SSHB 28: "An Act relating to adjustments to royalty reserved to the state to encourage otherwise uneconomic production of oil and gas; and providing for an effective date."
00 SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 28 01 "An Act relating to adjustments to royalty reserved to the state to encourage otherwise 02 uneconomic production of oil and gas; and providing for an effective date." 03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 04 * Section 1. AS 38.05.180(j) is amended to read: 05 (j) The commissioner 06 (1) may provide for modification of [AN INCREASE OR 07 DECREASE OR OTHERWISE MODIFY] royalty [, TO ALLOW FOR 08 PRODUCTION THAT WOULD NOT OTHERWISE BE ECONOMICALLY 09 FEASIBLE,] on individual leases, leases unitized as described in (p) of this section, 10 leases subject to an agreement described in (s) or (t) of this section, or interests 11 unitized under AS 31.05 [; THE COMMISSIONER MAY ACT UNDER THIS 12 SUBSECTION TO MODIFY THE ROYALTY] 13 (A) [AFTER JUNE 20, 1995 AND NOT LATER THAN 14 JULY 1, 2015, SO LONG AS THE AUTHORITY TO MODIFY ROYALTY
01 UNDER THIS SUBPARAGRAPH HAS BEEN AUTHORIZED OR 02 REAUTHORIZED BY LAW WITHIN THE TEN YEARS PRECEDING THE 03 COMMISSIONER'S ACTION TO MODIFY THE ROYALTY,] to allow for 04 production from an oil or gas field or pool, or portion of a field or pool, if 05 (i) the oil or gas field or pool, or portion of the field or 06 pool, has been sufficiently delineated [SUFFICIENTLY] to the 07 satisfaction of [ALLOW] the commissioner [TO CONDUCT THE 08 ANALYSES AND MAKE THE FINDINGS REQUIRED BY THIS 09 SUBSECTION]; [AND] 10 (ii) the field or pool, or portion of a field or pool, has 11 not previously produced oil or gas for sale; and 12 (iii) oil or gas production from the field or pool, or 13 portion of the field or pool, would not otherwise be economically 14 feasible; 15 (B) to prolong the economic life of an oil or gas field or pool, 16 or portion of a field or pool, as per barrel or barrel equivalent costs [PER 17 BARREL OR BARREL EQUIVALENT] increase or as the price of oil or 18 gas decreases, and the increase or decrease is sufficient to make future 19 production no longer economically feasible; or 20 (C) to reestablish production of shut-in oil or gas that would 21 not otherwise be economically feasible; 22 (2) may not grant a royalty modification unless the lessee or lessees 23 requesting the change [MODIFICATION] make a clear and convincing showing that 24 a modification of royalty meets the requirements of this subsection and is in the best 25 interests of the state; 26 (3) shall provide for an increase or decrease or other modification 27 of the state's royalty share by a sliding scale royalty or other mechanism that 28 shall be based on a change in the price of oil or gas and may also be based on 29 other relevant factors such as a change in production rate, projected ultimate 30 recovery, development costs, and operating costs 31 [(A) CONDITION ANY ROYALTY MODIFICATION
01 GRANTED UNDER THIS SUBSECTION IN ANY WAY NECESSARY TO 02 PROTECT THE STATE'S BEST INTERESTS; 03 (B) DESCRIBE, IN THE FINDINGS AND 04 DETERMINATIONS REQUIRED BY THIS SUBSECTION, THE 05 RELEVANT FACTORS, INCLUDING PRICE, PROJECTED 06 PRODUCTION RATE OR VOLUME, PREDICTED ULTIMATE 07 RECOVERY, AND DEVELOPMENT, OPERATING, AND 08 TRANSPORTATION COSTS, UPON WHICH THE MODIFICATION IS 09 BASED; 10 (C) FOR A MODIFICATION UNDER (1)(A) OF THIS 11 SUBSECTION, SET OUT THE TERMS AND CONDITIONS, WHICH 12 (i) MUST INCLUDE A MECHANISM FOR 13 ADJUSTING ROYALTY PERCENTAGE BASED ON PRICE; 14 USING FORECASTS OF THE RANGE OF FUTURE PRICES AND 15 THEIR PROBABILITIES, THE MECHANISM MUST PROVIDE 16 THAT THE VALUE OF THE POTENTIAL REVENUE INCREASES 17 RESULTING FROM ROYALTY PERCENTAGE INCREASES 18 MUST EXCEED THE VALUE OF THE POTENTIAL REVENUE 19 LOSSES RESULTING FROM ROYALTY PERCENTAGE 20 DECREASES; AND 21 (ii) MAY INCLUDE, IN ADDITION TO THE 22 ROYALTY PERCENTAGE ADJUSTMENT BASED ON PRICE, 23 WHICH MUST MEET THE CONDITIONS SPECIFIED IN (i) OF 24 THIS SUBPARAGRAPH, A FURTHER ADJUSTMENT BASED ON 25 PRODUCTION RATE OR VOLUME FROM THE FIELD OR POOL; 26 AND 27 (D) FOR A MODIFICATION UNDER (1)(B) OR (1)(C) OF 28 THIS SUBSECTION, SET OUT THE TERMS AND CONDITIONS, WHICH 29 MAY INCLUDE SUBSTITUTION OF A SLIDING SCALE ROYALTY OR 30 OTHER MECHANISM TO MODIFY THE ROYALTY IF THERE IS A 31 CHANGE IN THE RELEVANT FACTORS, SUCH AS PRICE, PROJECTED
