Legislature(2011 - 2012)BARNES 124
02/03/2012 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HJR26 | |
| HB276 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HJR 26 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 276 | TELECONFERENCED | |
HB 276-OIL/GAS PRODUCTION TAX CREDITS: NENANA
2:41:32 PM
CO-CHAIR FEIGE announced that the next order of business would
be HOUSE BILL NO. 276, "An Act providing for a credit against
the oil and gas production tax for costs incurred in drilling
certain oil or natural gas exploration wells in the Nenana
Basin." [Before the committee was Version M, the proposed
committee substitute (CS) labeled 27-LS1193\M, Bullock, 1/18/12,
adopted on 1/30/12.]
CO-CHAIR FEIGE said Mr. Bill Barron participated in a recent
discussion between the co-chairs and their staff regarding the
issues around oil and gas exploration credits and incentives
associated with HB 276 and that Mr. Barron will be addressing
the committee. Co-Chair Feige explained that the proposed bill
would put forward some Cook Inlet-style credits by incentivizing
the first, second, and third exploration drill holes in the
Nenana Basin. At the same time, there is the question of
whether other exploration incentives should be considered and
whether this bill could serve as a template for other basins in
addition to the Nenana Basin.
2:43:19 PM
WILLIAM C. BARRON, Director, Division of Oil & Gas, Department
of Natural Resources, stated that providing incentives for
exploration in remote areas is probably something that needs to
be considered very strongly. Currently, only a handful of areas
in the state have had much of any exploration and even fewer
have had development. He said that part of the aforementioned
discussion was about the process of exploration licenses,
leases, and units.
MR. BARRON explained that for the areas of the state and state
lands that are not part of the existing area-wide lease sale
program, there is the opportunity to establish exploration
licenses. If a party or parties want to explore in a certain
area, they can come to the state and nominate the land and the
area for that license. The state would then conduct a best
interest finding (BIF) for that area, which takes about two
years. Upon completion of that finding, the state would open up
that area for a competitive bid process for its exploration
license term. The license is granted on a dollar commitment
rather than a work commitment. The term of the license is
typically 10 years. During that timeframe the party or parties
awarded the license are required to expend 25 percent of their
commitment within the first four years, but have the remainder
of the term to spend the rest of their money. At the end of the
license term, the land or any portion of the land that was part
of the license can be extended into a lease, at which time the
state would gain $3 per acre lease fees for the designated area.
The five- to ten-year term of the lease is negotiated between
the state and the party or parties, and is typically ten years.
During that timeframe the parties are encouraged to do
additional exploration work, driving the property closer and
closer toward development and production.
2:46:35 PM
MR. BARRON addressed what happens if there is a failure at
either the license period or the lease period, a failure meaning
that nothing is found or nothing worth continuing the work is
found. On the license side, the property is just returned to
the state. On the lease side, if work is not done the property
is returned to the state after the lease period. If there is a
success - someone drills a discovery well and proves hydrocarbon
and proves closure - a unit is then formed, which is done in
conjunction with the Department of Natural Resources (DNR).
Forming a unit secures the land for an additional term,
typically five years, unless the property is developed and
producing and then it is on until the property no longer
produces hydrocarbon. He said the reason he wanted to make the
distinctions between a license, a lease, and a unit, is because
there are very definite timeframes, processes, and procedures
that the state follows for everyone's protection in terms of the
property, the land, and the resource development.
MR. BARRON, regarding the proposed language he has seen to date,
said he thinks that the credits need to be for state lands and
probably for Native land as well. Federal property is a whole
different issue. He maintained that properties for this type of
tax credit should exclude the lands that are currently in the
area-wide lease sale because those areas already have a very
robust process, credits, tax programs, and so forth. He said
his understanding of HB 276 is that it is intended to encourage
exploration activities in areas that have never really been
explored before.
2:49:16 PM
CO-CHAIR FEIGE, in regard to including Native corporation lands
along with state lands, asked how Alaska Mental Health Trust
lands and private mineral holdings should be handled.
MR. BARRON replied he would have to give that more thought. In
concept, they could be rolled in in the same manner. There are
some subtleties relative to Native land, he added. At this
juncture there would need to be some very clear definition of
the acquisition of information and data and sharing that data
either to the state or publicly. Right now that is not the
typical format for Native land exploration; that information is
typically not made public. So, that would have to be adjusted
in some manner if the intent is to encourage exploration and the
intent is for the state to gain data and then share that data
with other parties.
2:50:20 PM
CO-CHAIR FEIGE inquired what an appropriate timeframe would be
for release of that data when moving from an exploration license
to a lease.
MR. BARRON said that in a license a single group has exclusivity
for 10 years. Having that data made available before then is
really of no value to anybody, unless for the securing of those
credits the party agrees that the license term be shortened.
For example, if the statute reads that to be eligible for the
credit seismic data is released to the public in four years,
then the license term should also be truncated along those lines
for the reason being that people would want to be able to use
that data to encourage more exploration. If the license is
truncated, then there needs to be an immediate move toward
leasing of that area for the protection of the party that did
the work. There needs to be a strike of balance between
releasing the data and ensuring that the parties that have taken
a risk are also balanced with their ability to retain rights to
do more exploration during the leasing program.
CO-CHAIR FEIGE understood Mr. Barron to be saying that if a
party is given four years for an exploration license, then that
party should have first rights on leases before the expiration
and before the data is made public.
MR. BARRON answered that that would be one way to look at it.
2:52:36 PM
CO-CHAIR SEATON recollected that in testimony the other day the
party with the license said that it did not mind releasing the
data early because it had the license. He asked whether Mr.
