Legislature(2011 - 2012)HOUSE FINANCE 519

03/16/2011 01:30 PM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 166 STATE AGENCY PERFORMANCE AUDITS TELECONFERENCED
Moved CSHB 166(FIN) Out of Committee
+= HB 110 PRODUCTION TAX ON OIL AND GAS TELECONFERENCED
Heard & Held
+ Presentation by AOGCC, Continued TELECONFERENCED
HOUSE BILL NO. 110                                                                                                            
                                                                                                                                
     "An  Act relating  to the  interest rate  applicable to                                                                    
     certain amounts due for fees,  taxes, and payments made                                                                    
     and property  delivered to  the Department  of Revenue;                                                                    
     relating  to  the  oil and  gas  production  tax  rate;                                                                    
     relating to  monthly installment payments  of estimated                                                                    
     oil and  gas production  tax; relating  to oil  and gas                                                                    
     production  tax   credits  for   certain  expenditures,                                                                    
     including  qualified capital  credits for  exploration,                                                                    
     development,   and   production;    relating   to   the                                                                    
     limitation  on assessment  of  oil  and gas  production                                                                    
     taxes;  relating to  the determination  of oil  and gas                                                                    
     production  tax values;  making conforming  amendments;                                                                    
     and providing for an effective date."                                                                                      
                                                                                                                                
2:30:34 PM                                                                                                                    
                                                                                                                                
DANIEL  SEAMOUNT, GEOLOGY  COMMISSIONER,  CHAIR, ALASKA  OIL                                                                    
AND  GAS  CONSERVATION  COMMISSION,  (AOGCC),  introduced  a                                                                    
chart titled "Approved Permits to  Drill for Each Year (1996                                                                    
-  2010) Statewide:  Oil, Gas  and Alternative  Energy Wells                                                                    
and  Wellbores"  (Page  17   of  a  PowerPoint  presentation                                                                    
titled:   "Alaska  Oil   and  Gas   Conservation  Commission                                                                    
(AOGCC)"). The  chart showed the number  of approved permits                                                                    
for  all oil,  gas, and  alternative energy  wells that  had                                                                    
been drilled  in the state.  The cost  of oil appeared  in a                                                                    
green  line that  overlaid the  chart and  the permit  scale                                                                    
ranged from 0  to 400. With the exception of  1999 and 2000,                                                                    
there were  slightly under 250  permits issued per  year. He                                                                    
highlighted a correlation  between the dip in  oil prices in                                                                    
1998 and 1999 and the lowest  number of wells drilled in the                                                                    
past 20  years; however, with  recent high oil  prices there                                                                    
could have been  an inverse correlation. He  was not certain                                                                    
about the  reason related to  the decrease in the  number of                                                                    
permits that  were issued  around 2004  and 2005,  but AOGCC                                                                    
planned to  look at  the compiled  total footage  drilled to                                                                    
determine whether the  oil wells were more  complex and took                                                                    
more time.                                                                                                                      
                                                                                                                                
Mr. Seamount addressed  Page 18 related to  wells drilled on                                                                    
the North  Slope: "Approved Permits  to Drill for  Each Year                                                                    
(1996   -  2010)   North   Slope:   Oil-Related  Wells   and                                                                    
Wellbores." He explained that the  chart looked very similar                                                                    
to the  one on Page  17 because  the North Slope  was "king"                                                                    
when it  came to the  number of  oil wells drilled  and very                                                                    
few  wells had  been  drilled in  other locations  including                                                                    
Cook  Inlet. He  discussed the  actual work  done by  actual                                                                    
investors:  "Alaska  Oil  and Gas  Conservation  Commission"                                                                    
(Page 19). He explained that  the charts looked very similar                                                                    
to  the numbers  for permits  to  drill on  Page 17  because                                                                    
operators  tended  to  follow  through  on  their  plans  in                                                                    
Alaska. He noted  that this was not the case  in other areas                                                                    
such as  the Rocky Mountains  where a significant  number of                                                                    
permits  issued  were  never used.  He  discussed  that  Mr.                                                                    
Davies, Petroleum  Economist, AOGCC,  had developed  the pie                                                                    
chart:  "Alaska 2010  Wells and  Wellbores"  (Page 20).  The                                                                    
chart showed that there had  been total of 183 wells drilled                                                                    
in 2010 and  did not account for wells  drilled by operators                                                                    
who  were   still  in  the   process  of   submitting  their                                                                    
completion  reports. Out  of 183  wells  drilled the  Arctic                                                                    
Slope accounted  for 125 producer  wells, 39  service wells,                                                                    
and 4  exploration wells. The  remaining wells  were located                                                                    
in Cook Inlet and other areas of the state.                                                                                     
                                                                                                                                
