Legislature(2005 - 2006)HOUSE FINANCE 519
07/27/2006 10:00 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB3003 | |
| HB3004 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB3003 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB3001 | TELECONFERENCED | |
| += | HB3004 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
July 27, 2006
10:05 a.m.
CALL TO ORDER
Co-Chair Chenault called the House Finance Committee meeting
to order at 10:05:43 AM.
MEMBERS PRESENT
Representative Mike Chenault, Co-Chair
Representative Kevin Meyer, Co-Chair
Representative Bill Stoltze, Vice-Chair
Representative Richard Foster
Representative Mike Hawker
Representative Jim Holm
Representative Reggie Joule
Representative Mike Kelly
Representative Beth Kerttula
Representative Carl Moses
Representative Bruce Weyhrauch
MEMBERS ABSENT
None
ALSO PRESENT
Representative Eric Croft; Ken Alpers, Staff, Representative
Eric Croft; Robynn Wilson, Director, Division of Tax,
Department of Revenue; Judy Brady, Executive Director,
Alaska Oil and Gas Association (AOGA); Mike Hurley,
ConocoPhillips Alaska, Chair, Alaska Oil and Gas Association
(AOGA); Cathy Foerster, Alaska Oil and Gas Conservation
Commission (AOGCC); William Corbus, Commissioner, Department
of Revenue; Representative Paul Seaton; Representative Ethan
Berkowitz; Representative Harry Crawford; Representative
Gabrielle LeDoux; Representative Les Gara
PRESENT VIA TELECONFERENCE
John Norman, Chair, Alaska Oil and Gas Conservation
Commission (AOGCC)
SUMMARY
HB 3001 "An Act relating to the production tax on oil and
gas and to conservation surcharges on oil;
relating to criminal penalties for violating
conditions governing access to and use of
confidential information relating to the
production tax; amending the definition of 'gas'
as that definition applies in the Alaska Stranded
Gas Development Act; making conforming amendments;
and providing for an effective date."
HB 3001 was heard and HELD in Committee for
further consideration.
HB 3003 "An Act relating to oil and gas properties
production taxes; providing for a production tax
adjustment to increase the amount of tax at high
oil prices and a production tax adjustment to
decrease the tax on the production of heavy oil;
providing for an exclusion of a certain amount of
oil and gas from the gross value at the point of
production; relating to the determination of the
gross value of oil and gas at the point of
production; and providing for an effective date."
HB 3003 was heard and HELD in Committee for
further consideration.
HB 3004 "An Act relating to oil and gas, and to the oil
and gas properties production (severance) tax as
it applies to oil; providing for an adjustment to
increase the tax collected when oil prices exceed
certain amounts and to reduce the tax collected
when oil prices fall below $16 per barrel;
providing for relief from the tax when the price
per barrel is low or when the taxpayer
demonstrates that a reduction in the tax is
necessary to establish or reestablish production
from an oil field or pool that would not otherwise
be economically feasible; delaying until July 1,
2016, the deadline for certain exploration
expenditures that form the basis for a credit
against the tax on oil and gas produced from a
lease or property in the state; amending the
powers and duties of the Alaska Oil and Gas
Conservation Commission; and providing for an
effective date."
HB 3004 was heard and HELD in Committee for
further consideration.
10:05:52 AM
HOUSE BILL NO. 3003
"An Act relating to oil and gas properties production
taxes; providing for a production tax adjustment to
increase the amount of tax at high oil prices and a
production tax adjustment to decrease the tax on the
production of heavy oil; providing for an exclusion of
a certain amount of oil and gas from the gross value at
the point of production; relating to the determination
of the gross value of oil and gas at the point of
production; and providing for an effective date."
REPRESENTATIVE ERIC CROFT, sponsor, HB 3003, emphasized that
there are two weeks left of the special session and the
legislature needs to take action. HB 3003 is a simple
approach to solving the oil tax dilemma.
Representative Croft referred to a handout entitled "HB 3003
- The True Value/Shelf the ELF Bill" (copy on file) and
maintained that a tax on the gross is the preferred method.
He highlighted the reasons why on Slide 1.
Representative Croft said that oil is a resource that
Alaskans own. He discussed Slide 2. The tax is a severance
tax and is different than an ordinary business tax and more
like a royalty. It is dangerous to sell the resource based
on a net tax.
Representative Croft related that there is a double
objective - to develop new resources and to get a fair
share. On Slide 3 he highlighted four reasons why North
Slope development is flat. He emphasized the need to
encourage new development and how high pipeline tariffs on
TAPS discourages new development.
Slide 4 depicts what HB 3003 does: raises the same amount
as the 20/20 PPT at $60 oil, eliminates the complex and
obsolete ELF language in AS 43.55.012-013, base 15 percent
tax on wellhead value, provides for progressivity of up to
25 percent at higher prices, protects smaller fields and
Cook Inlet with volume exclusion, reduces rate for heavy
oil, broadens the ability to challenge TAPS tariffs, is four
pages long.
10:14:43 AM
Slide 5 examines the point that HB 3003 raises the same
amount as the 20/20 PPT at $60 oil. He compared the
estimated revenues of various oil tax bills. The fiscal
note start dates in the governor's bill and HB 3003 are
different. Representative Croft asked the question on Slide
6: Is 20/20 too low? He maintained that it is too low. He
explained that he introduced HB 3003 at that level in order
to focus discussion on the structure of the profit vs. gross
systems. The discussion of the amount of tax can follow
that.
10:17:10 AM
Slide 7 discusses eliminating the complex and obsolete ELF
language in AS 43.55.012-013. Representative Croft made the
point that a gross tax reform that preserves the ELF formula
will continue to have major distortion and unfairness. At
projected oil prices Alaska doesn't need the extreme tax
breaks some fields receive with ELF.
Slide 8 deals with the base 15 percent tax on the wellhead
value. The only auditable item is transportation. It
eliminates the 12.24 percent rate for the first five years
and the obsolete cents per barrel tax.
10:20:12 AM
Slide 9 explains the progressivity of up to 25 percent at
higher prices found in HB 3003. It uses a similar mechanism
as many of the PPT versions. It increases the tax rate by
0.2 percent per dollar above $50/barrel at the wellhead.
The tax rate is 17 percent at $60, 19 percent at $70, etc.
It hits a maximum 25 percent rate at $50 above the trigger
point, $100 at the wellhead. It is easy to adjust the bill
to get the desired revenue by changing the trigger point.
Slide 10 shows that the bill protects smaller fields and
Cook Inlet with volume exclusion (standard deduction) of the
first 10,000 barrels per day per operation unit. The lower
a unit's production, the greater the tax benefits. The
value of the exclusion would be pro-rated among unit
participants based on the percentage of volume produced.
The operating unit is defined by DNR approval, and using the
unit agreement aggregates any satellite field with the main
field.
The graph on Slide 11 shows how the smaller fields and Cook
Inlet are protected. Kuparuk, under the current ELF is at
0.0 percent and would be raised up to 14 percent under HB
3003. Slide 12 states that HB 3003 protects smaller fields
and Cook Inlet with volume exclusion (standard deduction) of
the first 10,000 barrels per day per operating unit.
10:22:18 AM
Slide 13 deals with the reduced rate for heavy oil. Oil
with API gravity of 18 or more pays the full rate. For each
point below 18, the tax rate is decreased by 5 percent.
Thus, API 17 oil pays 95 percent of the taxes of API 18 oil.
Slide 14 tells how the gross tax broadens the ability to
challenge the TAPS tariffs. The biggest impediment to
investment, according to AOGA, is regulation and high TAPS
tariffs. The existing law says that "reasonable" costs
equals "actual" costs unless three conditions exist. HB
3003 states that only one of the three costs needs to exist
for DOR to intervene in determining reasonable costs.
Slide 15 explains that the bill is four pages long; simple,
readable, and understandable.
Slide 16 compares the similarities between HB 3003 and HB
3004, Representative Gara's bill. Both are based on gross
wellhead value, both use a base 15 percent rate, with lower
rates for certain oil fields, and they both have
progressivity with maximum rates between 25 percent and 27.5
percent that are reached at about $100 oil.
10:26:56 AM
Slide 17 discusses the differences between HB 3003 and HB
3004. HB 3003 goes to a flat 15 percent rate. HB 3004
keeps the ELF, but substitutes a 5 percent alternative
minimum floor. HB 3003 has the 15 percent rate for all
prices up to the progressivity trigger point, whereas HB
3004 has reverse progressivity below $16 and the ability to
apply for tax relief. HB 3003 addresses tariff issues and
HB 3004 addresses facility access issues. Both bills can be
adjusted to generate the desired revenue.
Slide 18 deals with a possible alternative approach: capital
development credits. Amendments have been drafted to
include tax credits for well development and construction
and to broaden the existing 40 percent exploration tax
credit.
10:28:20 AM
Representative Croft concluded with Slide 19. He talked
about the law of unintended consequences and maintained that
minimum action to fix the known problem should be taken. He
suggested that "if you don't understand it, vote no," but if
success is the goal, the bill needs to be understood. He
said that politics gets in the way of good policy, but the
legislature can do great things if they don't care who gets
the credit. He opined that a future legislation could
continue and fix problems.
10:31:25 AM
Co-Chair Meyer said he asked Pedro Van Meurs how most
foreign countries are dealing with the tax. Dr. Van Meurs
responded that they are going with a net tax. The lower 48
states use a gross tax. Co-Chair Meyer asked if a gross tax
would provide enough incentives for investment in Alaska.
Representative Croft responded that while most countries use
a percentage of the net, they own the majority of the
corporations and the resources. He maintained that the
state of Alaska does not want to participate in such a
system because many safeguards are missing.
10:34:55 AM
Co-Chair Meyer referred to Representative Gara's
presentation regarding the second quarter earnings of the
major oil companies. He inquired why there is not more
interest in Alaska by those companies. Representative Croft
replied that those companies are looking at worldwide
competitors that own their facilities and most of the
leases. There would be no way to compete on a level playing
field. One way to determine a level playing field is to
look at profits and investment. The anti-competitive
situation on the North Slope would not be solved by imposing
a net tax. Tariff and access are big issues and the
legislature must foster exploration.
10:38:46 AM
Co-Chair Meyer opined that the focus should be on the
production facilities. He asked if this discussion would be
the same at lower prices. Representative Croft thought
there needed to be a durable tax structure across the price
range. He recalled the day when oil was never expected to
break $30. He related that price change seems to be
cyclical. He concluded that the same discussion would take
place.
KEN ALPERS, STAFF, REPRESENTATIVE ERIC CROFT, added that the
discussion would be different because it would not have
included progressivity over $50.
10:41:38 AM
Co-Chair Chenault noted that weak facility access is a large
problem. He opined that it was not brought on by producers,
but by the make up of the field. He thought that in the
future wells may be shut in because they are producing too
much gas and not enough oil. He suggested building more
production facilities or putting in a relief valve - a gas
line. He suggested that companies make agreements with
smaller producers and look at all options rather than
letting capacity set empty. He asked how smaller
corporations might have access to facilities.
Representative Croft said his preferred fix is a gas line so
that explorers can bring their gas on line. The consequence
of not doing this is dramatic. He speculated that as a
company he would do some hard bargaining and price the big
companies into doing it themselves.
10:46:52 AM
Representative Holm asked if oil is going to be increased
through investment, and if TAPS are set in stone, and if the
pipeline is being downsized, how can TAPS agreements be
modified so that capacity could be increased. He was
looking to set a procedure for the future to control entry
and access. Representative Croft responded that there are
limitations on oil, but the criteria for assessment on
reported tariffs can be changed. Excessive tariffs are
detrimental for new exploration. Hands are somewhat tied on
the oil tariff. There is a need to preserve competition by
making rates fair and guaranteeing expansion power. He
spoke of the dangers of destroying competition.
Representative Holm added that it is dangerous if the
companies that put up the capital don't get a return on
their investment. He gave a hypothetical example. He said
the solution needs to be worked on. Representative Croft
agreed. He spoke of monopolies and the justification for
it. He also spoke of investment protection.
10:53:40 AM
REPRESENTATIVE PAUL SEATON asked about access to facilities
with lower-volume fields under ELF. Representative Croft
said it was chosen for that reason. He maintained that
there was nothing wrong with the ELF concept of relief for
smaller fields. "10,000 barrels per day per operation unit"
was chosen as the fair number.
Representative Seaton asked if the challenge to TAPS tariffs
would allow for interstate tariffs. Representative Croft
explained that this broadens the ability to challenge TAPS.
It expands the ability to inquire into the actual costs.
11:00:07 AM
At-ease.
11:01:19 AM
ROBYNN WILSON, DIRECTOR, DIVISION OF TAX, DEPARTMENT OF
REVENUE, explained that the fiscal note for HB 3003 provides
for contractual expenditures for reprogramming some existing
tax division systems, a one-time charge of $50,000 and a
one-time expenditure of $60,000 for assistance in drafting
regulations. The personal services amount is relative to
one-half FTE for an auditor and one-half FTE for an engineer
and is related to heavy oil.
11:03:29 AM
At-Ease
11:09:25 AM
Presentation by AOGA and AOGCC on HB 3001, HB 3003, HB 3004
JUDY BRADY, EXECUTIVE DIRECTOR, ALASKA OIL AND GAS
ASSOCIATION (AOGA), stated that all three bills raise taxes
on the oil and gas industry, but are very different.
Ms. Brady highlighted the changes and policy issues of each
piece of legislation. She read as follows (copy on file):
NB 3003 and HB 3004 are tax bills introduced for the first
time in this special session. Both proposed bills go back
to the present production tax - and add some new twists, in
order to increase taxes; HB 3004 adds complications to the
present tax system, and raises policy issues that are
arguably outside the call of this special session; both are
strictly tax increases on the gross production at a level
that fails to address the critical need for Alaska to
attract new investment at the same time as the state's
share in oil revenues increases.
You have heard us say many times that declining production
is the eight hundred pound gorilla in Alaska's future. Tax
legislation must be configured to attract the new
investment necessary to increase production. Incentives for
new investment and reasonable tax rates that keep Alaska
competitive with like oil and gas regions must be part of
the package. Any legislation that overreaches on tax rates
or neglects real world incentives will simply be a black
hole that leaves Alaska as a backwater in worldwide oil and
gas regions.
There are now l4 days left in this special session - and
four tax bills on the table. HB 3003 and HB 3004 you've
just been hearing. HB 3005 was introduced two days ago. We
understand two other bills are being drafted. Of the four
tax bills presently on the table, only one has been the
subject of long and intense review and scrutiny - and that
is HB 3001, the Petroleum Production Tax legislation. The
PPT legislation was the subject of hundreds of hours of
hearings in the last legislative session and in the last
special session. It has been reviewed and critiqued by
consultants hired by the legislature, the administration
and the oil and gas companies affected. The parameters of
this legislation are well understood.
We ask you to consider focusing the remaining days in this
special session on reviewing, finalizing and adopting HB
3001. The fact of the matter is that developing clear, fair
tax legislation that both incentivizes investment and
brings a larger share of revenue to the state is rocket
science. Those of you who have spent hundreds of hours
trying to develop fair, equitable legislation, are well
aware of this fact. Rocket science takes time and so does
tax legislation. The legislature has spent that time on a
new approach for oil production tax in Alaska - a tax that
reflects real production economics. A tax that substitutes
real cost figures for the proxy Economic Limit Factor. The
promise is that this tax will increase revenues to Alaska
by over one billion dollars a year. The promise is that in
addition to increased revenues, this tax will provide
incentives for new investments for the new production so
desperately needed.
