Opinion ID: 1363777
Heading Depth: 1
Heading Rank: 4

Heading: royalty board's report to legislature

Text: AS 38.06.055(a) provides, in part, that no sale, exchange, or other disposition of oil may be made by the Commissioner without the prior approval of the legislature. With respect to this legislative approval, AS 38.06.070(c) provides: The board shall make a full report to the legislature on each criterion specified in (a) or (b) of this section for any disposition of royalty oil or gas which requires legislative approval. The board's report shall be submitted for legislative review at the time of [sic] resolution for legislative approval of a proposed disposition of royalty oil or gas is introduced in the legislature. It is undisputed that the Royalty Board did not prepare any report for the legislature before or after the time the amendment was introduced to the legislature for approval. McKinnon argues that this violated AS 38.06.070(c) and therefore the amendment is void. The superior court decided that the amendment was, in fact, just that, an amendment, not a new sale... . We agree. The contract itself anticipated future amendments and provided: This Agreement may be supplemented, amended or modified only by a written instrument duly executed by both the parties hereto after proper prior authorization, including approval by the Alaska Royalty Oil & Gas Development Advisory Board and the Alaska State Legislature. Buyer [Alpetco] agrees that in the event Article VIII of this Agreement is subsequently amended so as to materially reduce the consideration paid to the Seller [State], directly or indirectly, for the royalty oil, said amendment will only be effective after it has been approved by a direct vote of the people of the State of Alaska. [Emphasis added.] Proper prior authorization did not contemplate compliance with statutory procedures, but instead indicated that pursuant to the contract any amendments would first have to be approved by the Royalty Board and the legislature, as occurred. The most significant changes effectuated by the amendment to the contract were that the quantity of oil to be delivered to Alpetco was reduced by 75,000 and, for a later period, 50,000 barrels per day and that the delivery of oil was to commence before Alpetco had resolved all financing problems. The reduction in the amount of oil does not constitute a sale, exchange or other disposition of royalty oil; this phrase could be reasonably interpreted only to refer to an increase in the amount of oil to be delivered to Alpetco. McKinnon argues that the earlier delivery to Alpetco constituted a new sale because by the terms of the agreement title to the oil does not pass until delivery. This overlooks, however, the fact that Alpetco has had a contractual, albeit future, interest in this oil since 1978 when the original contract was formed. Alpetco refers us to 11 AAC 03.250(3), which interprets the statutory requirements pertaining to new sales, exchanges or other dispositions of royalty oil as applying to the amendment of contracts only when the delivery of additional oil is required by the amendment. This regulation did not become effective until December 17, 1980, and thus is not controlling in this case; however, it reflects a sound analysis of the statutes. We conclude that the amendment was properly entered into and is valid. The original contract was still in effect at the time of the amendment because the Commissioner had validly extended for six months the deadline for compliance with the eighteen-month benchmarks; thus there was a contract that could be amended. Negotiation of the amendment did not violate the rules governing competitively bid contracts because the Commissioner had validly waived competitive bidding for the original contract and for the amendment. Finally, the failure of the Royalty Board to submit a report to the legislature before it voted whether or not to approve the amendment was irrelevant because such a report is only required when the legislature is approving a sale, exchange or other disposition of royalty oil and the amendment did not constitute a new sale or disposition of royalty oil. The judgment of the superior court is AFFIRMED.