2:36:37 PM                                                                                                                    
                                                                                                                                
Mr. Seamount  pointed to a  chart that showed oil,  gas, and                                                                    
alternative energy  exploration wells  drilled: "Exploratory                                                                    
Wells  and  Wellbores  Statewide:  Completed,  Suspended  or                                                                    
Abandoned (1996-2010)"  (Page 21). The chart  looked similar                                                                    
to the  ones shown on Pages  17 and 18 that  were related to                                                                    
permits to  drill. There  was low  exploration and  price in                                                                    
1999 and 2000. In 2010  the number of wells drilled exceeded                                                                    
the number of  permits (shown on the far  right-hand side of                                                                    
the page)  because many of  the applications for  permits to                                                                    
drill had  been submitted in  2009. He remarked that  out of                                                                    
the 15 exploration wells drilled in  2010 only 7 were oil or                                                                    
gas exploration.                                                                                                                
                                                                                                                                
Representative   Gara  indicated   that  that   the  numbers                                                                    
discussed by Mr. Seamount did  not match the numbers on Page                                                                    
21.  Mr. Seamount  clarified that  there had  been 15  wells                                                                    
drilled in 2010 by 9 operators.                                                                                                 
                                                                                                                                
Representative Gara wondered whether  2011 was the year that                                                                    
only one exploratory well was  drilled. Mr. Seamount replied                                                                    
in the  affirmative. He communicated  that 2011 would  be an                                                                    
abysmal year for exploration.                                                                                                   
                                                                                                                                
Mr.  Seamount  discussed  Page 22:  "Exploratory  Wells  and                                                                    
Wellbores  Statewide:  Completed,   Suspended  or  Abandoned                                                                    
(1996-2010)," that  related only to  oil and gas.  There was                                                                    
low exploration  and price in  1999 and 2000, but  there was                                                                    
an inverse  correlation between  exploration and  price that                                                                    
began in 2005. He examined  development and service wells on                                                                    
Page   23:   "Development    and   Service   Wells/Wellbores                                                                    
Statewide: Completed,  Suspended or  Abandoned (1996-2010)."                                                                    
The chart did not include  exploration wells and was similar                                                                    
to the  total wells drilled  because of the small  number of                                                                    
exploration  wells. ConocoPhillips  (shown  in  red) and  BP                                                                    
(shown  in green)  made  up the  largest  percentage of  the                                                                    
development  and  service wells  depicted  on  the graph.  A                                                                    
handful  of  newer  producers including  Pioneer,  ENI,  and                                                                    
Savant  accounted  for  most  of  the  remaining  percentage                                                                    
beginning around  2008. There had  been a dip in  the number                                                                    
of  wells drilled  beginning in  2004 and  2005, but  it had                                                                    
remained relatively level through 2010.                                                                                         
                                                                                                                                
2:40:08 PM                                                                                                                    
                                                                                                                                
Representative  Costello   asked  for  a  breakout   of  the                                                                    
completed, suspended,  or abandoned  wells that  were listed                                                                    
on Page 23.  Mr. Seamount replied that he  would provide the                                                                    
information to the committee. He  added that very few of the                                                                    
wells shown  had been abandoned  and that the  majority were                                                                    
actively  producing  oil or  injecting  fluids  to keep  the                                                                    
reservoir pressure up.                                                                                                          
                                                                                                                                
Representative  Costello   wondered  whether   Mr.  Seamount                                                                    
supported a claim made in  another committee that the legacy                                                                    
companies did  not take into  account taxes or the  price of                                                                    
oil in  their data  represented on  the chart.  Mr. Seamount                                                                    
responded that he did not  have enough information to answer                                                                    
the  question and  that he  was  not privy  to that  company                                                                    
detail.                                                                                                                         
                                                                                                                                
Co-Chair Stoltze  provided a  baseball analogy  in reference                                                                    
to the  difficulty he  had experienced  in following  all of                                                                    
the information on the production and operation wells.                                                                          
                                                                                                                                
