Legislature(1995 - 1996)
1996-03-28 Senate Journal
Full Journal pdf1996-03-28 Senate Journal Page 2944 SB 318 SENATE BILL NO. 318 BY THE SENATE RULES COMMITTEE BY REQUEST OF THE GOVERNOR, entitled: An Act authorizing, approving, and ratifying the amendment of Northstar Unit oil and gas leases between the State of Alaska and BP Exploration (Alaska) Inc.; and providing for an effective date. was read the first time and referred to the Resources and Finance Committees. Fiscal note published today from Department of Natural Resources. First Amendment to the Northstar Unit Leases Between the State of Alaska and BP Exploration (Alaska) Inc. will appear in Senate and House Joint Journal Supplement No. 21. Governor's transmittal letter dated March 25: Dear President Pearce: Under the authority of art. III, sec. 18, of the Alaska Constitution, I am transmitting a bill providing for legislative authorization, approval, and ratification of the "First Amendment to the Northstar Unit Leases Between the State of Alaska and BP Exploration (Alaska) Inc.". This project is the beginning of a new era in the development of Alaskas oil resources. It requires a new commitment to Alaska hire, expands opportunities for Alaskan companies, introduces efficient and safe technological innovations and brings new revenues to Alaskans. The Northstar Unit leases currently require BP Exploration (Alaska) Inc. to make net profit share payments to the state which average about 88% of "net profits." BP Exploration (Alaska) Inc. maintains that it can not develop the Northstar Unit unless the net profit share requirements are eliminated from the leases. The Department of Natural Resources believes that 2002 is the earliest the state might achieve development of Northstar. The longer it takes to develop 1996-03-28 Senate Journal Page 2945 SB 318 the leases, the less the state receives because of the development account provisions of the net profit share leases. The incentives provided in this amendment would bring the Northstar Unit into full production by 1999. The amendment has three main components. First, it eliminates the net profit share payments. In place of the net profit provision a supplemental royalty is required, payable on a sliding scale based on the price of oil, partially adjusted for inflation. This supplemental royalty, which can be as much as 7%, is in addition to the 20% base royalty required under the leases. Development of these leases will generate an estimated $430 million or more to the state treasury from royalties and taxes, including an estimated $37 million in supplemental royalties. Second, the amendment commits BP Exploration (Alaska) Inc. to an ambitious project schedule that requires construction start-up by 1997. If BP Exploration (Alaska) Inc. fails to perform its obligations under the project schedule the leases terminate automatically, thereby allowing the state to lease the tracts to another company. And third, the amendment replaces the current Alaska hire provisions in the leases with more forceful provisions that require BP Exploration (Alaska) Inc. to hire Alaskans, within the constraints of the law, and to contract with local construction and fabrication companies to build the project facilities. It is anticipated that enactment of this bill will generate 500 construction jobs and 50 permanent jobs in the state. It will result in Alaska companies fabricating production modules, including one or more of the first sealift modules ever constructed in Alaska. I am requesting legislative approval of the Northstar amendment for two reasons. First, the terms of this amendment involve issues of statewide interest and impact that deserve a thorough and open public review and discussion. Second, the bill would remove any legal cloud which may exist over the Administrations authorities in this matter by providing the commissioner of the Department of Natural Resources with sufficient express authority to amend the leases in the way we have amended 1996-03-28 Senate Journal Page 2946 SB 318 them here. This will ensure that the project can proceed expeditiously and maximize the benefits to the state and the people of Alaska. I urge your prompt and favorable action on the bill. Sincerely, /s/ Tony Knowles Governor