition to royalty, also have a provision
for net profit sharingthese are NPSLs.
MR. MEZA said prior to delving into the definition of net profit
sharing, the department will first highlight a couple of
differences in royalty revenue and net profit share revenue to
help illustrate the [net profit sharing] concept.
3:38:40 PM
He explained royalty revenue begins with commercial production
based on gross revenue. There is a subtle distinction between
the royalty value and the proceeds that the lessee receives.
However, royalty valuation calculation does not consider
exploration, development, operating, processing, or other
production costs. On the other hand, for a NPSL the sharing of
net profits only occurs when the lease is set to have reached
the payout stage. This is the stage at which the lease recoups
exploration and development costs allocated to the lease through
revenues and net operating costs associated with a particular
lease.
MR. MEZA detailed with the beginning of activities in the lease
viability associated with exploration and development
activities, some of those costs will be allocated to the net
profit sharing. Since there is no productiontherefore no
revenuesthe cumulative balance of costs associated to a NPSL
will continue to accumulate and the department keeps a balance
of such costs. Some of the [cost balance] erodes when production
and revenue occurs until full costs recovery via revenues and
net operating costs; at that point when the balance is fully
eroded, the department then says the NPSL has reached the payout
stage. Net profits occurs when any amount exceeds the recovery
of development costs at which point the lessee pays the state a
share of the net profits pursuant to the share established in
the leasethe net profit share.
3:41:29 PM
He noted a map of the North Slope in slide 5 that depicts
existing oil and gas units with existing NPSL units highlighted
26 units. He explained an oil and gas unit contains a set of oil
and gas leases. Oil and gas units are at times composed of
leases with only a royalty component and other times with NPSLs
which contain both royalty and a net profit-sharing provision.
MR. MEZA detailed the NPSLs are in seven unitsnoting various
units from west to east on the map as follows:
• Colville River Unit
• Oooguruk Unit
• Kuparuk River Unit
• Milne Point
• Duck Island Unit
• Point Thomson
MR. MEZA said the NPSLs were issued in the late 1970s and early
1980s, most offered with a fixed royalty rate and a fixed net
profit sharing rate. In other cases, the net profit share was a
bid variable with values as high as 79 percent for an
[inaudible] NPSL in Duck Island, or 93 percent for a NPSL in the
Northstar unit.
He explained the reason why the department does not show NPSLs
for the Northstar unit in the map is due to legislative action
in 1996 that transformed five NPSLs in the Northstar unit into
leases with only a royalty componentfurther explanation will
occur later in the presentation to exemplify one of the reasons
for proposing SB 61.
MR. MEZA noted the NPSLs which have reached the payoff stage are
in Colville River, Oooguruk, Milne Point, and Duck Island units.
The net profit share revenue has been an important source of
additional revenue to the state, and the largest contributors of
such additional revenue are in the NPSLs in the Duck Island and
Milne Point unitsaccounting for approximately $1 billion. The
total revenue coming from NPSLs amount to close to $1.2 billion.
3:44:25 PM
CHAIR REVAK asked him of the 26 active NPSLs on the North Slope,
how many does he anticipate needing to change and what is the
need to change now.
MR. MEZA replied, the department has prepared information as to
the need for proposing SB 61. The department cannot guess which
NPSLs will submit applications. The following slide will show
information the department thinks warrants the proposed change.
CHAIR REVAK asked him to confirm that he said some NPSLs were as
high as 90 percent.
MR. MEZA answered yes. He noted the Northstar unit offered DNR a
NPSL that contained the net profit share at the bidding
variable. The successful bidder for that lease sale submitted an
offer for 93 percent of the net profit share. The legislature
modified those NPSLs in 1996including the 93 percent share
rateto only contain a royalty component.
3:46:26 PM
MR. MEZA addressed slides 6 and 7 regarding why to allow NPSL
modification. He said one of the reasons for why DNR believes SB
61 will provide benefits to the state is that the department
believes [NPSL modification] will increase production for
otherwise uneconomic sources.
He detailed the current statute for royalty modification, AS
38.05.180(j), enables the DNR commissioner to modify the royalty
rates under specific scenariosdiscussed later in the
presentationwith the objective to encourage production which
would otherwise remain uneconomic in the absence of such
modificationthe modification process discussed later in the
presentation. However, there is a possibility that even with a
royalty modification, such production could remain uneconomic.
