01/23/1997 10:02 AM House O&G

 HJR 12 - LEASES IN NATL PETROLEUM RESERVE                                   
                                                                               
 Number 291                                                                    
                                                                               
 CHAIRMAN HODGINS announced the committee would address HJR 12,                
 "Urging the Secretary of the Interior to conduct competitive oil              
 and gas lease sales within the National Petroleum Reserve in                  
 Alaska."                                                                      
                                                                               
 CHAIRMAN HODGINS called a recess to await the arrival of the                  
 sponsor of HJR 12 at 10:05 a.m.  The meeting was called back to               
 order at 10:07 p.m.  Chairman Hodgins noted Representative Bunde              
 had joined the meeting.                                                       
                                                                               
 Number 430                                                                    
                                                                               
 REPRESENTATIVE JOE GREEN, sponsor of HJR 12, came before the                  
 committee to explain the resolution.  He indicated there is                   
 information in the committee file pertaining to the issue.  He                
 stated, "The NPRA (National Petroleum Reserve Alaska) as it's                 
 called now since the mid 80s was prior, so that there won't be any            
 confusion, NPR 4 which at that time was established as a Naval                
 Petroleum Reserve Number 4, by Warren G. Harding, 1923.  The others           
 are in California and Wyoming and they were established originally            
 as a place to find oil that would supply our naval forces.  And so            
 from early inception, dating clear back to the 1800s with oil seeps           
 located up near the top if you look at Barrow and then go over                
 where it says Dease Inlet.  Simpson Lagoon is an area there that              
 actually shows a name Sinclair.  Well, it's about in that area and            
 there is in your packet a xerox copy."                                        
                                                                               
 REPRESENTATIVE GREEN informed the committee members there have been           
 natural seeps in the NPRA.  Because of that, there was some                   
 interest exhibited early on.  There was a United States Geological            
 Survey (USGS) made indicating the potential that the source rock              
 and types of reservoirs, etc., were available and that was part of            
 the greater study that covered the entire North Slope.  What came             
 from that was the discovery of Prudhoe Bay in 1968.  Representative           
 Green explained that prior to that, there had been two or three               
 (indisc.) curves of interest in NPRA.  He referred to a 1901 study            
 by Mr. Brooks, published in 1903, which indicated that this was a             
 geological providence capable containing hydrocarbons.  The USGS              
 published another issue in 1909.  He referred to Mr. Leffingwell              
 and said that name is a cherished name in Alaska because of all the           
 geological work he did which had to do with the North Slope and the           
 NPRA.                                                                         
                                                                               
 REPRESENTATIVE GREEN said in the early 1920s, there was renewed               
 interest in the petroleum reserve.  There was a flurry of                     
 excitement for about three years.  Some discoveries were made, but            
 nothing of commercial venture.  Then there was kind of a hiatus.              
 We had abundant oil reserves produced in the Lower 48 and it didn't           
 appear that would be a necessity as there was plenty of oil for the           
 Navy as well as the rest of the nation.  In 1943, during World War            
 II, there was a renewed interest because of its strategic location            
 as well as the fact that some of the supplies of petroleum were               
 interrupted by the war effort.                                                
                                                                               
 Number 728                                                                    
                                                                               
 REPRESENTATIVE GREEN explained that after World War II, there was             
 continued interest and over the next seven years there were 45                
 shallow wells drilled.  There was discovery in three different                
 areas of oil as well as three separate areas from that of gas, none           
 of which appeared to be commercial.  He said interest waned.  There           
 was another renewed interest with the discovery of Prudhoe Bay.               
 Husky Oil Company was commandeered to continue looking.  He                   
 continued to explain maps the committee members had in their                  
 committee file.  He said there is a dirth (sp.) along the Eastern             
 boarder of the petroleum reserve which is the Colville River.  That           
 is where the renewed interest currently is because of the Alpine              
 discovery from Arco and the development program they had discussed            
 publicly.  The potential exists for that discovery or another                 
 discovery because the best place to find oil is near an oil field.            
 There is a discovery there that will be developed and there will              
 certainly be, in all likelihood, more oil right across the boundary           
 from the delta which is the Colville River.                                   
                                                                               
 Number 845                                                                    
                                                                               
 REPRESENTATIVE GREEN said there is no requirement for any                     
 environmental studies.  There is nothing that has to be done from             
 a federal government standpoint.  The reserve is available for                
 leasing, it's just that there hasn't been an expressed interest in            
 it or if the interest has been expressed, the federal government              
 has not seen fit to renew leasing there.  He explained the                    
 resolution would send some support to our federal legislative triad           
 that we would like to see a renewed interest and perhaps allow for            
 leasing at least along the eastern boarder of the petroleum                   
 reserve, but there are other areas as well.  He said the same                 
 problem occurs in the Arctic National Wildlife Refuge (ANWR) that             
 if there is leasing from that period to the time of development it            
 would take considerable time.  This would be a little less because            
 the infrastructure would be preceded in effect by the development             
 of Alpine.  He said things could happen a little faster.  He stated           
 this is not a replacement for ANWR, it is in addition to ANWR.                
                                                                               
 REPRESENTATIVE GREEN said by agreement, the oil would be shared               
 50/50 with the federal government.  That is a preexisting agreement           
 to development NPRA as opposed to ANWR where there is still                   
 controversy whether it would be a 90/10.                                      
                                                                               
 Number 1032                                                                   
                                                                               
 REPRESENTATIVE NORMAN ROKEBERG indicated he had the opportunity to            
 work with Husky Oil when they had a contract with the Navy.  He               
 asked Representative Green if he recalls the time period of the               
 Husky contract and noted they drilled about 15 wells.                         
                                                                               
 REPRESENTATIVE GREEN responded that would have been in the late               
 1970s, early 1980s.                                                           
                                                                               
 REPRESENTATIVE ROKEBERG asked if some of the wells were                       
 stratigraphic wells which were intended not to strike oil.                    
                                                                               
 REPRESENTATIVE GREEN explained quite often, the program has been to           
 drill an information well or a cost well.  It is an off structure             
 attempt to find out the geology, but not necessarily to discover              
 anything of a hydrocarbon nature preparatory to leasing.                      
 Representative Green said that it just says, "Alright, you've done            
 your seismic work and this is a truth - ground truth, in the strat            
 column, that you can then apply whatever you want to do - whatever            
 your particular company may want to do as far speed of reflections            
 delineating any kind of structural traps."  Representative Green              
 noted that some of the wells that Husky Oil drilled were not                  
 actually intentionally looking for oil, they were looking for                 
 geological information.                                                       
                                                                               
 REPRESENTATIVE ROKEBERG asked if some of the earlier wells were               
 shallow.                                                                      
                                                                               
 REPRESENTATIVE GREEN indicated they were very shallow.                        
                                                                               
 REPRESENTATIVE ROKEBERG asked if it would be a fair statement to              
 say, "They really weren't wells in the sense that we would be                 
 (indisc.) and exploring for today."                                           
                                                                               
 REPRESENTATIVE GREEN said that is true.  He noted there had been              
 earlier non-commercial wells drilled in the Colville Delta.  It was           
 only later when they drilled deeper that they found the Alpine                
 discovery.  That is not an uncommon phenomena both in Alaska and in           
 the Lower 48 that the early development was too shallow to actually           
 find the mother load.                                                         
                                                                               
 Number 1154                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG referred to page 3, line 4, "to take                  
 immediate action to conduct competitive lease sales within the                
 National Petroleum Reserve in Alaska..." and said he took note in             
 the Governor's State of the State speech that he had talked to the            
 President and he felt that we would hopefully be able to open up              
 the NPR by working very hard within 18 months to get a leasing                
 program going.  Representative Rokeberg stated he had thought the             
 petroleum reserve was already open for leasing.                               
                                                                               
 REPRESENTATIVE GREEN indicated Representative Rokeberg is right and           
 to him, that is sub profuse.  He said he believes that speaks to              
 the fact that the Administration does not share the urgency that              
 most of Alaskans do.  It is available for leasing and there isn't             
 a reason for an 18 month delay.  He stated that they may want to              
 determine which areas they would want to lease and that would                 
 probably take maybe a couple of months.                                       
                                                                               
 Number 1274                                                                   
                                                                               
 REPRESENTATIVE CON BUNDE questioned what the time line would be if            
 there is a lease and if they find commercially viable structures              
 that includes oil.  He noted he heard in the ANWR debate that the             
 date they granted the lease to when the first revenues go into the            
 general fund would be about ten years.                                        
                                                                               
 REPRESENTATIVE GREEN stated it is his opinion that the time line              
 could be cut in half and depending on the aggressiveness of their             
 desire, it could be less.  He noted several of the issues that                
 would confront us in opening ANWR have already been done here.  The           
 area has already been drilled as there are over 80 wells.  There              
 would be infrastructure, especially of they were to lease and                 
 discover adjacent to Alpine.  That development will probably be on            
 stream, under the current schedule, sometime around the turn of the           
 century.  If so, there would be an umbilical cord for development             
 in the NPRA area to tie into that near the village of Nuiqsut.  As            
 the pipeline, as it is currently envisioned, would come from the              
 development area, the two drill sights, south and then cut across             
 and join a Kuparuk drill sight on the west side of that                       
 development.  The ability to drill, find the oil and then transport           
 it to a pipeline is significantly ahead of what would have to                 
 happen from the east side.  He noted there would have to be a                 
 pipeline corridor established which would delay to a number of                
 months or years.                                                              
                                                                               
 Number 1399                                                                   
                                                                               
 REPRESENTATIVE BUNDE referred to Representative Green saying that             
 an environmental impact statement would not be required, but there            
 would be construction of a additional umbilical pipeline.  He said            
 he is sure there would be significant environmental oversight as              
 that is attempted to be put in place.                                         
                                                                               
 REPRESENTATIVE GREEN said he would be a little remise if he lead              
 the committee to believe there absolutely wouldn't be an                      
 environmental impact statement involved.  He said it is quite                 
 doubtful that it would be necessary, more in the line of an                   
 assessment than an evaluation.  The time line, instead of three to            
 five years might be one to two years.  He said he thinks that is              
 what Arco fells about the Alpine development in that there wouldn't           
 be the need for a full environmental impact statement, but more of            
 an environmental statement.  Representative Green noted that as you           
 move towards some of the bays, it would take a full environmental             
 impact statement.                                                             
                                                                               
 Number 1473                                                                   
                                                                               
 REPRESENTATIVE BUNDE referred to the 50/50 deal with the federal              
 government and said the oil would be transported by the trans                 
 Alaska pipeline system (TAPS).  He asked if this offers any                   
 obstacles - the fact that this is a change in percentage instead of           
 the 90/10.                                                                    
                                                                               
 REPRESENTATIVE GREEN indicated he wouldn't think so because that              
 agreement has been struck.  This is just another issue where the              
 state of Alaska is honoring a prior agreement.  Representative                
 Green said it is the federal government who is impacting prior                
 agreements.                                                                   
                                                                               
 Number 1523                                                                   
 REPRESENTATIVE OGAN asked what the advantages are to keeping oil              
 flowing through the pipeline in regards to how it affects the                 
 royalty that the state receives.                                              
                                                                               
 REPRESENTATIVE GREEN said there is a minimum volume for a pipeline            
 that is 48 inches in diameter can efficiently transmit.  If it gets           
 down to numbers in the neighborhood of 200,000 to 300,000 barrels             
 a day, your flow rate is so low that you can't efficiently continue           
 to operate.  He noted we are currently well above that, but there             
 is a point at which production starts to decline from a field and             
 Prudhoe is on that skid at about 10 percent to 12 percent per year.           
 When you talk about a 900,000 barrel a day filed, that is almost an           
 oil field a year decline.  Representative Green referred to the               
 Alpine development which would be about 60,000 barrels a day and              
 said that does not off-set the decline from Prudhoe Bay.  It helps,           
 but it doesn't off-set it.  He said the more of the small pods that           
 we can get on, the longer we can continue to produce those areas              
 that actually return the state more money.                                    
                                                                               
 REPRESENTATIVE OGAN asked if it not true that the state's royalty             
 share is based after transportation costs.  The more oil we have              
 going through, the more royalty we get per barrel because of                  
 transportation costs.                                                         
                                                                               
