SB 61 — An Act authorizing the commissioner of natural resources to modify a net profit share lease.

32-GS1706\I32-GS1706\A CS FOR SENATE BILL NO.

61(RES)61 IN THE LEGISLATURE OF THE STATE OF ALASKA THIRTY-SECOND LEGISLATURE - FIRST SESSION BY THE SENATE RESOURCESRULES COMMITTEE Referred:BY REQUEST OF THE GOVERNOR Introduced:

Finance1/29/21 Sponsor(s):Referred:

SENATEResources, RULESFinance COMMITTEE BY REQUEST OF THE GOVERNOR A BILL FOR AN ACT ENTITLED "An Act authorizing the commissioner of natural resources to modify a royalty or net profit share on a lease." BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:

(32) acontracts contract [CONTRACTS] between the Department of Natural Resources and acontractors contractor [CONTRACTORS] qualified to evaluate hydrocarbon development, production, transportation, and economics, to assist the commissioner of natural resources in evaluating applications for a royalty increases or netdecreases prshareor modificationother underroyalt ASadjustments, 38.05.180(j)modifications [INCREASESto ORnet DECREASESprofit ORshare, OTHER ROYALTY ADJUSTMENTS,] and evaluating the related financial and technical datadata, [,entered ENTEREDinto INTOunder UNDER AS 38.05.180(j)];38.05.180(j);

(j) The commissioner (1) may provide for modification of a royalty orand net profit share on SB0061B -1- CSSB 61(RES) New Text Underlined [DELETED TEXT BRACKETED] 32-GS1706\I individual leases, leases unitized as described in (p) of this section, leases subject to an SB0061A -1- SB 61 New Text Underlined [DELETED TEXT BRACKETED] 32-GS1706\A agreement described in (s) or (t) of this section, or interests unitized under AS 31.05 (A) to allow for production from an oil or gas field or pool if (i) the oil or gas field or pool has been sufficiently delineated to the satisfaction of the commissioner;

[OR]or (C) to reestablish production of shut-in oil or gas that would not otherwise be economically feasible;

or (D) to prolong the economic life of an oil or gas field or pool fromwhere which, without additional capital expenditures,expenditures would make future production would no longer be economically feasible;

(2) may not grant a royalty or net profit share modification unless the lessee or lessees requesting the change make a clear and convincing showing that [A]a modification of the royalty or net profit share meets the requirements of this subsection and is in the best interests of the state;

(3) shall provide for an increase or decrease or other modification of the state's royalty or net profit share by a fixed royalty, sliding scale royalty, net profit shareshare, adjustment, or other mechanism [THATthat SHALLshall BE]be based on a change in the price of oil or gas orand [ANDmay MAYalso ALSObe BEbased BASED] on other relevant factors,factors includingsuch [SUCHas AS] a change in production rate, projected ultimate recovery, development costs, and operating costs;

(4) may not grant a royalty reduction for a field or pool (A) under (1)(A) or (1)(D) of this subsection if the royalty modification for the field or pool would establish a royalty rate of less than CSSB 61(RES) -2- SB0061B New Text Underlined [DELETED TEXT BRACKETED] 32-GS1706\I five percent in amount or value of the production removed or sold from a lease or leases covering the field or pool;

SB 61 -2- SB0061A New Text Underlined [DELETED TEXT BRACKETED] 32-GS1706\A (B) under (1)(B) or (1)(C) of this subsection if the royalty modification for the field or pool would establish a royalty rate of less than three percent in amount or value of the production removed or sold from a lease or leases covering the field or pool;

(5)(C) mayunder not(1)(A) grant- a(D) of this subsection if the net profit share modification for athe field or pool under (1) of this subsection that would reduceestablish a share reserved to the state toof less than 10 percent of the net profit derived from the lease;

(6)(5) [(5)] may not grant a royalty or net profit share reduction under this subsection without including an explicit condition that the royalty or net profit share reduction is not assignable without the prior written approval, which may not be unreasonably withheld, by the commissioner;