Barron has a different position.
MR. BARRON replied not necessarily. The party that made that
claim might have that opinion; another party might have an
issue. He said he does not have a counter opinion.
Intuitively, if a party has a 10-year license and that license
is then rolled to a lease, at which time the party has another
10 years, releasing the data probably does no harm. However,
there is the question that if there are areas within that
general area where seismic data is secured by one party, another
party might interpret that data differently or see something
that the first party did not see or understand. So, there is a
balance in terms of when the data is made public and the
unintended consequences to a player that strode up first.
CO-CHAIR SEATON commented that the state is heavily investing in
that project because it wants to get development and that might
help get development that is outside of the leased or licensed
area. It would be a choice that the party applying to the state
for the credit could make.
MR. BARRON agreed that that would be their choice.
2:54:43 PM
REPRESENTATIVE FOSTER noted that the committee is also looking
at the possibility of whether a template could be set up so that
this could be applied to other basins in addition to Nenana
Basin. He related that there has been some interest in
including credits for Kotzebue Basin and Norton Sound Basin. He
related that Mr. Bob Swenson of the Division of Geological &
Geophysical Surveys said that there is nothing significant
enough for even local use and this would mean having to look to
offshore. He asked how far out the federal offshore waters are.
MR. BARRON responded that state water is up to three miles.
REPRESENTATIVE FOSTER requested Mr. Barron to expand on possible
options for encouraging exploration in federal waters.
MR. BARRON answered that the federal outer continental shelf
(OCS) program is a program all to its own and he would have to
think about how to involve state credits in a federal program
where there are not the same mechanisms for return of the
state's investment.
2:56:35 PM
REPRESENTATIVE MUNOZ inquired whether Mr. Barron thinks the
approach of legislating one basin at a time is best or should a
bill like this be a template.
MR. BARRON replied the conundrum is that having a template is a
good idea, but trying to figure out where to target those in
specific areas might actually be a deferral of the activity.
Even though there are some reasonably good ideas for guiding the
state in terms of where those areas should be, having it one
step at a time might actually encourage the exploration rather
than delay it, whereas it is delayed because it had to be
thought about too much. Areas that are known might be included
early and as more is learned programs could be added.
2:57:59 PM
CO-CHAIR FEIGE presented a hypothetical example of incentivizing
a seismic job where something promising is found, an exploratory
well is then drilled, and then another to delineate a find, and
something is found that is potentially developable. The party
goes through the process of wells, facilities, transportation of
the product to market and now the party is making money. By way
of subsidization the state has invested a significant dollar
amount at this point. He asked whether it would be seen as an
incentive or disincentive that the party taking the credits is
obligated to pay back a certain amount until the state's
investment is paid back.
MR. BARRON responded that the payback requirement is very
typical of what is in the Cook Inlet sale. He said he does not
know that he would make any adjustment. In philosophy, what
[the committee] is trying do is reasonable, just as the current
Cook Inlet bill is reasonable in asking for that return.
CO-CHAIR FEIGE inquired whether, in addition to the jack-up rig,
there are other payback requirements in other parts of that
particular body of law.
MR. BARRON said not that he recalls, but he would defer to the
Department of Revenue to provide a more clear response.
3:00:19 PM
CO-CHAIR FEIGE, at the request of Co-Chair Seaton, related that
the co-chairs have discussed that these projects are essentially
broken into phases: data collection, exploratory well,
production, and commercialization. As a prerequisite for
receiving a state subsidy the co-chairs feel it is appropriate
in between each of these phases for the Department of Natural
Resources and all its divisions to have some say as a check and
balance, rather than rash commercialization utilizing state
money. He asked whether Mr. Barron feels the department can
handle that and has the expertise to handle that or would it
need to be contracted out. He further asked whether Mr. Barron
thinks that that would be an appropriate mechanism.
MR. BARRON replied that right now he will not necessarily
address the manpower requirements and whether the department
would do that in-house or contract it out. He said he thinks
that having that pre-qualification meeting and setting the
standards of location and direction and goals and objectives is
very critical in this process. It is very important for the
state, if it is going to be issuing these credits, to have that
discussion up front and early and everybody agree with what the
targets are.
[HB 276 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| CSHJR26 Sea Otter Management.pdf |
HRES 2/3/2012 1:00:00 PM |
|
| HJR 26 Explanation of Changes.pdf |
HRES 2/3/2012 1:00:00 PM |
|
| HJR 26 Sponsor Statement.pdf |
HRES 2/3/2012 1:00:00 PM |
|
| HJR026.pdf |
HRES 2/3/2012 1:00:00 PM |
|
| HJR 26 1994 Conservation Plan for Sea Otter.pdf |
HRES 2/3/2012 1:00:00 PM |
|
| HJR 26 Combined Effort Study SE 2010.pdf |
HRES 2/3/2012 1:00:00 PM |
|
| HJR 26 Support Documents.pdf |
HRES 2/3/2012 1:00:00 PM |
|
| HJR 26 Welch News Story.pdf |
HRES 2/3/2012 1:00:00 PM |
|
| HJR26 1-26-12.pdf |
HRES 2/3/2012 1:00:00 PM |
|
| McDowell Group - Sea Otter Impacts 2011 (HJR 26).pdf |
HRES 2/3/2012 1:00:00 PM |
|
| CSHJR26 Sea Otter Management.pdf |
HRES 2/3/2012 1:00:00 PM |
|
| HRES HJR 26 Additional Public Comments 2.3.12.pdf |
HRES 2/3/2012 1:00:00 PM |