Legislature(2003 - 2004)
05/16/2003 01:49 PM House FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 28
An Act relating to adjustments to royalty reserved to
the state to encourage otherwise uneconomic production
of oil and gas; and providing for an effective date.
REPRESENTATIVE VIC KOHRING explained that HB 28 would take a
royalty adjustment system that is an understandable and
usable adjustment method for fields that might otherwise
prove to be uneconomic. It would provide a usable system
for reduction of royalties belonging to Alaska so that the
State could encourage production of oil and gas fields that
might be marginal or not economically feasible if it were
not for such reductions.
The bill is not new, but it sets forth an understandable
modification formula; protecting the public's interest in
such proceedings and maintaining the public's ability to
comment on the preliminary findings and determination made
by the Commissioner. The Department of Natural Resources
Commissioner would provide the tools necessary to negotiate
with the drilling companies for both oil and gas production
to determine if they are financially viable. If the fields
are not economically viable, the legislation would take
action to decide what the royalty reduction would be based
on the economics of that field.
Representative Kohring pointed out that the State's normal
share is established at 12.5%, but could run as high as 20%
depending upon the field. A royalty reduction allowed under
HB 28 would depend on changes in oil prices, field recovery,
production rate and operating costs. The rate could be as
low as 3%.
Representative Kohring stressed that the Commissioner would
need to establish that the field was economically situated
before it would be granted. The determination would be
based upon a detailed analysis, professional evaluation.
The evaluation could be done either internally or by an
outside company that has expertise in that type of
evaluation. The State would be reimbursed the cost of the
evaluation. The amount would be capped at $150 thousand
dollars.
Representative Kerttula MOVED to ADOPT Amendment #1, #23-
LS0177\V.2, Chenoweth, 5/15/03. (Copy on File). Co-Chair
Williams OBJECTED.
Representative Kerttula noted that in the last Committee
hearing, there had been a deletion of the section that
allows legislators to receive signed confidential
information. The information is critical in order that
legislators can look at certain records. It is something
that has been done for over 25-years. The proposed
amendment would "un-delete" that proposed section, allowing
access to confidential information. She understood that the
sponsor supported the change.
REPRESENTATIVE NORM ROKEBERG agreed, noting that the
original presumption on that deletion was that it would be
standard procedure under executive privilege. He
acknowledged that the language needs to be re-entered into
the legislation.
There being NO OBJECTION, Amendment #1 was adopted.
Representative Kerttula MOVED to ADOPT Amendment #2, #23-
LS0177\V.3, Chenoweth, 5/15/03. (Copy on File). Co-Chair
Williams OBJECTED.
Representative Kerttula pointed out that the sponsor had no
objection with the grammatical changes proposed by the
language of the amendment. There being NO further
OBJECTION, Amendment #2 was adopted.
Representative Kerttula MOVED to ADOPT Amendment #3, #23-
LS0177\V.1, Chenoweth, 5/15/03. (Copy on File). Co-Chair
Williams OBJECTED.
Representative Rokeberg requested that a simple change be
made to the amendment.
Representative Kerttula read the language recommended by
Representative Rokeberg to be added to the amendment, Line
12, after "approval" inserting "shall not be unreasonably
withheld by", and deleting "of".
Representative Rokeberg reiterated that as amended, there
would be no objection to inserting that language. There
being NO further OBJECTION, Amendment #3 as amended was
adopted.
Co-Chair Harris referenced the fiscal note analysis,
pointing out that the Division of Oil and Gas had not been
complimentary. He asked if the Administration was in
support of the proposed legislation.
MARK MEYERS, (TESTIFIED VIA TELECONFERENCE), DIRECTOR,
DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES,
ANCHORAGE, noted that the Administration does support the
bill. The Division believes that the bill would clarify
problems that have been identified with the bill with
previous royalty reduction statutes. The fiscal note
adequately reflects the changes recommended in the bill with
the royalty reductions. The fiscal note was carefully
thought out. The Division is comfortable with the proposed
version of the legislation.
Co-Chair Harris pointed out that the analysis identifies
problems with hydrocarbon cost allocation for royalty
relief. The proposed legislation would open the door for
every oil and gas reservoir in the State to be eligible for
a royalty reduction. He acknowledged that it would not be
possible to accurately predict what the fiscal impact of the
legislation will be and could be a negative impact.
Mr. Meyers admitted that in an earlier version of the bill,
those problems were present. Since that time, the fiscal
note applies to the current version; all concerns have been
properly addressed. The earlier version did not address the
previous history of the statute.
Representative Whitaker asked what would be the advantages
and risks to the State through the proposed legislation.
Mr. Meyer explained that there would be no additional risks
to the State. [Testimony inaudible].
He added that the bill would allow for a lot of flexibility.
The Commissioner will be able to adjust as the conditions in
the market place change. It is important that there
continues to be legislative oversight.
Vice-Chair Meyer asked if the legislation was intended for
only the Cook Inlet area or would it apply statewide. Mr.
Meyer confirmed that it will apply statewide and in any
place the State receives royalty on State lands. Vice-Chair
Meyer stated for the record that he "might have a conflict
of interest" regarding the legislation.
Representative Foster MOVED to report CSSSHB 28 (FIN) out of
Committee with individual recommendations and with the
accompanying new fiscal note. There being NO OBJECTION, it
was so ordered.
CSSSHB 28 (FIN) was reported out of Committee with a "no
recommendation" and with a new fiscal note by the Department
of Natural Resources.
| Document Name | Date/Time | Subjects |
|---|