AOGA Supports HB 3001 - Governor's PPT
• Even though many of our members remain concerned that
the increased level of state take reflected in this
bill will result in reduced investment in Alaska. This
bill would raise taxes on the industry over $1 billion
a year at $60/bbl.
• There continues to be a sense of astonishment in oil
and gas financial circles about this agreement to a tax
increase of this size.
• And would raise total government take to around 60%.
• "Government take" - royalty; production tax, corporate
income tax; property tax, federal taxes
• What do "costs" have to do with it - costs have to be
counted either directly or as a proxy to conserve oil
in the ground in maturing fields
• PPT more accurately reflects true production economics
• The balance in the PPT is the higher tax rate
counterbalanced by the reinvestment incentive.
• The balance is essential - throughout the hearings on
PPT there have been references to countries with a
"higher" government take than Alaska - as Pedro Van
Muers and other consultants have pointed out, many of
those countries either have government-owned oil
companies or are using production sharing contracts. In
both cases the governments take a bigger share of risk
for a bigger share of profits.
• Some policy makers seem to be frozen between the
concepts of "risk" and "profits". They want a lot more
of the share of the profits; they don't want any share
of the risk.
• This one-sided "two for me - one for you" won't work in
the worldwide competitive market. Under those terms,
Alaska's won't even place for new investment in any
serious way.
Gross Versus Net tax - Criticisms of a net system seem to
be based on a misunderstanding of how the present system
works and how the PPT would work.
• The ELF in the current system is a proxy for costs. So
in that sense the current system is a form of "net"
tax. The PPT simply substitutes real costs for the
proxy.
• Some legislators have expressed the concern that the
state does not have the capability to determine real
costs. However, the state currently audits the costs in
the netback in a lot of detail.
• Operating and capital costs are in our state income tax
return and property tax renderings.
11:19:22 AM
MIKE HURLEY, CONOCOPHILLIPS ALASKA, CHAIR OF AOGA TAX
COMMITTEE, spoke to auditing. Every return filed by the oil
companies is audited. The audit assessments over the past
several years have been within 2% for what is anticipated
payment. He reiterated that it is a 100% audit.
11:21:04 AM
Ms. Brady said she knew that the Department of Revenue has
the capability to audit. She addressed previous court cases
surrounding the production tax and prevailing value.
Currently, the state has been through all necessary steps
for a net production tax.
Ms. Brady continued with her presentation:
AOGA Does Not Support either HB 3003 or HB 3004
• These bills are simply tax increases with no
counterbalance
• No re-investment incentives, do nothing to stem decline
or encourage investment, there's no structural change
in the risk sharing.
• With HB 3003 ELF disappears so there's no recognition
of costs at all.
• HB 3004 is a band-aid approach - a higher rate, with
much more complexity. It seemed puzzling that the
sponsor spent so much of his time providing figures
about the industries profits, yet was proposing a tax
that has nothing to do with the profits.
Oil and Gas Tax Legislation Is Not a Game of Texas Hold 'Em
• Whether it is political one-ups-man-ship during an
election year - or real belief that Alaska does not
have to be competitive to attract new investment - the
bidding up of how much the state of Alaska can "make"
or "take" from oil production is going to lose the game
for all of us.
The end game for oil and gas tax legislation can be about a
higher return for the state of Alaska but must recognize
the need for incentives that foster additional investment -
bottom line - It is about increasing production and keeping
Alaska competitive.
The pipeline is only half full. This must be turned
around.
11:25:22 AM
Mr. Hurley addressed access. He maintained that access has
not been denied.