3:48:30 PM
SENATOR VON IMHOF noted he mentioned on slide 7, "Under
circumstances, even with royalty modification is possible for
continuing." She asked him if DNR has done royalty modification
in the past and what were the results.
MR. MEZA answered yes. He explained he believed the legislature
enacted the royalty modification statute in 1995 and then
amended the statute in 2003. The state has received eight
applications for royalty modification with two denied and three
withdrawn.
CHAIR REVAK asked Mr. Meza to provide the committee with
information on how the royalty modifications have done since
their approval.
MR. MEZA answered yes.
CHAIR REVAK asked Mr. Meza if the royalty modification ended in
2003.
MR. MEZA answered no. He specified he said the legislature
amended the statute in 2003.
CHAIR REVAK asked him when the last royalty modification
occurred.
MR. MEZA answered the last application that DNR received was in
2014 for the Oooguruk unit.
SENATOR VON IMHOF addressed the last bullet point on slide 7 as
follows:
This would result in additional royalties, net profit
share, taxes, etc. that the state would not otherwise
receive.
She said she assumed the royalty modifications resulted in net
profit shared, taxes, etcetera. She asked how much money the
state made that it would not otherwise have made, assuming the
three applications received approvalwithout the royalty
modification.
MR. MEZA answered yes. He said the department will have the
information available to committee members.
3:51:30 PM
SENATOR BISHOP asked if there was some royalty rate modification
discussed for the [Nuna Development] as well after 2014.
MR. MEZA answered yes. He noted he referred to the Nuna case
earlier in his presentation. The department received an
application in 2014 for royalty modification for the development
of the Nuna prospect residing in the Oooguruk unit.
SENATOR STEVENS noted the department's proposal is a tradeoff
where the state receives less but extends the life of the field.
He asked him what the advantage to the state is with their
proposal.
MR. MEZA explained that applications for royalty modifications
and net profit share modifications, as proposed in SB 61, does
not automatically translate into an approval. The department
performs a full review process that entails a review of
technical and commercial information by the applicant. According
to statute, the applicant needs to provide a convincingly and
clear showing that the project is not economic and therefore
will not occur without the modification.
3:54:35 PM
CHAIR REVAK asked him to explain in the simplest terms what the
state is trying to achieve by modifying a lease and under what
circumstances. He said his understanding is modifying a lease is
due to a lease not being economic given the amount of net profit
the state would take for the company to drill more oil.
MR. MEZA answered when the department references to a project or
production being economic or not economic, what they are trying
to do is influence the lessee's investment decision by modifying
either royalty or net profit share because investment will not
occur without modification. However, the department does not
guarantee modification results in profitability.
He noted later in his presentation he will refer to one measure
of profitability that the department uses oftenthe net present
valuewhich is a comparison of the cost and revenue of a project
in simple terms.
3:56:36 PM
CHAIR REVAK announced Senator Micciche has joined the committee
meeting.
SENATOR KIEHL remarked many committee members as well as the
presenter are experts in the oil and gas field. He said he
requires a more basic explanation.
He asked Mr. Meza what the difference is between a NPSL and a
royalty lease, and how net profit share differs from the state's
production tax which is also based on net profits. He noted the
difficulty in getting his head around the notion that, "Once we
are into net profits, something that is not economic, how is it
not economic if you are making a profit?"
CHAIR REVAK suggested to Mr. Meza to start out with the
difference between the royalties and the net profits in the
simplest of terms.
3:58:16 PM
MR. MEZA explained the department uses the term "net profit" in
the context of both NPSLs and production taxes. The department's
hope during the presentation is to explain the key differences
between "net profits" in the context of NPSLs and how that
differs from "project profitability" from the standpoint of the
lessee. One key aspect illustrating the distinction is not
considering certain costs for profit determination under a NPSL
context versus a company's profitability determination for a
project.
He said other examples of other costs not considered for profit
sharing leases includes an allowance for overhead and a return
on cost not recouped based on the prime rateoil and gas
companies require a return much higher than the prime rate.
CHAIR REVAK asked Senator Kiehl if Mr. Meza's explanation helps
him.
SENATOR KIEHL answered Mr. Meza's response is a start and he
likely has some of the answers built into his presentation.