01 PRODUCTION RATE OR VOLUME, PREDICTED ULTIMATE 02 RECOVERY, AND DEVELOPMENT, OPERATING, AND 03 TRANSPORTATION COSTS, UPON WHICH THE MODIFICATION IS 04 BASED]; 05 (4) may not grant a royalty reduction [MODIFICATION] for a field 06 or pool, or portion of a field or pool, 07 (A) under (1)(A) of this subsection if the royalty modification 08 for the field or pool would establish a royalty rate of less than five percent in 09 amount or value of the production removed or sold from a lease or leases 10 covering the field or pool; 11 (B) under (1)(B) or (1)(C) of this subsection if the royalty 12 modification for the field or pool would establish a royalty rate of less than 13 three percent in amount or value of the production removed or sold from a 14 lease or leases covering the field or pool; 15 (5) [MAY NOT GRANT A ROYALTY MODIFICATION UNDER 16 THIS SUBSECTION WITHOUT INCLUDING AN EXPLICIT CONDITION THAT 17 THE ROYALTY MODIFICATION IS NOT ASSIGNABLE WITHOUT THE PRIOR 18 WRITTEN APPROVAL OF THE COMMISSIONER; THE COMMISSIONER 19 SHALL, IN THE PRELIMINARY AND FINAL FINDINGS AND 20 DETERMINATIONS, SET OUT THE CONDITIONS UNDER WHICH THE 21 ROYALTY MODIFICATION MAY BE ASSIGNED; 22 (6)] shall require the lessee or lessees to submit, with the application 23 for the royalty reduction [MODIFICATION], financial and technical data that 24 demonstrate that the requirements of this subsection are met; the commissioner 25 [SHALL] 26 (A) may require disclosure of only the financial and technical 27 data related to development, production, and transportation of oil and gas from 28 the field or pool that are reasonably available to the applicant 29 [NECESSARY TO MAKE A DETERMINATION AS TO WHETHER OR 30 NOT TO GRANT THE REQUEST FOR ROYALTY MODIFICATION]; and 31 (B) shall keep the data [DESCRIBED IN (A) OF THIS
01 PARAGRAPH] confidential under AS 38.05.035(a)(9) at the request of the 02 lessee or lessees making application for the royalty reduction 03 [MODIFICATION; THE CONFIDENTIAL DATA MAY BE DISCLOSED 04 BY THE COMMISSIONER TO LEGISLATORS AND TO THE 05 LEGISLATIVE AUDITOR AND AS DIRECTED BY THE CHAIR OR 06 VICE-CHAIR OF THE LEGISLATIVE BUDGET AND AUDIT 07 COMMITTEE TO THE DIRECTOR OF THE DIVISION OF LEGISLATIVE 08 FINANCE, THE PERMANENT EMPLOYEES OF THEIR RESPECTIVE 09 DIVISIONS WHO ARE RESPONSIBLE FOR EVALUATING A ROYALTY 10 MODIFICATION, AND TO AGENTS OR CONTRACTORS OF THE 11 LEGISLATIVE AUDITOR OR THE LEGISLATIVE FINANCE DIRECTOR 12 WHO ARE ENGAGED UNDER CONTRACT TO EVALUATE THE 13 ROYALTY MODIFICATION, IF THEY SIGN AN APPROPRIATE 14 CONFIDENTIALITY AGREEMENT]; 15 (6) [(7)] may require the lessee or lessees making application for the 16 royalty reduction [MODIFICATION] to pay for the services of an independent 17 contractor, selected from a list of qualified consultants to evaluate hydrocarbon 18 development, production, transportation, and economics [,WHO IS SELECTED] by 19 the commissioner to assist the commissioner in evaluating the application and 20 financial and technical data; the commissioner shall determine the relevant scope of 21 the work to be performed by the contractor [SELECTION OF AN 22 INDEPENDENT CONTRACTOR UNDER THIS PARAGRAPH IS NOT SUBJECT 23 TO AS 36.30]; 24 (7) [(8)] shall 25 [(A)] make and publish a preliminary findings and 26 determination on the royalty reduction [MODIFICATION] application, [; IF 27 THE PRELIMINARY FINDINGS AND DETERMINATION CONCERNS A 28 ROYALTY MODIFICATION UNDER (1)(A) OF THIS SUBSECTION, THE 29 PRELIMINARY FINDINGS AND DETERMINATION SHALL ALSO BE 30 PRESENTED TO THE GOVERNOR FOR THE GOVERNOR'S APPROVAL 31 OR DISAPPROVAL; THE GOVERNOR MAY NOT DELEGATE A
