Alaska Faces Challenges of COVID-19, Low Oil Prices and Increase in Production Tax

In my latest column for State Tax Notes, I look at the challenges that Alaska, and particularly the state’s oil and gas industry, has faced in 2020 thanks to the COVID-19 pandemic, low oil prices and the threat of a major increase to Alaska’s oil and gas production tax.

The state of Alaska is highly dependent on its oil and gas industry for tax revenues. The state’s budget has taken a hit from the combination of the increase in fuel supply caused by the Saudi-Russian price war and the reduction in demand due to the pandemic, which has led to a drop in oil prices as well as forcing oil and gas producers to cut production and lay off workers.

The Alaska Department of Revenue estimated in late 2019 that its unrestricted general fund revenue would be $2.1 billion in fiscal 2020 and $2 billion in fiscal 2021, which starts July 1. In April, DOR issued a revenue forecast in which it revised the earlier forecasts downward to $1.6 billion for fiscal 2020 and $1.2 billion for fiscal 2021, largely due to the drop in oil prices.

As well as the challenges resulting from the pandemic and price war, a group has proposed the Fair Share Act initiative, which if passed would change existing laws to significantly increase production taxes on oil produced from Alaska’s largest fields. “The initiative is a substantial threat to the Alaska oil and gas industry and would be detrimental to the economics of large oil fields in Alaska,” according to Iversen.

The next article will include a status report on the Alaska Supreme Court appeal concerning the constitutionality of the tax credit bond program and a more in-depth discussion about the initiative.

Read the article here.

Originally published as “Alaska’s Perfect Storm” on June 29, 2020, by State Tax Notes. June 29, 2020.

 

Alaska DNR Issues One Year Extension for Certain Mining Payments

The Commissioner of the Department of Natural Resources has issued an Order granting a one year extension for mining payments due under Alaska Statute 38.05.210 (Annual Labor) and Alaska Statute 38.05.211 (Annual Rental).

In response to COVID-19, and in an attempt to stop the spread of the virus, the Alaska Department of Health and Social Services imposed restrictions on travel both to and within the state of Alaska. Those travel restrictions limited the ability of mining claimants to travel to and access remote mining locations, affecting their ability to generate revenue and perform necessary activities to maintain their mining claims. Pursuant to Alaska Statute 38.05.020(b)(5), the Commissioner’s Order finds that the inability of miners to access their claims is through no fault of their own, but rather through an act of God.

To qualify for the extension, miners are required to submit a written request to the Division of Mining, Land & Water on or before November 30, 2020, stating how the COVID-19 pandemic prevented them from timely performing annual labor, paying cash-in-lieu of labor, or paying rent on their mining interest. The Order does not change the requirement to file an affidavit of annual labor for the current assessment work year. If a miner has requested an extension for payment of cash-in-lieu of labor, they must still file an affidavit on or before November 30, 2020, detailing that a payment for cash-in-lieu of labor is expected to be paid in accordance with an extension requested under the Commissioner’s Order.

U.S. Fish & Wildlife Proposes Revisions to Section 4 of the Endangered Species Act

Of interest to mineral projects, the U.S. Fish and Wildlife Service (USFWS) continues to attempt to revise some of its Endangered Species Act (ESA) implementing regulations to align with the relatively recent decision from the Supreme Court in Weyerhaeuser Co. v. U.S. Fish & Wildlife Serv. (139 S. Ct. 361 (2018)). Today, it proposed new regulations that would establish a process and standards for how the USFWS will conduct exclusion analyses under Section 4(b)(2) of the ESA. Before the Weyerhaeuser decision, the USFWS took the position that a decision not to exclude an area was entirely discretionary to the point that it could not be reviewed under the Administrative Procedure Act (the Supreme Court held to the contrary). The proposed regulations acknowledge that decisions not to exclude critical habitat under Section 4(b)(2) are reviewable, but make sure to reserve as much discretion as possible for the USFWS in making such decisions.

Public comments from interested parties on the proposed rule will be accepted until October 8, 2020. Additional information can be found on the Federal Register’s website.

Alaska Oil & Gas Conservation Commission Proposes Changes to Bond Regulation

The Alaska Oil and Gas Conservation Commission (“AOGCC”) is considering revisions to 20 AAC 25.025 of the Alaska Administrative Code.  One revision would “allow a reduction in the requisite bond amount if an operator demonstrates that it has a bond in place with the landowner dedicated exclusively to the plugging and abandonment of a well or wells.”

For those operators that were authorized to increase their bond amount in four annual installments, the proposed change would give those operators additional time to reach the higher bonding amount by increasing the number of annual installment payments from four to seven.  Installment payments began on August 16, 2019, and currently are due on August 16 of 2020, 2021, and 2022.

Comments to the proposed regulation changes, including the potential costs to private persons of complying with the proposed changes, can be submitted in writing and sent to the following by not later than 4:30 p.m. on September 10, 2020:

By mail:
Jody Colombie
333 West 7th Avenue
Anchorage, Alaska 99501

By facsimile:
(907) 276-7542

By email:
aogcc.customer.svc@alaska.gov

A hearing on the proposed regulation changes is scheduled for September 1, 2020 at 10:00 a.m. at 333 West 7th Avenue, Anchorage, Alaska.  Those desiring to participate or be present at the hearing should check with the AOGCC after August 25, 2020 to ascertain if the hearing will be telephonic.  Additional information is available regarding the hearing and the proposal on the AOGCC’s website.

Changes to Alaska’s Mining Laws – Annual Labor

When Alaska amended its mineral tenure statutes, it significantly changed the statement of labor that must be filed annually to maintain state mining claims. We previously provided an overview of the changes and now explain them in more detail. Neither the amount of labor required nor the deadline for filing the annual statement has changed. Rather, the amendments clarify what counts as labor and what must be reported on the annual statement.

