Sponsor Statement for HB 380

Reduce Royalty on Cook Inlet Oil & Gas

The intent of House Bill 380 is to encourage the development of gas reserves within the Cook Inlet sedimentary basin. New gas reserves developed as a result of the proposed legislation could be instrumental in maintaining reliable and economically priced gas supplies for South-central consumers, including residential and commercial users.

In addition to stimulating the development of several known undeveloped fields, many of which were discovered more than 30 years ago, House Bill 380 has the potential to leverage additional exploration and development in the vicinity of new infrastructure, including pipelines and associated facilities, required to develop those known fields. Any new oil and gas production resulting from the development of these fields will in turn reduce the average cost of producing existing reserves, and extend the economic life of both existing and new Cook Inlet production and transportation infrastructure.

Under the terms of the proposed legislation, lessees owning leases overlying previously discovered oil or gas fields in the Cook Inlet basin which have remained undeveloped or shut-in from at least January 1, 1988 through December 31, 1997, would have an incentive to develop those fields as rapidly as possible. The legislation would provide that, for oil and gas produced from undeveloped or shut-in fields brought into production before January 1, 2004, lessees would pay a reduced royalty of five percent, instead of the 12 1/2 percent specified in the lease, for a period of 10 years following the date on which oil or gas production begins.

By establishing a short period of eligibility—ending on December 31, 2003 – House Bill 380 ensures that lessees diligently pursue development or forfeit the opportunity to pay reduced royalties. By limiting the period of reduced royalty payments from qualifying fields to 10 years following the beginning of production, the legislation provides a reasonable and measurable limit to the state's foregone royalties in exchange for oil and gas production that may otherwise not occur. The state's royalties from currently producing Cook Inlet oil and gas fields will not be effected by House Bill 380.

By encouraging the development of existing uneconomic oil and gas fields, House Bill 380 will benefit the state and local economies through taxation and royalties, encourage future development of new oil & gas discoveries by lowering the costs of industry infrastructure, as well as taking care of job #1 - providing jobs for Alaskans.