(7)(6) [(6)] shall require the lessee or lessees to submit, with the application for the royalty or net profit share reduction, financial and technical data that demonstrate that the requirements of this subsection are met;

the confidential data may be disclosed by the commissioner to legislators and to the legislative auditor and as directed by the chair or vice-chair of the Legislative Budget and Audit Committee to the director of the division of legislative finance, the permanent employees of their respective divisions who are responsible for evaluating a royalty or net profit share reduction, and to agents or contractors of the legislative auditor or the legislative finance director who are engaged under contract to evaluate the SB0061B -3- CSSB 61(RES) New Text Underlined [DELETED TEXT BRACKETED] 32-GS1706\I royalty or net profit share reduction, if they sign an appropriate confidentiality agreement;

(8)SB0061A [(7)]-3- SB 61 New Text Underlined [DELETED TEXT BRACKETED] 32-GS1706\A (7) may (A) require the lessee or lessees making application for the royalty or net profit share reduction under (1)(A) or (1)(D) of this subsection to pay for the services of an independent contractor, selected by the lessee or lessees from a list of qualified consultants compiled by the commissioner, to evaluate hydrocarbon development, production, transportation, and economics and to assist the commissioner in evaluating the application and financial and technical data;

(9)(8) [(8)] shall make and publish a preliminary findings and determination on the royalty or net profit share reduction application, give reasonable public notice of the preliminary findings and determination, and invite public comment on the preliminary findings and determination during a 30-day period CSSB 61(RES) -4- SB0061B New Text Underlined [DELETED TEXT BRACKETED] 32-GS1706\I for receipt of public comment;

(10)(9) [(9)] shall offer to appear before the Legislative Budget and Audit SB 61 -4- SB0061A New Text Underlined [DELETED TEXT BRACKETED] 32-GS1706\A Committee, on a day that is not earlier than 10 days and not later than 20 days after giving public notice under (9)(8) [(8)] of this subsection, to provide the committee a review of the commissioner's preliminary findings and determination on the royalty or net profit share reduction application and administrative process;

(11)(10) [(10)] shall make copies of the preliminary findings and determination available to (A) the presiding officer of each house of the legislature;

(12)(11) [(11)] shall, within 30 days after the close of the public comment period under (9)(8) [(8)] of this subsection, (A) prepare a summary of the public response to the commissioner's preliminary findings and determination;

and (E) make copies of the final findings and determination available to each person who submitted comment under (9)(8) [(8)] of this subsection and who has filed a request for the copies;

(13)(12) [(12)] is not limited by the provisions of AS 38.05.134(3) or (f) of SB0061B -5- CSSB 61(RES) New Text Underlined [DELETED TEXT BRACKETED] 32-GS1706\I this section in the commissioner's determination under this subsection.

*SB0061A Sec.-5- SB 61 New Text Underlined [DELETED TEXT BRACKETED]

3.

AS 38.05.180(p) is amended to read:

(p) To conserve the natural resources of all or a part of aol or gas pool, field, or like area, the lessees and their representatives may unite with each other, or jointly or separately with others, in collectively adopting or operating under a cooperative or a unit plan of development or operation of the pool, field, or like area, or a part of it, when determined and certified by the commissioner to be necessary or advisable in the public interest.

The commissioner may, with the consent of the holders of leases involved, establish, change, or revoke drilling, producing, and royalty requirements of the leases and adopt regulations with reference to the leases, with like consent on the part of the lessees, in connection with the institution and operation of a cooperative or unit plan as the commissioner determines necessary or proper to secure the proper protection of the public interest.

The commissioner may not reduce the royalty or net profit share on a lease [LEASES] in connection with a cooperative or unit plan except as provided in (j) of this section.

The commissioner may require a lease issued under this section to contain a provision requiring the lessee to operate under a reasonable cooperative or unit plan, and may prescribe a plan under which the lessee must operate.

The plan must adequately protect all parties in interest, including the state.

* Sec.

4.

AS 38.05.180(s) is amended to read:

(s) When separate tracts cannot be individually developed and operated in conformity with an established well-spacing or development program, a lease, or a portion of a lease, may be pooled with other land, whether or not owned by the state, under a communitization or drilling agreement providing for an apportionment of production or royalties among the separate tracts of land comprising the drilling or spacing unit when determined by the commissioner to be in the public interest.

Operations or production under the agreement are considered as operations or production as to each lease committed to the agreement.

The commissioner may not reduce the royalty or net profit share on a lease [LEASES] in connection with a communitization or drilling agreement except as provided in (j) of this section.

* Sec.

5.

AS 38.05.180(t) is amended to read: