Legislature(2003 - 2004)

05/05/2003 03:34 PM Senate RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
        SB 185-ROYALTY REDUCTION ON CERTAIN OIL/TAX CRED                                                                    
                                                                                                                                
CHAIR OGAN asked Mr. Gary Carlson to testify.                                                                                   
                                                                                                                                
MR. GARY CARLSON, Senior Vice President of Forest Oil                                                                           
Corporation, a major investor in Cook Inlet over the past five                                                                  
years, read the following testimony.                                                                                            
                                                                                                                                
     My testimony  on SB 185  will focus on  the maintenance                                                                    
     of critical  and scarce infrastructure  associated with                                                                    
     mature  oil fields  in the  Cook Inlet.  The platforms,                                                                    
     associated  pipelines, and  related onshore  facilities                                                                    
     represent   irreplaceable  infrastructure,   which  may                                                                    
     facilitate the  exploration, discovery  and development                                                                    
     of as  yet undiscovered reserves if  their useful lives                                                                    
     could  be   extended.  Any   delay  in   abandoning  or                                                                    
     decommissioning  of  this infrastructure  will  provide                                                                    
     opportunities to the industry  to develop smaller scale                                                                    
     oil and  gas prospects  that won't stand  the economics                                                                    
     if  new infrastructure  needs to  be developed.  As the                                                                    
     mature   fields  approach   the   economic  life,   the                                                                    
     operators  need  to  get   creative  and  manage  costs                                                                    
     carefully,  which   includes  changing  the   way  they                                                                    
     operate.  They need  the cooperation  of their  vendors                                                                    
     and contractors  to share these  efforts. I  believe it                                                                    
     is appropriate  for the state  to step in as  a partner                                                                    
     also. This bill provides a way  for the state to make a                                                                    
     difference.                                                                                                                
                                                                                                                                
     Keeping the  Cook Inlet oil  fields on line a  few more                                                                    
     years  will maintain  good jobs,  provide local  taxes,                                                                    
     and  the  possibility  of new  development  that  could                                                                    
     easily exceed  any anticipated  shortfall in  the state                                                                    
     revenues resulting from reducing the state's royalty.                                                                      
                                                                                                                                
     I want to commend the  bill sponsors and the Department                                                                    
     of Natural Resources for  their foresight in supporting                                                                    
     this bill and  I want to thank the  committee for their                                                                    
     opportunity   to  provide   this   testimony  on   this                                                                    
     legislation. Thank you.                                                                                                    
                                                                                                                                
SENATOR WAGONER  said he campaigned  on this issue. He  asked Mr.                                                               
Carlson to expand on what losing  the platforms could mean to the                                                               
economy.                                                                                                                        
                                                                                                                                
MR.  CARLSON  said as  an  independent  explorer in  Cook  Inlet,                                                               
Forest Oil  looked at all  of the infrastructure there  and found                                                               
it is  critical to  developing any  new prospects  to be  able to                                                               
access that  infrastructure. The  mood of  the operators  in Cook                                                               
Inlet has  changed; there is  now cooperation  among competitors.                                                               
Keeping the  pipelines available and providing  access to onshore                                                               
and  offshore  facilities  is  critical for  some  of  the  small                                                               
projects.                                                                                                                       
                                                                                                                                
CHAIR OGAN  asked Mr. Carlson  if he  is familiar with  the areas                                                               
[named in Section  1 of the bill] in which  the royalty reduction                                                               
will  be allowed:  Dolly, Grayling,  King Salmon,  Steelhead, and                                                               
Monopod.                                                                                                                        
                                                                                                                                
MR. CARLSON said he is.                                                                                                         
                                                                                                                                
CHAIR  OGAN asked  if the  royalty reduction  will take  place if                                                               
[production] drops below 1200.                                                                                                  
                                                                                                                                
MR. CARLSON said that is correct.                                                                                               
                                                                                                                                
CHAIR  OGAN asked  Mr.  Carlson if  he is  aware  of the  current                                                               
production levels of those wells.                                                                                               
                                                                                                                                
MR. CARLSON  said he is not  but he would guess  the well closest                                                               
to  1200 is  Steelhead and  that the  range goes  up to  4,000 or                                                               
5,000 barrels per day.                                                                                                          
                                                                                                                                
CHAIR OGAN asked which platforms Forest Oil owns an interest in.                                                                
                                                                                                                                
MR. CARLSON  said Forest  Oil has an  interest in  the Steelhead,                                                               
Dolly Varden, King Salmon, Grayling, and Monopod platforms.                                                                     
                                                                                                                                
CHAIR OGAN asked if Forest Oil has a sole or joint interest.                                                                    
                                                                                                                                
MR. CARLSON  said Unocal is  the operator and majority  owner and                                                               
Forest Oil owns approximately 47 percent of those facilities.                                                                   
                                                                                                                                
CHAIR  OGAN  asked   how  many  platforms  in   Cook  Inlet  this                                                               
legislation does not apply to.                                                                                                  
                                                                                                                                
MR.  CARLSON said  five  other platforms  and  one small  onshore                                                               
field are not  under secondary recovery. The  operating costs are                                                               
not as high.                                                                                                                    
                                                                                                                                
CHAIR OGAN  asked Mr. Myers to  provide the committee with  a map                                                               
of the leases in Cook Inlet.                                                                                                    
                                                                                                                                
MR. MYERS agreed to do so.                                                                                                      
                                                                                                                                
SENATOR LINCOLN  noted the sponsor  statement says the  intent of                                                               
SB 185  is to  encourage production in  the marginal  fields. She                                                               
asked Mr. Carlson if he believes the legislation will do that.                                                                  
                                                                                                                                
MR.  CARLSON  said  he  thinks it  could  encourage  putting  off                                                               
decommissioning  those   facilities  for  one  to   three  years,                                                               
depending upon the  decline rate of the field  itself, until they                                                               
are uneconomical  to operate. As  an independent operator,  it is                                                               
critical  to  Forest Oil  that  the  infrastructure remains.  The                                                               
development  of  one  new  field   would  far  offset  any  small                                                               
reduction in royalty to the state.                                                                                              
                                                                                                                                
SENATOR LINCOLN asked what percent of Forest Oil's hire is out-                                                                 
of-state.                                                                                                                       
                                                                                                                                
MR. CARLSON said all Forest Oil employees are residents.                                                                        
                                                                                                                                
SENATOR WAGONER added  that Union Oil has very few,  if any, out-                                                               
of-state employees that work in Cook Inlet.                                                                                     
                                                                                                                                
CHAIR OGAN thanked  all participants and recessed  the meeting to                                                               
the call of the chair at 5:37 p.m.                                                                                              

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