 REPRESENTATIVE GREEN explained the amount of royalty is established           
 by contractual agreement, so when the barrel is produced there is             
 that subject to royalty.  He said, "Now, what I think you may be              
 referring to is that there is a reduction since we take our oil in            
 value rather than in kind - we don't actually take ownership of the           
 oil in more cases.  There have been some contracts to where we                
 have, but right now we're taking our oil in value - so much                   
 dollars.  Well, there is a transportation and a cleaning dehi (sp.)           
 cost that is subtracted before we get our money.  So we still get             
 our full one-eighth or whatever one-fifth at Milne Point, whatever            
 the agreement has been, but the value that we get then is                     
 diminished by certain costs."                                                 
                                                                               
 Number 1706                                                                   
                                                                               
 CHAIRMAN HODGINS noted that when the pipeline shuts down, it has to           
 be removed.  It is important to continue finding sources of oil to            
 keep the pipeline going.                                                      
                                                                               
 Number 1717                                                                   
                                                                               
 REPRESENTATIVE TOM BRICE asked why there is currently renewed                 
 interest in the NPR.                                                          
                                                                               
 REPRESENTATIVE GREEN explained the major interest is that there has           
 been a commercial discovery right next to it.  In the past, that              
 wasn't true.  The Kuparuk River development ended, so there wasn't            
 anything that would necessarily indicate that there was anything of           
 value in the NPR area across the river.  With this discovery in the           
 delta, it really spurs interest saying that there is a good                   
 likelihood that either the existing Alpine field or an adjacent               
 field might be found.  He said, "Since now you've got the                     
 infrastructure, what would have maybe required a 60,000 to 100,000            
 barrel a day discovery, a field of magnitude to be able to produce            
 that now may be a 30,000 barrel discovery over there would be                 
 economic because it has such a short pipeline to go."                         
                                                                               
 REPRESENTATIVE BRICE asked if it is based upon the Alpine                     
 discoveries.                                                                  
                                                                               
 REPRESENTATIVE GREEN answered in the affirmative.  He noted there             
 have been two or three different time periods where there has been            
 an interest and this is probably about the fourth one.                        
                                                                               
 Number 1791                                                                   
                                                                               
 REPRESENTATIVE ALLEN KEMPLEN asked if the President and the                   
 Governor have already agreed to a leasing program.                            
                                                                               
 REPRESENTATIVE GREEN answered in the affirmative saying that is               
 what we have been told and there is no reason to doubt that.  He              
 said the thing that was brought up in earlier discussion is that              
 maybe within 18 months we can do something or perhaps this is a               
 good idea.  He stated those kind of "dodge the bullet type words"             
 bother him.  It seems that the job expands to the time allotted and           
 if we automatically say it's going to take 18 months and that then            
 gets extended, it could be two or three years under the agreement             
 that has been reached between the Governor and President.                     
 Representative Green said his position is that we need to keep the            
 fires turned up and see if that time frame can be shortened.  He              
 asked why would it take 18 months.                                            
                                                                               
 Number 1869                                                                   
                                                                               
 REPRESENTATIVE JOE RYAN said he understands that the pools of oil             
 don't recognize any particular manmade boundaries.  He said he also           
 understands the oil industry has good abilities to drill diagonally           
 as well as other methods.  He asked if it wouldn't be feasible to             
 do some claim jumping and drill from our area down into the pool on           
 a slant and realize some benefits from that sort of exploration.              
                                                                               
 REPRESENTATIVE GREEN responded it would be possible.  He discussed            
 the history of the East Texas Field where several years ago there             
 was a rash of well plugging going on.  He said there are "no nos"             
 about going across lease lines with a directional well as you would           
 actually be in trespass.  He noted one of the Conservation                    
 Commission's major functions is the policemen of the oil industry.            
 They have a duty to protect correlative rights - the boundaries of            
 their leases as well as prevention of waste from the reservoir                
 itself, the wasting of hydrocarbon.                                           
 Number 1974                                                                   
                                                                               
 CHAIRMAN HODGINS indicated there were no further witnesses to                 
 testify on HJR 12.                                                            
                                                                               
 REPRESENTATIVE ROKEBERG indicated he will be requesting to be added           
 as a cosponsor of HJR 12.                                                     
                                                                               
 Number 2025                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG made a motion to move HJR 12 out of                   
 committee with individual recommendations and with the attached               
 zero fiscal note.  Hearing no objection, HJR 12 moved out of the              
 House Special Committee on Oil and Gas.