Legislature(1995 - 1996)
02/14/1995 09:08 AM House 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
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
February 14, 1995
9:08 a.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative Scott Ogan, Vice Chair
Representative Bill Williams
Representative David Finkelstein
MEMBERS ABSENT
Representative Gary Davis
Representative Bettye Davis
Representative Tom Brice
COMMITTEE CALENDAR
Overview - Division of Oil and Gas, Department of Natural Resources
WITNESS REGISTER
KEN BOYD, Acting Director
Division of Oil and Gas
Department of Natural Resources
P.O. Box 107034
Anchorage, AK 99510-0734
Telephone: (907) 762-2547
ACTION NARRATIVE
Tape 95-5, Side A
Number 000
CHAIRMAN NORMAN ROKEBERG called the meeting to order at 10:08 a.m.
Committee members present were Representatives, Rokeberg, Ogan,
Williams, and Finkelstein. Chairman Rokeberg declared there was a
quorum and the committee would hear an overview from Ken Boyd,
Acting Director, Division of Oil & Gas, Department of Natural
Resources.
Number 017
KEN BOYD, Acting Director, Division of Oil and Gas, Department of
Natural Resources, stated that as of yesterday, he was the Acting
Director. He noted several pieces of paper would be handed out to
the committee members, one, a rather long series of slides which
would be shown on the overhead projector during the presentation.
Also, he said he would show a documentary of recent discoveries and
proposed exploration drilling. Some of the slides that would be
shown are slides of the North Slope and Cook Inlet which will show
discovery wells, and recent activity in both areas. He stated he
would cover the formations, depths and production of the regions.
Another handout given to the committee members was a printed
brochure that was used several years ago as lobbying material for
the Arctic National Wildlife Refuge (ANWR) which he would review,
time permitting.
MR. BOYD stated that he would like to walk the committee through
the oil and gas business. More specifically, the business of the
Division of Oil and Gas. He stated that the discussion would
include money, exploration and how exploration works, as well as
units and unitization. He went on to say he would describe some
units and production figures that we have in Alaska relating to
existing units. In addition to these subjects, Mr. Boyd stated
that the overview would also contain. New projects that are
occurring on the North Slope, and in Cook Inlet. Mr. Boyd said
that he would discuss oil pricing, the Lease Sale Program, and he
would review incentive programs, which were passed during the last
legislative session, dealing with exploration licensing and
exploration incentive credits.
Mr. Boyd began his presentation by referring to a document titled:
"Where Our Money Comes From." He stated that the state's money
mostly comes from petroleum revenues in one form or another, and
the percentages listed change from year to year. He then said the
numbers at the bottom of the page represented Fiscal Year (FY) 94,
in four separate categories: Bonuses, rents, royalties, and taxes.
MR. BOYD stated that bonuses were a fairly low number in Fiscal
Year (FY) '94, yet was a large number in FY '93 which was over $65
million. He went on to say, Bonus money was money the state
received from its lease sales. He said, generally speaking, lease
sales hold a fixed royalty at 12.5 percent plus a variable bonus.
This is a sealed bid. The company will submit a bid for each
lease, and the highest bid wins the lease. These moneys are
deposited into the general fund, permanent fund, and school fund.
MR. BOYD continued by stating that every field in Alaska has a rent
that begins at $1 per acre for the first year, and goes up at a
rate of 50 cents per year until the rent for that particular lease
reaches $3 per acre. The rent for that lease will remain at $3 per
acre until the termination of the lease.
Continuing on, MR. BOYD stated the state's share of royalties is
fairly consistent at 12.5 percent.
MR. BOYD then spoke on taxes stating that the Division of Oil and
Gas does not do taxes even though it is a major source of revenue
for the state.
Number 109
CHAIRMAN ROKEBERG asked Mr. Boyd if that is all taxes, both ad
valorem and severance taxes.
Number 110
MR. BOYD stated that the answer was "Yes."
Number 115
MR. BOYD referred to his next document entitled: "Most Oil Comes
Off of State Land," and said it showed the breakdown of the land
ownership in the state. He went on to say, the state owned
approximately 28 percent of the land, the federal government owned
60 percent, and 12 percent of the land was in private hands, much
of which is represented by Native corporations. He stated it was
important to note virtually all of the oil that comes from Alaska
comes off of state owned land.
Number 128
CHAIRMAN ROKEBERG asked about land patenting in Alaska, and whether
most of the sub-surface rights were retained by the state, and what
the problems were with public and Native land.
