Legislature(1993 - 1994)
03/16/1993 08:05 AM Senate O&G
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATOR LEMAN called the Special Committee on Oil and Gas meeting to order at 8:05 a.m. and announced SB 150 OIL & GAS EXPLORATION LICENSES/LEASES to be up for consideration. JIM EASON, Director, Division of Oil and Gas, said SB 150 and SB 151 are very important pieces of legislation to accomplish focused goals. He recapped for the Committee, the state's competitive oil and gas lease program which this legislation does not try to replace, because competitive leasing works fine in areas that have known oil and gas potential. Exploration licensing might encourage exploration in areas that have not traditionally been explored with the competitive leasing program. Current statutes require any sale offered on competitive leasing terms to be under the five year schedule for at least two calendar years before the quarter in which it is scheduled to be held. There are exempt sales, however, that are very narrowly focused. He used charts to point out areas in Alaska that are mostly unexplored, but are known to have sedimentary rocks. This type of rock is the most likely to contain accumulations of oil and gas. It's unclear what their oil and gas potential really is. Last year they started looking for an alternative to the competitive leasing program that would work towards exploration in those areas. MR. EASON said that SB 150 would require, before any license, a preliminary written determination of the lands the Commissioner feels should be eligible for licensing. This would be published for public participation for 30 days. The next step would be a written determination of the applicability. The rights attached to a licensee under this legislation would be the exclusive right to explore the area covered by the license for a period of up to 10 years. There is a limitation on the total upland and tideland acreage a lessee could hold and there is a limitation on the size of the lease. Generally, the large revenues come from royalties and severance taxes and other related income that arises from successful development of oil and gas, MR. EASON said. In this case DNR is proposing that the money that would traditionally have gone to bonuses actually "get into the ground" and the bid variable for the license be the dollar amount of what is committed - for things like geophysical surveys and exploration wells. Number 240 The license can be revoked and requires a performance bond, MR. EASON explained. They are trying to build a responsible system that will bring the state some return for its commitment as well as the right to convert it to a longer term lease. There would be a nonrefundable $1 per acre license fee. The license would require an exclusive agreement by the licensee that the cost of the work commitment as it is performed is subject to audit. The license is eligible for conversion to a lease if all the commitments are met. SB 150 is a vehicle that will offer an opportunity for the vesting of rights, which are considerable in scale, for the opportunity to explore very large areas, up to 500,000 acres, for a predefined period of time, and without competition, to explore and develop that area. Number 384 SENATOR LEMAN asked what conditions would be present for the Commissioner to offer additional incentives, such as 5% royalties mentioned in section 2. MR. EASON said he was not clear on that. He said that that provision was in statute and he didn't think the legislation intended to link the two. By definition they do not intend to offer the 5% royalty as a license initially. REPRESENTATIVE GREEN tried to explain the first structure in what ultimately became a productive reservoir was a new discovery and that "first horizon" was subject to a 5% royalty, but subsequent horizons productive within that structure didn't enjoy the same royalty. MR. EASON said he was correct and that provision was repealed several years ago. Reduced royalties are still in statute. Number 439 REPRESENTATIVE GREEN asked if there was a possibility that bonding could be reduced to an annual performance. MR. EASON said they hadn't focused a great deal on options, but there are a number of ways to structure that. He said they have tried to give rights and keep obligations in a significantly proportioned way. Number 447 SENATOR LEMAN asked if it is possible for the Commissioner of the Department of Natural Resources to consider what the potential licensee would do and not just look at the dollar amount. MR. EASON said that was possible and they propose that if there are different proposals for the same area, the Commissioner would try to determine whether a mixture of terms would be in the state's best interest.
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