Representative Guttenberg wondered whether  there was a rule                                                                    
of  thumb  regarding  the allowable  lag  time  between  the                                                                    
submittal of  a development plan  and the installation  of a                                                                    
well.  Mr.  Seamount replied  that  it  was highly  variable                                                                    
depending upon  how desirable a  project was to  a company's                                                                    
management  team. He  reflected on  one prospect  in Wyoming                                                                    
that had taken nine years to be drilled.                                                                                        
                                                                                                                                
Representative Guttenberg  remarked that the  variables were                                                                    
incalculable,  for  instance  a   company  could  be  highly                                                                    
interested in  a project and  then discover that  there were                                                                    
no  rigs available.  Mr. Seamount  replied  that there  were                                                                    
numerous  variables that  could delay  a project,  including                                                                    
economic, government, litigation, and more.                                                                                     
                                                                                                                                
Representative  Guttenberg  had  heard of  circumstances  in                                                                    
which a company  had interest in drilling a well  but it was                                                                    
unable to  do so because  access to  a rig was  not possible                                                                    
until the following season when  an ice road could be built.                                                                    
Mr.  Seamount  agreed. He  observed  that  the logistics  in                                                                    
Alaska were more challenging than those in the Lower 48.                                                                        
                                                                                                                                
2:44:26 PM                                                                                                                    
                                                                                                                                
Representative Gara  wondered why Page 22  showed that there                                                                    
were five  exploratory well developers but  did not indicate                                                                    
the number of  wells. Mr. Seamount explained  that the scale                                                                    
shown  on the  left (x-axis)  of  the chart  related to  the                                                                    
number of wells drilled.                                                                                                        
                                                                                                                                
Representative  Gara  asked  about  the  difference  between                                                                    
Pages  21  and  22.  Mr. Seamount  responded  that  Page  21                                                                    
included oil, gas,  and alternative energy and  Page 22 only                                                                    
included oil and gas.                                                                                                           
                                                                                                                                
Representative Gara  wondered whether Page 14  only included                                                                    
information  about the  North  Slope.  Mr. Seamount  replied                                                                    
that Page  14 related to  statewide oil and  gas exploratory                                                                    
well permits, excluding alternative energy.                                                                                     
                                                                                                                                
Representative  Gara asked  whether  there was  a page  that                                                                    
showed exploratory  well permits  for the North  Slope only.                                                                    
Mr. Seamount  responded that he  would provide a  chart with                                                                    
the data to committee members.                                                                                                  
                                                                                                                                
Representative Gara  believed that  the focus of  the debate                                                                    
on  ACES [Alaska's  Clear and  Equitable Share]  centered on                                                                    
the North  Slope and not  on other  areas of the  state. Mr.                                                                    
Seamount  answered that  information was  included later  in                                                                    
the presentation  about the wells  that had been  drilled on                                                                    
the North Slope.                                                                                                                
                                                                                                                                
Representative  Gara  queried   whether  the  suspended  and                                                                    
abandoned  wells  were drilled  during  the  year they  were                                                                    
presented  on Pages  21  and  22 or  whether  they had  been                                                                    
drilled in prior years. Mr.  Seamount replied that the wells                                                                    
were  drilled in  the year  in  which they  appeared on  the                                                                    
chart.  He  expounded  that  wells  in  close  proximity  to                                                                    
infrastructure were  completed and  those that  were farther                                                                    
away were not.                                                                                                                  
                                                                                                                                
2:48:37 PM                                                                                                                    
                                                                                                                                
Representative Wilson  wondered whether  there was  a review                                                                    
process to  determine why wells were  suspended or abandoned                                                                    
to  ensure that  the appropriate  tax credits  were applied.                                                                    
Mr.  Seamount   replied  that  there  were   four  petroleum                                                                    
engineers  that monitored  the  situation  closely and  that                                                                    
approval for  a company to  abandon a project  was required.                                                                    
He elaborated that it was necessary  for a company to have a                                                                    
good reason for abandoning one  area to drill in another and                                                                    
that an extensive review took place.                                                                                            
                                                                                                                                
Representative  Wilson wondered  whether the  information on                                                                    
abandoned  wells was  public.  She noted  that  it would  be                                                                    
helpful for  her to know  why the wells were  abandoned. Mr.                                                                    
Seamount remarked  that he could provide  the committee with                                                                    
the  information.  He  added   that  there  was  a  two-year                                                                    
confidentiality rule  on exploration wells but  the rule did                                                                    
not apply to development wells.                                                                                                 
                                                                                                                                