11:26:18 AM
REPRESENTATIVE LES GARA commented on the access issue. He
asked if ConocoPhillips' facilities had been made available
to small producers. Mr. Hurley replied that a company
called Windstar made use of ConocoPhillips' facilities but
came up with a dry hole. He stated that there has been no
production loss.
Representative Gara clarified that no other independent
company has been able to produce oil through ConocoPhillips'
facilities.
11:27:58 AM
Representative Gara wondered why, in spite of an increase in
profits, exploration and investment have not increased. Ms.
Brady replied that in the years when the oil company profits
increased, so did the state's. As far as further
investment, ConocoPhillips is investing "big time" this
year. There are more wells being drilled. She did not know
the investment figures, but thought all investments had
increased. Exploration doubled during that time period.
There is money going to investors in dividends and the
Alaska Permanent Fund benefits from that; there is money
going to investment; and there will be more buy outs.
Analysts look at the reserves, which need to be explored or
bought.
11:31:32 AM
Co-Chair Meyer commented on the only common ground found in
the net versus gross debate, which is to increase investment
and production. He asked if the net would help meet that
objective better. Ms. Brady replied it would; net is based
on profit. Net only, without incentives, would not work and
would be dangerous. Under the net tax, the state takes a
bigger risk through the incentives, and the companies can
afford to take less profit at the top. She concluded that
she prefers the net.
Co-Chair Meyer asked how to attract more oil companies to
Alaska. Ms. Brady replied that the fiscal system is the
only thing that the government can control. Shell Oil is
coming back into Alaska and other companies are showing an
interest. The state needs a big find.
11:34:57 AM
Co-Chair Meyer asked if AOGA represented all oil companies
in Alaska. Ms. Brady replied that it represents all 18
companies.
11:35:21 AM
Co-Chair Chenault addressed a question about Prudhoe Bay to
Mr. Hurley. He wondered what paper work would be required
to allow for "gaming" of the system. He did not envision a
scenario that the auditors could not work through. The
state can audit for any detail and the level of auditing
would be a choice made by the state and the legislature.
Co-Chair Chenault speculated that it would take all three
companies to successfully "game" the state. If that was
done there could be jail time and fines. Mr. Hurley agreed.
Co-Chair Chenault thought that there were protective
mechanisms in place.
11:39:09 AM
Representative Kerttula stated it wouldn't be collusion;
there could be disagreements with the state over the
rightful costs, which could result in court cases. Mr.
Hurley recalled that there was a past case settled regarding
tax costs. Representative Kerttula added that she has been
involved in tariff cases regarding disagreements. She spoke
to her history in the Department of Law. She disagreed with
the usage of "fraud".
Mr. Hurley noted that AOGA submitted comments on the
Governor's PPT bill requesting clarity on excluded costs.
There are concerns by the companies.
11:41:23 AM
Representative Kerttula foresaw problems with costs when
giving substantial weight to the agreements. She encouraged
that a standard be established. She emphasized it is not a
collusion situation.
11:42:28 AM
Ms. Brady pointed out that there is competition on the North
Slope. Each company thinks their way is the best. Over the
past 40 years, the state has had access to the disputed
information. Many issues have already been worked out. Mr.
Hurley pointed out grouping of costs, with 3 to 4 different
conceptual models:
* Inter-company billing
* IRS reference to ordinary and necessary
* DNR regulations for net profit sharing exclusions
11:45:42 AM
CATHY FOERSTER, COMMISSIONER, ALASKA OIL AND GAS
CONSERVATION COMMISSION (AOGCC), read from her prepared
testimony (copy on file.)
Before proceeding, I want to disclose to you that,
immediately prior to serving on the AOGCC, I worked as
an engineering consultant and, as such, I participated
in preparing the "North Slope of Alaska Facility
Sharing Study" performed by Petrotechnical Resources of
Alaska for the Division of Oil and Gas of the
Department of Natural Resources. I discussed this
participation with the other AOGCC commissioners and
they agreed that this did not represent a conflict of
interest. However, I did want to disclose the
information to you.
