03/13/2001 10:02 AM Senate FIN

                                                                                                                                
     SENATE BILL NO. 77                                                                                                         
     "An Act repealing  the exception that applies to collection and                                                            
     payment  of interest of $150  or less on royalty or  net profit                                                            
     share  underpayments  and overpayments;  and  providing for  an                                                            
     effective date."                                                                                                           
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
DARWIN PETERSON,  staff to Senator  Torgerson, sponsor of  the bill,                                                            
read the sponsor statement into the record as follows.                                                                          
                                                                                                                                
     In 1998,  the legislature enacted  AS 38.05.135 (g),  exempting                                                            
     the Department  of Natural Resources from calculating  interest                                                            
     on small  over or under payments of royalty if  the interest is                                                            
     $150   or  less.   The   cost   of  calculating   these   small                                                            
     over/underpayments   was more  than  the interest  received  or                                                            
     credit applied. Prior  to 1998, Department of Natural Resources                                                            
     was  calculating  these small  payments  manually.  For the  12                                                            
     months  prior to  October 31,  2000, the  State processed  1716                                                            
     royalty filings where  interest amounts were between a negative                                                            
     $150   and  a   positive  $150.   The  net   amount  of   these                                                            
     under/overpayments was a positive $4,096.                                                                                  
                                                                                                                                
     The  effort of calculating,  processing  and tracking  interest                                                            
     for  small under/overpayments  was not  cost effective  for the                                                            
     oil companies or the  State. With the advent of the State's new                                                            
     Oil  and  Gas  Royalty  Accounting   System,  all  interest  is                                                            
     calculated electronically.  Also, most royalty payers are using                                                            
     mainframe  computer systems and  sending their royalty  reports                                                            
     electronically.  The failure  to repeal AS 38.05.135  (g) would                                                            
     require  the Department and royalty  payers to reprogram  their                                                            
     computer  systems to not compute under or overpayments  of less                                                            
     than $150.                                                                                                                 
                                                                                                                                
     The sophisticated  computer systems used by the  royalty payers                                                            
     and  the State  are now able  to quickly  compute the  interest                                                            
     owed  on  even  the smallest  under  or  overpayment.  All  the                                                            
     royalty  payments  are automatically  summed  together and  one                                                            
     wire transfer  is used for payment. The repeal  of AS 38.05.135                                                            
     (g) will solve the  problem of the administrative burden on the                                                            
     part  of the royalty  payers  and the State  to manually  track                                                            
     very small  amounts of interest.  It is an unnecessary  expense                                                            
     to  reprogram  computer  systems to  handle  separate  interest                                                            
     calculations for these  small interest amounts, especially when                                                            
     a much easier option is available.                                                                                         
                                                                                                                                
Senator   Olson   requested   the   amount   of   overpayments   and                                                            
underpayments.                                                                                                                  
                                                                                                                                
Mr.  Peterson  replied  that the  amount  of  money in  question  is                                                            
minimal.  He detailed that  for the 12 months  prior to October  31,                                                            
2000, the state  processed 1,716 royalty filings where  the interest                                                            
amounts were between a  negative $150 and a positive $150. He stated                                                            
that the net amount results in a positive $4,096 for the state.                                                                 
                                                                                                                                
MARK  MYERS,  Director,  Division  of Oil  and  Gas,  testified  via                                                            
teleconference from Anchorage  in strong support of the legislation.                                                            
He noted  that the existing  statute has been  made obsolete  by the                                                            
department's modernized  and automated royalty accounting system. He                                                            
stated  that adopting  of this legislation  would  result in  a more                                                            
accurate accounting  procedure and  would simply practices  for both                                                            
the state  and the producers.  He surmised  that the producers  also                                                            
support the bill. He pointed  out that no opposition had been raised                                                            
to the bill  and that it  has no fiscal impact  on the state  or the                                                            
producers.                                                                                                                      
                                                                                                                                
JIM  STOUFFER  testified   via  teleconference  from   Anchorage  to                                                            
reiterate Mr. Meyer's statements.                                                                                               
                                                                                                                                
Co-Chair Kelly chaired the remainder of the meeting.                                                                            
                                                                                                                                
Co-Chair Donley offered  a motion to report SB 77, 22-LS0519\A, from                                                            
Committee with accompanying  zero fiscal note from the Department of                                                            
Natural  Resources,  Oil and  Gas Development  Budget  Request  Item                                                            
(BRU). There was no objection and the bill MOVED from Committee.                                                                
                                                                                                                                
AT EASE 10:07 AM / 10:07 AM