Co-Chair Thomas  wondered whether there were  inactive wells                                                                    
that  might be  activated once  a tax  system that  was more                                                                    
desirable for  oil companies was  implemented in  the state.                                                                    
Mr. Seamount  was not aware  of anyone using  the particular                                                                    
strategy. He noted that there were  quite a few areas in the                                                                    
state  that   were  capable  of  production   but  were  not                                                                    
currently under production due to  various issues related to                                                                    
infrastructure or government.                                                                                                   
                                                                                                                                
Co-Chair  Thomas  asked whether  the  issue  was related  to                                                                    
state or federal permitting. Mr.  Seamount responded that he                                                                    
was not  aware of  any situation  in which  state government                                                                    
was inhibiting production.                                                                                                      
                                                                                                                                
2:52:10 PM                                                                                                                    
                                                                                                                                
Representative  Gara observed  that oil  companies had  also                                                                    
stopped  production  by  prohibiting access  to  others.  He                                                                    
cited an  example in  which Conoco  had prevented  a company                                                                    
from gaining  access to  land by denying  it the  ability to                                                                    
cross land  owned by Conoco.  Mr. Seamount was not  aware of                                                                    
the particular situation.                                                                                                       
                                                                                                                                
Representative Costello  asked whether a company  could slow                                                                    
the  rate of  production  on an  active  well. Mr.  Seamount                                                                    
replied that a company could  slow the wells when gas ratios                                                                    
became  too  high  and  for a  variety  of  other  technical                                                                    
reasons.                                                                                                                        
                                                                                                                                
Representative  Costello wondered  whether there  were other                                                                    
reasons for slowing a well.  Mr. Seamount could not think of                                                                    
any other economic or additional reasons.                                                                                       
                                                                                                                                
Mr. Seamount discussed that Page  24 titled "Development and                                                                    
Service Wells/Wellbores  Statewide: Completed,  Suspended or                                                                    
Abandoned (1996-2010) by BP  Exploration (Alaska), Inc," was                                                                    
similar to Page  22 and 23 but only  included BP Exploration                                                                    
Alaska.  He relayed  that 99  percent of  the wells  were in                                                                    
Prudhoe Bay,  Milne Point, and  Point McKenzie and  were all                                                                    
in the North Slope. Page  25 titled "Development and Service                                                                    
Wells/Wellbores    Statewide:   Completed,    Suspended   or                                                                    
Abandoned  (1996-2010)  by   ConocoPhillips  Alaska,  Inc.,"                                                                    
related  only to  ConocoPhillips  Alaska,  Inc. He  reported                                                                    
that the  majority of the company's  development and service                                                                    
wells   were  located   in  Kuparuk   and  Colville   River.                                                                    
Additionally, the company did not  take much risk, but their                                                                    
activity had been fairly constant over the years.                                                                               
                                                                                                                                
Mr.  Seamount   directed  attention   to  Page   26  titled:                                                                    
"Completed, Suspended  and Abandoned  Oil and  Support Wells                                                                    
and Wellbores - North Slope  Only 1996-2010." The wells were                                                                    
broken out by  type, the oil producers were  shown in green,                                                                    
the  oil injectors  were shown  in blue,  and waste  ejector                                                                    
wells were indicated in black.  He highlighted that the same                                                                    
trends that were  present on the previous  slides applied to                                                                    
Page 26 as well. He discussed  a bar chart on Page 27 titled                                                                    
"Alaska's  Active  Drilling  and   Workover  Rigs  for  Each                                                                    
Quarter (2005-2010),"  that related  to statewide  oil, gas,                                                                    
and alternative energy. The light  green portion of the bars                                                                    
represented  drilling  rigs  and   the  dark  green  portion                                                                    
represented workover rigs. He  delineated that there were 15                                                                    
or more active  drilling and workover rigs  per quarter from                                                                    
2005 to  the fourth quarter of  2008; but there was  a sharp                                                                    
decline  in 2009  through 2010.  The price  of oil  that was                                                                    
relatively high  was represented as  a dark green  line and,                                                                    
with the  exception of 2006  showed no correlation  with the                                                                    
active rigs.                                                                                                                    
                                                                                                                                
