The goal of House Bill 198, which amends existing statutes in Title 38, is to provide for a narrowly defined and specifically targeted reduction of royalty on oil produced from Cook Inlet fields and platforms as they approach the end of their economic lives. Recent plans to idle two of the 13 current oil producing platforms in the Inlet serve as a reminder of the certainty of the decline and ultimate end of production for these fields.

However, premature abandonment of these fields is not in the state's best interest, as the infrastructure that was created to serve these fields is extensive, and in some cases, irreplaceable. Decreasing the State's royalty share from 12.5% to 5% near the end of field life, improves the economics of these aging platforms. These may result in an extension of production from these platforms of up to 14 months.

Prolonging production will help to achieve several important policy objectives, including use of critical infrastructure to support new exploration or development of adjacent lands, delaying loss of industry jobs and increasing the total amount of oil and gas produced through these aging facilities.

To protect the State's economic interest, royalty reduction to five percent on oil produced from these targeted fields and platforms is designed to occur only when production declines below 1,200 barrels per day for the Dolly, Grayling, King Salmon, and Steelhead Platforms, and to continue at that level only so long as production does not go above that threshold. For any quarter, should production go above 750 barrels per day, the State's royalty share would increase one percent with each additional 100 barrels up to 1,200. Royalty share for production over 1,200 barrels would be 12.5%. For the Granite Point, Anna, Bruce, Baker, Dillon, XTO A &C platforms the royalty reduction is triggered at 750 barrels per day. These trigger production rates generally correspond to the different economics of these two sets of platforms.

By encouraging continued production of marginal fields, HB 198 will benefit the state and local economies through taxation and royalties, encourage future development of new oil discoveries by lowering the costs of industry infrastructure, as well as taking care of job number one -- preserving jobs for Alaskans.

04-30-03

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