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SENATE BILL NO. 254
IN THE LEGISLATURE OF THE STATE OF ALASKA
THIRTY-THIRD LEGISLATURE - SECOND SESSION
BY SENATOR BJORKMAN
Introduced: 2/21/24
Referred: Resources, Finance
A BILL
FOR AN ACT ENTITLED
1 "An Act relating to royalty rates for certain oil and gas; and providing for an effective
2 date."
3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:
4 * Section 1. AS 38.05.020(a) is amended to read:
5 (a) The commissioner shall
6 (1) supervise the administration of the division of lands;
7 (2) make the determinations required under AS 38.05.180(mm).
8 * Sec. 2. AS 38.05.180(f) is amended to read:
9 (f) Except as provided by AS 38.05.131 - 38.05.134 and (mm) of this
10 section, the commissioner may issue oil and gas leases or leases for gas only on state
11 land to the highest responsible qualified bidder as follows:
12 (1) the commissioner shall issue an oil and gas lease or a gas only
13 lease, as appropriate, to the successful bidder determined by competitive bidding
14 under regulations adopted by the commissioner; bidding may be by sealed bid or
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1 according to any other bidding procedure the commissioner determines is in the best
2 interests of the state;
3 (2) whenever, under any of the leasing methods listed in this
4 subsection, a royalty share is reserved to the state, it shall be delivered in pipeline
5 quality and free of all lease or unit expenses, including but not limited to separation,
6 cleaning, dehydration, gathering, salt water disposal, and preparation for transportation
7 off the lease or unit area;
8 (3) following a pre-sale analysis, the commissioner may choose at least
9 one of the following leasing methods:
10 (A) a cash bonus bid with a fixed royalty share reserved to the
11 state of not less than 12.5 percent in amount or value of the production
12 removed or sold from the lease;
13 (B) a cash bonus bid with a fixed royalty share reserved to the
14 state of not less than 12.5 percent in amount or value of the production
15 removed or sold from the lease and a fixed share of the net profit derived from
16 the lease of not less than 30 percent reserved to the state;
17 (C) a fixed cash bonus with a royalty share reserved to the state
18 as the bid variable but not [NO] less than 12.5 percent in amount or value of
19 the production removed or sold from the lease;
20 (D) a fixed cash bonus with the share of the net profit derived
21 from the lease reserved to the state as the bid variable;
22 (E) a fixed cash bonus with a fixed royalty share reserved to the
23 state of not less than 12.5 percent in amount or value of the production
24 removed or sold from the lease with the share of the net profit derived from the
25 lease reserved to the state as the bid variable;
26 (F) a cash bonus bid with a fixed royalty share reserved to the
27 state based on a sliding scale according to the volume of production or other
28 factor but in no event less than 12.5 percent in amount or value of the
29 production removed or sold from the lease;
30 (G) a fixed cash bonus with a royalty share reserved to the state
31 based on a sliding scale according to the volume of production or other factor
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1 as the bid variable but not less than 12.5 percent in amount or value of the
2 production removed or sold from the lease;
3 (4) notwithstanding a requirement in the leasing method chosen of a
4 minimum fixed royalty share, on and after March 3, 1997, the lessee under a lease
5 issued in the Cook Inlet sedimentary basin who is the first to file with the
6 commissioner a nonconfidential sworn statement claiming to be the first to have
7 drilled a well discovering oil or gas in a previously undiscovered oil or gas pool and
8 who is certified by the commissioner within one year of completion of that discovery
9 well to have drilled a well in that pool that is capable of producing in paying quantities
10 shall pay a royalty of five percent on all production of oil or gas from that pool
11 attributable to that lease for a period of 10 years following the date of discovery of that
12 pool, and thereafter the royalty payable on all production of oil or gas from the pool
13 attributable to that lease shall be determined and payable as specified in the lease; for
14 purposes of this paragraph, the reduced royalty authorized by this paragraph is subject