2:57:13 PM                                                                                                                    
                                                                                                                                
Representative Gara  wondered whether  the dip in  the price                                                                    
of oil  in 2009  explained the lower  number of  active rigs                                                                    
one and  a half years later  given that plans to  drill were                                                                    
done two years in advance.  Mr. Seamount supposed that was a                                                                    
possibility.                                                                                                                    
                                                                                                                                
Representative  Gara   asked  whether  the   chart  included                                                                    
directional  drilling rigs  or whether  the smaller  rigs in                                                                    
2009 and  2010 were rigs  that drilled horizontally.  He had                                                                    
heard that  the number of  rigs had declined  as directional                                                                    
drilling  had increased.  Mr. Seamount  responded that  most                                                                    
rigs  were  extended  reach  and   that  the  majority  were                                                                    
horizontal.                                                                                                                     
                                                                                                                                
Representative Gara wondered  how long it had  been the case                                                                    
that  most  rigs were  extended  reach  and horizontal.  Mr.                                                                    
Seamount believed it had been since 1999 or 2000.                                                                               
                                                                                                                                
Mr. Seamount  addressed Page  28: "Alaska's  Active Drilling                                                                    
Rigs  for  Each  Quarter  (2005-2010)."  He  explained  that                                                                    
drilling rigs  were often  swapped out  to do  workovers. He                                                                    
noted the  correlation between the  number of  workover rigs                                                                    
and the  cost of oil  on Page 29: "Alaska's  Active Workover                                                                    
Rigs for  Each Quarter  (2005-2010)." He reported  that many                                                                    
of the  workover rigs had  been switched over  from drilling                                                                    
rigs and that  the payoff would be  quicker because workover                                                                    
rigs were less expensive.                                                                                                       
                                                                                                                                
Representative Hawker  asked for clarification that  Page 28                                                                    
included  oil, gas,  and alternative  energy statewide.  Mr.                                                                    
Seamount replied in the affirmative.  He noted that 2010 was                                                                    
the only year  on the page that  included alternative energy                                                                    
rigs and that  it would be necessary to  subtract three from                                                                    
that year to obtain oil and gas rigs only.                                                                                      
                                                                                                                                
Representative  Hawker wondered  whether alternative  energy                                                                    
wells  were  drilled  prior  to  2010 as  a  result  of  the                                                                    
extraordinary  number of  permits  that were  issued to  the                                                                    
Department of  the Interior in  2008. Mr.  Seamount believed                                                                    
that the Department of Energy  had drilled nine wells in the                                                                    
previous two years.                                                                                                             
                                                                                                                                
Representative  Hawker asked  whether the  chart on  Page 28                                                                    
included the alternative energy wells  in 2008 and 2009. Mr.                                                                    
Seamount responded  that coalbed methane was  not considered                                                                    
an alternative energy.                                                                                                          
                                                                                                                                
3:03:07 PM                                                                                                                    
                                                                                                                                
Representative  Costello asked  about  an earlier  statement                                                                    
that workover  rigs tended to  follow the price of  oil more                                                                    
closely because  they were more  cost effective for  the oil                                                                    
companies. Mr.  Seamount responded  that he  had interpreted                                                                    
the data that way.                                                                                                              
                                                                                                                                
Representative Costello wondered why  there was an exception                                                                    
in the fourth  quarter of 2009. She asked  whether there was                                                                    
another factor  at play during  that time. Mr.  Seamount was                                                                    
not aware of another factor at play.                                                                                            
                                                                                                                                
Mr. Seamount moved on to  Page 30: "Well Workover Activities                                                                    
for Each  Year (North Slope Only)  2003-2010." Workovers had                                                                    
reached  a significant  number of  over 400  per year  since                                                                    
2003. A high of 582 had  been reached in 2008 when oil price                                                                    
had been at its peak. He  detailed that 500 workovers out of                                                                    
3000  development   wells  in   Alaska  was   a  significant                                                                    
percentage.                                                                                                                     
                                                                                                                                
Representative  Guttenberg   wondered  what   constituted  a                                                                    
workover. Mr. Seamount replied that  typically a workover or                                                                    
drilling rig  was set  directly over the  well and  that the                                                                    
wellbore was drilled and modified  to increase production or                                                                    
to fix a leak, etc.                                                                                                             
                                                                                                                                
Representative  Guttenberg remarked  that it  took a  lot to                                                                    
move  a   rig  and  that   500  times  in  one   season  was                                                                    
significant. Mr. Seamount believed that it was expensive.                                                                       
                                                                                                                                