Number 133
MR. BOYD responded by stating the state owns the rights to the
sub-surface in most cases. To answer the question about the
situation regarding Native lands, Mr. Boyd stated, in the case of
the Caldwell Delta, the state had an agreement with the Arctic
Slope Regional Corporation (ASRC) in which the state shared the
sub-surface in varying percentages on certain leases. He then
stated he was not sure he could answer the question with regards to
the Native lands.
CHAIRMAN ROKEBERG then asked about the sub-surface "estate."
MR. BOYD responded by stating, the sub-surface of regional and
village corporation lands are held by the regional corporations in
most cases. CHAIRMAN ROKEBERG then asked if these were the only
private lands that have been conveyed after a certain date and
sub-surface estates were held in reserve for the state. Mr. Boyd
answered by stating this was the case in the vast majority of
cases.
CHAIRMAN ROKEBERG then asked if this was the exception for Native
land. MR. BOYD responded by stating there were some old lands
where there is private ownership of the sub-surface, but he
remarked these situations were very rare.
Number 150
MR. BOYD then referred to the next document entitled: "Where Our
Money Goes". He stated 50 percent has gone to the permanent fund
since 1979. Prior to that it was 25 percent, and 49.5 percent goes
to the general fund which is available to finance various projects
and state spending, and finally .5 percent is dedicated to the
school fund.
Number 165
MR. BOYD then referred to a slide that displayed entitled: "North
Slope Historical and Projected Oil Production." As the members
reviewed the slide they were informed by Mr. Boyd that oil
production is on a steady decline.
Number 181
MR. BOYD then referred to a slide which represented the various
basins in Alaska. He stated that this was a simplified picture of
what Alaska looks like geologically. Mr. Boyd stated Alaska was
essentially made up of fifty little fragments. He stated these
fragments have moved, over time, into what we now recognize as the
geological features of the state. He then stated, for example, the
upper North Slope of Alaska was probably formed in Northern Canada,
and then rotated into place whereas the interior of Alaska is made
of lots of small fragments.
Number 195
MR. BOYD mentioned he owned a cabin near Honolulu Creek on the
Parks Highway, and stated that from this cabin he could see a rock
formation consisting of mountains that are very red with a black
base. This substance, he stated, is called devonian ophilite(ph),
which is a piece of oceanic crust. This piece of terrain is 20
miles long and 10 miles wide, and full of gold, zinc, and other
exotic minerals. This formation is unique to Alaska, he said,
rocks like these are only known to come from China, and nobody has
figured out how they got here. He then mentioned some areas of
Anchorage, Talkeetna mountains, and the Chugach mountains are
thought to have formed south of the Equator near Peru and have
rafted into place over time.
Number 215
MR. BOYD went on, saying, the basins shown on these documents are
well known, but not well explored. The primary areas of
exploration are in Prudhoe Bay, the North Slope area, and Cook
Inlet. He then said that there are other basins that may not be
familiar, such as, the Yukon-Kandik, Middle Tanana, Minchumina,
Holoatna, and Copper River, and others that are very poorly known
and very poorly explored. Mr. Boyd stated that these areas are
also very expensive to explore. Over the last few years, a program
was developed called Exploration Licensing, as an adjunct to a
lease sale program which, it is hoped, will encourage companies to
move into the interior of Alaska and increase exploration there.
Number 230
CHAIRMAN ROKEBERG asked Mr. Boyd to editorialize as he read the
last graph which states there are 17 billion barrels of oil
estimated that have yet to be discovered.
Number 235
MR. BOYD responded the numbers were very speculative as to how much
oil was actually awaiting discovery. These speculative numbers are
based upon looking at the seismic data provided. He then stated
some of the basins in the Interior will not have any oil in them at
all. Mr. Boyd then stated the conventional wisdom of the geology
of the interior of Alaska is that it's gas prone. He then stated
we will not know for sure until the wells are explored.
MR. BOYD then displayed another slide to illustrate his point that
these areas need to be explored, and to inform the members about
the different geological features the companies will encounter when
drilling. The slide was entitled: "Trapping Mechanisms." He
referred to an area on the slide, illustrated in white, called
"Economic Basement." This is the layer of the earth below which
you will no longer find deposits of oil. What we are finding in
the Interior is that there is a situation in what is called the
"thrust fault," where a company would drill into the basement on
the upper sheet of the trust fault, and then refuse to drill any
farther, when in fact the whole section may be obscured by the
section above it. Mr. Boyd stated there are some areas like this
in Eastern Alaska, namely the Yukon-Kandik Basin.
