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O&G bills stall as session ends, but can be taken up next year
Kristen Nelson Petroleum News
Three bills related to oil and gas proposed by Gov. Mike Dunleavy stalled as this year’s legislative session ended but could move forward in the second session of the 32nd Alaska Legislature next year. The first regular session of the Legislature ended May 19, with the first special session set to begin May 20 and limited by the governor’s call to the budget, the permanent fund dividend and the governor’s constitutional amendment protecting the Permanent Fund.
At the end of the first session, Senate versions of the governor’s oil and gas bills were in the Senate Finance Committee, along with the House version of one of the bills. The other House bills were in Resources and the Special Committee on Fisheries.
The bill which has moved fastest, House Bill 81 and Senate Bill 61, affects how net profit share leases can be changed. HB 81, amended in House Resources and again on the House floor, passed the House 37-0 on May 14 and was referred to Senate Finance.
The other House bills are still in their first committees of referral.
HB 82 proposes allowing subsurface-only, gas-only leasing in the offshore area adjacent to the Seaview unit at Anchor Point, a portion of the Kachemak Bay Oil & Gas Closure Area. The bill is in the House Special Committee on Fisheries, where it is facing stiff opposition; it also has referrals to House Resources and House Finance. The companion bill in the Senate, SB 62, had referrals to Resources and Finance and moved out of Senate Resources April 9. It has not yet been heard in Senate Finance.
SB 104, a modernization of the state’s statutes dealing with geothermal resources, moved out of Senate Resources May 5 and has not yet been heard in Senate Finance. HB 135, the House companion bill, is still in House Resources, where it was heard in April but has not yet moved from that committee.
Net profit share leases HB 81/SB 61, as submitted by the governor, proposed allowing the commissioner of the Department of Natural Resources to modify the profit share percentage in net profit share leases.
The commissioner has statutory authority to modify oil and gas lease royalties to make new production economic, extend production in existing fields or return suspended fields to production, with applicants required to demonstrate that a proposal would not be economic without royalty relief.
A best interest finding is required and the commissioner must make preliminary findings available for public comment and offer to appear before the Legislative Budget and Audit Committee to provide a review of the preliminary findings. Applicants make financial and technical data available to DNR with an application for royalty relief and may be required to pay up to $150,000 for the services of an independent contractor to assist the commissioner in evaluating the application and financial and technical data.
But under existing statutes, NPSL modifications require legislative approval. The goal of this legislation was to give that approval authority to the commissioner, along with the existing authority to modify royalty rates in oil and gas leases.
The net profit share leases are a minority of the state’s leases, with only 26 in existence, all in units and all issued in the late 1970s and early 1980s.
The governor’s proposal would have authorized the commissioner to modify profit share percentages in NPSL and added an additional category of cases where modifications of royalties and profit share percentages could be allowed - cases where additional investment is required to keep a lease producing, but where it is not, under current terms, economic to make that investment.
House Resources modified the bill by disallowing royalty modifications under the new category and requiring that the lessee or lessees actually make the capital expenditures.
The bill was further amended on the House floor to limit the commissioner’s authority to modify royalties as well as limiting that authority for net profit share modification by requiring approval of the Alaska Royalty Oil and Gas Development Advisory Board.
The amendment was approved by a vote of 22-15 and also changed the bill title which had originally been “An act authorizing the commissioner of natural resources to modify a net profit share” to “An act relating to the modification of a royalty or net profit share in an oil and gas or gas only lease.”
Kachemak Bay gas-only leases In a letter introducing HB 82/SB 62, the governor said the bill would allow DNR “to offer non-surface, gas-only leases” in a small area off the southern Kenai Peninsula. The area, closed to oil and gas leasing, is adjacent to the onshore area where Hilcorp Alaska is developing the Seaview gas field.
The governor said gas reservoirs in Cook Inlet do not abide by the lines in statute which currently prohibit offshore leasing in the area and said “certain surface leases on both state and private onshore land in the Cook Inlet area have the potential to produce gas from adjacent deposits lying beneath the seabed. Without this legislation, the state may be left without a clear mechanism to collect royalties from gas being produced from such undersea areas by adjacent leaseholders.”
Revenues available from surface-use restricted lands with subsurface-only leasing could include lease sale bids, annual rental payments and royalties.
Haley Paine, deputy director of DNR’s Division of Oil and Gas, told Senate Resources in a March 10 hearing that the division can’t exercise all of its regulatory authority over unleased acreage and said the lease is the primary mechanism for enforcing mitigation measures and for sharing of drilling and reservoir data.
The Senate version of the bill moved out of Resources in early April; it has not yet been heard in Senate Finance.
The House version of the bill fared very differently in the House Special Committee on Fisheries, which heard it in early April. The area affected is a portion of the Kachemak Bay Oil and Gas Closure Area which would become subject to gas-only leasing under the bill.
Paine told the committee that if the area is not leased, molecules of gas from unleased offshore acreage could migrate to wells drilled from onshore, and if the offshore area is not leased, the only option for the state to receive royalties would be through petitioning the Alaska Oil and Gas Conservation Commission for a ruling on correlative rights, a determination of who owns the resources.
Shawn Clifton, the division’s program and policy specialist, told the committee that the Kachemak Bay closure area was conceived in the early 1970s after the George Ferris rig got stuck in the mud, resulting in legislative-authorized buyback of leases and creation of the Kachemak Bay closure area, where no leasing is allowed.
There was opposition from committee members and the bill was held; it came back up again in May but has not moved.
Geothermal The governor’s bills on geothermal, HB 135/SB 104, would modify the definition of geothermal to include lower-temperature resources, expand the window for geothermal development from 2-3 years to 5 years by expanding the timeline for converting exploration permits or licenses to leases and expand the acreage for geothermal exploration licenses in recognition of the typically large geographic spread of geothermal resources.
SB 104 had hearings in Senate Resources in April and May and was moved out of that committee to Senate Finance where it has not yet had a hearing.
HB 135 was heard and held in House Resources in April.
- KRISTEN NELSON
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