4:00:54 PM
MR. MEZA said slide 8 references the second reason for purposing
SB 61, which is to provide DNR with additional, valuable
flexibility for modifying the existing royalty modification
statute and the proposed modification of net profit-sharing
rates.
He detailed the current royalty modification statute enables the
DNR commissioner to modify the royalty rate under specific
scenarios to encourage production which would otherwise remain
uneconomicthe department will later define via example.
He said the department believes SB 61 importantly provides the
DNR commissioner with the ability to modify not just royalty but
net profit share as well. For example, in the review process of
an application for modification, the state may find that it is
in its best interest to modify net profit sharing instead of
royaltythe department has prepared a draft to exemplify the
particular case.
He explained if only modifying net profit share helps to make an
uneconomic production come to fruition, then the state would not
have to defer its royalty revenue becauseas previously noted
they receive concurrent payment with production. Alternatively,
the state may find that a blended structure of NPSLs and royalty
modification could be in the best interest rather than just
using one modification.
He noted the current statute for royalty modification allows the
commissioner to increase or decrease the royalty rate which
could allow for the possibility of recovery of forgone revenue.
Also, SB 61 includes net profit share as another variable.
4:03:59 PM
He explained slide 9 provides a hypothetical graph of what the
department means for a project trying to develop economic
production.
MR. MEZA reiterated SB 61 has the objective of encouraging
economic production and provides the state with valuable,
additional modification flexibility if the department finds
modification is in the project's best interest.
He referenced the economic model that provides two production
scenarios for a hypothetical project. One graph defines a set of
leases with one containing royalty and the other with NPLS, the
second graph with all NPLSpreviously noted to contain both
royalty and a net profit share component. The graphs show one
measure of profitability for a company in terms of net present
value. The graphs represent the lessee's expectations via
production, price, and cost variables. The evaluation determines
whether a project is economic and warrants investment.
[He detailed various economic and uneconomic project scenarios
shown on the graphs.]
He noted under the existing modification framework, the DNR
commissioner can only modify the royalty rates to encourage
production which otherwise would remain economic.
He reiterated when evaluating modification requests, the
department's goal is not to guarantee project profitability or
to provide more than necessary profitability. The modification
goal is to improve the chances for project profitability, but
only to the point necessary to impact the investment decision by
the lesseeone circumstance includes using the net profit share
instead of the royalty rate.
4:08:20 PM
SENATOR KIEHL asked him what discount rate the department is
using in their analysis, noting he mentioned prime rate earlier
and that companies use a significantly higher rate. He said the
discount rate used for a net present value analysis makes a huge
difference.
MR. MEZA answered the department does not use a set discount
rate. The department first looks at economic profitability for a
project from the company's perspective to evaluate whether the
company will make an investment decision. However, the
department realizes there are different types of North Slope
operators, some are financially stronger with a worldwide
project portfolio, and some have different types of project
investment in their portfolios. The department uses a "prudent
operator's" standpoint for determining whether a project is
economic.
SENATOR MICCICHE asked him to confirm that the combined relief
of royalty modification and NPSLwith a minimum of 10 percent
could possibly stop the abandonment of unprofitable production.
Anything back to the state above that unprofitable line is far
more beneficial to the State of Alaska than abandoned
production.
MR. MEZA answered yes, the department encourages production that
would otherwise remain uneconomic and not come to fruition
without the modification.
He reiterated the department's goal is not to guarantee a
certain profit level or profit under all circumstances, but
rather to influence the investment decision by the applicant.
4:11:27 PM
SENATOR KIEHL asked him how the department sets the "prudent
operator" standard. He noted an oil business might say a prudent
operator is not going to make less than a very high number, but
a state revenue department might be interested in a much lower
number. He inquired if the department determines the standard
via regulation or "are we to trust one another."
MR. MEZA answered what he meant by the term "prudent operator"
is from an economic standpoint. DNR considers different
scenarios in its review process as well as the opportunity cost
for the state.
He explained if DNR were to hypothetically deny an application,
the department would consider the state's opportunity cost for
not sanctioning a project via waiting for another operator,
market conditions or technology improvements, or for a different
project configuration.
He summarized DNR is always comparing its opportunity cost and
revenue benefit that could occur with the modification versus
the revenues that might or might not occur in the future by
delaying a project.