MR. BOYD then remarked about one of the projects they are working
on using money they received from the legislature two years ago.
That is, taking the gravity and magnetic data, which is used in the
very early stages of exploration, and combine all of the data into
a series of maps that will soon be published. Mr. Boyd stated they
hope these maps will show these relationships. He then stated that
gravity and magnetic data show only "gross relationships."
MR. BOYD then remarked the odd thing about gravity and magnetic
data, which together are called "potential fuel data" because they
measure changes in the earth's potential field, both magnetic and
gravitational is they have an infinite number of solutions. Mr.
Boyd stated this creates the situation where they can only build
models based on reasonable expectations. However, having looked at
some of the data, Mr. Boyd stated he believed there are some
interesting possibilities, but they are only just possibilities.
He then stated we will not know if there is oil in these areas
until we can drill.
Number 291
MR. BOYD continued with his explanation of the four Trapping
Methods, pointing out to the committee the current slide shows the
four basic types of Trapping Methods for oil and gas. He added, in
the real world, any one trap is probably a combination of all four.
The simplest of the four, and the most common, is known as an
Anticline. Simply put, this type consists of rocks which have been
squeezed together. He said that originally they were laid flat,
then over time squeezed into what may be described as an upside
down bowl. Mr. Boyd then stated because oil is a light substance,
it accumulates in the anticline. In addition he stated the Golar
Field in Saudi Arabia, which is the largest field in the world, is
an anticline.
MR. BOYD moved on to the next type which is fairly common called a
"normal fault." He stated in this type of field, the rocks are
again subject to a great deal of pressure when they are squeezed
together. Mr. Boyd continued stating, when the stress on the rocks
is released, they tend to slip downward and the oil and gas is then
trapped in the fault line. This is a different type of tectonic
forces regime, instead of a force of tension there is a compressive
force. These two types are the most common found in Alaska.
Number 325
MR. BOYD then moved on to the fourth type of traps, the
"stratigraphic trap." This kind of trap is the hardest to find and
distinguish, and we are beginning to find, on the North Slope there
may be more of these than any other type. He then said that
stratigraphic exploration in Alaska is somewhat in its infancy.
One of the reasons the oil companies have been able to find these
stratigraphic traps is due to the advances in technology, in
particular, Three Dimensional Seismic. Stratigraphic traps in
Alaska include Sunfish, and Sourdough.
MR. BOYD then began to explain how the oil companies determine if
there is oil at a particular location. He showed the members of
the committee a schematic of the earth's crust taken at sea. This
schematic was a picture of a marine seismic survey. Mr. Boyd
assisted the members of the committee in locating the relevant
portions of the schematic, then began to interpret its meaning. He
stated, to obtain a schematic such as this would require a vessel
to pull a long cable, possibly three miles long. This cable would
contain several hundred hydrophones, (pressure transducers) or air
guns. When the sound wave of these air guns goes into the earth,
and bounces off the rock layers, the rebound then sends the sound
wave back up to the surface where it is recorded by the vessel and
translated into millions of pieces of information about the
sub-surface. This works much the same way scientists measure
earthquakes. When the information is translated, it produces a
picture of the sub-surface.
MR. BOYD then showed the members of the committee a picture which
was recorded in this fashion and explained the relevant section of
the schematic so the members could follow the rest of the
presentation.
Number 375
MR. BOYD explained to the members of the committee the numbers on
the side of the schematic indicated the amount of time it took for
the sound wave to travel through the rock layer. He then indicated
that scientists use this information to interpret the geology of
the sub-surface. Mr. Boyd continued, stating the geophysical
observer will use several of these schematics to make a three
dimensional map of the sub-surface.
Number 443
MR. BOYD continued his review of the seismic data by stating the
three dimensional data, while more accurate, is also much more
expensive. He added, Alaska is now beginning to become involved in
using three dimensional data. This is beneficial due to the fact
that three dimensional data provides a much more accurate method of
locating stratigraphic traps.
Number 480
CHAIRMAN ROKEBERG asked Mr. Boyd if the money for this system was
appropriated by the legislature, if so, how much.
Number 485
MR. BOYD answered Chairman Rokeberg by stating, they did in fact
receive a capital appropriation. He added, they found a system
they liked at a trade show about one year ago.
