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NPSL adjustment bills move in Legislature
Senate Resources moves bill allowing gas leasing from submerged lands; House Fisheries begins hearings; two more referrals in House Kristen Nelson Petroleum News
Two proposals from the governor - allowing the commissioner of the Department of Natural Resources to make adjustments to net profit share leases and allowing DNR’s Division of Oil and Gas to offer offshore gas-only leases with no surface access in a restricted area - are moving in the Legislature.
The bills, Senate Bill 61 and SB 62, are out of their first Senate committee of referral, Senate Resources, with referrals to Senate Finance, where neither had been scheduled when this issue of Petroleum News went to press.
In the House, the Resources Committee amended the NPSL bill, House Bill 82, and the committee substitute was scheduled for its first hearing in House Finance April 15.
The offshore gas-only leasing bill, HB 81, had its first hearing in the House Special Committee on Fisheries; it has referrals to both Resources and Finance.
Net profit share leases SB 61, the net profit share bill, emerged from Senate Resources substantially as submitted by the governor. The CS has conforming language changes proposed by Legislative Legal.
HB 81, the House version, underwent a number of changes in House Resources. In slides prepared for the April 15 House Finance Committee hearing on the bill, the Division of Oil and Gas itemized the difference between the original and the CS, the most significant of which are:
*HB 81 creates eligibility for modification when future production requires additional capital - a provision which applied to both royalty and net profit share modification. The CS restricts this to only net profit share modifications. Reasoning in House Resources was that there are only 26 NPS leases in the state, but all leases involve a state royalty share, creating the possibility of a very large volume of requests for modifications.
*The CS also adds a requirement that the lessees incur capital expenditures and requires the commissioner to determine that the expenditures are needed to maximize economic production.
Offshore gas leases The Senate version of the bill allowing offshore gas-only leasing, SB 62, cleared Senate Resources April 7, headed to Finance, where it had not yet been scheduled when this issue of PN went to press.
The House version, HB 82, drew a lot of questions from members in the House Special Committee on Fisheries when the bill had its first hearing April 6.
The bill would make a portion of the Kachemak Bay Oil and Gas Closure Area subject to gas-only leasing, no surface use allowed. The goal, Division of Oil and Gas Deputy Director Hailey Paine and Shawn Clifton, program and policy specialist, told House Fisheries, is to allow the state to lease acreage and capture royalties from resources underlying lands with no surface use allowed.
This would only allow drilling and development from nearby unrestricted land and would not allow for any surface use, Paine said.
The area proposed for gas-only leasing is offshore adjacent to the Seaview unit, a natural gas field which Hilcorp is developing.
If the offshore area is not leased, molecules of gas from the unleased acreage offshore could migrate to wells drilled from onshore, and if the offshore acreage is unleased, the only option for the state to receive royalties would be through the Alaska Oil and Gas Conservation Commission by petitioning AOGCC for a ruling on correlative rights - a determination of who owns the resource, Paine said.
The bill would provide revenues to the state from leasing and from natural gas production from the area under the closure area.
The George Ferris rig Clifton told the committee the Kachemak Bay closure area was conceived in the 1970s after the George Ferris rig got stuck in the mud.
That resulted in the Legislature authorizing buyback of leases in the area and creation of the Kachemak Bay closure area, where no leasing is allowed.
HB 82 would only allow leasing of the subsurface for gas; there would be no surface disturbance allowed - no drilling offshore, no pipelines and no platform. This opens offshore acreage so the state can lease the subsurface and a lessee could access it from shore. The state would get the royalty revenue, along with bonus bids from leasing the acreage.
Members of this committee include Rep. Sarah Vance, a Republican from Homer.
She said this change would be a “heavy lift” for her district because of the George Ferris incident, citing concern about spills.
Paine said any drilling would happen from shore so there would be nothing to leak in the offshore area; she also cited extensive regulatory protections from both state and federal agencies.
Rep. Dan Ortiz, an independent from Ketchikan, asked what has changed that brings this bill up now.
Clifton said there is a lot of new lease activity onshore in the area, both from the state and from private resource owners. Homer is an area that was homesteaded before statehood, when patents included the mineral estate, and the onshore mineral rights owners, the state and private parties, have leased to Hilcorp, which is developing natural gas in the area.
The bill was held, with more information requested from DNR; it had not yet been scheduled for another hearing when this issue of PN sent to press.
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