Sponsor seeks 3% statutory royalty for Kitchen Lights unit; DNR projects modest foregone revenue starting 2032

Rep. Zach Fields said House Bill 2 71 would put in statute an indefinite 3% royalty rate for the Kitchen Lights unit — the same rate the Department of Natural Resources implemented administratively — arguing statutory certainty would encourage capital investment and sustain production in Cook Inlet. “Puts in statute, an indefinite royalty rate of 3% for the kitchen lights unit,” Fields said.

Ryan Fitzpatrick, commercial manager in DNR’s Division of Oil and Gas, briefed the committee on the fiscal note and modeling. He said the fiscal note reflects “no additional incremental expenses in administering this particular legislation,” but projects changed revenue beginning in fiscal year 2032 because DNR’s administrative modification was modeled to lapse at the end of calendar 2031. Fitzpatrick said the FY2032 figure reflects a partial fiscal year and that the impact would be “approximately double” in FY2033; he described the FY2032 foregone revenue in the fiscal note as roughly $2.6 million and FY2033 as roughly $5.2 million based on January modeling.

Sponsor and industry witnesses argued that the modification increases total state revenue by keeping marginal fields productive. Representative Fields said the Kitchen Lights unit accounted for nearly 10% of basin production last winter and that maintaining production has regional energy‑security benefits; Mark Slaughter, chief commercial officer for the producer (HECS), explained that administrative modifications could be reversed by a future commissioner and that statutory certainty would help secure investment decisions such as rig contracts.

Committee members raised several concerns. Rep. Galvin and others asked whether a targeted statutory change risks appearing to bypass the statutory DNR process and whether the bill could be vulnerable as a special or local act; DNR staff pointed to AS 38.05.180(j) and the department’s practice that royalty modifications are not automatically assignable and that transfer to a new operator requires commissioner approval. Members also sought longer, multi‑year revenue projections, analysis of production scenarios (including downside risk if capital plans fail), and details on how ORREs (overriding royalty interests) and the gross‑revenue target were considered in DNR’s original administrative decision.

The committee requested the longer projections and additional analysis from DNR and said it would set amendment deadlines after staff review. No vote or motion was taken; the committee adjourned at 3:33 p.m.