Number 490
CHAIRMAN ROKEBERG asked Mr. Boyd if he knew the amount of the
appropriation. Mr. Boyd responded by stating the cost of the
system was included in a large appropriation, that was used to
obtain data from state and private lands as well. He then said,
some of the money was used to buy seismic data and some will be
used to buy the three dimensional system. He then added 90 percent
of the seismic data is recorded using three dimensional systems.
Number 503
CHAIRMAN ROKEBERG asked if they have already purchased some of the
necessary hardware, if so, who did they buy it from.
Number 510
MR. BOYD stated they already have the hardware, and they are now
waiting for the software. He added he could not remember the name
of the vendor, however, the equipment was IBM based.
Number 515
CHAIRMAN ROKEBERG asked if the system was currently on line.
Number 517
MR. BOYD answered they were close to being on line. Mr. Boyd then
continued with his presentation by stating the new stratigraphic
data can help to find new pockets of oil near existing fields.
Mr. Boyd then moved on by introducing the committee members to a
new slide which contained figures about the primary producing
fields in Alaska. The figures showed the production numbers for
these fields. He began to read the numbers stating through 1993,
Prudhoe has produced 8 billion barrels of oil and contains 3.6
billion barrels in reserve. He continued stating, the number of
recoverable barrels should go up due to some new advances in
technology.
MR. BOYD then remarked on the massive size of the Prudhoe Bay oil
field in comparison with the other fields on the North Slope. He
also mentioned Pt. McEntyre has been a surprising field producing
130,000 barrels per day when it was projected to produce only
90,000 barrels per day. In addition he stated that many of the
smaller fields are now on line and producing.
MR. BOYD then informed the members about some of the new advances
in drilling have made these fields as productive as they are. Mr.
Boyd informed the committee members about the benefits of
directional drilling. He mentioned the Niakuk field at which
British Petroleum (BP) planned to build a causeway so they could
get to the oil. Instead they have decided to extract the oil using
directional drilling. This is accomplished by using a healed point
on the drill so the drill can move in several directions. Thanks
to this technique, they figure that they can recover 95 percent of
the oil in that field.
Number 556
MR. BOYD began to speak of the future, and fields which are not yet
on line. For instance the West Sak field. He stated this field is
very heavy, shallow, and cold. The estimated recoverable reserves
in this field are listed as 147 million barrels of oil. Mr. Boyd
then stated the amount of oil actually at West Sak is nearly 20
billion barrels. However, this oil is nearly impossible to recover
with present technology.
MR. BOYD then commented on the Kuvlum field stating, although there
is oil at this location, there is not enough to be commercial as a
stand alone project. This is not to say, however, this field will
never be commercial. He then commented on the Cascade, and
Sourdough fields.
Number 587
REPRESENTATIVE BILL WILLIAMS asked Mr. Boyd if he could explain to
the members of the committee what he meant by a "cold field."
Number 590
MR. BOYD responded by stating this characterization was a reference
to the temperature of the earth. As you descend farther into the
earth's crust, the temperature rises. Therefore, if a field is
characterized as a cold field, it is safe to assume it's a
relatively shallow field.
Number 591
CHAIRMAN ROKEBERG asked if the state had any estimates on the
Badami field.
Number 596
MR. Boyd answered the range of numbers is between 100 million
barrels and 150 million barrels. They are fairly confident about
the 100 million barrel estimate.
Number 600
CHAIRMAN ROKEBERG asked if this oil was recoverable.
Number 601
MR. BOYD answered, "Yes," the estimate was recoverable.
Number 607
CHAIRMAN ROKEBERG then asked if the barrels per day estimates were
pumped from the test well.
Number 610
MR. BOYD stated that was correct and the numbers of barrels per
well shows how good the well is, or how good the rocks are. The
really important number is the oil reserves. Mr. Boyd continued
you could have a very small reserve figure with a very good well.
Number 624
MR. BOYD then began a discussion of units, and unitization. All of
the oil produced in Alaska comes out of units. He then showed the
members a diagram of the units on the North Slope. He stated units
are combinations of leases, the leases were purchased at a lease
sale. He then stated this method is more environmentally sound and
economical due to the fact that the companies owning leases on a
particular unit would be able to operate out of fewer facilities.
By producing through common facilities, the oil companies will
reduce their footprint on the landscape, and reduce their
individual cost of exploration, construction, and production.
MR. BOYD stated there are a number of unit applications now in the
Division. Probably the most commonly known is the Badami Unit.
