Sponsor Statement for SB 77: Net Profit Share Under/Overpayments

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Session:
State Capitol, Room 427
Juneau, AK 99801-1182
Phone: (907) 465-2828
Fax: (907) 465-4779

Interim:
35477 Kenai Spur Highway, Suite 101 B
Soldotna, AK 99669
Phone: (907) 260-3041
Fax: (907) 260-3044

345 W. Sterling Highway, Suite 102
Homer, AK 99603
Phone: (907) 235-0690
Fax: (907) 235-4008

An Act repealing the exception that applies to collection and payment of interest of $150 or less on royalty or net profit share underpayments and overpayments; and providing for an effective date.

Released: February 20, 2001

In 1998, the Legislature enacted AS 38.05.135 (g), exempting the Department of Natural Resources from calculating interest on small over or underpayments of royalty if the interest is $150 or less. The cost of calculating these small over/underpayments was more than the interest received or credit applied. Prior to 1998, DNR was calculating these small payments manually. For the 12 months prior to October 31, 2000, the State processed 1716 royalty filings where interest amounts were between a negative $150 and a positive $150. The net amount of these under/overpayments was a positive $4,096.

The effort of calculating, processing and tracking interest for small under/overpayments was not cost effective for the oil companies or the State. With the advent of the State's new Oil and Gas Royalty Accounting System, all interest is calculated electronically. Also, most royalty payers are using main frame computer systems and sending their royalty reports electronically. The failure to repeal AS 38.05.135 (g), would require the Department and royalty payers to reprogram their computer systems to not compute under or overpayments of less than $150.

The sophisticated computer systems used by the royalty payers and the State are now able to quickly compute the interest owed on even the smallest under or overpayment. All the royalty payments are automatically summed together and one wire transfer is used for payment. The repeal of AS 38.05.135 (g) will solve the problem of the administrative burden on the part of the royalty payers and the State to manually track very small amounts of interest. It is an unnecessary expense to reprogram computer systems to handle separate interest calculations for these small interest amounts, especially when a much easier option is available.

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