HOUSE BILL NO. 58 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. KEVIN BANKS, (TESTIFIED VIA TELECONFERENCE), DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES, ANCHORAGE, stated that the bill would transfer oil and gas royalty audit functions from the Department of Revenue (DOR) to the Department of Natural Resources (DNR). He noted that it would make sense to put tile audit duties in the same department that administers, enforces, and is most knowledgeable with the oil and gas-leasing program. Mr. Banks pointed out that the audit functions previously rested with the Department of Natural Resources, but was switched to Department of Revenue in 1980 based on a legislative audit report. That 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 North Slope producers and have made changes to tax regulations. As a result, there is no longer as much overlap between royalty and tax audits. Separating Department of Natural Resources duties 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. Mr. Banks noted that HB 58 would authorize DNR to audit reports and costs relating to exploration incentive credits and oil and gas licenses. It also grants the Department 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. Mr. Banks pointed out that language on Page 2, Section 2, "by an agreement with the department or by AS38.05.035(a)(9), AS 41,09.010(d)" was inadvertently deleted in the proposed version of the legislation. Co-Chair Therriault MOVED to ADOPT Amendment #1, which would insert after "required" on Page 2, Line 9, "by an agreement with the department or by AS38.05.035(a)(9), AS 41,09.010(d)". There being NO OBJECTION, it was so ordered. CAROL CARROLL, DIRECTOR, DIVISION OF SUPPORT SERVICES, DEPARTMENT OF NATURAL RESOURCES, observed that the Department had submitted Amendment #2. Ms. Carroll explained that the amendment would correct a law in the public notice law section by removing the notice requirement for final decisions in oil and gas lease sales. The amendment would correct a problem by removing a separate requirement for notice for the final decision. JAMES HANSON, (TESTIFIED VIA TELECONFERENCE), LEASE SALE MANAGER, DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES, pointed out that the notice requirement is redundant. He explained that 180 days before the sale, the Department issues a preliminary finding. There is a public comment period following that. When the finding is noticed, the public is informed when the final finding will be issued. At the time the final finding is issued, the notice of sale lets the pubic know that the appeal process is not agreeing with the decision to go forward with the sale. The 30-day notice prior to that finding is simply restating what was already said when the preliminary finding came out. Representative J. Davies asked if that was a current requirement in statute to be done. Mr. Hanson replied that the requirement is that they issue a notice of the preliminary finding and included in that notice is when the final notice would become available. Representative J. Davies did not understand the redundancy. He asked what language would the Department be comfortable including. Representative Phillips requested further testimony to address any changes which the language could cause. Representative Grussendorf commented that the language of the preliminary findings might not affect the final findings. Co-Chair Therriault agreed that the change could cause confusion. Mr. Hanson pointed out that the notice which the Division is trying to eliminate, would be after the comment period. The public comment period lasts from 60-90 days after the preliminary findings. He stressed that it would be "way beyond" the public comment period and serves no purpose in the bill. Co-Chair Therriault advised that it was his intent to hold the bill in Committee to address the proposed language change. Ms. Carroll interjected that if the amendment were going to delay the bill, the Department would request to withdraw the proposal to change that language. HB 58 was HELD in Committee for further consideration.