Representative  Gara  asked  about  the  difference  between                                                                    
workover rigs  and development rigs. Mr.  Seamount explained                                                                    
that a development well involved  drilling a new hole in the                                                                    
ground, whereas a workover did not.                                                                                             
                                                                                                                                
Representative Gara  asked whether  rigs had been  moved 558                                                                    
times  in 2010  to perform  workovers. Mr.  Seamount replied                                                                    
that sometimes  a series of  workovers was done on  the same                                                                    
wellbore; however,  a high number of  moves were represented                                                                    
in the number.                                                                                                                  
                                                                                                                                
3:07:07 PM                                                                                                                    
                                                                                                                                
Representative  Gara wondered  where well  workover activity                                                                    
and expense fit within the  goal to maintain and enhance oil                                                                    
production.  He  asked whether  the  higher  number of  well                                                                    
workovers in  2010 compared to  those conducted in  2007 was                                                                    
indicative  of  an  attempt  to  enhance  or  stabilize  oil                                                                    
production.   He  discussed   that  development   wells  and                                                                    
exploration wells were used to locate oil.                                                                                      
                                                                                                                                
Co-Chair Stoltze  remarked that the committee  would be able                                                                    
to  discuss some  of  the issues  in  the presentation  with                                                                    
other presenters as well.                                                                                                       
                                                                                                                                
Mr. Seamount  responded that a  significant portion  of well                                                                    
workover  activity  was  aimed  at  production  increase  or                                                                    
maintenance.                                                                                                                    
                                                                                                                                
Representative Doogan asked  for clarification regarding the                                                                    
number  of  wells that  were  represented  on Page  29.  Mr.                                                                    
Seamount responded  that they were  average numbers  for the                                                                    
quarter. When  a rig  only worked  for two  months out  of a                                                                    
quarter the number was represented as a fraction.                                                                               
                                                                                                                                
Representative   Doogan  wondered   whether   "four  and   a                                                                    
fraction" rigs were  used during the third  quarter of 2010.                                                                    
Mr. Seamount replied that one of  the rigs may not have been                                                                    
active for the entire  quarter and was therefore represented                                                                    
as a fraction.                                                                                                                  
                                                                                                                                
3:11:01 PM                                                                                                                    
                                                                                                                                
Mr. Seamount  discussed the baseline  of 200,000  barrels of                                                                    
oil  produced  per day  that  was  represented on  Page  32:                                                                    
"Alaska's  Average Daily  Oil and  NGL Production  Rate." He                                                                    
did  not  know about  the  significance  of the  number  but                                                                    
believed that it was very  low. He explained that at 200,000                                                                    
barrels  per day  that Alaska's  production  level would  be                                                                    
below  that of  North Dakota;  however, the  probability was                                                                    
not  high given  that  Alaska had  shale oil  as  well.   He                                                                    
detailed that Page  33: "Alaska's Average Daily  Oil and NGL                                                                    
Production  Rate,"  represented  a  six  percent  production                                                                    
decline that  AOGCC estimated would  take place  without any                                                                    
new development  or production. At  the six  percent decline                                                                    
rate the state  would see production of  200,000 barrels per                                                                    
day by  2030. Page 34  represented the same  information but                                                                    
included a scenario  in which a new Alpine  sized field came                                                                    
online in  2018(shown in  yellow). With  the discovery  of a                                                                    
new field  the time it  took to  reach the level  of 200,000                                                                    
barrels per  day would extend  to 2033.  A chart on  Page 35                                                                    
also   showed  the   same  information   but  included   the                                                                    
hypothetical discovery  of another Northstar in  2018 (shown                                                                    
in   bright  blue).   The  chart   indicated  that   regular                                                                    
production would  begin in 2024  and that a drop  to 200,000                                                                    
barrels per day would be delayed until 2035.                                                                                    
                                                                                                                                
Co-Chair   Thomas   wondered   whether  there   was   public                                                                    
information on the results of  a drilling operation that had                                                                    
occurred in  Yakutat years  earlier. Mr.  Seamount responded                                                                    
that the  information was public,  but due to the  length of                                                                    
time that had passed the records may not be complete.                                                                           
                                                                                                                                