4:13:28 PM
CHAIR REVAK asked him to confirm that DNR currently does not
have the ability to negotiate NPSLs and the department feels
having the ability to negotiate under certain circumstances
would be a greater benefit to the state.
MR. MEZA answered yes. He noted a NPSL modification occurred in
1996 for the Northstar unit, but the process entailed
legislation. SB 61 would provide the DNR commissioner with the
authority to modify royalties and net profit share rates.
CHAIR REVAK asked him how many NPSLs are currently in
production.
MR. MEZA referenced the map on slide 5 and detailed the units
that currently have NPSLs in production as follows:
• Colville River
• Oooguruk
• Nikaitchuq
• Milne Point
• Dick Island
• Northstar
o Originally had NPSL.
o Applicant sanctioned modification and project is
producing.
4:15:37 PM
CHAIR REVAK asked how many NPSLs are not in production.
MR. MEZA answered the Point Thomson unit is producing but not
associating its production to NPSL.
SENATOR BISHOP asked him if he is talking about having the
ability to modify existing production, new projects going
forward, or both.
MR. MEZA answered royalty modification under the existing
statute and NPSLs under SB 61 can only occur under specific
scenarios described by the statuteadditional detail provided in
the next slide.
SENATOR STEVENS noted Judge Sharon Gleasonformer state judge,
now a federal judgemade a decision on the issue of how much
money from the [Trans-Alaska Pipeline System (TAPS)] taxes would
go to communities. Judge Gleason stated that oil will be flowing
from Prudhoe Bay for the next 50 to 100 years. He said he thinks
Judge Gleason was saying that sometimes it is best to leave oil
in the ground because in the future the oil might be of more
value to the state.
SENATOR STEVENS said he is truly concerned if the department is
truly looking with a 50-to-100-year view of the oil industry for
the state, or is the department just looking at the immediate
production of oil.
4:18:18 PM
MR. MEZA answered the DNR review process looks at both short and
long-term effects from modification for existing and future
production. He noted Alaska built a pipeline infrastructure not
for one unit, but for the benefit of other types of development
throughout the North Slope.
SENATOR MICCICHE noted NPSLs ranged from 30 to 79 percent in the
1970s and 1980s. However, the department's request via SB 61
could drop the NPSL percentage amount to 10 percent.
He asked if the department is thinking of utilizing the practice
as combined relief between royalty and the need for a lower NPSL
to make economic sense, and does the department envision the 10
percent minimum is something realistic.
4:20:36 PM
MR. MEZA replied the department is not proposing to reduce the
net profit share to the 10 percent level, but for a floor to
exist under which modifications cannot go beyond should the
department consider modification in the interest of the state.
Just because the department has a minimum does not mean the
department will go to the minimum, and the same applies for the
existing statute of royalty modification, which contains minimum
levels of royalties. The department in its review does not have
the intent to necessarily go to the minimum, but the decision to
modify the rate is based incentivizing the investment decision
by the applicant.
He referenced the graph from the economic model on slide 9 that
contains a hypothetical scenario of combined relief. The right
graph on slide 9 illustrates the possibility that separate
royalty and NPSL modification may not be large enough to change
the decision from no investment to investment. DNR may find
under certain circumstances the need for combined relief.
However, the department does not mean it will go all the way up
to provide the greatest profitability to a project, but only to
the point where the applicant acts on conducting its investment
decision.
SENATOR MICCICHE noted he will follow up later in the overview
regarding questions on modifications if a well ends up looking
borderline profitable and there is combined relief and then the
profitability becomes remarkably successful later.
4:23:31 PM
MR. MEZA said slide 10 describes the third section of the
department's presentation which addresses the process for
modification that currently exists, and how SB 61 proposes to
modify the process.
He explained that SB 61 will amend the existing royalty
modification statute to provide authority to modify the net
profit share with a goal of encouraging production which would
otherwise remain uneconomic.
He noted the department is providing a third reason to allow
NPSL modification by streamlining the process. In 1996, DNR
presented a proposal to the legislature for modifying four NPSLs
in the Northstar unit. The offered NPSLs included the net profit
share rate as the [inaudible] variable; the highest bidder in
that lease sale offered a net profit share rate in a NPSL as
high as 93 percent.
