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AOGCC establishes minimal regulatory structure for royalty relief Agency specifies contents of plans, certification of voluntary best efforts to hire, contract within state, at least 10 days notice for public hearing Kristen Nelson PNA News Editor
The Alaska Oil and Gas Conservation Commission voted 2 to 1 at a Sept. 16 public meeting in favor of regulations for the agency’s role in Cook Inlet royalty relief.
Chairman Robert Christenson and Commissioner Cammy Oechsli voted for the new regulations; Commissioner David Johnston voted against.
The legislation, passed in 1998 over the veto of the governor, grants royalty relief for six Cook Inlet fields discovered before Jan. 1, 1988, and undeveloped or shut in from at least Jan. 1, 1988, through Dec. 31, 1997: Falls Creek, Nicolai Creek, North Fork, Point Starichkof, Redoubt Shoal and West Foreland.
The bill reduces the royalty to 5 percent on the first 25 million barrels of oil and the first 35 billion cubic feet of gas from a field for the first 10 years of production, but only if production for sale begins before Jan. 1, 2004. The state typically receives a royalty of 12.5 percent.
Commission to accept plans, hold hearings The Legislature designated the commission to “accept written plans submitted by lessees,” hold a public hearing on the plan and, within 45 days of receipt of the plan, “grant approval of the plan if the plan contains a voluntary agreement by the lessee to use its best efforts to employ residents of this state, consistent with law, and to contract with firms in this state for work in connection with the development of the field … whenever feasible.”
The commission had initially proposed more extensive regulations, but both representatives of the oil and gas industry and legislative sponsors of the bill opposed them at a July 21 hearing, arguing that they could open up royalty relief to legal challenge. After that hearing, the commission removed some of the regulations it had originally proposed.
Industry told the commission at both meetings that it did not think any regulations were necessary to implement the statute.
Rob Mintz the assistant attorney general advising the commission, said that in lieu of specific regulations for Cook Inlet royalty reduction plan hearings, the commission would be looking at using its existing regulations for the hearings. Mintz said the requirements of the existing regulations, which include a distinction between sworn and unsworn testimony and a transcript of proceedings, were more suitable to an adjudicatory hearing, while the hearing required under Cook Inlet royalty relief is more like a legislative hearing.
Vulnerability to challenge The commission discussed vulnerability to legal challenge with and without the proposed regulations. Mintz told the commission the regulations under discussion at the August meeting tracked the language in the statute, and should not put the commission any more or any less at risk of legal challenge.
Commissioner Oechsli said she was concerned that without the proposed regulations to deal with plans for the Cook Inlet fields eligible for royalty relief, the commission would be more subject to challenge if it held hearings which did not follow all the requirements of its existing hearing regulations. While Commissioner Johnston said he thought that the plans could be heard under existing regulations, Mintz noted that the existing hearing regulations would not be as efficient or as appropriate for the royalty reduction plans as they are when the commission hears field plans of development, where it has authority to prohibit physical waste and to ensure maximum recovery.
Royalty relief plans exempted from adjudicatory hearing regulations The regulations adopted by the commission Sept. 16 exempt Cook Inlet royalty relief plan hearings from the commission’s existing hearing regulations. In addition, the regulations define the elements required for a plan for development, including a “general timetable and description of expected hiring and contracting decisions” and “a detailed description of the best efforts that the lessee voluntarily agrees to use to employ residents of the state…”
Commission Chairman Christenson noted that the regulations provide a framework so that the public can judge the value of a plan and Commissioner Oechsli characterized the regulations as spelling out what the public can expect to hear in a plan — in 5 years or next week.
Gary Carlson, vice president for Alaska of Forcenergy Inc., told the commission that the company was working on a plan for submittal. Asked by Commissioner Johnston whether regulations should specify the elements the plan must contain, Carlson noted that the Netherlands has turned to industry and asked, ‘what is your plan?’
You develop the plan, Carlson said, and you stand by it. While it is unusual to find that situation in the United States, he said, it’s not unusual for the worldwide industry.
After the commission adopted the regulations, Mintz told Carlson that any plan filed now would be under the old regulations. The new regulations won’t go into effect for at least 60 days, Mintz said, allowing a minimum of 30 days for the Department of Law to review them and then 30 days for them to take effect after they are filed by the lieutenant governor.
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