Legislature(2011 - 2012)FAHRENKAMP 203

04/08/2011 02:30 PM LABOR & COMMERCE

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02:42:20 PM Start
02:43:31 PM HB110
03:35:00 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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Heard & Held
              HB 110-PRODUCTION TAX ON OIL AND GAS                                                                          
2:43:31 PM                                                                                                                    
CHAIR EGAN announced the first order  of business would be HB 110                                                               
and  discussing employment  issues. He  said today  the committee                                                               
would hear  from Commissioner Click  Bishop and  Commissioner Dan                                                               
DAN  SULLIVAN,  Commissioner,  Department  of  Natural  Resources                                                               
(DNR), said  he would  begin his  remarks with  good news.  It is                                                               
important  to remember  that by  any measure  the North  Slope of                                                               
Alaska remains a  world class hydrocarbon basin.  The North Slope                                                               
is   also  relatively   unexplored   compared   to  other   major                                                               
hydrocarbon  basins.  He  said   he  could  provide  an  in-depth                                                               
briefing on these issues if the committee was interested.                                                                       
2:47:26 PM                                                                                                                    
As DNR  Commissioner he tries  to keep  an eye on  global issues.                                                               
Right now there is a global  oil and gas spending boom. Shell Oil                                                               
has announced a four-year, $100-billion  plan; BP is looking at a                                                               
$16  billion dollar  deal  in Russia;  Conoco  Phillips has  flat                                                               
spending in Alaska but is doubling  spending in the Lower 48; and                                                               
ExxonMobil  has  announced goals  of  doubling  US production  by                                                               
2020.  Today a  Wall  Street Journal  article  was about  Chevron                                                               
looking at increasing spending in  Texas. It is important to note                                                               
that the State of Alaska  is rarely mentioned in these investment                                                               
strategies. Latest  data shows Texas  has 741 active  drill rigs;                                                               
North Dakota  has 153;  Oklahoma has  162; Pennsylvania  has 101;                                                               
New Mexico has  77; Wyoming has 47; Colorado has  66; Ohio has 9;                                                               
and Alaska has only 10 active drill rigs.                                                                                       
2:49:31 PM                                                                                                                    
He noted  there is a  qualitative difference between a  drill rig                                                               
at  Point  Thompson  and  a   shale  gas  drill  rig  in  western                                                               
Pennsylvania, but this does give a  sense of what is happening in                                                               
the Lower  48 and what is  not happening here. DNR  believes that                                                               
the state is not  really even in the game. But  it is not because                                                               
Alaska doesn't have a world class hydrocarbon basin.                                                                            
COMMISSIONER SULLIVAN said  many in the oil  industry view Alaska                                                               
as economically challenged  for a variety of  reasons including a                                                               
harsh  environment, high  cost of  exploration, remoteness,  high                                                               
transportation    costs,   strict    environmental   regulations,                                                               
environmental  group  lawsuits,  permitting  inefficiencies,  and                                                               
federal government  anti-development policies. The view  from the                                                               
industry is that Alaska is one  of the highest tax regions in the                                                               
country, especially when oil prices are high.                                                                                   
DNR is  very focused on  working through a  comprehensive package                                                               
of initiatives  to address many  of these challenges.  Tax reform                                                               
is a cornerstone  of that package of initiatives.  The tax debate                                                               
has  raised  a number  of  issues.  One  is  the urgency  of  the                                                               
situation. The  decline in  throughput, approximately  6 percent,                                                               
is a huge concern. Some have  become numb to the issue because it                                                               
has been  around for about 20  years, but he believed  the day of                                                               
reckoning is  sooner than  most people  realize. He  was involved                                                               
with a TAPS  shutdown and restart that took place  in January. It                                                               
was a very  challenging situation. He noted  that Admiral Barrett                                                               
has testified that  the best way to  address technical challenges                                                               
is to get more oil in the pipeline.                                                                                             
2:53:13 PM                                                                                                                    
CHAIR  EGAN noted  the purpose  of  today's meeting  was to  talk                                                               
about employment.                                                                                                               
COMMISISONER SULLIVAN related  that for the last  three months he                                                               