01 DETERMINATION TO APPROVE OR DISAPPROVE A PRELIMINARY 02 FINDINGS AND DETERMINATION UNDER THIS SUBPARAGRAPH; 03 (B) FOR A ROYALTY MODIFICATION UNDER (1)(A) OF 04 THIS SUBSECTION, IF THE GOVERNOR APPROVES THE 05 PRELIMINARY FINDINGS AND DETERMINATION UNDER (A) OF 06 THIS PARAGRAPH, 07 (i)] give reasonable public notice of the preliminary 08 findings and determination, [; 09 (ii) CONCURRENTLY WITH THE ISSUANCE OF 10 THE PUBLIC NOTICE, UNLESS DIRECTED BY THE 11 LEGISLATIVE BUDGET AND AUDIT COMMITTEE TO DO 12 OTHERWISE, MAKE AVAILABLE COPIES OF THE 13 COMMISSIONER'S PRELIMINARY FINDINGS AND 14 DETERMINATION ON THE ROYALTY MODIFICATION 15 APPLICATION AND THE SUPPORTING FINANCIAL AND 16 TECHNICAL DATA, INCLUDING THE WORK PAPERS, 17 ANALYSES, AND RECOMMENDATIONS OF ANY 18 CONTRACTORS RETAINED UNDER (7) OF THIS SUBSECTION, 19 TO PERSONS AUTHORIZED UNDER (6)(B) OF THIS 20 SUBSECTION TO REVIEW THE DATA;] and 21 [(iii)] invite public comment on the preliminary findings 22 and determination during a 30-day period for receipt of public 23 comment; 24 [(C) FOR A ROYALTY MODIFICATION UNDER (1)(B) OR 25 (C) OF THIS SUBSECTION, IF THE PRELIMINARY FINDINGS AND 26 DETERMINATION APPROVES A ROYALTY MODIFICATION, 27 (i) GIVE REASONABLE PUBLIC NOTICE OF THE 28 PRELIMINARY FINDINGS AND DETERMINATION; AND 29 (ii) INVITE PUBLIC COMMENT ON THE 30 PRELIMINARY FINDINGS AND DETERMINATION DURING A 31 30-DAY PERIOD FOR RECEIPT OF PUBLIC COMMENT;
01 (9) SHALL ADDRESS IN ANY FINDINGS AND 02 DETERMINATIONS REQUIRED UNDER THIS SUBSECTION THE 03 REASONABLY FORESEEABLE EFFECTS OF THE PROPOSED ROYALTY 04 MODIFICATION ON THE STATE'S REVENUE;] 05 (8) [(10)] shall offer to appear before the Legislative Budget and Audit 06 Committee on a day that is not earlier than 10 days and not later than 20 days 07 after giving public notice under (7) of this subsection, to provide the committee a 08 review of the commissioner's preliminary findings and determination on the royalty 09 reduction [MODIFICATION] application and administrative process [THE 10 SUPPORTING FINANCIAL AND TECHNICAL DATA]; if the Legislative Budget 11 and Audit Committee accepts the commissioner's offer, the committee shall give 12 notice of the committee's meeting to all members of the legislature; [IF, UNDER 13 (6)(B) OF THIS SUBSECTION, THE FINANCIAL AND TECHNICAL DATA 14 MUST BE KEPT CONFIDENTIAL AT THE REQUEST OF A LESSEE OR 15 LESSEES MAKING APPLICATION FOR THE ROYALTY MODIFICATION, THE 16 COMMISSIONER MAY APPEAR BEFORE THE COMMITTEE IN EXECUTIVE 17 SESSION;] 18 (9) [(11)] shall make copies of the preliminary findings and 19 determination available to 20 (A) the presiding officer of each house of the legislature; 21 (B) the chairs of the legislature's standing committees on 22 resources; and 23 (C) the chairs of the legislature's special committees on oil and 24 gas, if any; 25 (10) [(12)] shall, within 30 days after the close of the public comment 26 period under (7) [(8)] of this subsection, 27 (A) prepare a summary of the public response to the 28 commissioner's preliminary findings and determination; 29 (B) make a final findings and determination [AND PRESENT 30 IT TO THE GOVERNOR FOR THE GOVERNOR'S APPROVAL OR 31 DISAPPROVAL; THE GOVERNOR MAY NOT DELEGATE A DECISION