Co-Chair  Thomas discussed  that the  first oil  produced in                                                                    
Alaska had  been in a  small village named Katalla  that was                                                                    
later designated  as a wilderness  site by  former President                                                                    
Roosevelt. He surmised  that it should be  possible to drill                                                                    
diagonally offshore  to gain  access to  the oil  that still                                                                    
bubbled  out of  the  ground in  the  village. Mr.  Seamount                                                                    
believed that  with new  technology, production  from shale,                                                                    
and with over  20 basins in Alaska, there was  a very bright                                                                    
future for oil and gas development in the state.                                                                                
                                                                                                                                
Co-Chair Stoltze wondered whether  ethanol was still popular                                                                    
in North  Dakota and other  areas. Mr. Seamount  opined that                                                                    
North Dakota  may have forgotten  about ethanol  given their                                                                    
current focus on shale oil.                                                                                                     
                                                                                                                                
Representative  Gara wondered  how much  shale oil  would be                                                                    
included  in  the  pipeline  when it  was  produced  in  the                                                                    
future. Mr.  Seamount believed that  shale oil had a  lot of                                                                    
potential  and recommended  that he  speak with  Paul Decker                                                                    
and Kevin Banks  at the Division of Oil  and Gas [Department                                                                    
of Natural Resources].                                                                                                          
                                                                                                                                
Representative  Gara  wondered how  much  it  would cost  to                                                                    
build  a  processing  facility for  a  field  that  produced                                                                    
30,000 barrels  per day. He  had heard others  recommend the                                                                    
idea of  providing a processing facility  credit to monetize                                                                    
smaller  fields.  He  thought   that  without  a  processing                                                                    
sharing  agreement   that  a  small  oil   field  could  not                                                                    
currently justify building its  own processing facility. Mr.                                                                    
Seamount did  not have an  estimate. He noted that  he would                                                                    
provide the  committee with the  name of one of  the smaller                                                                    
oil  companies  that  had  built  its  own  facility  for  a                                                                    
"little" field that produced 200 million barrels per day.                                                                       
                                                                                                                                
3:18:38 PM                                                                                                                    
                                                                                                                                
Vice-chair    Fairclough    wondered    whether    potential                                                                    
redundancies  between  state  and federal  regulations  were                                                                    
reviewed. She  believed that North Dakota  had the advantage                                                                    
of  drilling on  private  property versus  federal or  state                                                                    
land.  Mr.  Seamount  replied that  state  regulations  were                                                                    
slightly  more stringent  than federal  and  that they  were                                                                    
fairly streamlined.                                                                                                             
                                                                                                                                
Vice-chair  Fairclough  wondered   whether  there  were  any                                                                    
suggestions   related  to   increasing  federal   government                                                                    
drilling compliance  in the state. She  had received several                                                                    
non-flattering  photos  of  federal drilling  operations  in                                                                    
Alaska from AOGCC Commissioner  Cathy Foerster. Mr. Seamount                                                                    
replied that AOGCC had spoken  with Senators Mark Begich and                                                                    
Lisa  Murkowski  and  with  John  Katz  [staff  to  Governor                                                                    
Parnell] at the recent  Energy Council meeting in Washington                                                                    
D.C. The  local Department  of Interior office  in Anchorage                                                                    
was not  able to  ask for  the money  and had  recently been                                                                    
notified of the  AOGCC's intent to push  for federal funding                                                                    
to  take  care  of  the   problem  wells  that  existed.  He                                                                    
recommended   that   others   encourage   federal   Interior                                                                    
Secretary  Ken Salazar  to  provide more  funds  to fix  the                                                                    
wells in an orderly way.  He believed that that $200 million                                                                    
would be a good start.                                                                                                          
                                                                                                                                
Representative Hawker  wondered whether Mr.  Seamount agreed                                                                    
with the  Department of  Revenue (DOR)  production estimates                                                                    
that indicated  90 percent of  all estimated  future onshore                                                                    
North  Slope production  would come  from Alaska's  existing                                                                    
legacy fields.  Mr. Seamount believed the  forecast was very                                                                    
conservative  and that  the discovery  of another  large oil                                                                    
field was still possible.                                                                                                       
                                                                                                                                
Representative  Hawker wondered  how  probable  it was  that                                                                    
another onshore  development existed. Mr.  Seamount believed                                                                    
that another field existed, but it might not be discovered.                                                                     
                                                                                                                                
