Legislature(1993 - 1994)

04/12/1994 09:05 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
  CS FOR HOUSE BILL NO. 199(O&G) am:                                           
                                                                               
       An Act relating  to the  exploration and production  of                 
       oil and gas  and related hydrocarbons,  to oil and  gas                 
       exploration  licenses,  and to  oil  and gas  leases in                 
       certain  areas  of  the  state;  and providing  for  an                 
                                                                               
                                                                               
       effective date.                                                         
                                                                               
  Co-chair  Pearce  announced  that  HB  199  was  before  the                 
  committee.  She invited Jim Eason, Director, Division of Oil                 
  and  Gas,  Department of  Natural  Resources, and  Ken Boyd,                 
  Deputy  Director,  Division  of  Oil  & Gas,  Department  of                 
  Natural Resources, to join the members at the table.                         
                                                                               
  Senator  Kerttula  MOVED  amendment  1.     Co-chair  Pearce                 
  OBJECTED for discussion purposes.  Senator Kerttula WITHDREW                 
  amendment 1 because it contained a drafting error.                           
                                                                               
  Senator   Kerttula  MOVED  amendment  2.    Co-chair  Pearce                 
  OBJECTED  for  discussion  purposes and  asked  Ken  Boyd to                 
  comment.                                                                     
                                                                               
  KEN BOYD  said that  amendment 2  was a  policy call  of the                 
  legislature.  As  a practical  matter, the Commissioner  was                 
  hired by  the Governor,  and, potential  lease/sale programs                 
  were reviewed in discussions and  cabinet meetings.  He felt                 
  that amendment 2 would slow the process but again reiterated                 
  it  was a  legislative policy call.   Senator  Kerttula felt                 
  that important things could occur  without enough input from                 
  the Governor.                                                                
                                                                               
  Discussion was had  by Senators Kelly, Sharp,  Kerttula, and                 
  Rieger regarding the  implication of  amendment 2.   Senator                 
  Salo commented that  the intent would  be that the  Governor                 
  would  be  another approval  rather  than another  person to                 
  lobby.                                                                       
                                                                               
  Mr.  Boyd  reminded  the  committee  that  the  entire  best                 
  interest  finding  and public  process  was  a part  of  the                 
  legislation and believed a large part  of the public process                 
  would have  taken place before  this point.   Senator  Kelly                 
  felt that there would be  more exploration licensing without                 
  the amendment.                                                               
                                                                               
  Co-chair Frank said that  SB 310 had a provision  asking for                 
  the Attorney General  for sign-off.   He suggested that  the                 
  Attorney General could give a second  look at approval.  Mr.                 
  Boyd was  opposed to adding  another formalized step  in the                 
  process.   After more  discussion with  Co-chair Frank,  Mr.                 
  Boyd reiterated his position.                                                
                                                                               
  End SFC-93 #67, Side 2                                                       
  Begin SFC-93 #69, Side 1                                                     
                                                                               
  Co-chair Kerttula MOVED a conceptual  amendment to amendment                 
  2  as suggested  by  Co-chair Frank  by  changing the  words                 
  "approved by the governor" to "review by Attorney General in                 
  writing 30 days of time received".   Senator Rieger OBJECTED                 
  saying he felt it  was not a matter of  legal discretion but                 
  was  more a  policy call.    Discussion followed  by Senator                 
                                                                               
                                                                               
  Kerttula   and   Co-chair   Pearce   regarding   exploration                 
  decisions.                                                                   
                                                                               
  Co-chair Pearce called  for a show  of hands and the  motion                 
  amending  amendment 2  FAILED.    Senator Kerttula  WITHDREW                 
  amendment 2.                                                                 
                                                                               
  Senator Sharp MOVED  amendment 3.   Senator Kelly  OBJECTED.                 
  Senator  Sharp felt  that a  20,000  acre threshold  was too                 
  severe, that being twice the size of the largest state lease                 
  currently  available  for  exploration  and  four  times the                 
  standard federal lease size.  He went  on to list reasons to                 
  reduce the size to 10,000 acres.                                             
                                                                               