has  been  meeting  with companies  and  leaders  throughout  the                                                               
state, in  literally hundreds  of meetings.  Not one  company has                                                               
provided an  enthusiastic outlook on its  North Slope activities.                                                               
He   mentioned  a   speech  given   yesterday  by   the  CEO   of                                                               
ConocoPhillips, in which  he said the service  industry in Alaska                                                               
are  taking their  expertise and  moving  to other  states to  go                                                               
where the  opportunities are. The industry  needs these companies                                                               
here in  Alaska. The governor  wants to  see 1 million  barrels a                                                               
day going through TAPS within a  decade. That is the vision he is                                                               
focused on.                                                                                                                     
2:57:28 PM                                                                                                                    
CLICK  BISHOP, Commissioner,  Department of  Labor and  Workforce                                                               
Development (DOLWD),  brought small models of  heavy equipment to                                                               
show  the   committee  and   introduced  economist   Neil  Fried.                                                               
Commissioner Bishop  said he had provided  committee members with                                                               
slides that were very succinct, and  that he wanted to put a face                                                               
on the employment discussion.                                                                                                   
3:00:43 PM                                                                                                                    
The first one shows Alaska's  oil industry employment and percent                                                               
of  nonresident  workforce, state-wide  and  in  the North  Slope                                                               
Borough.  It starts  with the  year  2000 and  goes through  2010                                                               
(2010 has only preliminary figures).  Annual average oil industry                                                               
statewide employment  in the  year 2000  was 8,800;  27.9 percent                                                               
were non-resident workers.  In the year 2006,  the average annual                                                               
employment  was 10,100  and 30.8  percent  were non-resident.  In                                                               
2010,  the annual  average employment  statewide was  12,800, and                                                               
the  department doesn't  have the  figures for  non-resident hire                                                               
3:03:24 PM                                                                                                                    
In 2006  and to a certain  degree 2007 and 2008,  he believed the                                                               
increase in employment numbers could  be attributed to repair and                                                               
testing after the TAPS spill.  He emphasized these were statewide                                                               
figures in the  three categories the department uses  for oil and                                                               
gas employment.                                                                                                                 
In  the North  Slope  Borough, the  annual  average oil  industry                                                               
employment  in 2000  was 3,355;  non-resident  workers were  32.5                                                               
percent. In  2006, average  annual employment  was 6,295  with 37                                                               
percent  non-residents. In  2009,  the annual  average was  8,429                                                               
with a non-resident  rate of 35 percent. For  comparison, in 2006                                                               
all industries  statewide employed  283,800 individuals  and 17.9                                                               
percent were  non-resident. In 2009,  the total was  320,900 with                                                               
19.1 percent non-resident.                                                                                                      
3:06:40 PM                                                                                                                    
SENATOR PASKVAN  asked if he had  a rough estimate of  2010 North                                                               
Slope numbers and percent of non-resident workers.                                                                              
NEIL  FRIED,   Economist,  Department  of  Labor   and  Workforce                                                               
Development (DOLWD),  answered that  the first three  quarters of                                                               
2010 look  similar to  the first three  quarters of  2009. Fourth                                                               
quarter  figures will  be available  at  the end  of April.  Non-                                                               
resident data lags by one year.                                                                                                 
SENATOR  WIELECHOWSKI  asked  him  to explain  why  in  the  book                                                               
provided  to legislators  new hires  by  residency figures  don't                                                               
seem to jibe with the DOLWD figures.                                                                                            
MR.  FRIED  answered  the  data from  today's  DOLWD  handout  is                                                               
looking at  overall oil  industry figures.  The other  handout is                                                               
looking at new hires, which is a subset of the first data.                                                                      
CHAIR EGAN said so that is not the total amount.                                                                                
MR. FRIED  answered yes; it  represents new hires for  the entire                                                               
year. The majority of employees were not new hires.                                                                             
SENATOR   PASKVAN  noted   that  Commissioner   Galvin  indicated                                                               
employment in the  oil industry had increased  steadily since the                                                               
