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Juneau update: Shallow gas makes it Agrium royalty bill passes House, negotiated rulemaking goes to governor Kristen Nelson Petroleum News Editor-in-Chief
Two key pieces of oil and gas legislation have passed the Alaska Legislature and one has made its way successfully through the House.
The House voted to approve Senate amendments to the shallow gas drilling bill May 5.
A vote to concur with the Senate amendments to House Bill 69 failed by one vote May 1, but on May 5, the House voted 27 to 10 to rescind its previous action, and then voted 26 to 11 to concur with Senate amendments.
HB 69, as originally proposed by Rep. Vic Kohring, R-Wasilla, allows the Alaska Oil and Gas Conservation Commission to grant variances from its regulations for shallow gas operations without public notice. The amended bill ran into opposition in the House because it also gives the commissioner of the Department of Natural Resources the right to overrule local governments.
The amended bill provides that if the department “clearly demonstrates an overriding state interest, the commissioner of natural resources may approve a waiver of local planning authority approval and requirements relating to compliance with local ordinance and regulations.”
The commission is required to issue findings which give reasons for granting such a waiver.
Kohring told the House that the language “confirms that the state does have primacy, as we call it, over local governments when it comes to developing the state’s natural resources.” He said the Alaska Municipal League had looked at the provision and did not object to it.
Shallow gas projects are also exempted from the coastal management process.
House Bill 57 passes House House Bill 57, the royalty reduction bill for natural gas sold to the Agrium Nikiski fertilizer plant, passed in the Alaska House May 1 and moved on to the Senate.
The bill was heard and held in Senate Finance May 6.
Rep. Mike Chenault, R-Nikiski, the House bill’s sponsor, told Senate Finance the bill addresses the problem that the state audits sales of its royalty natural gas and can come back, several years after a sale, and demand more money for its gas based on statutory requirements that the state receive the “higher of” any prices received for natural gas. HB 57 allows negotiation with the commissioner of the Department of Natural Resources for a fixed price for the state’s royalty natural gas.
The latest fiscal note is from zero to $11.5 million, depending on the negotiated price.
Kevin Banks of the Division of Oil and Gas told the committee that under state oil and gas leases the value of the state’s royalty is subject to evaluation based on “market value” of natural gas. Under HB 57, Banks said, the commissioner would be able to negotiate a price for royalty gas sold to Agrium at a value between the price for which Agrium contracts and market price of gas.
Holders of state oil and gas leases would submit an application to the commissioner and provide copies of contracts with Agrium and ask to use that price for the state’s royalty gas. A decision would be made once for each contract, Banks said.
The Senate version of this bill, Senate Bill 50, is also in Senate Finance, where it has been since an April 17 referral. The bills have been amended differently and are no longer identical. Negotiated rulemaking passes House Bill 34, sponsored by Rep. Jim Holm, R-Fairbanks, removes the sunset for negotiated rulemaking. The statutory authority for negotiated regulation making would have expired July 1. A fiscal note from the Department of Revenue said that the department’s Tax Division used the process for new regulations for charitable gaming, “and found the process useful and effective.” The fiscal note was zero.
The House passed the bill April 2. The Senate passed it May 6.
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