CHAIRMAN ROKEBERG asked Mr. Boyd to point out the location of the
Badami Unit on the map. Mr. Boyd did so, and explained the Badami
region is only a prospective unit.
Number 650
MR. BOYD then stated he would now begin a difficult subject, the
price of oil, and the way the price is calculated. He mentioned
the overview was given by Chuck Logsdon the previous week, and
stated this was really Mr. Logsdon's field, but he would try to
explain the process adequately. He then stated he would give the
members a very general overview on the process used to price
Alaska's oil.
To begin MR. BOYD stated that in the United States there are many
places where the oil is priced at the wellhead. This is not the
case for Alaska. The oil produced here is transported through a
pipeline then loaded onto tanker ships for transport to its final
destination. Therefore, in order to get the royalty value of oil,
you must net the price back to the wellhead.
MR. BOYD then called the members attention to another slide. Mr.
Boyd then began to explain in detail the slide. Starting on the
West coast there was a series of royalty settlements which went on
between ARCO, BP, and EXXON. These were settled an 1991 and 1992.
As a result of this, there was a settlement for the past where we
determined that the companies owed us a total of $700 million
between the three companies. More importantly, it set a value for
determining oil prices in the future. Mr. Boyd stated this was
different for each company; in basic terms, consists of a base
value in the basket of seven types of crude oil from around the
world.
MR. BOYD said in their various proportions, these seven types of
crude oil are meant to approximate the characteristics of North
Slope crude oil. There are various multiplying effects, and
quality bank effects among other things which then determine a base
price on the West Coast. He then said, from this price they
subtracted transportation costs, for the West Coast they typically
run from $1 to $1.50 per barrel, and on the Gulf Coast $4.25 to
$5.50. You subtract that number off whatever number you have
determined as your royalty calculation. This will give you a base
number from which to work. The next step in the process is the tax
tariffs. Currently the number, which also changes every year, is
$3.61. The field costs are also calculated into this equation;
field costs are the costs of cleaning and dehydrating the oil in
the field. The 83 cent cost represented on the chart is the number
currently used at the Prudhoe Bay field. Mr. Boyd stated he
believed the cost for the Kuparuk field is 42 cents. When you net
the price back to the wellhead before you calculate your royalty,
if you start out at $16 per barrel, you will wind up with $10 or
$11 per barrel, and that is the number on which our royalty is
calculated.
Number 697
CHAIRMAN ROKEBERG stated there had been a request for a brief
recess. At 10:55 a.m. Chairman Rokeberg called a five minute
recess.
TAPE 95-5, SIDE B
Number 700
CHAIRMAN ROKEBERG reconvened the committee meeting at 11:00 a.m..
He asked Mr. Boyd to continue his presentation.
Number 707
MR. BOYD began this portion of his presentation by informing the
members of the committee about some recent activity on the North
Slope, and in Cook Inlet. He referred to another handout which
would describe this activity entitled: "Summary of Recent
Discoveries and Proposed New Exploration Drilling." He stated he
wanted to point out a couple of discoveries mentioned in the
report. CHAIRMAN ROKEBERG asked what the date of the slide was.
Mr. Boyd answered the slide was recently taken. Chairman Rokeberg
then asked if there were any plans to drill in the Kuvlum region.
Mr. Boyd then said there were no plans to drill at this time, and
that these were just announced discoveries.
Number 760
MR. BOYD then began discussing prospects in the Badami Region. He
stated there are two wells at Badami which have been certified as
being capable of production. Other recent discoveries include BP's
Cascade well south of the Milne Point unit.
One of the most interesting areas according to Mr. Boyd is the
Colville Delta region. He stated there has been a lot of activity
there in the last few years, there has been a substantial amount of
drilling done by ARCO. He stated there are two wells there now,
the Alpine well is drilling now and the second will be drilling in
a few weeks. He then stated if the season lasts long enough, they
will try to drill a third well. Mr. Boyd then stated that there
has been a lot of searching in this area for stratigraphic pockets
of oil.
MR. BOYD then showed the members a new slide which displayed the
regions of Cook Inlet.
Number 801
CHAIRMAN ROKEBERG asked if it was true the southerly wells,
Amethyst, and Big Ben were already drilled, yet not very
successful.