The law now clearly recognizes that labor that occurs on adjacent federal or private mineral interests held in common with state claims can be credited toward the claims so long as the claims benefit from the labor. While most miners believed the prior statutory language—providing that all work benefiting the state claims counted toward the labor requirement—allowed work on non-state lands to satisfy the labor requirement, the new language removes any room to question this long-standing practice.

The information that must be included in the annual statement of labor—commonly referred to as an affidavit of labor, or AOL—is now set forth in the statute, rather than the regulations. There are a few significant changes from the prior requirements. Continue Reading

U.S. Supreme Court Holds that Natural Gas Pipeline May Cross Under Appalachian Trail

On June 15, 2020, the U.S. Supreme Court held in United States Forest Service v. Cowpasture River Preservation Association that the U.S. Forest Service was authorized to issue a special use permit granting a 0.1-mile right of way under the Appalachian Trail (“Trail”) to Atlantic Coast Pipeline, LLC (“Atlantic”) for a proposed underground natural gas pipeline.  The proposed Atlantic Coast pipeline is 604 miles long and connects West Virginia to North Carolina.  The Supreme Court’s 7-2 decision overturned a ruling by the 4th Circuit Court of Appeals which held that the Forest Service did not have the authority to grant the special use permit and right-of-way.  The 4th Circuit found the Appalachian Trail became part of the National Park System when the Secretary of the Interior delegated its authority over the Trail’s administration to the National Park Service, and the Mineral Leasing Act prohibits pipeline rights-of-way through lands in the National Park System.  In overturning the 4th Circuit, the Supreme Court found that the Department of the Interior’s decision to assign responsibility over the Trail to the National Park Service did not transform the land over the Trail passes into land within the National Park System.  Therefore, the Forest Service had the authority to issue the special use permit because administrative action by the Forest Service in making the transfer of the Trail could not alter Congressional action in creating the Trail in the first instance.

Developers of the Atlantic Coast pipeline argued that upholding the 4th Circuit’s ruling would prevent natural gas development on the east coast.  During oral argument, several of the justices’ questions seemed to indicate a desire to find a practical solution to the problem that the transfer of the Trail to the Park Service created for Atlantic.  Though this Supreme Court decision is a victory for Atlantic, Atlantic still faces an uphill battle to construct the pipeline as several more necessary approvals are currently tied up in litigation.

Changes to Alaska’s Mining Laws – Qualification Statutes

Senate Bill 155, amending Alaska’s mineral tenure statutes, took effect April 30, but also addresses certain historical events affecting state mining claims. As previously reported, the amendments clarify who can hold state mining rights. But maybe more importantly, the law now addresses the effect of past qualification issues on the validity of the mineral interests.

Alaska law has long required that a corporation could hold state mining rights only if it is organized under U.S. law (including the laws of any state or territory) and qualified to do business in the State of Alaska. But in some instances, a mining claim’s history includes a time when a foreign entity held the mining claims or the business qualifications had lapsed in some manner and then been cured. The effect of these historical events on the current validity of the claims was unclear. Continue Reading

Draft North Slope Area Plan Available for Public Review and Comment

Stoel Rives is actively monitoring developments in the North Slope Area Plan (NSAP).  This week, the Public Review Draft of the NSAP was issued for public review and comment. Comments must be received by mail, email, fax, or through the online public comment portal by not later than July 15, 2020. Comments may also be hand delivered to the DNR Resource Assessment and Development Section office in Anchorage during normal business hours of operation.

We will continue to monitor developments related to the NSAP and provide updates.  However, should you have questions related to the NSAP or the Public Review Draft, please contact our office.

Alaska’s Mineral Tenure Statutes Amended

Governor Mike Dunleavy signed Senate Bill (“SB”) 155 amending Alaska’s mineral tenure statutes, effective April 30, 2020. The legislation addresses issues regarding qualification to hold state mining claims, location of claims, statements of annual labor, and automatic abandonment of mining claims. The amendments and additions to the statutes clarify a number of issues and assure that state mining claims are not deemed abandoned without due process.

Qualifications

SB 155 amends AS 38.05.190 to clarify who may hold exploration and mining rights. As amended, the law expressly authorizes limited liability companies qualified to do business in Alaska and registered trusts to acquire and hold state mining claims. Previously, it was not clear that these types of entities could hold claims, or what effect such ownership may have on the claims. The amendments include a notice and cure process by which the Department of Natural Resources (“DNR”) may void a mining interest if a qualification defect is not cured within 90 days after notice. The requirement that an owner be a citizen of the United States or a business entity organized in the United States, with limited exceptions, remains in the statute. Continue Reading

Alaska DNR Issues Guidance for Placer Mining Operations During COVID-19

The Department of Natural Resources (“DNR”) Division of Mining, Land and Water has issued guidance for placer mining operations to comply with the state’s COVID-19 health mandates. Mining is identified as “critical infrastructure” in the Alaska Essential Services and Critical Workforce Infrastructure Order. Before traveling to their placer operation, and while at their operation, miners must practice appropriate social distancing and comply with Health Mandate 10 regarding interstate travel and self-quarantine, and Health Mandate 12 regarding intrastate travel.

Miners traveling from outside of the state are required to quarantine for 14 days upon arrival. This quarantine must occur before miners begin to acquire supplies or mobilize their placer operations. Miners who are located in the state and those who have completed the required 14-day quarantine should purchase supplies and provisions in their local home area before traveling to their placer operation. Additionally, if workers are required to travel between communities, a plan must first be submitted to the state outlining how they will avoid spreading COVID-19.

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