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Sponsor Statement for HB 394
Oil & Gas Royalty Modification

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.

House Bill 394 would take a royalty adjustment system that has not been used and put in its place an understandable and usable adjustment method for fields that might otherwise prove uneconomic. It would provide a usable system for reduction of royalties belonging to the state so that the state can encourage production of oil and gas fields that might be marginal or uneconomical were it not for such reduction.

As has been pointed out many times, in this global market, Alaska needs to remain competitive in order to encourage development of its oil and gas resources. Development of these resources will provide the broader economic base, more employment for Alaskans, and a stabler environment for all concerned.

The 19th legislature amended AS 38.05.180(j) and put in place the current system. Unfortunately, the calculation contained in the current law is unintelligible to many. The implementation of the current statute is too limiting in the flexibility allowed to the Commissioner to craft a deal acceptable to individuals and in the best interest of the State of Alaska. Additionally, the process review put forth in the 1995 legislation is too onerous and costly for the private sector and thus discourages people from making application. The end result is that oil is left in the ground that could be extracted and adding to the economic base of our state. This bill, if adopted as is, may have the potential to help fields such as Liberty and Badami.

HB 394, as introduced, is the bill that was adopted, after numerous hearings, as the House's version of former HB 207. It sets forth an understandable modification formula; it protects the public's interest in such proceedings and maintains the public's ability to comment on the preliminary findings and determination made by the commissioner. The legislation further maintains the involvement of the Legislature in the process through the Legislative Budget and Audit Committee, a committee that holds meetings during the session and legislative interims. It still mandates that the commissioner: (a) prepare a summary of the public response to the commissioner's preliminary findings and determination, (b) make a final findings and determination; (c) send the lessee a copy of the final findings and determination; and (d) make copies of the final findings and determination to all who submitted comment on the preliminary findings and determination as well as any one who has requested a copy of the final document.

ED 01:02/11/02

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Attachments:

• Print Friendly Version of Sponsor Statement
  requires Adobe Acrobat Reader - 1 page(s) - 90 K
• Print Friendly Version of Sectional Analysis
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