Number 803
MR. BOYD stated the chairman was correct. Mr. Boyd then explained
some of the geology of the Brooks Range. He stated the Brooks
Range was an excellent example of a thrust fault. He continued by
stating, there is compression in the thrust faults, and it is this
compression that leads to the eventual formation of oil pockets in
the ground. He then stated, conventional wisdom says that the
Brooks Range is gas prone, and exploration opportunities for gas in
the Brooks Range looks wide open.
MR. BOYD then returned to briefing the members about the situation
in Cook Inlet. He stated there was not a lot of good news to
report. This is mostly due to the Sunfish well. The companies
have been in this area for nearly 20 years, and ARCO thought they
had found a new formation. Initial results in drilling looked
promising, however, after a three dimensional seismic survey was
completed, the project was abandoned by ARCO. There are some
companies that have maintained their ownership however. He then
stated ARCO will be drilling next spring in a joint venture with
CIRI.
Number 850
CHAIRMAN ROKEBERG asked if this would be a gas well.
Number 851
MR. BOYD stated he did not know due to the fact that it was on
Native land.
Mr. Boyd then mentioned there was a request put into the
legislature about two sessions ago to acquire some money so they
could drill a well in the Wasilla area to test for "coalbed
methane". He stated coalbed methane is a substance that occurs in
coal itself. He went on to say coalbed methane is widely produced
in the United States in places like the Black Warrior Basin, and
that it is a real resource. Mr. Boyd continued by stating there is
a lot of coal in the lower Susitna valley, in fact, Alaska has half
of the coal in the United States. They asked the legislature for
enough money to drill two wells, and they received enough to drill
one well. In addition, they saved some of that money by using a
drill owned by the United States Geological Survey. He then stated
they drilled a well outside of Wasilla. He said the well was a
"continuous core" well, which means they were constantly pulling
material out of the well. They shipped the coal to the University
of Alaska Fairbanks where there is an excellent facility for
analyzing the material.
MR. BOYD stated the results of the tests show there is a very high
potential to produce coalbed methane. Mr. Boyd added, one well
doesn't prove anything other than there is good quality coal in
that one well. What is needed is a program to test other wells in
the area. Mr. Boyd then commented he had heard Community and
Regional Affairs was looking at coalbed methane as a resource for
villages in the Interior. He then remarked that this would be a
long term project needing lots of planning, yet the well has
produced a lot of enthusiasm.
Number 910
REPRESENTATIVE SCOTT OGAN asked about the extent of coalbeds in the
area.
Number 919
MR. BOYD stated the coal is mapped over a very wide area. He was
not able to answer the question in terms of acreage, but he stated
that he would send a copy of the report which will show the extent
of the coal bed. Mr. Boyd also mentioned the map is fairly
accurate.
Number 934
REPRESENTATIVE OGAN then requested some information specifically on
coalbed methane as well. Mr. Boyd agreed to send the information.
Number 940
CHAIRMAN ROKEBERG asked Mr. Boyd about access of the lands to
private investors or developers.
Number 945
MR. BOYD stated the chairman's question was an excellent one. He
then stated this subject has been a problem in the past. The main
question is, who owns the gas. In other terms, does the owner of
the coal estate own the gas, or does the gas belong to the oil
companies? He then said that he did not know the answer to that
question but, different states have produced different rulings on
this issue. Mr. Boyd then explained they are working with the
Alaska Oil and Gas Conservation Commission (AOGCC)to develop some
statutes which will help to determine what the ownership of this
resource will be. He stated there is another question, that is,
what kind of well is a coalbed methane well? If it is an on shore
well for oil and gas, then it requires a $1 million bond. Mr. Boyd
stated this is not really an oil and gas well, it is really a core
hole, which is a well that takes a core of coal to retrieve any gas
that may be in the coal. Mr. Boyd stated, if this is the case then
it governed by an entirely different set of statutes.
MR. BOYD restated they have met with the AOGCC to determine what
type of well this is. He then remarked there are no statutes
currently covering this type of well. Mr. Boyd then apologized
that he could not answer the question because the state can not
answer the question for itself.
Number 982
CHAIRMAN ROKEBERG then asked if there were existing leases in the
coal estates in terms of the sub-surface that have already conveyed
title for some of the lands.
Number 985
MR. BOYD stated he was not familiar with that. He stated there has
been leasing in the area, for oil and gas, which could be used for
coalbed methane exploration. But the uncertainty as to ownership
must be cleared up first. ARCO drilled a well a couple of years
ago called the BLT (Big Lake Test) and found some conventional gas,
but there were bad flow rates in the well.
