Legislature(1995 - 1996)
04/07/1995 03:43 PM Senate RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 114 HIGH COST MARGINAL OIL WELLS SENATOR LEMAN announced SB 114 to be up before the committee. RICHARD FAPPIANO, Engineer, OXY U.S.A., urged a committee substitute for SB 114 that would address a large potential resource on the North Slope, known as the heavy oil sands. He explained that they are a subsidiary of Occidental Petroleum that has very large interests. They have an 8.8% interest in the Milne Point Unit, the smallest unit on the North Slope which is about 12 miles northwest of Prudhoe Bay. Milne Point produces from the Kuparuk formation and they have no financial interest in TAPS. This unit is only producing about 25,000 barrels a day and about 3,000 of it is from a pilot project called the Shrader Bluff or Tract 14. The heavy oil sands are a prize on the North Slope, he explained. It's an accumulation of heavy oil in shallow sands that is estimated to be in excess of 26 million barrels of oil, actually larger than Prudhoe Bay. It has a huge potential and a number of companies have tried to make an economical project out of producing the heavy oil sands. He said that full development at Milne Point would involve spending half a billion dollars - mostly in Alaska. Using current technology it is uneconomical to produce. Something must change for full development. Through the use of incentives, he thought they could economically develop this resource in the Milne Point unit. They propose a five year royalty holiday for new wells drilled. In the lower 48 mostly you see are holidays from severance tax, he explained, because those states are not major land owners like Alaska. He said this incentive needs to be predictable and would be simple to administer and would bring money to the state where it now receives none. This would also give the state an opportunity to pilot the "royalty holiday idea." Number 500 SENATOR TAYLOR commented why wouldn't we be better off with a huge potential like this entering into almost a joint venture situation as opposed to a royalty holiday where we allow full tax credit back for 50% of drilling and exploration costs and then we share from there on out. Number 509 MR. FAPPIANO said that the only concern he had with that idea was that there would need to be allowances for the risk associated with that investment. They needed to be certain of the credit. His experience with other states is that they set a date of expiration so the earlier a company starts, the more benefit it receives. SENATOR TAYLOR said his concern was that there have been great technological break throughs in the oil industry recently. He said he would like us to move into a true equity position and he agreed that there needed to be some way of assessing risk. MR. FAPPIANO said they had been trying a lot of things for 10 years now and they haven't made any money, yet. SB 114 HIGH COST MARGINAL OIL WELLS SENATOR LEMAN asked Mr. Fineberg if he wanted to testify now or at a later date when the committee formally took up the bill. MR. FINEBERG said there are several points he wanted to respond to, but thought it would be more useful for the committee to have the bill before them at the time.
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