MR. MEZA said DNR is proposing via SB 61 to authorize the
department to modify the net profit share to streamline the NPSL
process in conjunction with the existing statute that allows
royalty rate modification. Also, the department will publish and
report the proposed net profit share modification decision for
royalty modification through a best practice interest finding to
the Legislative Budget and Audit Committee.
4:26:10 PM
SENATOR KIEHL asked him what currently requires legislative
approval, what simply requires reporting to the legislature
under the status quo, and how that would change.
MR. MEZA explained under the existing statute which allows only
for royalty modification, the departmentonce it receives an
application for modification of royaltyperforms its review
process and if the department finds that granting a modification
of royalty is in the best interest of the state, the department
publishes a best interest finding allowing for public comment
and offers a presentation to the Legislative Budget and Audit
Committee; the SB 61 proposal tries to include the modifications
for net profit share in this process while maintaining the same
review process, the same publication of the best interest
finding, and offers to make presentations to the legislature.
SENATOR KIEHL asked him why the Northstar unit modifications
required legislative action.
MR. MEZA answered at that timeand currentlythe statute does
not allow the DNR commissioner to modify net profit share. In
1996, the lessee reached out to the department which led to the
legislature receiving tentatively negotiated terms for the
proposed NPSL modification.
4:28:21 PM
CHAIR REVAK summarized that SB 61 seeks to solve the very
problem he noted. He said the committee has asked for details
related to those conducted NPSLs and how they have worked so
far.
MR. MEZA explained that slide 12 addresses the third section in
the presentation that covers the current modification process
information the committee previously asked, and how SB 61
proposes the process.
He said that under the current statute the commissioner has the
authority to modify royalty rates. SB 61 proposes the
commissioner would also have the authority to modify net profit
share rates with the objective to encourage production which
would otherwise remain uneconomic.
MR. MEZA said the department is also proposing to ask for a
fourth scenario for applicant eligibility regarding incremental
production for producing pools which need significant capital
expenditures.
He added that SB 61 proposes to clarify a potential ambiguity in
the criteria for one of the scenarios for modification
eligibility in test production [during exploration] would not
necessarily disqualify an applicant.
SENATOR BISHOP asked what the test production cutoff is.
MR. MEZA said he will cover that in slide 14.
4:31:12 PM
MR. MEZA said slide 13 addresses, within the same context of the
modification process, the current and proposed types of
modifications. Currently the royalty modification contains a
minimum floor of 5 percent and 3 percent under corresponding
scenariosnoted on slide 14. SB 61 would also establish a
minimum net profit share rate of 10 percent; the intent is not
necessarily to go there, but to have a minimum under which does
not allow the department to offer for modification.
MR. MEZA explained consistent with existing statutewhich allows
for a sliding scale mechanism to vary royalty rate according to
price, production, or other measureSB 61 proposes that the net
profit share also is subject to the sliding scale mechanism.
Also, the bill would include a provision for certain
circumstances where the state could recapture forgone revenues
from the beginning of the project by participating in outside
price movement or other types of variables.
4:33:11 PM
He said slide 14 provides more details on scenarios for eligible
modification applications. He reiterated SB 61 proposes the
consideration for both royalty and net profit share modification
for the three existing scenarios in the statute, but also to
include a fourth scenario.
He explained in the first scenario, the pool under consideration
has not yet produced and would need modification for future
production to occur economically. The scenario has one condition
in that the field or pool has not yet previously produced for
sale. He noted the scenario has a potential ambiguity referred
to earlier in the overview that SB 61 is trying to address and
clarify.
He noted in the development stage of a given project as the
company starts its appraisal stage and drilling some wells,
naturally some of its resource will flow to the ground and
tested for quality and pressure information. The department
wants to clarify that such a test production scenario would not
necessarily disqualify a potential applicant that is seeking
modification. Also, to provide clarity, the term "commercial
production" will refer to production after project sanctioning
for a pool not having produced before.
4:35:29 PM
MR. MEZA explained that the second scenario on slide 14
references a situation where production already exists, but with
lower production levels, high operating costs, or lower prices
that makes abandonment expectations likely; for this case,
royalty modification or the proposed NPSL may prevent existing
production from becoming uneconomic.
MR. MEZA said in the third scenario, production has already
ceased, and wells are likely shutting. The idea is that the
modification of royalties or NPSL may bring that production back
online.