Number 004
MR. BOYD moved on with the presentation by discussing the new Oil
and Gas Leasing Program. He stated the concentration was on the
North Slope, and in Cook Inlet. In 1995, there are three sales
scheduled. The first of the three is in the Yakataga area near the
Gulf of Alaska. The comment period for the preliminary finding on
this area has been completed, and are now working on the final
finding for this area. This is an historic sale due to the fact
that it is the first finding that has come out under the provisions
of SB 308 enacted last session giving the director guidance as to
how he should make decisions.
MR. BOYD said the second sale is a Cook Inlet reoffering sale.
This was put on the schedule only recently. This sale covers is
scheduled for October. Mr. Boyd then explained to the members what
a reoffering sale was. He stated a reoffering sale consists of
basically leftover land, or previously leased lands.
MR. BOYD explained the third is a North Slope sale in the Shaviovik
region adjacent to ANWR. Mr. Boyd pointed out the area on the map.
He then stated that this is an area of interest. He pointed out
there are fewer sales taking place, but they are larger sales thaN
in the past.
MR. BOYD introduced another slide which displayed the five year
schedule for lease sales in a time format. He stated they are
always gathering information for future sales. They are gathering
comments dealing with areas that should be leased, from not only
the oil and gas industry, but also from the public. Mr. Boyd then
served notice to the committee members that this schedule is
subject to change.
MR. BOYD then said that the Lease Sale Program has been very
successful, and is the backbone of the state's income. However,
they have offered areas in the interior of Alaska, yet there is not
much interest in exploration and development there. Mr. Boyd
stated the reason for this is the leases are limited to 5,760
acres. This may work on the North Slope and Cook Inlet where there
are well known oil provinces and the competition is high, in the
interior of Alaska, however, where there are tiny blocks of
ownership nothing will ever get done.
MR. BOYD then stated we must look at the way other oil producing
countries get rid of their land. He stated that this was done
through licensing. The bottom line here is, last session the
legislature passed the oil and gas exploration licensing bill.
This is a program focused on the interior of Alaska. In this
program, the North Slope and Cook Inlet are strictly off limits.
The real feature of the program is that it allows large amounts of
land to be put into the explorer's hands, anywhere from 10,000
acres to 500,000 acres with a limit of two million acres to be held
under license. Mr. Boyd stated this was a program which allows a
person or company to go to a place like the Copper River Basin and
pick up a couple of hundred thousand acres, and have the exclusive
right to explore.
MR. BOYD then stated the state does receive something out of this
deal. In return for the exclusive right to explore, the state will
receive a commitment from the company or person for a certain
dollar amount of exploration on that land. Currently, when a
conventional lease is given, there is no obligation for the company
to do anything. The way that a company holds onto a conventional
lease is by drilling a well that is capable of production. Mr.
Boyd continued by stating at this time, they are writing the
regulations for this program.
Number 120
MR. BOYD then spoke about the Exploration Incentive Credits (EIC)
Program that was passed by the legislature. Under current
statutes, there is now the ability to offer incentive credits on
leased state land. The way this program works is before a lease
sale, the commissioner is given a briefing on the area to be
leased. The briefing consists of the seismic data, the geological
information, and they discuss the terms that should accompany the
lease. Mr. Boyd stated the terms quite often consist of a 12.5
percent royalty with a variable bonus. There are areas, however,
that are remote enough to warrant exploration incentive credits.
MR. BOYD stated this program is at the discretion of the
commissioner. Exploration incentive credits is a number of
dollars, per foot, of a well drilled, up to a certain percentage of
allowable cost, which is often 20 to 25 percent. The other
variable which is put on exploration incentive credits is that it
has to be done in a certain amount of time. The terms of the
leases on the slope were generally ten years. With the exploration
incentive credits the state may give the company $100, per foot,
and 20 percent of the well cost with the stipulation that this must
be done in the first five years.
MR BOYD then stated this new program is different, it is an
extension of the original program in the sense that it allows for
exploration incentive credits on unleased state land and private
land. It must also be noted there is a $30 million cap on this
program over a period of ten years, and a limit of $5 million per
project. He then stated the regulations need to be finished and
the program will be near completion.
Number 165
CHAIRMAN ROKEBERG asked Mr. Boyd about the time it has taken to
write the regulations.
Number 170
MR. BOYD stated there were two programs; he mentioned the
Exploration Incentive Credit Program for leased state land is
nearly 12 years old, while this program was passed by the
legislature and signed by the Governor last session.