Representative  Hawker asked  whether Mr.  Seamount believed                                                                    
that  the  DOR  estimate  was  incorrect  and  that  another                                                                    
massive  development   of  unfound  oil  would   occur.  Mr.                                                                    
Seamount opined that DOR had  to be conservative and that it                                                                    
was  not  possible  to  bank on  the  discovery  of  another                                                                    
Prudhoe Bay  in the  near future.  He believed  that another                                                                    
field did exist but did not know that it would be found.                                                                        
                                                                                                                                
Representative Hawker  wondered about  the viability  of the                                                                    
projections  by  venture  capital company  Great  Bear.  The                                                                    
company had  never drilled a  well, but was making  plans to                                                                    
create a program that would develop 200 wells per year.                                                                         
                                                                                                                                
3:25:40 PM                                                                                                                    
                                                                                                                                
Mr. Seamount replied that  similar operations were currently                                                                    
underway in locations such as  North Dakota and although the                                                                    
logistics  in  Alaska  were  more  difficult,  there  was  a                                                                    
possibility that it would be feasible in the state.                                                                             
                                                                                                                                
Representative Hawker  asked whether there were  enough rigs                                                                    
available  to  develop  200 wells  per  year.  Mr.  Seamount                                                                    
answered  that there  were not  and that  the company  would                                                                    
have to bring rigs in.                                                                                                          
                                                                                                                                
Representative Hawker  asked about the validity  of previous                                                                    
testimony  provided by  AOGCC commissioners  that a  lack in                                                                    
facility access  on the  North Slope  had never  resulted in                                                                    
the  failure to  produce a  barrel  of oil.  He agreed  with                                                                    
earlier   testimony   regarding   the  importance   of   the                                                                    
Department  of  Interior,  Bureau of  Land  Management  well                                                                    
compliance situation.  Mr. Seamount believed  that testimony                                                                    
made  by   other  AOGCC   commissioners  was   accurate.  He                                                                    
clarified that  twelve years earlier AOGCC  had assumed that                                                                    
access  to  North  Slope exploration  would  have  been  too                                                                    
expensive and therefore, had not asked for access.                                                                              
                                                                                                                                
Co-Chair Thomas  wondered how  to access  shale oil.  He had                                                                    
heard that large  oil companies did not work  with shale oil                                                                    
and  that it  would  take smaller  independent companies  to                                                                    
access  the large  amount of  shale oil  that Alaska  had to                                                                    
offer. Mr.  Seamount replied  that historically  the smaller                                                                    
companies  were the  originators of  exploration for  things                                                                    
like  coalbed methane  and shale  gas. He  relayed that  big                                                                    
companies tended to follow later.                                                                                               
                                                                                                                                
Co-Chair Thomas  asked for  a definition  of shale  oil. Mr.                                                                    
Seamount explained  that conventional oil flowed  easily and                                                                    
had  high permeability,  whereas  shale oil  was located  in                                                                    
very tight  rock similar to  cement and it was  necessary to                                                                    
drill and  break the shale  into fractures to allow  the oil                                                                    
that was trapped in the mud layers to flow out.                                                                                 
                                                                                                                                
3:29:48 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze hoped that DOR Commissioner Butcher would                                                                      
help to fill in the gaps regarding the economic issues. He                                                                      
appreciated the depth of the presentation.                                                                                      
                                                                                                                                
Vice-chair Fairclough noted that DOR had provided two                                                                           
packets dated March 15, 2011, in response to committee                                                                          
member questions (copy on file).                                                                                                
                                                                                                                                
Co-Chair Stoltze thanked Mr. Seamount for his time and                                                                          
testimony.                                                                                                                      
                                                                                                                                
HB 110 was HEARD and HELD in committee for further                                                                              
consideration.                                                                                                                  
                                                                                                                                

Document Name Date/Time Subjects
HB166NEW FN LEG 030711 fiscal note.pdf HFIN 3/16/2011 1:30:00 PM
HB 166
HB166 CS WORKDRAFT 27LSO492X.pdf HFIN 3/16/2011 1:30:00 PM
HB 166
HB 166 Comparison version I to X.pdf HFIN 3/16/2011 1:30:00 PM
HB 166
HB110 DOR-Response 1 to HFIN 02-18-2011.pdf HFIN 3/16/2011 1:30:00 PM
HB 110
HB110 DOR Response2HFIN 03-14-2011.pdf HFIN 3/16/2011 1:30:00 PM
HB 110