  Mr. Boyd  understood the concern  of Senator Sharp  that the                 
  "little guy" would be  able to play and  felt that had  been                 
  addressed throughout HB 199.  He also felt that 10,000 acres                 
  in a remote acre was not reasonable.  Even though he  had no                 
  objection,  he  pointed  out  10,000  acres would  be  quite                 
  limiting for  this program.   Senator  Sharp noted  that the                 
  source of fuel  for Barrow was on  an even smaller  piece of                 
  land.   Mr. Boyd said  that in  the beginning a  much larger                 
  area  must  have   been  explored  before  the   area  under                 
  development was confined to that small  of an area which was                 
  characteristic of most developments.                                         
                                                                               
  At  this time Co-chair  Pearce asked the  committee to adopt                 
  the new  version  before  them.   Senator  Sharp  MOVED  for                 
  adoption  of  SCSCSHB  199(FIN)  version  "Q".   Hearing  no                 
  objection, it was ADOPTED.                                                   
                                                                               
  Senator Sharp again MOVED  amendment 3.  Hearing no  further                 
  objection,  it  was  ADOPTED for  incorporation  within  the                 
  Finance Committee Substitute for the bill.                                   
                                                                               
  Senator Kerttula MOVED  amendment 4.  Co-chair  Pearce asked                 
  for clarification  of amendment 4.  Mr. Boyd said that the 5                 
  percent  statute, other  than  the  royalty provisions,  was                 
  added  to the laws  in 1959.   In 1964, it  was repeated but                 
  renumbered.    In 1967,  the provision  on  page 9,  line 12                 
  beginning "In unproven areas..."  was added to law and  that                 
  became the basis for the  discovery loyalty provisions which                 
  were used for awhile but later  removed from law.  Mr.  Boyd                 
  said he had no objection to deleting that section.                           
                                                                               
  Co-chair Frank asked  Mr. Boyd  to restate that  he did  not                 
  object to amendment 4.                                                       
                                                                               
  JIM  EASON said  he did  not recall  the exact  time  of the                 
  repeal,  but  for  a  number  of  years,  discovery  royalty                 
  provisions were in  the statutes and  a number of wells  did                 
  qualify for discovery royalty.  The  most recent incident of                 
  a qualifying discovery royalty lease  was the discovery well                 
  for Point McIntyre.   It was an old lease, had the discovery                 
                                                                               
                                                                               
  royalty  provision, and allowed a  reduction in royalty to 5                 
  percent for the first ten years beginning at the time of the                 
  certification of eligibility.  In  most cases, the discovery                 
  royalty period was considerable less than 10 years.                          
                                                                               
  In answer to  Co-chair Pearce, Mr.  Eason said this new  law                 
  would have no effect on  existing leases.  In answer to  Co-                 
  chair Frank, Mr. Eason confirmed that the department did not                 
  oppose amendment 4 and viewed it as a policy call.                           
                                                                               
  No further objection being heard, amendment 4 was ADOPTED.                   
                                                                               
  Senator Kelly MOVED amendment 5 which deleted the words  "in                 
  an amount determined by the commissioner, not to exceed" and                 
  insertion of the word  "of" on page 4, line 23  and 24.  Mr.                 
  Boyd  felt  there  would be  no  objection  to amendment  5.                 
  Hearing no objection, amendment 5 was ADOPTED.                               
                                                                               
  In answer to Co-chair  Frank, Mr. Boyd said the  geology and                 
  proposed work commitment would determine the size of acreage                 
  granted  to  prospective licensee.    In answer  to Co-chair                 
  Frank, Mr. Boyd  felt that science determined  and preferred                 
  not to limit  artificially the input and  consideration that                 
  the Commissioner  and Division  might have  in reaching  its                 
  decision regarding acreage.                                                  
                                                                               
  Senator Rieger MOVED amendment 6.   Co-chair Pearce OBJECTED                 
  for  discussion  purposes.    Senator  Rieger spoke  to  the                 
  amendment.  No  further objection  being heard, amendment  6                 
  was ADOPTED.                                                                 
                                                                               
  Senator Rieger  asked for an explanation of language on page                 
  5, lines 24 through 26.  Mr.  Boyd said that if less than 25                 
  percent of the  work commitment  was done,  the license  was                 
  lost.   If more than 50  percent of work commitment was done                 
  by the fourth year, there was no relinquishment of land.  If                 
  between 26  and 49  percent of  the work  was completed,  25                 
  percent of the acreage,  but no more than 50  percent, would                 
  be relinquished.  He agreed that if no work had been done by                 
  the fourth year, the license would  be relinquished.  If the                 
  company  did  not   outline  what  property  it   wanted  to                 
  relinquish, the Commissioner  would decide.  He  pointed out                 
  that if the work was not done,  a lease could not be issued.                 
  He  also  said  that  if  work  ceased, the  bond  would  be                 
  continually increased.   Senator Sharp pointed out  that the                 
  company could lose  everything if the  work was not done  by                 
  the tenth year.                                                              
                                                                               