Chairman Rokeberg asked Mr. Boyd to differentiate between the two.
MR. BOYD responded the current statute is only available on leased
land, the new program is only available on unleased and private
land. This program is separate and distinct from the existing
program.
CHAIRMAN ROKEBERG then asked if there was a term they were using to
differentiate between the two programs.
MR. BOYD answered by stating there was no term other than the "new
EIC Program".
Number 185
REPRESENTATIVE OGAN asked if the Incentive Credit Program and the
Oil and Gas Exploration License Program are in House regulations or
statutes created by the legislature.
Number 192
MR. BOYD answered by stating there were laws enacted by the
legislature. He also stated they were drafting regulations to meet
the requirements of the laws. He added, the regulations are really
just road maps to the this law.
Number 197
REPRESENTATIVE OGAN asked how long ago these programs were
introduced.
Number 200
MR. BOYD stated the concept of these programs was introduced about
three years ago. They were passed at the end of the last session.
Number 206
CHAIRMAN ROKEBERG then inquired as to the names of the two pieces
of legislation that passed.
Number 209
MR. BOYD stated the exploration licensing bill was HB 199, and the
incentive credit bill was SB 151.
MR. BOYD then began to explain some plans for the future in regards
to ANWR. He refereed to "Reduced Impacts & Enhanced Environmental
Protection," and said this material explains why the footprint
would be much smaller in ANWR than it is in Prudhoe or Kaparuk. It
starts out showing directional drilling and how it has evolved over
time. The literature then explains how the drill sites have gotten
smaller as well as the service areas and gravel pads that are no
longer needed. This is accomplished by grinding up the material
that is expelled by the well, and then re-injected back into the
well. This has helped to shrink the size of the pads and it
doesn't leave any material behind.
Number 250
CHAIRMAN ROKEBERG asked if this was accomplished at the well, or at
another facility.
Number 251
MR. BOYD responded the process is sometimes completed at the well.
There is a portable unit for grinding the debris. More often the
debris is trucked to a mill where it is ground.
Number 263
CHAIRMAN ROKEBERG asked about the well which has been drilled
within the boundaries of ANWR, and also requested information about
a "tight hole".
Number 265
MR. BOYD stated the well was drilled by BP-Chevron, and is probably
one of the tightest holes in the world. The companies drilled
under complete secrecy, and the well is still held confidential by
BP and Chevron. The well was drilled on private land in the region
which allowed the companies to drill within the boundaries of ANWR.
Number 275
CHAIRMAN ROKEBERG asked why there has not been any further
development.
Number 276
MR. BOYD responded by stating it is difficult to move the oil. He
then stated the state did win the right to see the well through a
Supreme Court ruling.
Number 294
CHAIRMAN ROKEBERG then asked if the Kaktovik/Inupiat Corporation
(KIC) well was abandoned.
Number 300
MR. BOYD answered the well was abandoned. At this time, Mr. Boyd
stated he was through with the presentation, and would answer any
questions.
Number 305
CHAIRMAN ROKEBERG asked about the requirements for tight hole
wells.
Number 306
MR. BOYD stated they have one month from the time the well is
abandoned to provide the data. From that time, the well is held
confidential for two years. At the end of that time, the well data
becomes available except and unless the company can prove or show
it is within three miles of unleased state land or that there is
some specific geological condition that the company can receive
extended confidentiality for.
MR. BOYD then stated under the new Exploration Incentive Credit
Program they have removed the ability to hold wells on extended
confidentiality. That is, if you take a state credit, you must
release the well in two years. These statutes and regulations are
from the Department of Natural Resources under Title 38, and under
AOGCC regulations.
Number 320
CHAIRMAN ROKEBERG asked if the KIC well had a different set of
circumstances because it was not on state land.
Number 322
MR. BOYD stated Chairman Rokeberg was correct, and there were
differences because the well was drilled on Native land. He then
stated he is the only person from the division to see the well.
This was due to the Supreme Court decision.
Number 335
CHAIRMAN ROKEBERG asked if this was the State Supreme Court or the
Federal Supreme Court.
Number 337
MR. BOYD stated it was a Federal Supreme Court case.
Number 338
CHAIRMAN ROKEBERG thanked Mr. Boyd for his presentation. He then
asked if there were any other questions from the committee members.
Hearing none, Chairman Rokeberg declared the committee stands
adjourned at 11:45 a.m.
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