15 to the following:
16 (A) only one reduction of royalty authorized by this paragraph
17 may be allowed on each lease that qualifies for reduction of royalty under this
18 paragraph;
19 (B) if, under this paragraph, application is made for a royalty
20 reduction for a lease that was entered into before March 3, 1997, the
21 commissioner may approve the application only if, on that date, the lease was a
22 nonproducing lease that was not committed to a unit approved by the
23 commissioner under (m) of this section, that is not part of a unit under (p) or
24 (q) of this section, and that has not been made part of a unit under AS 31.05;
25 (C) if application for a royalty reduction is made under this
26 paragraph for a lease on which a discovery royalty was claimed or may be
27 claimed under the discovery royalty provisions of former AS 38.05.180(a) in
28 effect before May 6, 1969, the commissioner shall disallow the application
29 under this paragraph unless the applicant waives the right to claim the right to
30 a reduced royalty under the discovery royalty provisions of former
31 AS 38.05.180(a) in effect before May 6, 1969; and
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1 (D) the commissioner shall adopt regulations setting out the
2 standards, criteria, and definitions of terms that apply to implement the filing
3 of applications for, and the review and certification of, discovery certifications
4 under this paragraph;
5 (5) notwithstanding and in lieu of a requirement in the leasing method
6 chosen of a minimum fixed royalty share, or the royalty provision of a lease, for leases
7 unitized as described in (p) of this section, leases subject to an agreement described in
8 (s) or (t) of this section, or interests unitized under AS 31.05, the lessee of all or part of
9 an oil or gas field identified in this section that has been granted approval of a written
10 plan submitted to the Alaska Oil and Gas Conservation Commission under
11 AS 31.05.030(i) shall, subject to (dd) of this section, pay a royalty of five percent on
12 the first 25,000,000 barrels of oil and the first 35,000,000,000 cubic feet of gas
13 produced for sale from that field that occurs in the 10 years following the date on
14 which the production for sale commences; the fields eligible for royalty reduction
15 under this paragraph, all of which are located within the Cook Inlet sedimentary basin,
16 were discovered before January 1, 1988, and have been undeveloped or shut in from at
17 least January 1, 1988, through December 31, 1997, are
18 (A) Falls Creek;
19 (B) Nicolai Creek;
20 (C) North Fork;
21 (D) Point Starichkof;
22 (E) Redoubt Shoal; and
23 (F) West Foreland;
24 (6) notwithstanding and in lieu of a requirement in the leasing method
25 chosen of a minimum fixed royalty share, or the royalty provision of a lease, for leases
26 unitized as described in (p) of this section, leases subject to an agreement described in
27 (s) or (t) of this section, or interests unitized under AS 31.05, the lessee of all or part of
28 an oil field located offshore in Cook Inlet on which an oil production platform
29 specified in (A), (C), or (E) of this paragraph operates, or the lessee of all or part of the
30 field located offshore in Cook Inlet and described in (G) of this paragraph,
31 (A) shall pay a royalty of five percent on oil produced from the
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1 platform if oil production that equaled or exceeded a volume of 1,200 barrels a
2 day declines to less than that amount for a period of at least one calendar
3 quarter, as certified by the Alaska Oil and Gas Conservation Commission, for
4 as long as the volume of oil produced from the platform remains less than
5 1,200 barrels a day; the provisions of this subparagraph apply to
6 (i) Dolly;
7 (ii) Grayling;
8 (iii) King Salmon;
9 (iv) Steelhead; and
10 (v) Monopod;
11 (B) shall pay a royalty calculated under this subparagraph if the
12 volume of oil produced from the platform that was certified by the Alaska Oil
13 and Gas Conservation Commission under (A) of this paragraph later increases
14 to 1,200 or more barrels a day and remains at 1,200 or more barrels a day for a
15 period of at least one calendar quarter; until the royalty rate determined under
16 this subparagraph applies, the royalty continues to be calculated under (A) of