implementation of PPT  and ACES. Recent DOLWD  numbers indicate a                                                               
19.1  percent increase.  He asked  how  they reconcile  increased                                                               
employment numbers with statements that employers are hurting.                                                                  
3:12:13 PM                                                                                                                    
COMMISSIONER BISHOP responded he intended  to discuss that in his                                                               
closing remarks, but he could skip  to it if the committee wished                                                               
him to.                                                                                                                         
CHAIR EGAN said he could go there whenever he wished.                                                                           
COMMISSIONER BISHOP  said there is  an uptick in  employment. But                                                               
he believes that it is due to  the spill in 2006 and to increased                                                               
maintenance  and repair  requirements  of an  aging pipeline.  He                                                               
recently  asked the  Alaska Railroad  how much  drill casing  had                                                               
been shipped from  Fairbanks to Prudhoe Bay. In  2005, the figure                                                               
was 109  million pounds. In  2010, it  was 42 million  pounds. He                                                               
stressed this information  should be included in  the record, but                                                               
that it doesn't  there is a decrease in drilling  activity on the                                                               
North  Slope.  This  leads  to   the  issue  of  decreased  flow.                                                               
Exploration wells  this year are down  to one. This does  back up                                                               
what the oil industry says.                                                                                                     
SENATOR THOMAS  noted that this  means there  is a change  in the                                                               
workforce, more  maintenance rather  than drilling. So  there are                                                               
more people  but they are doing  different tasks. If that  is the                                                               
case, the work is up and  the non-residents are still there. Each                                                               
year Alaska  has more and more  non-residents becoming residents.                                                               
So it  is no  mystery that  Alaskans are  not working  at Prudhoe                                                               
Bay, because  they are being  displaced by companies  and workers                                                               
from Outside.  He asked  if this is  because Alaska  doesn't have                                                               
people with the required skills for the current work.                                                                           
3:18:49 PM                                                                                                                    
COMMISSIONER BISHOP answered that  is probably correct. He agreed                                                               
that many non-resident workers are becoming residents.                                                                          
SENATOR  PASKVAN asked  in looking  at  the 2005  numbers, is  he                                                               
saying  that   the  industry  shifted   after  the  spill   to  a                                                               
maintenance function  and rebuilding  of feeder lines,  which has                                                               
caused the employment numbers to increase.                                                                                      
COMMISSIONER BISHOP  read a  quote from  Conoco Phillips  CEO Jim                                                               
     Even  with  the  industry  investments  over  the  past                                                                    
     several  years of  $4 billion  annually,  we have  been                                                                    
     unable  to stop  the state's  production decline.  More                                                                    
     and more  of these investments  that we are  making are                                                                    
     consumed,  and   rightfully  so,  in   maintaining  and                                                                    
     upgrading the  older pipelines  and facilities  and not                                                                    
     on developing new oil.                                                                                                     
3:22:09 PM                                                                                                                    
COMMISSIONER BISHOP  said he  has tried  to get  Alaskans trained                                                               
into  these jobs.  He  still believes  many  of these  employment                                                               
increases  are due  to the  maintenance needs  of old  pipelines.                                                               
This morning he asked the Joint  Crafts Council where they are in                                                               
terms of employment  and some unions are down  30 percent. Normal                                                               
pipeline  season on  the  North Slope  is  from December  through                                                               
April because they  work off of ice roads  which starts typically                                                               
on December  15 when the  frost and the  cover are both  one foot                                                               
deep. Some  of the labor workforce  by craft is down  30 percent,                                                               
some are  down 45 percent and  some are down 50  percent over the                                                               
last two-year period.                                                                                                           
He said he meets regularly with  the oil industry and he wants to                                                               
put as many Alaskans as possible  into those jobs. As recently as                                                               
March 21 the DOLWD Trends  Magazine says Alaska's oil industry is                                                               
a top  employer of  non-resident workers, and  he has  written 11                                                               
letters  to the  heads  of  these oil  companies  that he  copied                                                               