He explained that in the proposed fourth scenario, production
already existslike in the second scenariobut the key
distinction is that the production and review is incremental to
the existing one where it only comes to fruition after
significant capital investment. However, such incremental
investment would be uneconomic unless royalty modification or
NPSL occurs. Incremental investment examples include expansion
of existing pools, additional drilling pads, enhanced oil
recovery projects, etcetera. He noted the additional production
decision addresses both short term and long-term impact
perspectives.
4:37:36 PM
CHAIR REVAK asked how the proposed fourth scenario of
incremental production differs from the second scenario. He
inquired whether the second scenario would not suffice for what
the state needs.
MR. MEZA replied his question allows him to highlight the key
distinction between the second and fourth scenarios. In the
second scenario when the department refers to rising per-barrel
costs, the department refers to costs the lessee is already
incurring. However, the costs in the fourth scenario have not
occurred and are under evaluation to bring incremental
production into existencea key distinction. To qualify for the
second scenario, the lessee would have to first incur their
costs, but more likely the lessee would not do so if they deemed
the project as uneconomic.
4:39:10 PM
MR. MEZA addressed slide 15 regarding the decision-making
process for royalty and net profit share modification. SB 61
does not propose to change the modification process, applicants
still need to provide a clear and convincing showing that their
application meets the statutory requirements.
He explained the bar for standard of proof is much higher when
compared to other types of DNR applications. The applicant must
show a clear and convincing case at a higher degree of certainty
for their claim that production is not economic without
modifications. The applicant needs to provide abundant technical
and financial informationheld confidential upon request.
MR. MEZA added DNR retains the ability to require applicants to
pay for each application to allow the department to reach out
for consulting work to assist in specific areas of technical
information that the department may not have the expertise. The
department will keep the same process of publishing a best
interest finding and offering a presentation to the legislature.
He noted even if DNR grants the modification, the modification
will contain a series of conditions and provisions intended to
prevent any deviation of the claims made by the applicant with
respect to the proposed project's timeline, investment
expenditures, and application conditions. Application approval
currently in statuterequires authorization by the DNR
commissioner.
4:42:05 PM
SENATOR MICCICHE mentioned new production and asked if there is
a claw-back adjustment that the department can automatically
initiate to a more traditional royalty production tax if a
project ends up being enormously more productive than it was
thought to be in the original negotiation and modification.
MR. MEZA answered yes the state may find in its review process
that a claw-back provision is in its best interest if an outside
case were to occur.
SENATOR MICCICHE asked him to clarify that he does not mean
within the ranges of NPSL or royalty relief, but he is saying
the department could convert to a traditional royalty and
production tax.
MR. MEZA replied that when the department refers to
modification, it is referring in the context of changes in the
royalty rate, changes in the net profit share, or a combination
if the department finds it is in its best interest; however,
nothing about production tax.
4:45:13 PM
SENATOR KIEHL asked if the state could initiate a modification
to raise the net profit share or royalty if it did not have the
best information when the negotiation was initiated.
MR. MEZA answered the department would consider such a scenario
of recapture of what the department granted initially through a
provision within the initial modification decision if the
department deemed the modification required granting within the
series of conditions.
SENATOR KIEHL commented he thinks the answer to the question is
"no." However, the department's hope is to always foresee all
scenarios with a modification.
He noted to Chair Revak that he needs some additional help and
basic understanding before the bill comes back. He said he will
reach out to the department to better understand what
information the department has access to, how the department
performs some of its analysis, what information is available to
the public, and what information is available to legislators to
help him analyze whether the bill is something that makes sense
going forward.
CHAIR REVAK concurred and noted the committee will hear the bill
in the future and get more informational briefings. He thanked
Mr. Meza for the presentation.
[CHAIR REVAK held SB 61 held in committee.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 61 Sectional Analysis version A 2.2.2021.pdf |
SRES 2/10/2021 3:30:00 PM |
SB 61 |
| SB 61 Sponsor Statement 1.28.2021.pdf |
SRES 2/10/2021 3:30:00 PM |
SB 61 |
| SB 61 DNR One-Pager 2-5-21.pdf |
SRES 2/10/2021 3:30:00 PM |
SB 61 |
| SB61 DNR NPSL Presentation 2-10-21.pdf |
SRES 2/10/2021 3:30:00 PM |
SB 61 |