17 this paragraph; on and after the first day of the month following the month the
18 increased production exceeds the period specified in this subparagraph, the
19 royalty payable under this subparagraph is
20 (i) for production of at least 1,200 barrels a day but not
21 more than 1,300 barrels a day - seven percent;
22 (ii) for production of more than 1,300 barrels a day but
23 not more than 1,400 barrels a day - 8.5 percent;
24 (iii) for production of more than 1,400 barrels a day but
25 not more than 1,500 barrels a day - 10 percent; and
26 (iv) for production of more than 1,500 barrels a day -
27 12.5 percent;
28 (C) shall pay a royalty of five percent on oil produced from the
29 platform if oil production that equaled or exceeded a volume of 975 barrels a
30 day declines to less than that amount for a period of at least one calendar
31 quarter, as certified by the Alaska Oil and Gas Conservation Commission, for
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1 as long as the volume of oil produced from the platform remains less than 975
2 barrels a day; the provisions of this subparagraph apply to
3 (i) Baker;
4 (ii) Dillon;
5 (iii) XTO.A; and
6 (iv) XTO.C;
7 (D) shall pay a royalty calculated under this subparagraph if the
8 volume of oil produced from the platform that was certified by the Alaska Oil
9 and Gas Conservation Commission under (C) of this paragraph later increases
10 to 975 or more barrels a day and remains at 975 or more barrels a day for a
11 period of at least one calendar quarter; until the royalty rate determined under
12 this subparagraph applies, the royalty continues to be calculated under (C) of
13 this paragraph; on and after the first day of the month following the month the
14 increased production exceeds the period specified in this subparagraph, the
15 royalty payable under this subparagraph is
16 (i) for production of at least 975 barrels a day but not
17 more than 1,100 barrels a day - seven percent;
18 (ii) for production of more than 1,100 barrels a day but
19 not more than 1,200 barrels a day - 8.5 percent;
20 (iii) for production of more than 1,200 barrels a day but
21 not more than 1,350 barrels a day - 10 percent; and
22 (iv) for production of more than 1,350 barrels a day -
23 12.5 percent;
24 (E) shall pay a royalty of five percent on oil produced from the
25 platform if oil production that equaled or exceeded a volume of 750 barrels a
26 day declines to less than that amount for a period of at least one calendar
27 quarter, as certified by the Alaska Oil and Gas Conservation Commission, for
28 as long as the volume of oil produced from the platform remains less than 750
29 barrels a day; the provisions of this subparagraph apply to
30 (i) Granite Point;
31 (ii) Anna; and
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1 (iii) Bruce;
2 (F) shall pay a royalty calculated under this subparagraph if the
3 volume of oil produced from the platform that was certified by the Alaska Oil
4 and Gas Conservation Commission under (E) of this paragraph later increases
5 to 750 or more barrels a day and remains at 750 or more barrels a day for a
6 period of at least one calendar quarter; until the royalty rate determined under
7 this subparagraph applies, the royalty continues to be calculated under (E) of
8 this paragraph; on and after the first day of the month following the month the
9 increased production exceeds the period specified in this subparagraph, the
10 royalty payable under this subparagraph is
11 (i) for production of at least 750 barrels a day but not
12 more than 850 barrels a day - seven percent;
13 (ii) for production of more than 850 barrels a day but
14 not more than 1,000 barrels a day - 8.5 percent;
15 (iii) for production of more than 1,000 barrels a day but
16 not more than 1,200 barrels a day - 10 percent; and
17 (iv) for production of more than 1,200 barrels a day -
18 12.5 percent;
19 (G) shall pay a royalty of five percent on oil produced from the
20 field if oil production that equaled or exceeded a volume of 750 barrels a day
21 declines to less than that amount for a period of at least one calendar quarter,
22 as certified by the Alaska Oil and Gas Conservation Commission, for as long
23 as the volume of oil produced from the field remains less than 750 barrels a
24 day; the provisions of this subparagraph apply to the West McArthur River
25 field;
26 (H) shall pay a royalty calculated under this subparagraph if the
27