everyone, thanking  them for hiring  Alaskans and saying  that he                                                               
would like  to help  them improve  on it. He  referred to  a book                                                               
titled "What Happened to Fairbanks?" written  in 1978.  He read a                                                               
quote from the book, as follows:                                                                                                
     Although  the  oil  pipeline construction  project  had                                                                    
     been anticipated since 1968, it  was not until March of                                                                    
     1974, just one month  before actual construction began,                                                                    
     that  the  state  Department of  Labor  formulated  its                                                                    
     training plan to train Alaskans for pipeline jobs.                                                                         
3:28:02 PM                                                                                                                    
He  said  the  legislature  and   the  Department  of  Labor  and                                                               
Workforce Development  (DOLWD) had  the foresight four  years ago                                                               
to  develop a  training plan  for Alaskans.  He has  now switched                                                               
gears  and is  repackaging  that  document as  "The  Oil and  Gas                                                               
Training Plan: for Alaskans Now  and For the Future." He believes                                                               
Alaska has  a bright future  because some pretty  exciting things                                                               
have been  heard in this  building in  terms of other  sources of                                                               
oil  plays and  the state  is moving  in the  right direction  on                                                               
Alaska hire. It's  not happening fast enough,  but the department                                                               
and industry  are having those  discussions. He  concluded saying                                                               
"Yes,  let's fill  the  pipeline, because  it  is declining,  but                                                               
let's also fill Alaska's workforce pipeline with Alaskans."                                                                     
CHAIR EGAN thanked him for  coming and stopped questions from the                                                               
committee because they were out of time.                                                                                        
SENATOR  GIESSEL said  this has  been  compelling testimony.  She                                                               
noted  that HB  110 has  been heard  26 times  in the  House; its                                                               
companion bill has been heard  six times in this body. Therefore,                                                               
she moved to  report HB 110 [CSHB 110(FIN)] from  committee so it                                                               
could  join  its  companion  bills   in  the  next  committee  of                                                               
SENATOR PASKVAN objected.                                                                                                       
SENATOR  MENARD   moved  that  the  Senate   Labor  and  Commerce                                                               
Committee stand in  recess until Saturday, April 9, at  1 p.m. in                                                               
order to complete  and conclude these deliberations  and allow HB                                                               
110 to be available in Senate Resources as soon as possible.                                                                    
CHAIR  EGAN  asked if  there  was  any  objection to  having  the                                                               
meeting at 1 p.m. on Saturday.                                                                                                  
SENATOR PASKVAN objected.                                                                                                       
SENATOR  MENARD  stated this  was  a  privileged motion  and  not                                                               
subject to debate. She said a roll call vote was needed.                                                                        
A roll  call vote was  taken on the  motion to meet  on Saturday.                                                               
Senators Giessel  and Menard voted  yea; Senators  Davis, Paskvan                                                               
and Egan voted nay; therefore the motion failed.                                                                                
A roll call  vote was then taken  on the motion to  move the bill                                                               
from committee.  Senators Menard and Giessel  voted yea; Senators                                                               
Paskvan, Davis, and Egan voted nay; therefore the motion failed.                                                                
CHAIR  DAVIS  stated that  she  voted  no  because she  felt  the                                                               
committee was  not yet ready  to move  the bill. She  didn't know                                                               
what they  really got out of  this meeting that would  allow them                                                               
to do that.  She appreciated the points that were  made, but they                                                               
hadn't gotten a chance to ask  any questions. They might have had                                                               
100 meetings  in the  House but  she wasn't in  any of  them. She                                                               
felt it was  wrong to move the bill from  committee without doing                                                               
any work on it.                                                                                                                 
3:35:00 PM                                                                                                                    
CHAIR  EGAN suggested  they continue  the  meeting at  2 p.m.  on                                                               
Monday. Seeing  that several members  were not available  at that                                                               
time, he  announced he  would reschedule  the meeting  and notify                                                               
the members  of the new  time. He  then adjourned the  meeting at                                                               
3:35 p.m.                                                                                                                       

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