01 TO APPROVE OR DISAPPROVE A FINAL FINDINGS AND 02 DETERMINATION PRESENTED UNDER THIS SUBPARAGRAPH]; the 03 commissioner's final findings and determination prepared under this 04 subparagraph regarding a royalty reduction [MODIFICATION, IF 05 APPROVED BY THE GOVERNOR,] is final and not appealable to the court; 06 (C) transmit a copy of the final findings and determination 07 [PREPARED UNDER (B) OF THIS PARAGRAPH] to the lessee [OR 08 LESSEES MAKING APPLICATION FOR THE ROYALTY 09 MODIFICATION]; 10 (D) with the applicant's consent [OF THE LESSEE OR 11 LESSEES APPLYING FOR THE ROYALTY MODIFICATION], amend the 12 applicant's lease or unitization agreement [OF THE LESSEE OR LESSEES 13 APPLYING FOR THE ROYALTY MODIFICATION] consistent with the 14 commissioner's [APPROVED] final decision [FINDINGS AND 15 DETERMINATION]; and 16 (E) make copies of the final findings and determination 17 available to each person who submitted comment under (7) [(8)] of this 18 subsection and who has filed a request for the copies; 19 (11) [(13)] is not limited by the provisions of AS 38.05.134(3) or (f) of 20 this section in the commissioner's determination under this subsection. 21 * Sec. 2. AS 38.05.180(p) is amended to read: 22 (p) To conserve the natural resources of all or a part of an oil or gas pool, 23 field, or like area, the lessees and their representatives may unite with each other, or 24 jointly or separately with others, in collectively adopting or operating under a 25 cooperative or a unit plan of development or operation of the pool, field, or like area, 26 or a part of it, when determined and certified by the commissioner to be necessary or 27 advisable in the public interest. The commissioner may, with the consent of the 28 holders of leases involved, establish, change, or revoke drilling, producing, and 29 royalty requirements of the leases and adopt regulations with reference to the leases, 30 with like consent on the part of the lessees, in connection with the institution and 31 operation of a cooperative or unit plan as the commissioner determines necessary or
01 proper to secure the proper protection of the public interest. The commissioner may 02 not reduce [DECREASE] royalty on leases in connection with a cooperative or unit 03 plan except as provided in (j) of this section. The commissioner may require oil and 04 gas leases issued under this section to contain a provision requiring the lessee to 05 operate under a reasonable cooperative or unit plan, and may prescribe a plan under 06 which the lessee must operate. The plan must adequately protect all parties in interest, 07 including the state. 08 * Sec. 3. AS 38.05.180(s) is amended to read: 09 (s) When separate tracts cannot be individually developed and operated in 10 conformity with an established well-spacing or development program, a lease, or a 11 portion of a lease, may be pooled with other land, whether or not owned by the state, 12 under a communitization or drilling agreement providing for an apportionment of 13 production or royalties among the separate tracts of land comprising the drilling or 14 spacing unit when determined by the commissioner to be in the public interest. 15 Operations or production under the agreement are considered as operations or 16 production as to each lease committed to the agreement. The commissioner may not 17 reduce [DECREASE] royalty on leases in connection with a communitization or 18 drilling agreement except as provided in (j) of this section. 19 * Sec. 4. AS 38.05.180(t) is amended to read: 20 (t) The commissioner may prescribe conditions and approve, on conditions, 21 drilling, or development contracts made by one or more lessees of oil or gas leases, 22 with one or more persons, when, in the discretion of the commissioner, the 23 conservation of natural resources or the public convenience or necessity requires it or 24 the interests of the state are best served. All leases operated under approved drilling or 25 development contracts and interests under them, are excepted in determining holding 26 or control under AS 38.05.140. The commissioner may not reduce [DECREASE] 27 royalty on a lease or leases that are subject to a drilling or development contract except 28 as provided in (j) of this section. 29 * Sec. 5. AS 36.30.850(b)(33) is repealed. 30 * Sec. 6. This Act takes effect immediately under AS 01.10.070(c).