Providing coverage of Alaska and northern Canada's oil and gas industry
February 2024

Vol. 29, No.6 Week of February 11, 2024

Bills for royalty, seismic data reduction

Governor proposes reducing state's royalty on unproduced Cook Inlet pools; McKay advocates no cost for Cook Inlet 2D, 3D seismic

Kristen Nelson

Petroleum News

The House Resources Committee has heard two bills designed to encourage development of more Cook Inlet natural gas: The governor's proposal, House Bill 276 (Senate Bill 194) and a bill by Rep. Tom McKay, chair of House Resources, HB 257 (no companion bill in the Senate).

HB 276 had an initial hearing Jan. 31 -- the companion bill, SB 194, has not yet had a committee hearing; both bills had initial referrals to Resources in their respective bodies, followed by Finance.

Revising existing statute

HB 276 "modernizes a long-standing royalty reduction statute," Dunleavy said in his Jan. 16 transmittal letter. The bill provides a 5% royalty for Cook Inlet oil or gas pools that have not previously produced for commercial sale, he said, with the 5% royalty rate good for 10 years following beginning of commercial sales.

A fiscal note from the Alaska Department of Natural Resources' Division of Oil and Gas said HB 276 amends a 10-year 5% royalty which applied only to specified Cook Inlet fields.

The original statute was passed in 1996 and was limited to six fields discovered before 1988 and required production to begin by Jan. 1, 2004.

The division said all six fields were brought into production, but only four of them in time to meet the deadline.

Under HB 276, existing law would be modified to include any new Cook Inlet production, regardless of discovery date, and removes volume limitations for eligible oil and gas.

The DNR commissioner determines eligibility under HB 276, whereas reductions in the existing statute were automatic for the named fields which met the deadline for beginning production.

The division's fiscal note says changes in revenue are indeterminate. The division said that while the bill would reduce the state's royalty on eligible production, modeling "indicates that the new production is less likely to occur without the proposed royalty rate reduction."

No charge seismic

In his sponsor statement Rep. Tom McKay told House Resources that HB 257 would help unlock potential natural gas in Cook Inlet by "attempting to broaden access to state-owned seismic data."

As drafted, the bill would have applied to both experts and industry players, but McKay said in a Feb. 5 House Resources Committee meeting that an amendment is being prepared for the bill because the division currently charges only industry.

In its fiscal note, DNR's Division of Geological and Geophysical Surveys said it estimates an annual cost of $35,000 because current revenue is used to cover costs of managing the data and making it available for sale.

From 2018 to 2023, DNR told the committee, Cook Inlet seismic sales accounted for just 2.8% of the revenue the state received from seismic sales, followed by 2.9% for data from the Interior and 94.3% from the North Slope.

Currently only industry is charged for seismic, accounting statewide for 37.3% of sales. The majority, 48.7%, for which the state does not charge, is seismic going to the academic sector, with 37.3% of sales statewide to industry and 14% to government -- also sales for which the state does not charge.

The bill is specific to Cook Inlet seismic data.

After a hearing Feb. 5, the bill was scheduled to be back before the committee Feb. 9, with amendments due Feb. 8.

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