  Senator Kerttula  read from  a statement  by Donald  Harris,                 
  "the  major  oil  companies  decide  the direction  of  this                 
  legislation.   (Senator Kerttula  commented that  Mr. Harris                 
  was worried Alaska was treating its  oil and gas like Mexico                 
  did and it could become a concession causing much conflict.)                 
  HB  199 effectively  created the  ability  for the  state to                 
                                                                               
                                                                               
  allow  concessions  regarding  oil  and  gas leasing.    The                 
  history of concessions is the monetary rape of the state and                 
  its resources  and lands.   This  has been  overcome in  the                 
  past.    Most  instances  has  been  after  the  passage  of                 
  considerable  time  and  blood shed.    Initial  awarding of                 
  concessions should be done by  competition, that is, through                 
  competitive bids under HB 199.  The actual production phase,                 
  the original exploration tract granted, can be rolled into a                 
  lease with as little as 5 percent royalty.  In HB  199, this                 
  is done at  the Commissioner's discretion and  frankly gives                 
  too much  discretionary authority for  the values  involved.                 
  There are 10 hydro provinces with  the possible of 2 million                 
  acres  for exploration, production, concessions.  Under this                 
  bill, tracts range from  20,000 acres (and now it's  10,000)                 
  to 500,000, thus a few major oil companies could take up all                 
  the valuable leases  on state lands  and waters and hold  up                 
  all  state  production  including that  in  existing  leases                 
  citing  economic concerns as the reason.  Competition, to be                 
  fair, should  come into  play at  the time  of leasing,  not                 
  later on.   The rollover provision  in HB 199 is  especially                 
  harmful because it  effectively creates a concession.   This                 
  year, the summer of 1994, the  state can know the boundaries                 
  of all carbon and hydro-carbon  deposits.  This information,                 
  in  turn, could  be  marketed by  the  state in  competitive                 
  leasing basis.  Knowing the boundaries  of carbon and hydro-                 
  carbon  provinces creates  large cost  efficiencies for  the                 
  major  oil  producers because  they  don't  have  to pay  to                 
  conduct magnetic gravity seismic tests  outside the province                 
  boundaries.  Knowing the boundaries could also eliminate the                 
  disturbance on land and  waters unnecessarily.  HB 199  is a                 
  dangerous  piece  of  legislation  because  it  creates  the                 
  potential for the  greatest giveaway  on public resource  in                 
  state history."   Senator Kerttula  said this statement  was                 
  given to him without his solicitation.                                       
                                                                               
  Co-chair Pearce remarked,  that in the world scheme,  in the                 
  frontier areas (she  included Alaska  here), the leasing  or                 
  the  licensing  for oil  and  gas  exploration was  done  by                 
  exploration licenses.  Perhaps Alaska was the  only one that                 
  did not  use exploration licensing.  All  of those countries                 
  and  every country  in  North and  South  America, with  the                 
  exception of the United  State and Canada, have oil  and gas                 
  reserves owned by the state or federal government.  In every                 
  one of those frontiers, exploration  licensing was used very                 
  successfully.  She felt that Alaska would have to offer this                 
  exploration license.   Senator Kerttula said Alaska  did not                 
  have to compete  with any warlike activities  found in other                 
  countries.   Co-chair Pearce  said that  Britain had  a very                 
  stable country and  exploration licenses was working  in the                 
  world.                                                                       
                                                                               
  Senator  Rieger  MOVED for  passage  of SCSCSHB  199(FIN) as                 
  amended from committee with individual recommendations.   No                 
  objection being heard, it was REPORTED OUT of committee with                 
                                                                               
                                                                               
  "individual recommendations," and a zero fiscal note for the                 
  Department  of  Natural  Resources.    Co-chair  Pearce  and                 
  Senators Rieger and Kelly signed "do pass."   Co-chair Frank                 
  and  Senator  Sharp  signed  "no  recommendation."   Senator                 
  Kerttula signed "do not pass."                                               
                                                                               
  BILLS SCHEDULED BUT NOT HEARD:                                               
                                                                               

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