The AOGCC recognizes the need to enable new operators
to acquire reasonable access to existing facility
infrastructure.
If the Legislature adopts HB 3004, the AOGCC will do
our best to implement it. That said, there are a few
challenges to implementing this bill as it is currently
written and, if you'll bear with some technical
description from me, I'll explain what those are with
some suggested ways around them.
The bill requires working interest owners to provide
access to production or other facilities "only if the
commission finds that the facility has excess capacity
and that directing the working interest owner to
provide access by or for the benefit of others would
not materially interfere with the owner's paramount use
of the facility." The AOGCC has two concerns with this
wording.
First, there will never be excess capacity in the oil
production facilities that this bill is targeting.
11:49:52 AM
Representative Gara related that he does not dispute the
excess capacity issue. The question is if new facilities
should be expanded and the costs charged to the company.
Ms. Foerster explained the capacity design by providing the
history of oil, gas, and water in various fields. She used
the example of expanded facilities and no excess capacity.
The gas and water continue to increase, but not all oil
produced can fit into the facility, which becomes a problem.
She showed a hypothetical situation where Tarn comes in with
10,000 barrels and where that same amount must be taken out
to provide room. Each well takes a priority ranking and the
bottom wells get "backed out". There is no cost at this
point to get into the facility.
11:57:16 AM
Ms. Foerster discussed how a new player with 10,000 barrels
of oil would enter the market, backing out 9,000 barrels of
water and 1,000 barrels of water. The cost to get in would
be the sum of lost revenue and profit. The costs are very
clearly spelled out in the DNR study. The lost area costs
are debatable. The third issue concerns what a fair profit
would be. Negotiation would have to take place.
12:00:59 PM
Co-Chair Meyer asked if the process would scare off new
producers. Ms. Foerster said her opinion is that people
assume that there is a monopoly going on. She suggested
talking to Windstar who negotiated with ConocoPhillips.
Co-Chair Meyer commented that that was a dry hole. Ms.
Foerster maintained that the negotiation process was held
and was valuable.
12:03:19 PM
Ms. Foerster continued to read from her handout:
Even if we get past the "excess capacity" wording,
there is a second complication. Since the owner's
paramount use of the facility is to separate the
associated gas and water from their oil, any back out
for another operator would interfere with their
"paramount use of the facility."
Supposing that we work our way past these two concerns,
let's next take a look at the fiscal impact.
First, a primary role here is a rate-setting role, and
the AOGCC has no staffing or experience in rate
setting. Therefore, to take on this rate-setting role
we would have to hire accountants and/or other
financial expertise. Second, we would need someone on
staff who understands and can oversee facility
optimization; we currently have no one on staff to
perform that function.
12:05:02 PM
We have one final concern with placing this authority
within the AOGCC. And that is the potential for
conflict with the AOGCC's role implementing the Oil &
Gas Conservation Act. The commission is charged with
preventing waste, ensuring greater ultimate recovery,
protecting correlative rights, and protecting ground
waters. Decisions under this bill may be in conflict
with the commission's responsibility to prevent waste
of hydrocarbon resources and ensure greater ultimate
recovery. For example, granting access to a production
facility for one WIO's high-oil-rate well may result in
the permanent loss of oil from the WIO whose marginal
well is backed out of the facility.
Our recommendation would be to give this rate-setting
responsibility to either a new or an existing agency
that is intended as a rate-setting agency.
I want to conclude by reiterating what I said first:
The AOGCC recognizes the need to enable new operators
to acquire reasonable access to existing facility
infrastructure, and if the Legislature adopts HB 3004,
the AOGCC will do our best to implement it.
12:07:05 PM
Co-Chair Chenault suggested Representative Gara and AOGCC
meet to discuss the issues and work out their differences.
ADJOURNMENT
The meeting was adjourned at 12:07 PM.
| Document Name | Date/Time | Subjects |
|---|