Legislature(2013 - 2014)SENATE FINANCE 532
04/10/2013 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB198 | |
| SB87 | |
| HB52 | |
| SB90 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 198 | TELECONFERENCED | |
| + | SB 87 | TELECONFERENCED | |
| += | HB 52 | TELECONFERENCED | |
| + | SB 90 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 198 am
"An Act relating to the primary period of an oil and
gas or gas only lease and the extension of a lease;
relating to terms to be included in an oil and gas or
gas only lease; relating to rental for an oil and gas
or gas only lease; and providing for an effective
date."
9:14:54 AM
Senator Micciche announced that he sponsored the companion
bill, SB 96, which was identical to HB 198 and he fully
supported the legislation.
Co-Chair Meyer noted that the committee heard SB 98 on May
8, 2013.
WILLIAM C. BARRON, DIRECTOR, DIVISION OF OIL AND GAS,
DEPARTMENT OF NATURAL RESOURCES, began a presentation
titled "One-Time Lease Extension HB 198"(copy on file). He
discussed Slide 1:
What is HB 198?
•Cannot allow lease extensions under current statutes
•HB 198 allows a maximum 10-year primary term,
including extension
•Not automatic; may consider:
•Funds already spent on exploration and development
•Type of work already completed
•Other relevant information
•Granted extension may require
•Increased rental up to $250/acre for last three years
•Performance bond
•Work commitments: specific $ amount to be expended;
type and amount of work to be performed
•Tool to help drive exploration and development
Mr. Barron explained that the legislation authorized the
commissioner of the Department of Natural Resources (DNR)
to grant a one-time lease extension of up to ten years to
approved applicants on current five to seven year leases.
The length of the extension would be determined by the
project. If the extension was granted for the full ten year
period the per acre rental fee would increase by $250 for
the last three years from $3 per acre. The increased
acreage fees could be waived by the commissioner based on
the amount of work already completed on the lease. The
terms of the lease would be renegotiated to include work
commitments as a condition of the lease extension. The
department believed the extension conditions were a tool to
compel exploration and development.
Mr. Barron turned to slide 3:
Why do we need HB 198?
Background
Maximum lease term is 10 years; minimum is 5
years.
In 2007, 2008, and 2009, some leases had 5- and
7-year terms.
Difficult to perform exploration, delineation,
and production drilling in those time frames
Unintended consequences of short lease terms
Premature unit applications attempting to extend
leases.
Preference is unit decisions based on hydrocarbon
accumulations proven by drilling
Despite best efforts, diligent lessees may lose
leases after significant investment.
Mr. Barron spoke to Slide 4 titled: "Northern Alaska Lease
Distribution." The slide depicted a chart showing the
number of leases held by each lease holder and the year
leases were set to expire. He detailed that the area
encompassed the Beaufort Sea, North Slope, and Foothills.
The leaseholders represented small, large, major, and
independent companies. In two years 104 leases will expire
and in two to five years 79 leases will expire. The
department anticipated applications within the next two
years from Repsol, Brooks Range Petroleum Company [AVCG,
LLC], Conoco Phillips, and Donkel/Cade. He noted that
Repsol obtained the leases from a negotiated business
agreement with Armstrong [Armstrong Oil and Gas Inc.] and
were actively drilling. The department would likely extend
Repsol leases based on its work. Great Bear Petroleum,
Donkel/Cade, and Repsol were the leaseholders expected to
extend in the out years. He delineated that DNR did not
intend to extend all of the leaseholder's acreage; only
acreage that the companies actively worked and developed.
He expressed that the department wanted to determine what
work was actually completed on the lease and grant the
extension to the same leaseholder in order for the work to
continue as opposed to starting over with a new company.
9:20:48 AM
Mr. Barron addressed Slide 5 titled: "Cook Inlet Lease
Distribution." The slide depicted a chart showing the
number of leases held by each lease holder and when the
leases were set to expire in Cook Inlet. He noted that
Apache Alaska Corporation was the predominant lease holder
in all expiration years. Buccaneer Alaska LLC, Hilcorp
Alaska,LLC, and Nordaq Energy Inc. were also major
leaseholders. He added that Apache vigorously acquired
leases and pursued a 3-D seismic program throughout its
leases. He stressed that the extensions would be predicated
on the work activity associated with each individual lease
and not a grouping of leases. He reiterated that the
department only wanted to extend leases involved in an
active work commitment based on increased exploration
drilling and production.
Mr. Barron spoke to Slide 6:
What are the benefits of HB 198?
Benefits to diligent lessees
•Accommodates short drilling windows
•Lessees who have significantly invested in shorter-
term leases may have time to bring qualified leases
into production
Benefits to the State
•Allows State to require work programs during primary
term
•Encourages ongoing work to be completed
•Increases the probability of bringing leases to
production
Mr. Barron elaborated that the five and seven year lease
programs were designed to encourage drilling. An unintended
consequence of the short term leases was that the work
could not be completed within the confines of short
seasons. The lessees were running out of time. He
emphasized the importance of having the statutory authority
that required specific work conditions on the lease. The
legislation encouraged the completion of ongoing work and
spurred development of the lease to production at a faster
rate.
Senator Bishop asked whether currently the lessees were
paying a rent of $3 per acre. Mr. Barron replied that the
leases applicable to HB 198 were from 2005, 2006 and 2007
and were leased at a rate of $3 per acre. Currently the
rate was $25 per acre for the first seven years and
increased to $250 for the last three years. The bill
replicated the current lease sale program. The lessees felt
that seven years for primary term exploration was usually
adequate but wanted the opportunity to extend for three
more years. The department developed the concept of
extending leases at higher rates as a way to build a
business relationship with leaseholders that truly wanted
to develop the leases. The companies would be willing to
pay the premium price.
Co-Chair Meyer shared that he had not heard of some of the
leaseholders. He inquired whether they were private
individuals who did not intend to develop the lease but
rather offer it for re-sale. Mr. Barron responded that many
lessees were small companies or individuals. The department
was required to open up acreage to anyone over 18 years of
age without consideration of the intent of the
leaseholders. He offered that some leaseholders "market"
the lease to another entity to develop the lease.
Vice-Chair Fairclough discussed the fiscal note. She noted
that FN 1 (DNR) was a zero fiscal note.
9:27:40 AM
Co-Chair Meyer OPENED public testimony.
Co-Chair Meyer CLOSED public testimony.
Vice-Chair Fairclough MOVED to REPORT HB 198 am out of
committee with individual recommendations and the
accompanying fiscal note.
Co-Chair Meyer OBJECTED for the purpose of discussion.
9:28:21 AM
AT EASE
9:28:51 AM
RECONVENED
Co-Chair Meyer WITHDREW his OBJECTION.
There being NO further OBJECTION, HB 198 was REPORTED out
of committee with a "do pass" recommendation and with a
previously published zero fiscal note: FN1 (DNR)
9:29:10 AM
AT EASE
9:31:37 AM
RECONVENED